<PAGE>
As filed with the Securities and Exchange Commission on December 28, 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. 2
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.
Chairman, 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:
Scott R. Haber
Latham & Watkins
505 Montgomery Street
Suite 1900
San Francisco, CA 94111
Telephone: (415) 391-0600
---------------
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: . No public market currently exists
for the exchange notes. We do not
. The terms of the exchange notes are expect that an active public market
substantially identical to those of in the exchange notes will develop.
the old notes, except for transfer We do not intend to list the
restrictions under the Securities exchange notes on any securities
Act of 1933 and registration rights exchange or over the counter
relating to the old notes. market.
. The exchange notes will bear Terms of the Exchange Offer:
interest at a fixed annual rate of
11 1/2%. We will pay interest on . We will exchange all old notes that
the exchange notes every six months are validly tendered and not
on February 15 and August 15, withdrawn prior to the expiration
beginning February 15, 2000. of the exchange offer.
. All of our existing and future . We will issue the exchange notes
domestic subsidiaries, PII Second, promptly after the expiration of
Inc., our direct parent company, the exchange offer.
and Panolam Group, Inc., the direct
parent company of PII Second, will . You may withdraw tenders of old
guarantee the exchange notes. notes at any time prior to the
expiration of the exchange offer.
. The exchange notes will mature on
February 15, 2009. . We believe that the Internal
Revenue Service will not treat the
. The exchange notes are our senior exchange of old notes as a taxable
subordinated unsecured general event for federal income tax
obligations, ranking junior to our purposes, but you should see
senior debt and the senior debt of "Material Federal Income Tax
the guarantors, including any Consequences of the Exchange Offer"
borrowings and guarantees under our on page 129 for more information.
senior secured credit facilities.
. We may redeem the exchange notes at
any time on or after February 15,
2004. See page 88 for redemption
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 14 for information that you should
consider before you decide to participate in this exchange offer.
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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
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 This exchange offer will expire on 5:00 p.m., New
of tenders................. 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 If you wish to participate in the exchange offer,
old notes.................. 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 If you are the beneficial owner of old notes
beneficial owners.......... 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 If you wish to tender your old notes and your old
procedures................. 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 We will accept for exchange any and all old notes
delivery of exchange which are properly tendered in the exchange offer
notes...................... 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 You may not offer, sell or otherwise transfer the
exchanging old notes....... 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.
Total amount of notes $135.0 million in principal amount of 11 1/2%
offered.................... 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 The exchange notes will be senior subordinated,
notes...................... 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 September 30, 1999, we had approximately
$237.7 million of consolidated indebtedness
outstanding. Approximately $100.4 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
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 and PII Second. 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 If we sell certain assets or experience specific
repurchase................. 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 We will issue the exchange notes under an
indenture.................. 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 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 Pioneer Transactions
On February 18, 1999, we acquired all of the outstanding equity securities of
Pioneer from Rugby USA, a subsidiary of Rugby Group plc. The total
consideration paid for Pioneer was $157.1 million after giving effect to a $2.0
million post-closing reduction in the purchase price. The stock purchase
agreement with Rugby USA originally required us to make post-closing earnout
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) targets in 1999, 2000, 2001, 2002 and 2003. On October 13, 1999 the
stock purchase agreement was amended to delete these earnout payments and
settle certain disputes regarding the purchase price and other matters in
return for a payment by us to Rugby USA of $5 million (the "SPA Amendment").
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. The refinancing consisted
of the offering of the old notes, and the entry by us into new credit
facilities with DLJ Capital Funding, Inc., Credit Suisse First Boston and other
senior lenders.
The acquisition of Pioneer and the associated refinancing are referred to
herein as the "Pioneer Transactions."
The Carlyle Transactions
On November 24, 1999, Panolam Holdings was recapitalized. In connection with
the recapitalization,
. an affiliate of The Carlyle Group purchased certain shares of common
stock of Panolam Holdings from its stockholders and directly from
Panolam Holdings for an aggregate purchase price of approximately $148
million,
. Panolam Holdings redeemed certain shares of its common stock from
certain of its stockholders for an aggregate purchase price of $19
million, payable with junior subordinated promissory notes, and
. Panolam Holdings accelerated the vesting and cancelled all of its
outstanding stock options in exchange for a cash payment based upon the
value of such options, or approximately $8.6 million in the aggregate.
Concurrently with the recapitalization, Robert J. Muller, Jr., our president
and chief executive officer, also purchased additional shares of common stock
of Panolam Holdings for a purchase price of approximately $3.5 million.
The recapitalization constituted a change of control under the terms of our
indenture relating to the notes. As a result, under the terms of the indenture,
the holders of the notes may require us, at their option, to repurchase all or
any part of their notes at a cash price equal to 101% of the principal amount
of the notes, plus accrued and unpaid interest and any liquidated damages that
have accrued under the notes. See "Description of Exchange Notes--Certain
Covenants--Repurchase of Notes at the Option of the Holder Upon a Change of
Control." We have commenced an offer to repurchase the notes in accordance with
the terms of the indenture. If you elect to tender all or any part of your
notes for repurchase, you may not exchange such notes, or the portion of such
notes that is tendered for repurchase, for exchange notes in connection with
the exchange offer.
Concurrently with the recapitalization, we also refinanced all of our
indebtedness under our former DLJ/Credit Suisse credit facilities by entering
into new credit facilities with Bankers Trust Company and other senior lenders.
Our new credit facilities provide for an aggregate committed amount of up to
$285 million, consisting of up to $235 million of term loans and a $50 million
revolving loan. The amount of term loans will be reduced if less than all of
the old notes are tendered for repurchase in connection with our offer to
repurchase the notes described above. We used a portion of the funds available
under our new credit facilities to repay all of our indebtedness under our
former DLJ/Credit Suisse credit facilities. We intend to use the funds
remaining under our new credit facilities to fund the offer to repurchase our
outstanding notes described above, and for working capital requirements,
permitted encumbrances, capital expenditures and other general corporate
purposes. Our new credit facilities also provide for an uncommitted acquisition
loan facility of $50 million to fund future permitted acquisitions. See
"Description of Certain Indebtedness--New Credit Facilities."
The recapitalization of Panolam Holdings, Mr. Muller's stock purchase and the
associated refinancing of our former DLJ/Credit Suisse credit facilities are
referred to herein as the "Carlyle Transactions."
7
<PAGE>
The Tender Offer
On December 21, 1999, we commenced a tender offer and a consent solicitation
with respect to the notes. Our tender offer consists of an offer to repurchase
all of the outstanding notes for an amount in cash equal to 101% of the
principal amount of the notes, plus accrued and unpaid interest and liquidated
damages. Our tender offer will expire on January 21, 2000, unless we elect to
extend the expiration date. In connection with our tender offer, we are also
soliciting the consent of the holders of the notes to amend the notes and the
related indenture in exchange for the payment of a consent fee in cash equal to
1.5% of the principal amount of the notes for which a consent is delivered. The
proposed amendments to the notes and the indenture provide for (i) the
elimination of substantially all restrictive covenants in the notes and the
indenture, (ii) the removal from the definition of events of default in the
notes and the indenture of all events other than nonpayment, failure to comply
with the remaining covenants and certain bankruptcy events relating to us, and
(iii) the amendment of certain other provisions. We must obtain a consent from
the holders of at least 2/3 in principal amount of the outstanding notes to
approve one of our proposed amendments to the notes and the indenture, and a
majority in principal amount of the outstanding notes to approve our other
proposed amendments to the notes and the indenture. If we are unable to obtain
majority approval, none of our proposed amendments will be effected and no
consent fees will be paid. Our tender offer and our consent solicitation are
subject to a number of terms and conditions, all of which are set forth in an
Offer to Purchase And Consent Solicitation Statement which has been delivered
to all holders of the notes.
Overview of Our Corporate Structure
The following chart sets forth our corporate structure:
[Corporate Structure Chart]
Panolam Industries Holdings, Inc. was formed in May 1996 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., and Canadian
assets, now Panolam Industries Ltd. Panolam Holdings is not engaged in any
business other than holding the capital stock of Panolam Group. As a result of
the Carlyle Transactions, an
8
<PAGE>
affiliate of The Carlyle Group acquired approximately 91.1% of Panolam
Holdings' common stock, affiliates of Genstar Capital, L.L.C. continue to hold
approximately 5.5%, and Mr. Muller holds approximately 3.4%.
The Carlyle Group is a global private equity firm, based in Washington, D.C.,
which originates, structures and acts as lead equity investor in leveraged
buyouts around the world. Formed in 1987, The Carlyle Group has invested over
$2.75 billion of equity in over 116 corporate and real estate transactions.
Carlyle investment professionals manage over $5.0 billion of capital on behalf
of its investors, directing investments in North America, Europe and Asia in
management-led buyouts and strategic minority investments, venture capital,
real estate and leveraged loans, high yield bonds and mezzanine securities.
Risk Factors
Holders of old notes should carefully consider all of the information set
forth in this prospectus.
See "Risk Factors" beginning on page 14 for a discussion of factors that you
should consider in connection with your investment in the exchange notes.
On the cover page and in this prospectus, unless the context otherwise
requires, "Panolam," "company," "our," "we," "ours," "ourselves" and "us"
refers collectively to Panolam Group, Inc., which is an indirect parent of
Panolam Industries International, Inc., 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.
9
<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 Bankers Trust credit facilities.
10
<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 recapitalization and other effects of the Carlyle Transactions,
. the initial borrowings under our new Bankers Trust 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 nine months
year ended ended
December 31, September 30,
1998 1999
------------ -------------
(in thousands)
<S> <C> <C>
Statement of Operations Data:
Net sales.......................................... $ 331,765 $ 265,227
Cost of goods sold................................. (253,697) (193,067)
--------- ---------
Gross profit....................................... 78,068 72,160
Operating expenses................................. (45,700) (33,448)
--------- ---------
Income from operations............................. 32,368 38,712
--------- ---------
Net income......................................... $ 4,713 $ 12,907
========= =========
Other Data:
Depreciation and amortization...................... $ 15,681 $ 12,849
Capital expenditures............................... 15,843 6,409
</TABLE>
11
<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 nine
months ended September 30, 1998 and 1999 and the balance sheet data as of
September 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 nine months ended September 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 nine months
Period from Period from For the year ended ended
January 1 to May 16 to December 31, September 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 $ 111,984 $ 239,314
Cost of goods sold.... (51,970) (61,057) (121,699) (122,572) (93,524) (174,421)
-------- -------- --------- --------- --------- ----------
Gross profit.......... 7,538 13,396 20,510 24,175 18,460 64,893
Operating expenses.... (3,498) (5,766) (9,723) (8,316) (7,283) (27,580)
Unusual charges....... -- -- -- (1,829) (993) --
-------- -------- --------- --------- --------- ----------
Income from
operations........... 4,040 7,630 10,787 14,030 10,184 37,313
-------- -------- --------- --------- --------- ----------
Net income (loss)..... $ 3,951 $ 2,060 $ (1,393) $ 3,398 $ 2,432 $ 11,134
======== ======== ========= ========= ========= ==========
Other Data:
Net cash provided by
operating activities. $ 6,600 $ 3,974 $ 10,320 $ 16,469 $ 7,933 $ 24,998
Net cash used in
investing activities. (941) (99,589) (9,997) (4,821) (1,984) (161,668)
Net cash provided by
(used in) financing
activities........... (5,177) 95,617 662 (7,179) (5,090) 142,783
EBITDA................ 6,446 10,042 15,373 20,270 14,584 51,007
Depreciation and
amortization......... 2,406 2,412 4,586 6,240 4,400 11,158
Capital expenditures.. 944 4,075 9,997 4,232 1,984 5,163
</TABLE>
<TABLE>
<CAPTION>
As of
September 30, 1999
------------------
<S> <C>
Balance Sheet Data: (in thousands)
Cash....................................................... $ 11,049
Working capital............................................ 53,434
Total assets............................................... 310,103
Long-term debt (excludes current portion).................. 236,119
Stockholders' equity....................................... 31,343
</TABLE>
12
<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>
13
<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.
Risks related to our business
We may have difficulty integrating Pioneer successfully, and 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.
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 for which we may have limited or no recourse against the Rugby
companies.
14
<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 Pioneer Transactions--The Pioneer Acquisition."
We may make strategic acquisitions that could increase our total leverage and
adversely affect our operations.
We intend to pursue strategic acquisitions that would enable us to increase
our market share in our core TFM and HPL businesses, complement our product
lines and enable further vertical integration. Potential acquisition candidates
include regional TFM and HPL manufacturers in North America and Europe, wood
substrate producers and engineered materials companies. Any such acquisitions,
which could be financed all or in part by debt provided by our $50 million
Bankers Trust revolving credit facility or our uncommitted $50 million Bankers
Trust acquisition facility, could increase our overall leverage.
We intend to continue focusing on acquisitions that have significant cost
saving opportunities. However, making acquisitions is inherently risky because
we may be unable to:
. identify or properly evaluate proposed acquisitions;
. complete acquisitions on reasonable terms; and
. realize fully the synergies and cost savings anticipated by
acquisitions.
As a result, we may be unable to realize fully the efficiencies and other
cost savings intended by our future acquisitions.
In order to realize the full potential benefits associated with future
acquisitions, we must be able to successfully integrate acquired businesses
into our existing business. However, integrating acquired businesses may
negatively affect our business as a whole because:
. our business may become more complex and diverse as a result of
integrating new businesses;
. our customers or suppliers may react negatively to an acquisition;
. integrating a new business may distract the attention of our management
away from our existing business;
. our key employees may leave due to problems associated with integrating
new businesses; and
. we may experience unanticipated problems or legal liabilities in
connection with acquiring new businesses.
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 by reducing demand for our TFM and HPL products.
15
<PAGE>
These fluctuations can 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 adversely affect our business by reducing the
demand for our TFM and HPL products.
Our estimates of market share and industry size may be inaccurate due to
limited 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. As a result,
our estimates of the dollar size of the decorative overlay market may be
inaccurate.
We define the decorative overlay market 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, which does not include Canadian HPL data, and we do not believe
such data is available. The TFM and other adhesive based overlay market data is
derived exclusively from materials prepared by the Laminating Materials
Association, Inc. and Carter Affiliates, which includes U.S. and Canadian TFM
data.
The U.S. and Canadian TFM market is comprised of large producers. See
"Business--Our products face substantial competition." However, 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.
16
<PAGE>
The nature of our operations makes us susceptible to material environmental
liabilities.
Our manufacturing operations involve the use, handling, storage, treatment
and disposal of materials and waste products that may be toxic or hazardous. 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. Consequently, we are subject to
numerous federal, state, provincial and local environmental and occupational
health and safety laws and regulations, which include laws and regulations
governing waste disposal, air and water emissions, the handling of hazardous
substances, workplace exposure and other matters. If we fail to comply with
these environmental laws and regulations, we may incur material liabilities in
the form of administrative, civil or criminal enforcement by government
agencies or other parties. See "Business--Government Regulation and
Environmental Matters."
Due to the potential for incurring significant environmental liabilities, we
may be required to make material capital expenditures to remain in compliance
with applicable environmental laws and regulations. In addition, the adoption
of new environmental 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 have a
material adverse effect on our business by forcing us to expend additional
capital and resources on environmental compliance.
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 investigation, the
Auburn, Maine facility, the prior owner's obligation to remediate is capped at
$10.0 million. We believe that the prior owner has sufficient financial
resources to perform the remedial obligations. However, due to 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., 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. 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.
17
<PAGE>
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, which constitute approximately 60%, 30%
and 10% of the required raw materials, respectively. 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. 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, primarily because we may be unable to pass price increases through to
our customers or meet customer order requirements.
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, primarily
because we could no longer offer such product and that could adversely affect
our strategy of offering "one stop shopping" for all customer needs.
Our products face substantial competition from many companies that are larger
than us.
Our business, the decorative overlay industry, is highly competitive. Many of
our competitors have significantly larger and substantially greater financial
and other resources than we do. 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.
The U.S. and Canadian HPL market has also consolidated over the past two
decades to four manufacturers. 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 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
27% and 24%, respectively, of our historical and pro forma consolidated net
sales for the nine months ended September 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 2.4% of our net sales for the first nine months of 1999,
substantially all of which represent sales by Pioneer, were derived from sales
to customers
18
<PAGE>
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., which 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
new employment agreement that we entered into with Mr. Muller in connection
with the Carlyle Transactions.
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 our new Bankers Trust 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 our new Bankers Trust credit facilities and include a minimum
interest coverage ratio and a maximum leverage ratio. Additionally, our new
Bankers Trust 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 our new Bankers Trust credit facilities. The indenture and
our new Bankers Trust credit facilities also contain covenants that restrict
payment of cash dividends. These covenants 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.
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. If
indebtedness under our new Bankers Trust credit facilities and the notes both
were declared to be due and payable, no payments could be made on the notes
until our new Bankers Trust credit facilities were repaid in full. If we are
unable to repay our indebtedness to our senior lenders, such lenders could
seize the collateral securing the indebtedness. See "Description of Certain
Indebtedness--New Credit Facilities" and "Description of Exchange Notes."
19
<PAGE>
The Carlyle Group has the shareholder voting power to control our business.
As of the date of this prospectus, an affiliate of The Carlyle Group holds
approximately 91.1% of the common stock of Panolam Holdings. Panolam Holdings
indirectly owns all of our outstanding common stock. Consequently, The Carlyle
Group has the ability to control our business and affairs by virtue of its
ability to control the election of a majority of Panolam Holdings' and our
respective boards of directors and by virtue of its voting power regarding
stockholder approval. The interests of The Carlyle Group 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/or 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 final phase
of our three phase process to modify all of our systems related to purchasing,
order entry, accounts receivable and sales history. As of December 1, 1999, all
of our locations were converted and fully functional on our software, which
includes date sensitive manufacturing and inventory control systems. However,
we cannot assure you that we will not experience disruptions in our operations
due to the Year 2000 Issue. Any such disruptions could adversely affect our
business by disrupting any of our normal business activities, including for
example purchases, order entry, accounts receivable tracking and manufacturing
processes.
We estimate that our total costs related to our Year 2000 Issues will be
approximately $10.7 million. We believe such costs do not and will not
adversely affect our business, though it is possible that there could be
increased costs and delays associated with the Year 2000 Issue.
We have contacted all of our key external business partners to determine
their plans for dealing with the Year 2000 Issue. 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, again, by resulting in a
system failure or miscalculations that could disrupt normal business
activities.
Risks related to the exchange notes
We are highly leveraged, and poor operating performance 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 Pioneer Transactions and the Carlyle
Transactions. As a result, 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 our new Bankers Trust 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 December 1, 1999, we had
approximately $290.3 million of consolidated indebtedness outstanding, of which
approximately $100 million was senior or effectively senior to the notes and
the guarantees. As of December 1, 1999, we were able to borrow the full amount
of $50.0 million under our U.S. revolving facility. See "Description of Certain
Indebtedness--New Credit Facilities."
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. In addition, our
20
<PAGE>
future cash flow is not guaranteed to be adequate to allow us to meet our
obligations and commitments. These obligations and commitments include interest
payments on the notes, and principal and interest payments under our new
Bankers Trust credit facilities. See "Description of Certain 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 Bankers Trust 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.
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 our new
Bankers Trust credit facilities and the indenture, contain certain
restrictive financial and operating covenants,
. we are vulnerable to increases in interest rates because the
indebtedness under our new Bankers Trust credit facilities is at
variable rates of interest,
. the indebtedness outstanding under our new Bankers Trust credit
facilities is secured by substantially all of our existing and future
acquired assets and the capital stock of our existing and future
acquired operating subsidiaries,
. 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 Certain Indebtedness."
We 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.
We and the parent guarantors are holding companies whose only material assets
are the stock of their respective subsidiaries. Our cash flow and,
consequently, our ability to service debt (including the notes), is dependent
upon the earnings of our subsidiaries and the payment of funds by those
subsidiaries to us in the form of loans, dividends or otherwise. Subsidiary
funding may be inadequate to fund the note payments.
The exchange notes are guaranteed on an unsecured senior subordinated basis
by all the guarantors. Should we 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 our new
Bankers Trust credit facilities. The obligations of the subsidiary guarantors
under our new
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<PAGE>
Bankers Trust credit facilities will be secured by liens on substantially all
of the properties and assets of the subsidiary guarantors. See "Description of
Certain 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 our Canadian
operating subsidiary, are separate and distinct legal entities and have no
obligation to pay any amounts due under the notes. The indenture will permit us
and our subsidiaries, including our non-guarantor subsidiaries, to incur
additional indebtedness, subject to certain restrictions. See "Description of
Exchange Notes--Certain Covenants." If we participate in any distribution of
the assets of any of our non-guarantor subsidiaries upon its liquidation,
reorganization or insolvency, we will be subject to the claims of creditors of
the non-guarantor subsidiary--including trade creditors, the lenders under our
new Bankers Trust credit facilities and preferred stockholders--except to the
extent that we have a creditor claim against the non-guarantor subsidiary.
The payment of dividends and the making of loan advances to us by our
subsidiaries are subject to restrictive covenants including those under our new
Bankers Trust credit facilities. Payment of dividends will be restricted upon
an event of default under our new Bankers Trust 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 us, ranking subordinate in right of payment to all of our existing and
future senior debt, including our new Bankers Trust credit facilities. The
exchange notes will rank equally in right of payment to all of our existing and
future senior subordinated indebtedness and will rank senior in right of
payment to all of our existing and future subordinated indebtedness, of which
there is none currently outstanding.
Our 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 our new Bankers Trust credit facilities. In the event of our
insolvency, liquidation or other reorganization, our assets and the assets of
the guarantors will be available to pay obligations on the exchange notes and
the guarantees only after all of our senior debt and the guarantors has been
paid in full. The senior debt includes the obligations of the guarantors under
the new Bankers Trust 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 of our senior debt. See
"Description of Certain Indebtedness--New Credit Facilities--Guarantees;
Security" and "Description of Exchange Notes--Subordination."
We have commenced offers to purchase all of the old notes and as a result the
trading price of the notes may decline and our senior indebtedness will
increase if a significant portion of the notes are tendered for repurchase.
The indenture provides that, upon the occurrence of a change of control, we
are required to make an offer to repurchase 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. The recapitalization which occurred in
connection with the Carlyle Transactions constituted a change of control under
the terms of the indenture. As a result, we have commenced an offer to
repurchase all of the notes in accordance with the terms of the indenture. To
the extent we repurchase notes pursuant to our change of control, offer, the
liquidity and pricing of the notes will be adversely affected.
On December 21, 1999, we commenced a tender offer and a consent solicitation
with respect to the notes. Our tender offer consists of an offer to repurchase
all of the outstanding notes for an amount in cash equal to
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<PAGE>
101% of the principal amount of the notes, plus accrued and unpaid interest and
liquidated damages. Our tender offer will expire on January 21, 2000, unless we
elect to extend the expiration date. To the extent that we repurchase notes
pursuant to our tender offer, the liquidity and pricing of the notes may be
further adversely affected.
We intend to finance any payments made to repurchase the notes (whether
pursuant to our change of control offer or our tender offer) with funds
borrowed under our new Bankers Trust credit facilities. Thus, our indebtedness
outstanding under our new Bankers Trust credit facilities will increase by the
amount of the notes we repurchase, plus the premium paid and any accrued and
unpaid interest.
We have commenced a consent solicitation in respect of the notes and if a
sufficient number of holders provide their consent, the notes and the indenture
will be amended to eliminate many of the restrictive covenants and other
provisions in the notes and the indenture.
On December 21, 1999, in connection with our tender offer we commenced a
consent solicitation from the holder of the notes to amend the notes and the
related indenture in exchange for the payment of a consent fee in cash equal to
1.5% of the principal amount of the notes for which a consent is delivered. The
proposed amendments to the notes and the indenture provide for (i) the
elimination of substantially all restrictive covenants in the notes and the
indenture, (ii) the removal from the definition of events of default in the
notes and the indenture of all events other than nonpayment, failure to comply
with the remaining covenants and certain bankruptcy events relating to us, and
(iii) the amendment of certain other provisions. In the event that any or all
of the proposed amendments are approved, many covenants and other provisions in
the notes and the indenture will be eliminated, which will adversely affect the
rights of the holders of the notes.
We may be unable to repurchase the exchange notes upon another change of
ownership following an initial public offering of our equity.
The indenture provides that we will be required to offer to repurchase any
outstanding notes in the event of another change of control following an
initial public offering of our equity. In the event of another change of
control, we may have insufficient funds to purchase all notes tendered because
of our other obligations. Certain events involving a change of control could
result in acceleration of our other indebtedness, including indebtedness under
our new Bankers Trust credit facilities, or other indebtedness that we may
incur in the future. Our new Bankers Trust credit facilities prohibit us from
repurchasing any notes unless and until such time as the indebtedness under our
new Bankers Trust credit facilities is paid in full. See "--Our discretion over
certain business matters is limited by covenants in the indenture and our new
credit facilities." Our failure to purchase notes would result in a default
under the indenture and our new Bankers Trust 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 our new Bankers
Trust credit facilities to declare the principal and accrued but unpaid
interest due and payable on both the notes and our new Bankers Trust credit
facilities.
Likewise, the inability to repay the indebtedness under the new Bankers Trust
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 our new Bankers
Trust 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 void or alter our obligations under the exchange
notes.
Our 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
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<PAGE>
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 us 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 the first two points noted 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 identified in the first two points noted 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.
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<PAGE>
The Pioneer 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 after giving effect to a $2.0 million post-closing reduction in the
purchase price. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." The
stock purchase agreement with Rugby USA originally required us to make post-
closing earnout 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. On October 13, 1999 the stock purchase agreement was amended to
delete these earn-out payments and settle certain disputes regarding the
purchase price and other matters in return for a payment by us to Rugby USA of
$5,000,000.
In connection with the Pioneer 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.
The DLJ/Credit Suisse Refinancing
Concurrently with the Pioneer acquisition, we completed a series of
transactions that refinanced all of our indebtedness under our former General
Electric credit facilities. The refinancing consisted of the offering of the
old notes and the entry by us into our former DLJ/Credit Suisse credit
facilities. We refinanced all of our indebtedness under our former DLJ/Credit
Suisse credit facilities in connection with the Carlyle Transactions described
below.
See "Use of Proceeds."
The Carlyle Transactions
The Recapitalization
On November 24, 1999, Panolam Holdings effected a recapitalization pursuant
to a stock purchase and redemption agreement among Genstar Capital Partners II,
L.P., StarGen II LLC, and Robert J. Muller, Jr., our sole stockholders, Panolam
Acquisition Company, L.L.C., an affiliate of The Carlyle Group, and Panolam
Holdings. Pursuant to the agreement:
. Panolam Acquisition Company purchased certain shares of common stock of
Panolam Holdings from Genstar Capital Partners, StarGen and Robert J.
Muller, Jr. for an aggregate purchase price of approximately $136.4
million,
. Panolam Acquisition Company purchased shares of common stock from
Panolam Holdings for an aggregate purchase price of approximately $11.6
million,
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. Panolam Holdings redeemed certain shares of its common stock from
Genstar Capital Partners and StarGen for an aggregate purchase price of
$19 million, payable with junior subordinated promissory notes, and
. Panolam Holdings accelerated the vesting and cancelled all of its
outstanding stock options in exchange for a cash payment based upon the
value of such options, or approximately $8.6 million in the aggregate.
Concurrently with the recapitalization, Mr. Muller, our president and chief
executive officer, also purchased additional shares of common stock of Panolam
Holdings for a purchase price of approximately $3.5 million. See "Certain
Transactions--Stock Purchases by Robert J. Muller, Jr."
As a result of the recapitalization and after giving effect to Mr. Muller's
stock purchase, The Carlyle Group acquired approximately 91.1% of the
outstanding common stock of Panolam Holdings, Genstar Capital affiliates
continue to hold approximately 5.5%, and Mr. Muller holds approximately 3.4%.
As noted above, Panolam Holdings redeemed certain shares of its common stock
from Genstar Capital Partners and StarGen for an aggregate purchase price of
$19 million, payable with junior subordinated promissory notes. The promissory
notes are unsecured obligations of Panolam Holdings which are subordinate in
right of payment to all of our senior debt, including all indebtedness under
our Bankers Trust credit facilities, and the notes. The promissory notes bear
interest, prior to any redemption or repayment of the notes, at the rate of 12%
through November 24, 2005, and 14% following November 24, 2005 through their
maturity date of February 16, 2009. Subject to certain limitations, all
interest accruing under the promissory notes is payable on April 15 of each
year prior to the maturity date (or on the maturity date in the case of the
period on the maturity date), commencing on April, 2001. In addition, subject
to certain limitations, Panolam Holdings is required to pay a portion of the
principal outstanding under the promissory notes on April 15 of each year prior
to the maturity date, commencing on April 15, 2002. Panolam Holdings may prepay
all principal and interest outstanding under the promissory notes at any time
prior to the maturity date without premium or penalty. The promissory notes
also contain customary covenants, including, among other things, negative
covenants regarding the incurrence of debt, the payment of dividends, payments
to The Carlyle Group or its affiliates and pledges of our capital stock and the
capital stock of Panolam Group and PII Second.
In connection with the recapitalization, Panolam Holdings also entered into a
warrant agreement with Genstar Capital Partners and StarGen. Under the terms of
the agreement, Panolam Holdings agreed to issue warrants to purchase shares of
its common stock to Genstar Capital Partners and StarGen in the event that the
promissory notes issued to them in the recapitalization are not paid by
November 24, 2005. Specifically, if any amounts remain outstanding under the
promissory notes on November 24, 2005, Panolam Holdings will be required to
issue warrants to Genstar Capital Partners and StarGen to purchase an aggregate
number of shares of its common stock equal to (x) the aggregate principal
amount outstanding under the promissory notes divided by $19 million,
multiplied by (y) 2.5% of the total number of shares of Panolam Holdings'
common stock then outstanding. In addition, if any amounts remain outstanding
under the promissory notes on each of November 24, 2006 through 2009, Panolam
Holdings will be required to issue additional warrants to purchase a number of
shares of its common stock calculated in accordance with the same formula.
The Bankers Trust Refinancing
Concurrently with the recapitalization, we also refinanced all of our
indebtedness under our former DLJ/Credit Suisse credit facilities by entering
into new credit facilities with Bankers Trust Company and other senior lenders.
Our new Bankers Trust credit facilities provide for an aggregate committed
amount of up to $285 million, consisting of up to $235 million of term loan
facilities, and a $50 million revolving loan facility. The amount of term loans
will be reduced if less than all of the old notes are tendered for repurchase
in connection with the change of control offer described below. We used a
portion of the funds available under our new Bankers Trust credit facilities to
repay all of our indebtedness under our former DLJ/Credit Suisse
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<PAGE>
credit facilities. We intend to use the funds remaining under our new credit
facilities to fund the offer to repurchase our outstanding notes described
below, and for working capital requirements, permitted encumbrances, capital
expenditures and other general corporate purposes. Our new Bankers Trust credit
facilities also provide for an uncommitted acquisition loan facility of $50
million to fund future permitted acquisitions. See "Description of Certain
Indebtedness--New Credit Facilities."
The Change of Control Offer
Under the terms of the indenture, a "change of control" of Panolam Holdings
is deemed to occur at any time, before Panolam Holdings has completed an
initial public equity offering, as Genstar Capital, L.L.C. and its Related
Persons (as defined in the indenture) cease to beneficially own at least 51% of
the voting power of the capital stock of Panolam Holdings. The recapitalization
of Panolam Holdings qualified as a change of control under the terms of our
indenture because Genstar Capital's beneficial ownership was reduced to
approximately 5.6%. As a result, under the terms of the indenture, the holders
of the notes may require us, at their option, to repurchase all or any part of
their notes at a cash price equal to 101% of the principal amount of the notes
(or $1,010 per $1,000 principal amount), plus accrued and unpaid interest and
liquidated damages in respect of the notes. See "Description of Exchange
Notes--Certain Covenants--Repurchase of Notes at the Option of the Holder Upon
a Change of Control." On December 9, 1999, we commenced an offer to repurchase
the notes in accordance with the terms of the indenture. Our change of control
offer is due to expire on January 10, 2000. Our change of control offer is
subject to a number of terms and conditions, all of which are set forth in a
Change of Control Notice and Offer to Purchase which has been delivered to all
holders of the notes. If you elect to tender all or any part of your notes for
repurchase, you may not exchange such notes, or the portion of such notes that
is tendered for repurchase, for exchange notes in connection with the exchange
offer.
The Tender Offer
On December 21, 1999, we commenced a tender offer and a consent solicitation
with respect to the notes. Our tender offer consists of an offer to repurchase
all of the outstanding notes for an amount in cash equal to 101% of the
principal amount of the notes, plus accrued and unpaid interest and liquidated
damages. Our tender offer will expire on January 21, 2000, unless we elect to
extend the expiration date. In connection with our tender offer, we are also
soliciting the consent of the holders of the notes to amend the notes and the
related indenture in exchange for the payment of a consent fee in cash equal to
1.5% of the principal amount of the notes for which a consent is delivered. The
proposed amendments to the notes and the indenture provide for (i) the
elimination of substantially all restrictive covenants in the notes and the
indenture, (ii) the removal from the definition of events of default in the
notes and the indenture of all events other than nonpayment, failure to comply
with the remaining covenants and certain bankruptcy events relating to us, and
(iii) the amendment of certain other provisions. We must obtain a consent from
the holders of at least 2/3 in principal amount of the outstanding notes to
approve one of our proposed amendments to the notes and the indenture, and a
majority in principal amount of the outstanding notes to approve our other
proposed amendments to the notes and the indenture. If we are unable to obtain
majority approval, none of our proposed amendments will be effected and no
consent fees will be paid. Our tender offer and our consent solicitation are
subject to a number of terms and conditions, all of which are set forth in an
Offer to Purchase And Consent Solicitation Statement which has been delivered
to all holders of the notes.
We intend to finance any payments made to the repurchase notes (whether
pursuant to our change of control offer or our tender offer) and to pay the
consent fee with funds borrowed under our new Bankers Trust credit facilities.
As a result, our indebtedness outstanding under our new Bankers Trust credit
facilities will increase by the principal amount of the repurchased notes, plus
the premium paid and accrued and unpaid interest and liquidated damages.
However, our Bankers Trust credit agreement currently does not permit us to
borrow funds to repurchase notes or pay the consent fee. Accordingly, our
tender offer and our obligation to pay the consent fee (but not our change of
control offer) are conditioned upon our ability to amend our new Bankers Trust
credit agreement to provide for the use of the term facilities provided thereby
to finance the tender offer and payment of the consent fee.
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This prospectus does not constitute a part of our change of control offer,
our tender offer or our consent solicitation described above, nor does this
prospectus constitute an offer to repurchase any of the notes or a solicitation
of consents from any holders of notes. Our change of control offer, and the
terms and conditions thereof, are set forth in a Change of Control Notice and
Offer to Purchase which has been delivered to the holders of the notes. Our
tender offer, consent solicitation, and the respective terms and conditions
thereof, are set forth in an Offer to Purchase And Consent Solicitation
Statement which has been delivered to the holders of the notes.
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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 Pioneer 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 September
30, 1999, and our pro forma capitalization as of September 30, 1999 after
giving effect to the Carlyle Transactions. The following table should be read
in conjunction with the consolidated financial statements, related notes and
the pro forma financial statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Pro forma
As of as of
September 30, September 30,
1999 1999
------------- -------------
(in millions)
<S> <C> <C>
Cash................................................ $ 11.0 $ 10.6
====== ======
Total debt (including current portion):
Credit facilities (a):
U.S. facilities................................... $ 52.6 $ 50.0
Canadian facilities............................... 47.8 50.0
11 1/2% Senior Subordinated Notes due 2009 (b)..... 135.0 135.0
Other debt......................................... 2.3 2.3
------ ------
Total debt........................................ 237.7 237.3
Total stockholders' equity.......................... 31.3 31.3
------ ------
Total capitalization.............................. $269.0 $268.6
====== ======
</TABLE>
- ---------------------
(a) As of September 30, 1999, total revolving credit availability under our
revolving credit facilities with DLJ/Credit Suisse and other senior lenders
was $28.0 million, subject to borrowing base restrictions. As of September
30, 1999, total revolving credit availability under our revolving credit
facilities with Bankers Trust and other senior lenders, on a pro forma
basis after giving effect to the Carlyle Transactions, was $50 million.
See "Description of Certain Indebtedness--New Credit Facilities."
(b) Assumes that notes are not tendered for repurchase in connection with our
change of control or tender offers. This amount will be reduced by the
principal amount of any notes repurchased and the amount of indebtedness
outstanding under our new Bankers Trust credit facilities will be increased
by the principal amount of the repurchased notes, plus any premium paid and
accrued and unpaid interest.
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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
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<PAGE>
old notes will be returned without expense to the tendering holder of those
notes as promptly as practicable after the expiration date.
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
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<PAGE>
. 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 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."
On July 18, 1999, we began to accrue liquidated damages under the
registration rights agreement because the registration statement required by
that agreement (of which this prospectus forms a part) had not been declared
effective by the SEC. As of December 27, 1999, we had accrued an aggregate of
approximately $235,000 of liquidated damages under the registration rights
agreement. Liquidated damages stopped accruing under the registration rights
agreement when the registration statement required by that agreement (of which
this prospectus forms a part) was declared effective by the SEC. All liquidated
damages which have accrued under the registration rights agreement will be paid
in the manner provided for the payment of interest on the notes.
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<PAGE>
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."
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
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<PAGE>
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.
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
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<PAGE>
. 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.
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.
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<PAGE>
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,
. 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
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<PAGE>
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,
. 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
37
<PAGE>
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 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.
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<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 nine months ended September 30, 1999 as if the Pioneer
Transactions and the Carlyle Transactions (excluding the SPA Amendment) had
occurred on January 1, 1998. See "The Pioneer Transactions" and "The Carlyle
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
not reflected in the unaudited pro forma financial data.
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.
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 DLJ/Credit Suisse 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. In addition, in connection with the
Bankers Trust refinancing, we recorded a $2.9 million extraordinary charge
relating to the write-off of the unamortized financing costs associated with
the old debt. 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, which were recorded
as an unusual charge.
The unaudited pro forma combined financial data presented herein assumes that
none of the notes will be tendered for repurchase in connection with our change
of control or tender offers. However, by making such assumption, we do not
purport to represent that any or all of such notes will not be tendered for
repurchase.
The unaudited pro forma combined financial data do not purport to represent
what our results of operations would have been if the Pioneer Transactions or
the Carlyle 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 Carlyle Transaction did not have a material impact on our balance
sheet.
39
<PAGE>
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.
40
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations
For the year ended December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Historical Pioneer Carlyle
-------------------- Transaction Transaction
Panolam Pioneer adjustments adjustments Pro forma
--------- --------- ----------- ----------- ---------
<S> <C> <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) (37,468)
Depreciation and
amortization.......... (1,085) (861) (2,381)(2)
295 (3)
(2,000)(4) (371)(10) (6,403)
Unusual charges........ (1,829) -- -- -- (1,829)
--------- --------- --------- -------- ---------
Income from operations.. 14,030 23,545 (4,836) (371) 32,368
Interest expense........ (7,557) (2,587) 10,144 (5) 24,367 (11)
(24,367)(6) (24,245)(12) (24,245)
Amortization of debt
issuance costs......... (732) -- 732 (7)
(1,577)(8) 731 (13) (846)
Other income (expense).. -- (21) -- (21)
--------- --------- --------- -------- ---------
Income from continuing
operations before
income taxes........... 5,741 20,937 (19,904) 482 7,256
Provision for income
taxes.................. (2,343) (8,551) 8,558 (9) (207)(9) (2,543)
--------- --------- --------- -------- ---------
Net income.............. $ 3,398 $ 12,386 $(11,346) $ 275 $ 4,713
========= ========= ========= ======== =========
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.
41
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations
For the nine months ended September 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Historical Pioneer Carlyle
------------------- Transaction Transaction
Panolam Pioneer adjustments adjustments Consolidated
--------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ 239,314 $ 25,913 $ $ $ 265,227
Cost of sales........... (174,421) (18,646) (193,067)
--------- -------- ------- -------- ---------
Gross profit............ 64,893 7,267 72,160
Operating expenses:
Selling, general and
administrative........ (23,717) (4,616) (264)(10) (28,597)
Depreciation and
amortization.......... (3,968) (202) (397)(2)
49 (3)
(333)(4) (4,851)
--------- -------- ------- -------- ---------
Income from operations.. 37,208 2,449 (681) (264) 38,712
Other income (expense).. 2,536 2,536
Interest expense........ (15,923) (402) 1,320 (5) 18,278 (11)
(3,273)(6) (18,184)(12) (18,184)
Amortization of debt
issuance costs......... (1,140) 121 (7)
(262)(8) 646 (13) (635)
--------- -------- ------- -------- ---------
Income from continuing
operations before
income taxes........... 22,681 2,047 (2,775) 476 22,429
Provision for income
taxes.................. (9,753) (757) 1,193 (9) (205)(9) (9,522)
--------- -------- ------- -------- ---------
Net income before
extraodinary item...... $ 12,928 $ 1,290 $(1,582) $ 271 $ 12,907
========= ======== ======= ======== =========
Other Data:
Depreciation and
amortization.......... $ 11,158 $ 1,010 $ 681 $ -- $ 12,849
Capital expenditures... 5,163 1,246 -- -- 6,409
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
consolidated financial statements.
42
<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 nine months ended September 30, 1999 have been prepared as
if the Pioneer Transactions and the Carlyle Transactions had occurred on
January 1, 1998. The pro forma adjustments for the nine months ended September
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 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 nine months ended September 30, 1999).
(3) Represents the elimination of amortization of historical goodwill at
Pioneer ($295 for the year ended December 31, 1998 and $49 for the
nine months ended September 30, 1999).
(4) 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 nine months ended September 30, 1999).
(5) 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 nine months
ended ended
December 31, September 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................. 2,587 402
------- ------
$10,144 $1,320
======= ======
</TABLE>
(6) Represents interest expense based on pro forma debt as follows:
<TABLE>
<CAPTION>
For the
For the year nine months
ended ended
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Pioneer Term A Facility (interest 7.85%)...... $ 1,962 $ 1,472
Pioneer Term B Facility (interest 8.60%)...... 6,880 5,160
Notes (interest 11.50%)....................... 15,525 11,646
------- -------
$24,367 $18,278
======= =======
</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 $749 for the nine months ended September 30, 1999.
(7) Represents the elimination of historical debt issuance costs
associated with our former General Electric credit facilities.
(8) Represents the amortization of acquisition costs ($20 for the year
ended December 31, 1998 and $2 for the nine months ended September 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
$260 for the nine months ended September 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.
(9) Represents the tax effect of the adjustments at an effective tax rate
of approximately 43%.
(10) Represents the net reduction of the Genstar management fee and the
inclusion of the Carlyle management fee.
(11) Records the elimination of interest due to the refinancing of our
former DLJ/Credit Suisse credit agreement which was in connection with
the Pioneer acquisition.
43
<PAGE>
Notes to Unaudited Pro Forma Consolidated Statement of Operations--(continued)
(12) Records interest expense as a result of the credit arrangement with
the Carlyle transaction as follows:
<TABLE>
<CAPTION>
September 30,
---------------
1998 1999
------- -------
<S> <C> <C>
New Term A facility: (interest 8.47%).................... $ 8,470 $ 6,352
Notes (interest 11.5%)................................... 15,525 11,644
Revolver committment fee (0.5%).......................... 250 188
------- -------
$24,245 $18,184
======= =======
</TABLE>
(13) Represents the net effect of the amortization of the prior transaction
costs and the amortization of the Carlyle transaction costs over a
five year period.
44
<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 September 30,
1999 and for the nine month periods ended September 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 nine
months ended September 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 nine months
December 31, January 1 May 16 to December 31, ended September 30,
-------------------- to June 11, December 31, -------------------- -----------------------
1994 1995 1996 1996 1997 1998 1998 1999
--------- --------- ----------- ------------ --------- --------- ----------- -----------
(in thousands, except ratios) (unaudited) (unaudited)
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 $111,984 $ 239,314
Cost of sales.......... (86,010) (91,610) (51,970) (61,057) (121,699) (122,572) (93,524) (174,421)
--------- --------- -------- -------- --------- --------- -------- ---------
Gross profit........... 16,450 16,873 7,538 13,396 20,510 24,175 18,460 64,893
Operating expenses..... (7,067) (6,198) (3,498) (5,766) (9,723) (8,316) (7,283) (27,580)
Unusual charges........ -- -- -- -- -- (1,829) (993) --
--------- --------- -------- -------- --------- --------- -------- ---------
Operating income....... 9,383 10,675 4,040 7,630 10,787 14,030 10,184 37,313
--------- --------- -------- -------- --------- --------- -------- ---------
Net income (loss)...... $ 9,383 $ 10,545 $ 3,951 $ 2,060 $ (1,393) $ 3,398 $ 2,432 $ 11,134
========= ========= ======== ======== ========= ========= ======== =========
Other Data:
Net cash provided by
operating activities.. $ 10,779 $ 12,304 $ 6,600 $ 3,974 $ 10,320 $ 16,469 $ 7,933 $ 24,998
Net cash used in
investing activities.. (2,173) (10,975) (941) (99,589) (9,997) (4,821) (1,984) (161,668)
Net cash provided by
(used in) financing
activities............ (8,606) (1,329) (5,177) 95,617 662 (7,179) (5,090) 142,783
EBITDA (1)............. 13,483 15,192 6,446 10,042 15,373 20,270 14,584 51,007
Depreciation and
amortization.......... 4,100 4,517 2,406 2,412 4,586 6,240 4,400 11,158
Capital expenditures... 2,243 6,542 944 4,075 9,997 4,232 1,984 5,163
Ratio of earnings to
fixed charges (2)..... 90.4x 49.5x 54.2x 1.7x 1.3x 1.7x 1.6x 2.2x
Balance Sheet Data (at
end of period):
Cash................... $ 427 $ -- $ 2 $ 987 $ 5,456 $ 11,049
Working capital........ 12,646 16,987 19,244 11,162 14,511 53,434
Total assets........... 79,845 99,769 117,653 123,284 119,592 310,103
Long term debt (3)..... -- -- 69,248 73,157 70,217 236,119
Stockholders' equity... 72,706 91,027 28,133 26,740 31,138 31,343
</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,
45
<PAGE>
. 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 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 Pioneer Transactions--The Pioneer Acquisition,"
"Description of Exchange Notes" and "Description of Certain 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.
(3) Excludes current portion of long term debt.
46
<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.
47
<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 Pioneer Transactions--The Pioneer Acquisition,"
"Description of Exchange Notes" and "Description of Certain 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.
48
<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 Pioneer
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 DLJ/Credit Suisse 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 our General Electric
refinancing, 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.
49
<PAGE>
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 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
successfully, and Pioneer could adversely affect our operations" 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 successfully, and Pioneer could adversely affect our
operations."
50
<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 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. 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 nine months ended
Jan. 1 to May 16 to Year ended Dec. 31, September 30,
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% $111.9 100.0% $239.3 100.0%
Gross profit....... 7.5 12.7 13.4 18.0 20.9 15.6 20.5 14.4 24.2 16.5 18.5 16.5 64.9 27.1
Operating expenses. 3.5 5.9 5.8 7.8 9.2 6.9 9.7 6.8 10.2 6.9 8.3 7.4 27.6 11.5
Operating income... 4.0 6.8 7.6 10.2 11.7 8.7 10.8 7.6 14.0 9.6 10.2 9.1 37.3 15.6
Net interest
expense........... -- 0.0 4.5 6.0 4.5 3.3 8.1 5.7 8.3 5.6 6.3 5.6 22.7 9.5
Income taxes....... 0.1 0.2 1.1 1.5 1.2 0.9 0.8 0.5 2.3 1.6 1.4 1.3 9.8 4.1
</TABLE>
Nine months ended September, 1999 compared to the nine months ended September
30, 1998
Net Sales. Net sales were $239.3 million for the nine months ended September
30, 1999, an increase of $127.4 million, or 113.7%, from $111.9 million for the
corresponding period of 1998. $119.7 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 nine months of
1999 as compared to the corresponding period of 1998.
Gross Profit. Gross profit was $64.9 million for the nine months ended
September 30, 1999, an increase of $46.4 million, or 250.8%, from $18.5 million
for the corresponding period of 1998. As a percentage of net sales, gross
profit was 27.1% and 16.5%, respectively, for such periods. The Pioneer
acquisition contributed $38.3 million of the increase. The remaining increase
of $8.1 million relates to a $1.1 million decrease in indirect overhead costs,
a $3.6 million increase in favorable production variances primarily related to
lower raw material costs associated with the purchase of resins and paper, and
a $3.4 million increase resulting from increased operating efficiencies.
Operating Expenses. Operating expenses were $27.6 million for the nine months
ended September 30, 1999, an increase of $19.3 million, or 232.5%, from $8.3
million for the corresponding period of 1998. As a percentage of net sales,
operating expenses were 11.5% and 7.4%, respectively, for such periods. The
Pioneer acquisition contributed $18.5 million of the increase. The remaining
increase of $0.8 million is primarily attributable to goodwill amortization of
$2.1 million resulting from the Pioneer acquisition, which amount was partially
offset by overall cost reductions.
Operating Income. Operating income was $37.3 million for the nine months
ended September 30, 1999, an increase of $27.1 million, or 265.7%, from $10.2
million for the corresponding period of 1998. As a
51
<PAGE>
percentage of net sales, operating income was 15.6% and 9.1%, respectively, for
such periods. The Pioneer acquisition contributed $19.7 million of the
increase. The remaining increase of $17.6 million was primarily 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 $22.7 million for the nine
months ended September 30, 1999, an increase of $16.4 million, or 260.3%, from
$6.3 million for the corresponding period of 1998. As a percentage of net
sales, net interest expense was 9.5% and 5.6%, 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 $9.8 million in the nine months ended
September 30, 1999, an increase of $8.4 million from $1.4 million for the
corresponding period of 1998. The Pioneer acquisition accounted for $4.3
million of the increase. Panolam's effective tax rate was 43% for 1999 and 37%
for 1998.
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.
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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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<PAGE>
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.
55
<PAGE>
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 nine months of 1999 was
from operations. 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 $14.1 million
in the first nine months 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 $5.2 million for the first nine months 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/or 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 $7 million for 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--The nature of
our operations makes us susceptible to material environmental liabilities" and
"Business--Government regulations and environmental matters."
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."
56
<PAGE>
The stock purchase agreement with Rugby USA originally required us to make
post-closing earnout 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. On October 13, 1999 the stock purchase agreement was amended to
delete these earn-out payments and settle certain disputes regarding the
purchase price and other matters in return for a payment by us to Rugby USA of
$5,000,000.
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. In connection with the Carlyle Transactions, we entered into our
new credit facilities, providing for up to $50.0 million of revolving credit,
subject to the terms and conditions contained therein. See "Description of
Certain Indebtedness--New Credit Facilities." As of December 1, 1999, we were
able to borrow the full amount of $50.0 million under our new revolving credit
facility, subject to the terms and conditions of our new revolving credit
facility. See "Description of Certain 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.
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.
57
<PAGE>
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 were 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 has been 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. As of December 1, 1999, all of our
locations were converted and fully functional on our software, which includes
date sensitive manufacturing and inventory control systems.
With the exception of Pioneer, our remediation efforts were 100% complete as
of December 1, 1999, with ongoing verifications scheduled through the remainder
of the year. Pioneer was 95% complete as of December 1, 1999, and will be 100%
complete by mid-December. 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.
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 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 Pioneer 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 successfully, and Pioneer could adversely affect our operations,"
"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
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network in the TFM and HPL markets. We have a large direct sales force
consisting of sales representatives 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.
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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 may be inaccurate due
to limited 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 successfully, and Pioneer could
adversely
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affect our operations," "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 strategically acquire complementary business. We intend to
pursue strategic acquisitions that would increase our market share in our core
TFM and HPL businesses, complement our product lines and enable further
vertical integration. We will continue to take a disciplined approach to
evaluating potential acquisitions, focusing on transactions that have
significant cost saving opportunities. Potential acquisition candidates include
regional TFM and HPL manufacturers in North America and Europe, wood substrate
producers and engineered materials companies.
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
may be inaccurate due to limited 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.
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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 may be
inaccurate due to limited reliable statistical information."
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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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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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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 Pioneer 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.
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<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 Illinois Tool Works, 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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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. 2004)
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 successfully, and Pioneer could
adversely affect our operations," "--The estimates of market share and industry
size may be inaccurate due to limited reliable statistical information,"
"Unaudited Combined Pro Forma Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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<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. 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
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<PAGE>
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--The nature of
our operations makes us susceptible to material environmental liabilities."
Employees
As of December 1, 1999, we employed 1,370 persons comprised of 1,028 hourly
employees and 342 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 any matters that
are material to our business.
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<PAGE>
Management
Executive Officers and Directors
The following table sets forth relevant information as of December 1, 1999,
with respect to our directors and executive officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Robert J. Muller, Jr........ 52 Chairman of Board, President and Chief
Executive Officer
Stephen Feuring............. 48 Vice President of Marketing and
Customer Service
Richard Ricci............... 57 Vice President of Sales
Martin Skojec............... 52 Vice President of Manufacturing
Bernard Lishinsky........... 57 Vice President of Human Resources
Michael C. Malota........... 36 Controller
Jerome H. Powell............ 46 Director (a)(b)
Philip B. Dolan............. 41 Director (b)
W. Robert Dahl.............. 43 Director (a)
</TABLE>
- ---------------------
(a) Member of Audit Committee
(b) Member of the Compensation Committee
Robert J. Muller has been our President, Chief Executive Officer and a member
of our board of directors since January 1998. In December 1999, Mr. Muller was
appointed as the Chairman of our board of directors. 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.
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.
Michael C. Malota has been our controller since July 1999. From October 1997
until joining us, Mr. Malota served in various accounting and financial
consulting positions, including consulting for Formica Corporation. Prior to
1997, Mr. Malota held the position as Controller with SIMBA Information
publishing. Mr. Malota has a B.S from Sacred Heart University and an M.S. in
corporate taxation from the University of New Haven.
Jerome H. Powell has been a member of our board of directors since November
24, 1999. Mr. Powell is a Managing Director of The Carlyle Group. Before
joining The Carlyle Group in 1997, Mr. Powell was a
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<PAGE>
Managing Director at Dillon, Read & Co. Inc. from 1995 until 1997, and a
Managing Director at Bankers Trust Company from 1993 until 1995. From 1990
until 1993, Mr. Powell served in the Bush Administration as Under Secretary for
Finance. Mr. Powell graduated from the Georgetown University Law Center in 1979
and from Princeton University in 1975. Mr. Powell serves on the Board of
Dr Pepper/Seven Up Bottling Group, Inc.
Philip B. Dolan has been a member of our board of directors since November
24, 1999. Mr. Dolan is a Principal of The Carlyle Group. Prior to joining The
Carlyle Group in 1989, Mr. Dolan was an investment analyst and fund manager
with the Trust Division of the Mercantile-Safe Deposit and Trust Company. Prior
to joining Mercantile, Mr. Dolan was engaged in management consulting and
practiced public accounting with Seidman & Seidman. Mr. Dolan is a CPA and
graduated from Mount Saint Mary's College. He received his MBA from George
Washington University. Mr. Dolan serves on the Boards of IT Group, Inc. and
Baker & Taylor, Inc.
W. Robert Dahl has been a member of our board of directors since November 24,
1999. Mr. Dahl is a Managing Director of The Carlyle Group. Mr. Dahl joined The
Carlyle Group in early 1999 with responsibility for overseeing Carlyle's
investments in the healthcare business. Prior to joining Carlyle, he spent 13
years at Credit Suisse First Boston, most recently as Managing Director and co-
head of their U.S. Healthcare Group. Mr. Dahl has extensive experience in
recapitalizing highly leveraged companies, having also worked in Credit Suisse
First Boston's Leveraged Finance Group. Mr. Dahl received his M.B.A. from the
Harvard Business School, where he was a Baker Scholar and a Loeb Rhodes Fellow,
and a B.A. from Middlebury College.
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
Our directors 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. The agreements with Messrs. Feuring, Ricci, Skojec and
Lishinsky 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 for an annual base salary of $500,000,
subject to annual increase at the discretion of the board, and an annual bonus
based on the achievement of specified performance targets. The agreement
expires on December 1, 2004, subject to automatic and indefinite one-year
extensions unless either party gives the other 180 days prior written notice,
and subject to earlier termination under certain conditions.
In the event Mr. Muller's employment is terminated without cause, (1) he
shall be entitled to receive severance pay equal to at least two but not more
than three times (x) his base salary, at the annualized rate in effect on the
termination date, plus (y) the annual bonus award he earned for the year prior
to the year of termination, (2) any stock option that becomes exercisable
solely with the passage of time, without satisfaction of any performance
criterion other than continued service, shall become exercisable to the extent
that it was then scheduled to become exercisable within six months if his
employment had not been terminated and (3) he is entitled to continued
participation for two years in all medical and other coverages and benefit
plans in which he was participating at termination, unless comparable coverage
is provided by a subsequent employer.
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"Cause" is defined to include the following actions by Mr. Muller: (i)
willfully stealing or embezzling a not insignificant amount of our property in
circumstances that would render him, in the judgment of a reasonable person,
manifestly unfit to continue as Chief Executive Officer and President; (ii)
engaging in conduct that constitutes willful gross neglect or willful gross
misconduct and that (x) results in significant economic harm to us or (y)
results, and reasonably should be expected to result, in acute public
embarrassment to us; (iii) willful and unjustified failure to act in accordance
with any material, reasonable and lawful written instruction given to him by
the board of Panolam Holdings (which instruction has been approved by at least
two-thirds of the members of that board) concerning material aspects of his
duties and excluding matters outside his direct personal control; (iv)
conviction of a felony; v) any willful and material breach by him of the non-
competition or non-solicitation provisions of the employment agreement; or (vi)
any willful and material breach by him of certain provisions of related
agreements.
In the event Mr. Muller's employment is terminated due to death, his estate
or beneficiaries are entitled to receive his base salary for a period of 90
days. In the event Mr. Muller's employment is terminated due to disability, he
is entitled (x) to receive, to age 65, payments at the rate of 60% of his base
salary in effect at the termination (less any disability payments provided
under our plans) and (y) to continued participation for three years in all
medical and other coverages and benefit plans in which he was participating at
termination.
Mr. Muller is subject to non-competition and non-solicitation provisions
during the term of his employment and for one year following his termination
without cause or by expiration of the term of employment due to non-extension,
and for a period of two years thereafter in the case of termination by any
other means. The agreement also contains a confidentiality provision.
Pursuant to the terms of his employment agreement, Mr. Muller was granted
options to purchase up to 10,514 shares of common stock of Panolam Holdings. In
addition, he purchased 2,717.5 shares of common stock of Panolam Holdings and
entered into a stockholders' agreement. These agreements are described under
"Certain Relationships and Related Transactions" below.
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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(3) $ --
President and Chief Executive
Officer
Former Executive Officers:
Claude Arcand(4).............. 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) Represents shares of common stock of Panolam Holdings issuable upon the
exercise of options granted under Panolam Holdings' 1996 Equity Incentive
Plan. In connection with the Carlyle Transactions, all such options were
cancelled in exchange for a cash payment equal to the value of such options
(calculated on the basis of the value of common stock in the
recapitalization and the exercise price of such options) or approximately
$7.0 million in the aggregate.
(4) Mr. Arcand was terminated on January 12, 1998.
Option/SAR Grants in Last Fiscal Year
Option Grants and Exercises
The following table provides information concerning grants of options to
purchase Panolam Holdings' common stock made during 1998 to our executive
officers. The only executive officer to be granted any options in 1998 was Mr.
Muller. In the column marked "Potential Realizable Value At Assumed Annual
Rates of Stock Price Appreciation For Option Term," potential gains are net of
exercise price, but before taxes associated with exercise. These amounts
represent certain assumed rates of appreciation only, based on the SEC rules.
Actual gains, if any, on stock option exercises are dependent on the future
performance of the common stock, overall market conditions and the option-
holders' continued employment through the vesting period. The amounts reflected
in this table may not necessarily be achieved.
<TABLE>
<CAPTION>
Individual Grants
--------------------------
Potential
Realizable Value
at Assumed Annual
Rates of Stock
Number of Percent of Price
Securities Total Options Appreciation for
Underlying Granted to Exercise of Option Terms
Options Employees Base Price -----------------
Name Granted (#) in Fiscal Year ($/sh) Expiration Date 5% ($) 10% ($)
---- ----------- -------------- ----------- ---------------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Muller, Jr. .. 5,556(1) 100% 203.06 January 12, 2008 709,520 1,798,062
</TABLE>
- ---------------------
(1) Represents shares of common stock of Panolam Holdings issuable upon the
exercise of options granted under Panolam Holdings' 1996 Equity Incentive
Plan. In connection with the Carlyle Transactions, all such options were
cancelled in exchange for a cash payment equal to the value of such options
(calculated on the basis of the value of common stock in the
recapitalization and the exercise price of such options) or approximately
$7.0 million in the aggregate.
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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(1) -- --
</TABLE>
- ---------------------
(1) Represents shares of common stock of Panolam Holdings issuable upon the
exercise of options granted under Panolam Holdings' 1996 Equity Incentive
Plan. In connection with the Carlyle Transactions, all such options were
cancelled in exchange for a cash payment equal to the value of such options
(calculated on the basis of the value of common stock in the
recapitalization and the exercise price of such options) or approximately
$7.0 million in the aggregate.
Compensation Committee Interlocks and Insider Participation
The current members of our compensation committee are Messrs. Powell and
Dolan. 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 Plan was administered by the compensation committee of
the board of directors of Panolam Holdings. In the event of a change of control
of Panolam Holdings, the compensation committee was entitled to make
adjustments and take such actions as the compensation committee determined to
be necessary or advisable to provide each option-holder with a benefit
equivalent to what such option-holder would have been entitled to had such
event not occurred. In connection with the change of control associated with
the Carlyle Transactions, the compensation committee accelerated the vesting of
all options outstanding under the 1996 Plan, and cancelled all such options in
exchange for a cash payment based upon the value of each such option. As a
result, all options outstanding under the 1996 Plan at the closing of the
Carlyle Transactions were cancelled in exchange for cash payments of
approximately $8.6 million in the aggregate. Following the Carlyle
Transactions, the board of directors of Panolam Holdings terminated the 1996
Plan.
New Stock Option Plan
The board of directors of Panolam Holdings has approved a new stock option
plan, and intends to adopt the plan in the near future. The plan is intended to
advance the best interests of Panolam Holdings and its subsidiaries by
providing those persons who have a substantial responsibility for the
management and growth of Panolam Holdings with additional incentives by
allowing them to acquire an ownership interest in Panolam Holdings and thereby
encouraging them to contribute to the success of Panolam Holdings and its
subsidiaries
76
<PAGE>
and to remain in its or its subsidiaries' employ. The plan will be administered
by a committee of the board of directors of Panolam Holdings, subject to
delegation to the chief executive officer.
The committee may, from time to time, grant options to any director,
executive or other key employee of Panolam Holdings or any of its subsidiaries.
Options granted under the plan will be nonqualified stock options and are not
intended to be "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended. The option exercise price per
share of common stock of Panolam Holdings will be fixed by the committee at not
less than 100% of the fair market value on the date of grant. Options will be
exercisable as the committee may determine on or subsequent to the date of
grant. The committee will also determine the term of each option, which in no
event may exceed 11 years from the date of grant. No options may be granted
under the plan after the tenth anniversary of the adoption of the plan. All
options granted are subject to the terms of the option agreement entered into
by the recipient of the options.
Options granted under the plan will be subject to (i) the right of Panolam
Holdings and such other persons as the committee may designate to repurchase
all shares of common stock issued or issuable on the exercise of an option in
the event of the participant's termination of employment, (ii) rights of first
refusal granted to Panolam Holdings and such designees, (iii) holdback and
other registration right restrictions in the event of public registration of
any equity securities of Panolam Holdings or its subsidiaries and (iv) any
other terms the committee may deem necessary and desirable.
Options granted under the plan may not be transferred other than by will or
the laws of descent and distribution and may be exercised only by such
participant (or his legal guardian, legal representative, executor or
administrator of his estate or the person to whom his rights pass upon death).
Upon termination of the participant's employment, any unvested options expire;
provided that (i) if termination is due to death or disability, options expire
on the later of the scheduled expiration or 12 months from the date of
termination and ii) if termination is other than for cause, options expire on
the later of the scheduled expiration or 30 days from the date of termination.
In the event of (i) a merger or consolidation in which Panolam Holdings is
not the surviving corporation, (ii) the sale, transfer, exchange or other
disposition of all or any substantial portion of the assets of Panolam Holdings
on a consolidated basis, in a complete liquidation or dissolution, iii) any
merger in which Panolam Holdings is the surviving entity but in which
securities possessing more than 50% of the total combined voting power of the
outstanding securities are transferred to a person or persons different from
those who held such securities immediately prior to the merger, (iv) any
unusual or nonrecurring transaction or event affecting Panolam Holdings or any
affiliate or (v) any dividend, distribution, recapitalization,
reclassification, stock split, spin-off, combination, repurchase, exchange of
stock, issuance of any rights to purchase common stock or other equity
securities or other similar corporate transaction or event, if the committee,
in its sole discretion, determines that an adjustment is appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended by the plan or with respect to any option, then the committee may make
such adjustments or take such actions as it deems necessary or advisable.
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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 December 1, 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 December 1, 1999, there were 126,170.2 shares of common stock of
Panolam Holdings outstanding. Panolam Holdings owns, directly or indirectly,
100% of our common stock and the common stock of 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 of Panolam Holdings subject to options or warrants currently
exercisable or convertible, or exercisable or convertible within 60 days of
December 1, 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>
TC Group, L.L.C. (1)...................................... 114,911.9 91.1%
c/o The Carlyle Group
1001 Pennsylvania Avenue, N.W.
Suite 220 South
Washington, D.C. 20004
Robert J. Muller, Jr. (2)................................. 4,388.4 3.5
c/o Panolam Industries International, Inc.
20 Progress Drive
Shelton, Connecticut 04684
<CAPTION>
Genstar Capital, L.L.C. (3)............................... 6,912.3 5.5
<S> <C> <C>
555 California Street
Suite 4850
San Francisco, CA 94104
StarGen II LLC (4)........................................ 75.6 *
c/o Genstar Capital, L.L.C.
555 California Street
Suite 4850
San Francisco, CA 94104
All executive officers and directors as a group (5
persons) (5)............................................. 4,388.4 3.5
</TABLE>
- ---------------------
* Represents less than one percent
(1) 91.1% of the common stock of Panolam Holdings is held directly by Panolam
Acquisition Company, L.L.C. ("PAC"), a Delaware limited liability company
that is an affiliate of, and controlled by, TC Group, L.L.C. The members of
PAC are (i) CP III Bridge Partners, L.P. (94.97% member), a Delaware
limited partnership whose sole general partner is TC Group III, L.L.C.,
(ii) CP III Coinvestment, L.P. (3% member), a Delaware limited partnership
whose sole general partner is TC Group III, L.L.C., and (iii) Carlyle High
Yield Partners, L.P. (2.03% member), a Delaware limited partnership whose
sole general partner is Carlyle High Yield, L.L.C. TC Group, L.L.C. is the
sole member of TC Group III, L.L.C., and it is a commonly-owned affiliate
of TCG High Yield, L.L.C.
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<PAGE>
(2) Consists of (i) 1,552.9 shares of common stock acquired by Mr. Muller under
a Management Stock Subscription Agreement which were not purchased by The
Carlyle Group or its affiliates in connection with the Carlyle
Transactions, (ii) 2,717.5 shares of common stock purchased by Mr. Muller
in connection with the Carlyle Transactions, as described under "Certain
Relationships and Related Transactions--Stock Purchases by Robert J.
Muller, Jr.," and (iii) 118 shares of common stock issuable upon the
exercise of options held by Mr. Muller which may be exercised within 60
days of December 1, 1999.
(3) Consists of shares of Panolam Holdings common stock owned of record by
Genstar Capital Partners II, L.P., a Delaware general partnership. Genstar
Capital Partner's sole general partner is Genstar Capital, L.L.C., a
Delaware limited liability company. Messrs. Jean-Pierre L. Conte, Richard
D. Paterson and Richard F. Hoskins are the Managing Directors of Genstar
Capital. Genstar Capital, in its capacity as the sole General Partner of
Genstar Capital Partners, may be deemed to beneficially own all such
shares. Messrs. Conte, Paterson and Hoskins, in their capacities as
Managing Directors of Genstar Capital, may be deemed to share beneficial
ownership of all shares beneficially owned by Genstar Capital, but disclaim
any such beneficial ownership.
(4) Richard D. Paterson is the sole Administrative Member of StarGen II LLC and
Messrs. Conte and Hoskins are Members of StarGen, and in such capacities,
such persons may be deemed to share beneficial ownership of all shares held
of record by StarGen. Genstar Capital and StarGen may be deemed to be
members of a group with respect to their respective beneficial interests in
Panolam Holdings by virtue of the fact that Messrs. Conte, Paterson and
Hoskins are Managing Directors of Genstar Capital and Members of StarGen.
Genstar Capital and StarGen do not affirm the existence of such a group.
(5) Consists of (i) 1,552.9 shares of common stock acquired by Mr. Muller under
a Management Stock Subscription Agreement which were not purchased by The
Carlyle Group or its affiliates in connection with the Carlyle
Transactions, (ii) 2,717.5 shares of common stock purchased by Mr. Muller
in connection with the Carlyle Transactions, as described under "Certain
Relationships and Related Transactions--Stock Purchases by Robert J.
Muller, Jr.," and (iii) 118 shares of common stock issuable upon the
exercise of options held by Mr. Muller which may be exercised within 60
days of December 1, 1999. No other executive officers or directors of
Panolam Holdings hold any shares of Panolam Holdings' common stock.
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<PAGE>
Certain Relationships and Related Transactions
Stock Purchases 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. In connection with the Carlyle Transactions, a Carlyle affiliate
purchased 3,371 of these shares of common stock from Mr. Muller for a price of
approximately $4.3 million, and Mr. Muller retained 1,552.9 shares.
In connection with his employment arrangement and the Carlyle Transactions,
Mr. Muller entered into an Executive Stock Purchase Agreement pursuant to which
he purchased 2,717.5 shares of common stock of Panolam Holdings for $1,287.94
per share, for an aggregate purchase price of $3.5 million. Mr. Muller paid for
these shares by executing a promissory note in favor of Panolam Holdings in the
amount of $3.5 million. The promissory note has a term of six years, which is
extended if Mr. Muller is still employed by us on that date until the date that
is 20 days following the date his termination subsequently occurs. The
promissory note bears interest at a rate of 6.08% per annum and is secured by a
pledge to Panolam Holdings of the purchased shares pursuant to an Executive
Stock Pledge Agreement. In the event that, prior to either a qualified public
offering or a qualified sale of Panolam Holdings, Mr. Muller is terminated for
cause or resigns voluntarily, then the shares so purchased shall be forfeited
to Panolam Holdings and the promissory note shall be canceled. Mr. Muller is
personally liable for 35% of any amounts outstanding under the promissory note,
and Panolam Holdings' sole recourse for amounts in excess of this amount is to
the pledged shares; provided that Mr. Muller's personal liability (x) ceases
upon termination of his employment due to death or disability and (y) is
reduced to 17.5% upon termination of his employment without cause or pursuant
to expiration of the term due to non-extension by us. Upon the occurence of
certain qualified public offerings or sales of Panolam Holdings in which
specified performance targets are met prior to the termination of Mr. Muller's
employment, then amounts outstanding under the promissory note shall be
forgiven based on the achievement of certain performance targets. If Mr.
Muller's employment is terminated without cause or due to expiration of the
term due to non-extension by us within one year prior to the occurrence of such
an offering or sale, then the promissory note shall be forgiven as set forth
above notwithstanding such termination of employment.
Stock Options Granted to Robert J. Muller, Jr.
In connection with his employment arrangement and the Carlyle Transactions,
Mr. Muller and Panolam Holdings entered into an Executive Stock Option
Agreement dated as of November 24, 1999. Pursuant to such agreement, Mr. Muller
received options to purchase up to an aggregate of 10,514 shares of common
stock of Panolam Holdings. Other than as specifically provided, upon
termination of Mr. Muller's employment, any unvested options expire. All of the
options expire on November 24, 2010.
Options to purchase up to 3,504 shares of common stock vest and become
exercisable in equal parts monthly over five years; provided that if Mr.
Muller's employment is terminated without cause or due to death or disability,
the options that were scheduled to vest during the next six months shall
immediately vest and become exercisable. These options are also subject to
accelerated vesting upon certain qualified public offerings or sales of Panolam
Holdings in which specified performance targets are met.
Options to purchase up to 3,505 shares of common stock vest and become
exercisable over five years upon the achievement of specified annual or
cumulative performance targets; provided that if Mr. Muller's employment has
not been terminated prior to June 30, 2009, any of such options that have not
then vested shall vest and become exercisable. These options (except to the
extent that performance targets have not been met in the past) are also subject
to accelerated vesting upon certain qualified public offerings or sales of
Panolam Holdings in which specified performance targets are met.
Options to purchase up to 3,505 shares of common stock vest and become
exercisable in varying amounts upon a qualified public offering or sale of
Panolam Holdings in which specified performance targets are met.
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<PAGE>
With respect to all of the options described above, if Mr. Muller's
employment is terminated without cause or by expiration of the term due to non-
extension by us and a qualified public offering or sale of Panolam Holdings in
which specified performance targets are met occurs within one year of such
termination, then the options will vest and become exercisable to the extent
that they would have notwithstanding such termination.
Executive Stockholders' Agreement with Robert J. Muller, Jr.
In connection with his employment arrangement and the Carlyle Transactions,
Mr. Muller, Panolam Acquisition Company, L.L.C. and Panolam Holdings entered
into an Executive Stockholders' Agreement dated as of November 24, 1999. The
agreement covers common stock of Panolam Holdings and other securities
convertible into or exchangeable for shares of common stock of Panolam Holdings
held by Mr. Muller and his assigns. The agreement provides for, among other
things:
. transfer restrictions, including rights of first refusal granted to
Panolam Holdings in connection with proposed transfers by Mr. Muller and
his assigns;
. call rights granted to Panolam Holdings and put rights granted to Mr.
Muller with respect to shares of common stock and securities convertible
into shares of common stock upon the termination of Mr. Muller's
employment;
. drag-along rights pursuant to which The Carlyle Group and its affiliates
can compel the sale by Mr. Muller and his assigns of their stock in
certain transactions;
. tag-along rights pursuant to which Mr. Muller and his assigns have the
right to participate in certain sales of stock by The Carlyle Group and
its affiliates;
. the agreement of Mr. Muller and his assigns to vote in favor of, and
against the removal of, certain board nominees or members; and
. demand and piggyback registration rights relating to the registration of
the common stock and securities convertible into the common stock of
Panolam Holdings.
New Stockholders' Agreement
In connection with the Carlyle Transactions, Panolam Holdings entered into a
Stockholders' Agreement with all of the holders of its outstanding common stock
other than Robert J. Muller, Jr., including Panolam Acquisition Company, a
Carlyle affiliate which directly holds Panolam Holding's common stock, Genstar
Capital Partners and StarGen. The agreement covers common stock of Panolam
Holdings currently held by these parties, as well as any shares of common stock
of Panolam Holdings later acquired by them. The agreement provides for, among
other things,
. transfer restrictions, including a right of first refusal pursuant to
which Panolam Holdings and Panolam Acquisition Company have a right of
first refusal on any proposed transfer of Panolam Holdings' common stock
by Genstar Capital Partners or StarGen;
. tag-along rights pursuant to which Genstar Capital Partners and StarGen
have the right to participate in certain sales of Panolam Holdings'
common stock by Panolam Acquisition Company;
. drag-along rights pursuant to which Panolam Acquisition Company can
compel Genstar Capital Partners and StarGen to sell their shares of
Panolam Holdings' common stock under certain circumstances;
. the agreement of Genstar Capital Partners and StarGen to vote in favor
of a sale of Panolam Holdings under certain circumstances;
81
<PAGE>
. piggyback registration rights relating to the registration of Panolam
Holdings' common stock held by Genstar Capital Partners and StarGen in
the event that Panolam Holdings should initiate a registration of its
shares; and
. preemptive rights pursuant to which Genstar Capital Partners and StarGen
have the right to participate in future sales of Panolam Holdings'
common stock.
Management Agreement
In connection with the Carlyle Agreement, we entered into a Management
Agreement with TC Group Management, L.L.C., an affiliate of The Carlyle Group.
The agreement provides for, among other things, the payment by us of fees in
the amount of $1 million per year in exchange for certain oversight services to
be rendered. In addition, we have agreed to reimburse The Carlyle Group and its
personnel for any expenses they incur in connection with the performance of the
foregoing services.
Old 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, providing for certain rights
with respect to shares of common stock of Panolam Holdings. This agreement was
terminated in connection with the Carlyle Transactions.
Genstar Transactions
One of our U.S. operating subsidiaries and our Canadian operating subsidiary
entered into a Management Advisory and Consulting Services Agreement with
Genstar Capital, which was to terminate by its terms on June 6, 2006. Pursuant
to such agreement, Genstar Capital 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
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 paid 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 Pioneer Transactions, the total annual management fee then payable
to Genstar Capital thereunder will increase to approximately $1.4 million,
which amount would increase by 3% per year on each June 7 thereafter. This
increase was subject to certain limitations described in the indenture. See
"Description of Exchange Notes--Certain Definitions--Management Services
Agreement." This management agreement was terminated in connection with the
Carlyle Transactions, and all fees and expenses accrued thereunder as of the
closing of the Carlyle Transactions were paid in full.
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 Pioneer Transactions, plus its reasonable out-of-pocket
expenses, in connection with its negotiation of the Pioneer Transactions and
for providing us with certain financial advisory and management consulting
services for obtaining the financing for the Pioneer 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."
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<PAGE>
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 our capital account. See
"The Pioneer Transactions--The DLJ/Credit Suisse Refinancing" and "Principal
Stockholders."
Stock Option Agreement
We, Genstar Capital Partners, and Domtar Industries were parties to a Stock
Option Agreement, dated June 7, 1996, as amended. Pursuant to such agreement,
we 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 owned at least 20% of the outstanding capital stock of Panolam
Holdings, Genstar Capital Partners had to be one of the stockholders requesting
exercise of this option. Further, if certain indebtedness of our Canadian
operating subsidiary remained outstanding, or if certain conditions were met
with respect to us pledging our capital stock, this option was not exercisable.
The option exercise price equaled $1,000.00 divided by the total number of
outstanding shares of our Canadian operating subsidiary and expired by its
terms on June 6, 2006. The exercise of this option was not permitted under the
terms of the notes. See "Discussion of Exchange Notes--Certain Covenants--
Limitations on Sales of Assets and Subsidiary Stock." This agreement was
terminated in connection with the Carlyle Transactions.
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 Certain Indebtedness
New Credit Facilities
In connection with the Carlyle Transactions, we entered into a Credit
Agreement with Bankers Trust Company and other senior lenders that replaced our
former credit agreements with DLJ, Credit Suisse and other senior lenders.
Under our Bankers Trust Credit Agreement, we and our Canadian operating
subsidiary are borrowers, certain of our other affiliates are guarantors, and
Bankers Trust Company is Administrative Agent for the other senior lenders
party to the Credit Agreement (such lenders are collectively referred to as the
"Lenders"). The following is a summary description of the principal terms of
the our new credit facilities. A copy of the Bankers Trust Credit Agreement has
been filed as an exhibit 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 qualified in its entirety by reference to, the Bankers
Trust Credit Agreement.
Structure
Overview. The Bankers Trust Credit Agreement provides for up to $285.0
million in senior secured financing, including provisions for U.S. and Canadian
facilities, and consists of (i) a revolving credit facility in a maximum
principal amount up to $50 million at any time outstanding (the "Revolving
Facility"), and (ii) term loans in an aggregate principal amount of up to
$235.0 million (the "Term Loans") consisting of: (A) a $50.0 million five-year
tranche A term loan (the "Tranche A Term Loan"), (B) a five-year term loan
denominated in Canadian Dollars (the "Canadian Term Loan"), in an aggregate
principal amount of Canadian $73,435,000 and (C) a seven-year tranche B term
loan (the "Tranche B Term Loan") in an aggregate principal amount of up to
$135.0 million. Our Canadian operating subsidiary is the borrower of the
Canadian Term Loan, and we are the borrower of the other Term Loans and under
the Revolving Facility. Except for borrowings under the Canadian Term Loan, all
borrowings under the Bankers Trust Credit Agreement are denominated in U.S.
Dollars.
The Tranche A Term Loan may be increased to an aggregate principal amount of
$75 million in certain circumstances in which the Tranche B Term Loan is not
funded, as described below.
Uncommitted Acquisition Loan. In addition, the Bankers Trust Credit Agreement
provides, on an uncommitted basis, for a three-year revolving acquisition loan
facility (the "Acquisition Facility"), in an aggregate principal amount of up
to $50.0 million. On November 24, 2002, any outstanding borrowings under the
Acquisition Facility will be converted into a term loan (the "Acquisition Term
Loan") maturing on November 24, 2004, at which time all outstanding
indebtedness thereunder will become due.
Tranche A and Canadian Term Loans. The Tranche A Term Loan was funded in an
amount equal to $50,000,000 on November 24, 1999. If the Tranche B Term Loan is
not funded because the repurchase price of our old notes which are tendered to
us for repurchase pursuant to our change in control offer is equal to or less
than $25,000,000 in the aggregate, an additional amount equal to the lesser of
$25,000,000 or the repurchase price of our old notes so tendered may be funded
thereunder, in a single borrowing not later than five business days after the
expiration of our change of control offer. See "The Carlyle Transactions--The
Change of Control Offer." The proceeds of such additional funding of the
Tranche A Term Loan may be used only to pay the repurchase price for our old
notes tendered for repurchase in the connection with our change of control
offer. The Canadian Term Loan was funded in full on November 24, 1999. Amounts
repaid under the Tranche A Term Loan and the Canadian Term Loan cannot be
reborrowed. The Tranche A Term Loan and the Canadian Term Loan will mature on
November 24, 2004, at which time all outstanding indebtedness thereunder will
become due.
Tranche B Term Loan. The Tranche B Term Loan is permitted to be used only to
pay the repurchase price for our old notes tendered for repurchase in
connection with our change in control offer, as described in "The Carlyle
Transactions--The Change of Control Offer." Among other conditions, the amount
borrowed
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<PAGE>
under the Tranche B Term Loan must be at least $25 million and is limited to
the aggregate amounts we are required to pay in connection with our change of
control offer. The Tranche B Term Loan will mature on November 24, 2006, at
which time all outstanding indebtedness will become due.
Revolving Facility. Loans and letters of credit under the Revolving Facility
are available at any time during a five-year availability period, subject to
the satisfaction of customary conditions precedent, including the absence of a
default under the Bankers Trust Credit Agreement. The Revolving Facility is
available to fund the working capital requirements, permitted acquisitions,
capital expenditures and general corporate purposes of us and our subsidiaries.
The Revolving Facility may also be used to fund any repurchases that we are
required to make pursuant to our change of control offer, if either (a) such
purchases in the aggregate amount to $25 million or less, to fund the entire
amount of the purchases, or (b) such purchases exceed the amount of the Tranche
B Term Loan, to fund the shortfall. The Revolving Facility will terminate on
November 24, 2004, at which time all outstanding indebtedness thereunder will
become due.
Amortization; Mandatory Prepayment
We and our Canadian operating subsidiary are required to repay the Term Loans
as follows.
Tranche A Term Loan. The Tranche A Term Loan has a final maturity date of
November 24, 2004. Quarterly amortization is required prior to that date, with
payments on the last day of each March, June, September and December, resulting
in annual payments as follows (subject to proportionate adjustment if an
additional amount of the Tranche A Term Loan is funded in connection with the
our change in control offer, as described above):
<TABLE>
<CAPTION>
Tranche A
Annual amortization
Year amount
---- -------------------
<S> <C>
1................... $ 5,000,000
2................... $ 7,500,000
3................... $10,000,000
4................... $12,500,000
5................... $15,000,000
-----------
Total............. $50,000,000
===========
Canadian Term Loan. The Canadian Term Loan has a final maturity date of
November 24, 2004. Quarterly amortization is required, with payments on the
last day of each March, June, September and December, resulting in annual
payments as follows:
<CAPTION>
Canadian Term Loan
Annual amortization
Year amount
---- --------------------
<S> <C>
1................... Canadian $ 7,343,500
2................... Canadian $11,015,250
3................... Canadian $14,687,000
4................... Canadian $18,358,750
5................... Canadian $22,030,500
--------------------
Total............. Canadian $73,435,000
====================
</TABLE>
Tranche B Term Loan. The Tranche B Term Loan has a final maturity date of
November 24, 2006. Quarterly amortization is required, resulting in aggregate
annual payments equal to 1.0% of the original aggregate principal amount of the
Tranche B Term Loan during each of the first five years following the closing
date, and equal to 47.5% of the original aggregate principal amount in the
sixth and seventh years.
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<PAGE>
Acquisition Term Loan. If the Acquisition Term Loan is made on November 24,
2002 (the "Conversion Date"), quarterly amortization will be required,
resulting in aggregate annual payments equal to 40.0% of the original aggregate
principal amount of the Acquisition Term Loan during the first year following
the Conversion Date, and equal to 60.0% of the original aggregate principal
amount in the second year.
Mandatory Prepayments. In addition to amortization payments, the Term Loans
(and, after the Term Loans are fully paid, amounts outstanding under the
Revolving Facility) are required to be prepaid, with customary exceptions, from
the proceeds of certain asset sales, the incurrence of additional debt (other
than permitted indebtedness), the sale or issuance of equity securities by
Panolam Holdings or any of its subsidiaries, from insurance and condemnation
proceeds, and from a percentage of excess cash flow. Voluntary prepayment of
all or any part of any of the loans under the Bankers Trust Credit Agreement 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 and
to certain allocations of prepayments among the different loan facilities.
Guarantees; Security
Our obligations under the Bankers Trust Credit Agreement are guaranteed by
Panolam Holdings and each of its direct and indirect domestic subsidiaries,
other than us (the "U.S. Facilities Guarantee"). The U.S. Facilities Guarantee
is senior to guarantees by the same guarantors with respect to the notes. In
addition, Panolam Holdings and each of its direct and indirect domestic
subsidiaries, including us, guarantee the obligations of our Canadian operating
subsidiary under the Canadian Term Loan (the "Canadian Facility Guarantee").
The Canadian Facility Guarantee is subordinated in right of payment to our
obligations in respect of the U.S. Facilities Guarantee but is senior to the
guarantees with respect to the notes.
Our obligations under the Bankers Trust Credit Agreement and under the
Canadian Facility Guarantee are secured by a first priority lien on
substantially all of our tangible and intangible assets (except as described
below with respect to the stock of Panolam Canada and certain intercompany
indebtedness) including the stock and intercompany debt of our domestic
subsidiaries. Our obligations under the Bankers Trust Credit Agreement and
under the Canadian Facility Guarantee are also secured by liens on 65% of the
stock of our Canadian operating subsidiary. The obligations of our Canadian
operating subsidiary under the Canadian Term Loan are secured by a first
priority lien on substantially all of its tangible and intangible assets. The
obligations of Panolam Holdings and its direct and indirect domestic
subsidiaries under the U.S. Facilities Guarantee and the Canadian Facility
Guarantee are secured by a first priority lien on all of the capital stock of
their respective domestic subsidiaries and, with certain limited exceptions, by
a first priority lien on substantially all of their respective tangible and
intangible assets.
Interest Rates
U.S. Facilities. Our borrowings under the Term Loans and the Revolving
Facility bear interest, at our option, at (i) a base rate, defined as the
higher of the Administrative Agent's prime lending rate or 1/2 of 1% above the
federal funds rate ("BR"), or (ii) a eurodollar rate, defined as the offered
quotation to first-class banks in the New York interbank eurodollar market by
the Administrative Agent for dollar deposits of amounts in same day funds
comparable to the outstanding principal amount of the applicable loan with
maturities comparable to the interest period to be applied to such loan,
divided by a percentage equal to 100% minus the then stated maximum rate of all
reserve requirements applicable to member banks of the Federal Reserve System
in respect of eurocurrency liabilities ("ER"), in each case plus applicable
margins, which (in the case of the Revolving Facility and the Tranche A Term
Loan only) vary based on the aggregate outstanding principal amounts of the
Term Loans, and the Acquisition Term Loan, (calculated in U.S. Dollars) from
time to time (the "Senior Leverage Amount"). Initially, the applicable margin
for the Revolving Facility and the Tranche A Term Loan is BR plus 125 basis
points or ER plus 225 basis points. The margins for the Tranche B Term Loan is
to be BR plus 175 basis points or ER plus 275 basis points.
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Canadian Term Loan. The Canadian Term Loan bears interest at the greater of
(i) the prime rate of Deutsche Bank Canada (the "CBR") and (ii) the sum of (x)
the average of the rates per annum of for Canadian Dollar bankers' acceptances
having a term of 30 days on the determination date, and (y) 0.75%, in each case
plus the applicable margin, which varies based on the Senior Leverage Amount.
Initially, the applicable margin for the Canadian Term Loan is CBR plus 125
basis points.
Fees
We are required to pay the Lenders under the Revolving Facility, the Tranche
B Term Loan and the Acquisition Facility an ongoing commitment fee based on the
daily average unused portion of the Revolving Facility, which fee will accrue
from the closing date under the Bankers Trust Credit Agreement. We and our
Canadian operating subsidiary are also obligated to pay ongoing letter of
credit fees on the daily average undrawn amount of all outstanding letters of
credit issued for our respective accounts and issuance fees on the aggregate
stated amount of outstanding letters of credit issued for our respective
accounts. In addition, we paid certain one-time underwriting and other fees to
the Lenders upon the closing.
Representations and Warranties
The Bankers Trust Credit Agreement contains representations and warranties
customarily found in loan agreements for similar financings.
Covenants
The Bankers Trust Credit Agreement contains a number of covenants that, among
other things, restrict the ability of Panolam Holdings and its subsidiaries
(including us and our Canadian operating subsidiary) 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, incur contingent
obligations, make investments, loans or advances, make acquisitions, engage in
mergers, 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 Bankers Trust Credit Agreement contains financial covenants that
require Panolam Holdings and its subsidiaries to maintain, on a consolidated
basis, specified financial ratios and tests, including minimum interest
coverage and maximum leverage ratios, and limitations on capital expenditures.
Events of Default
The Bankers Trust Credit Agreement contains 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, 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 us and our Canadian operating
subsidiary) in certain circumstances as set forth in the Bankers Trust Credit
Agreement.
Other Indebtedness
On September 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 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 void or
alter 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 September 30, 1999, we had outstanding on a consolidated basis an
aggregate of approximately $237.7 million of consolidated Indebtedness,
approximately $100.4 million of Senior Debt, no other pari passu Indebtedness
that is secured and effectively senior to the Notes and the Guarantees and
approximately $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).
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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 September 30, 1999 had
$47.8 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.
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,
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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 void or alter 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
On December 21, 1999, we commenced a tender offer and a consent solicitation
with respect to the notes. In connection with the tender offer, we are
soliciting the consent of the holders of the notes to amend the notes and the
related indenture in exchange for the payment of a consent fee in cash equal to
1.5% of the principal amount of the notes for which consents are delivered. If
we obtain consents from the holders of at least 2/3 in principal amount of the
outstanding notes, the covenant described below under the caption "Repurchase
of Notes at the Option of the Holder upon a Change of Control" will be
eliminated from the indenture. If we obtain consents from the holders of a
majority in principal amount of the outstanding notes, the rest of the
covenants described below, except for the covenant described below under the
caption "Limitation on Status as Investment Company," will be eliminated from
the indenture. If we do not obtain consents from the holders of a majority in
principal amount of the outstanding notes, all of the covenants described below
will remain in the indenture.
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
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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.
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.
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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.
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.
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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.
The recapitalization of Panolam Holdings effected in connection with the
Carlyle Transactions constituted a Change of Control, within the meaning of the
Indenture. As a result, under the terms of the Indenture, the Holders of Notes
may require us, at their option, to repurchase all or any part of their notes
at a cash price equal to 101% of the principal amount of the notes, plus
accrued interest and any Liquidated Damages that have accrued under the Notes.
We have commenced an offer to repurchase the Notes in accordance with the terms
of the Indenture. If you elect to tender all or any part of your Notes for
repurchase, you may not exchange such Notes, or the portion of such Notes that
is tendered for repurchase, for exchange notes in connection with the exchange
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 another transaction involving a Change of
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.
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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).
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
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(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 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
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(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.
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.
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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.
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.
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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; 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
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(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 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
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(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 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):
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(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 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.
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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 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
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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
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
In connection with the tender offer that we commenced on December 21, 1999,
we are soliciting the consents of the holders of the notes to amend the notes
and the related indenture in exchange for the payment of a consent fee. If we
obtain consents from the holders of a majority in principal amount of the
outstanding notes, the indenture will only contain the Events of Default
described below that relate to nonpayment of principal, interest or liquidated
damages on the notes, failure to comply with the covenants that remain in the
indenture and certain bankruptcy events relating to us or our Significant
Subsidiaries. If we do not obtain consents from the holders of a majority in
principal amount of the outstanding notes, all of the Events of Default
described below will remain in the indenture.
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.
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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 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;
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(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.
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
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(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 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.
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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.
"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,
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(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.
Our Canadian Credit Agreement with DLJ, Credit Suisse and other senior
lenders described above was refinanced in connection with the Carlyle
Transactions and replaced with our new Bankers Trust credit agreement.
"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 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
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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
(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
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(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),
(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,
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(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.
Our Credit Agreement with DLJ, Credit Suisse and other senior lenders
described above was refinanced in connection with the Carlyle Transactions and
replaced with our new Bankers Trust credit agreement.
"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.
"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.
On October 13, 1999, the Rugby Stock Purchase Agreement was amended to delete
the earn out payments otherwise payable thereunder.
"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,
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(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
(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,
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(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
(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;
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(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 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.
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"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.
Our Management Services Agreement with Genstar Capital described above was
terminated in connection with the Carlyle Transactions.
"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 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.
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"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 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;
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(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
(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;
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(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 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.
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"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
(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.
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"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
(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.
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"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 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.
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"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.
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.
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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 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
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(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
(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,
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<PAGE>
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.
On July 18, 1999, we began to accrue liquidated damages under the
Registration Rights Agreement because the Exchange Offer Registration Statement
required by that agreement (of which this prospectus forms a part) had not been
declared effective by the SEC. As of December 27, 1999, we had accrued an
aggregate of $235,000 of liquidated damages under the registration rights
agreement. Liquidated damages stopped accruing under the Registration Rights
Agreement when the Exchange Offer Registration Statement required by that
agreement (of which this prospectus forms a part) was declared effective by the
SEC. All liquidated damages which have accrued under the Registration Rights
Agreement will be paid in the manner provided for the payment of interest on
the notes.
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
Legal Matters
The validity of the exchange notes offered hereby will be passed upon for us
by Latham & Watkins, 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. Complete copies of the material contracts, agreements or other
documents referred to in this prospectus are 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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<PAGE>
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 September 30, 1999........................ F-28
Consolidated Statements of Operations for the three months and nine
months ended September 30, 1998 and 1999............................... F-29
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1998 and 1999............................................ F-30
Notes to Consolidated Financial Statements.............................. F-31
DOMTAR DECORATIVE PANELS (a Division of Domtar Inc.)
Auditors' Report........................................................ F-40
Combined Divisional Statement of Operations for the period from January
1 to June 11, 1996..................................................... F-41
Combined Divisional Statement of Owner's Equity for the period from
January 1 to June 11, 1996............................................. F-42
Combined Divisional Statement of Cash Flows for the period from January
1 to June 11, 1996..................................................... F-43
Notes to Combined Divisional Financial Statements....................... F-44
PIONEER PLASTICS CORPORATION
Report of Independent Accountants....................................... F-50
Balance Sheets as of December 26, 1997 and December 25, 1998............ F-51
Statements of Income and Retained Earnings for the years ended December
27, 1996, December 26, 1997 and December 25, 1998...................... F-52
Statements of Cash Flows for the years ended December 27, 1996, December
26, 1997 and December 25, 1998......................................... F-53
Notes to Financial Statements........................................... F-54
</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
May 16 December 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>
Combined Non-
Issuer and Guarantor
Guarantors Subsidiary Eliminations Consolidated
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net cash provided by operating $16,469
activities.................... $ 5,732 $13,960 $(3,223)
------- ------- ------- -------
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.................... (1,280) (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)
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.................... (2,394) (4,785) -- (7,179)
------- ------- ------- -------
Net (decrease) increase in
cash.......................... 2,058 5,634 (3,223) 4,469
Cash--Beginning of period...... 819 168 -- 987
------- ------- ------- -------
Cash--End of period............ $ 2,877 $ 5,802 $(3,223) $ 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
September 30,
1999
-------------
<S> <C>
ASSETS
Current assets:
Cash............................................................ $ 11,049
Accounts receivable:
Trade, net of allowance for doubtful accounts of $646.......... 35,605
Inventories..................................................... 39,344
Other current assets............................................ 2,077
--------
Total current assets.......................................... 88,075
Property, plant & equipment, net................................. 119,755
Deferred taxes................................................... 4,772
Goodwill......................................................... 72,489
Other non-current assets......................................... 25,012
--------
Total assets.................................................. $310,103
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt............................... $ 800
Trade accounts payable.......................................... 13,336
Accrued liabilities............................................. 19,755
Other debt and obligation under capital leases.................. 750
--------
Total current liabilities..................................... 34,641
Long term debt................................................... 234,602
Pension liabilities and accrued post retirement benefit costs.... 791
Other debt and obligation under capital leases................... 1,517
Deferred income taxes............................................ 7,209
--------
Total liabilities............................................. 278,760
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
Receivable from Panolam Industries Holdings, Inc................. (10,921)
Accumulated other comprehensive loss--cumulative translation
adjustment...................................................... (5,008)
Retained earnings................................................ 15,199
--------
Total stockholders' equity.................................... 31,343
--------
Total liabilities and stockholders' equity.................... $310,103
========
</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 Nine months ended
--------------------------- ---------------------------
September 30, September 30, September 30, September 30,
1998 1999 1998 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales............... $ 38,348 $ 89,415 $111,984 $ 239,314
Cost of goods sold...... (31,413) (64,035) (93,524) (174,421)
-------- -------- -------- ---------
Gross profit............ 6,935 25,380 18,460 64,893
Operating expenses:
Selling, general and
administrative....... (2,135) (10,685) (7,283) (27,580)
Unusual charges....... (208) -- (993) --
-------- -------- -------- ---------
Income from operations.. 4,592 14,695 10,184 37,313
Other income.......... -- -- -- 2,536
Interest expense...... (2,052) (6,705) (6,324) (17,168)
-------- -------- -------- ---------
Income before income
taxes and extraordinary
item................... 2,540 7,990 3,860 22,681
Provision for income
taxes.................. (938) (4,305) (1,428) (9,753)
-------- -------- -------- ---------
Income before
extraordinary item..... 1,602 3,685 2,432 12,928
Extraordinary item (net
of tax benefit of
$1,053)................ -- -- -- (1,794)
-------- -------- -------- ---------
Net income.............. $ 1,602 $ 3,685 $ 2,432 $ 11,134
======== ======== ======== =========
</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>
Nine months ended
---------------------------
September 30, September 30,
1998 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 2,432 $ 11,134
Extraordinary items............................... -- 2,847
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 4,400 11,158
Deferred income taxes............................ 1,370 5,445
Amortization of deferred financing costs......... 224 1,254
Pension liabilities and accrued post retirement
costs........................................... 382 --
Changes in operating assets and liabilities:
Trade and other accounts receivable............... 340 (11,513)
Other current assets.............................. 522 (996)
Inventories....................................... (506) 1,774
Trade accounts payable and accruals............... (1,231) 3,895
------- ---------
Net cash provided by operating activities.......... 7,933 24,998
------- ---------
Cash flows from investing activities:
Acquisition costs, net of acquired cash........... -- (156,505)
Acquisition of property, plant and equipment...... (1,984) (5,163)
------- ---------
Net cash used in investing activities.............. (1,984) (161,668)
------- ---------
Cash flows from financing activities:
Contribution from Parent.......................... 1,000 5,000
Repayment of long-term debt....................... (2,349) (76,674)
Proceeds from long-term debt...................... -- 240,000
Payment of financing costs........................ -- (14,593)
Obligations under capital leases.................. (207) (29)
Receivable from PIH............................... -- (10,921)
Payment of revolving credit facility, net......... (3,534) --
Bank overdraft.................................... 0 --
------- ---------
Net cash (used in) provided by financing
activities........................................ (5,090) 142,783
------- ---------
Effect of exchange rate on cash................... -- (520)
------- ---------
Net increase in cash.............................. 859 5,593
Cash--Beginning of period......................... 987 5,456
------- ---------
Cash--End of period............................... $ 1,846 $ 11,049
======= =========
Supplemental disclosure of cash flow information:
Cash payments for interest........................ $ 5,282 $ 13,958
Cash payments for income taxes.................... 116 3,976
</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 $152.1 million. 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.
The purchase price was allocated to the fair market value of assets totalling
$97.2 million (including $10.0 million allocated to non-competition agreements
and being amortized over 5 years), liabilities of $14.2 million, and $74.1
million was recorded as goodwill and is being amortized over 30 years. In
October 1999, the Company agreed to settle with Rugby USA an earnout contract
for $5.0 million. This payment to Rugby
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)
has relieved the company of all future earnout agreements with Rugby USA, and
will be recorded as additional goodwill.
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 for
approximately 50 salaried employees who are expected to be terminated by the
end of 1999. This has been accounted for as an adjustment to goodwill in the
balance sheet as of September 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 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 $5.0 million for the nine months ended September
30, 1999.
F-32
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
(unaudited)
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.
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-33
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
(unaudited)
6. Summarized consolidating information--(continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the nine months ended September 30, 1998
<TABLE>
<CAPTION>
Issuer and Non-
Parent Subsidiary Guarantor
Guarantors Guarantors Subsidiary Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ -- $ 54,619 $ 57,365 $ -- $111,984
Cost of goods sold...... -- (49,590) (43,934) -- (93,524)
------ -------- -------- ------- --------
Gross profit............ -- 5,029 13,431 -- 18,460
Operating expenses:
Selling, general and
administrative....... -- (2,948) (4,335) -- (7,283)
Unusual charges....... (61) (932) -- (993)
------ -------- -------- ------- --------
Income from operations.. -- 2,020 8,164 -- 10,184
Interest expense...... -- (1,919) (4,405) -- (6,324)
------ -------- -------- ------- --------
Income before income
taxes.................. -- 101 3,759 -- 3,860
Provision for income
taxes.................. -- (37) (1,391) -- (1,428)
Equity income from
affiliates............. 2,432 -- -- (2,432) --
------ -------- -------- ------- --------
Net income.............. $2,432 $ 64 $ 2,368 $(2,432) $ 2,432
====== ======== ======== ======= ========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the nine months ended September 30, 1999
<TABLE>
<CAPTION>
Issuer and Non-
Parent Subsidiary Guarantor
Guarantors Guarantors Subsidiary Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $ -- $ 175,308 $ 64,006 $ -- $ 239,314
Cost of goods sold...... -- (130,087) (44,334) -- (174,421)
------- --------- -------- -------- ---------
Gross profit............ -- 45,221 19,672 -- 64,893
Operating expenses:
Selling, general and
administrative....... -- (26,589) (991) -- (27,580)
------- --------- -------- -------- ---------
Income from operations.. -- 18,632 18,681 -- 37,313
Other income.......... -- -- 2,536 -- 2,536
Interest expense...... -- (13,890) (3,278) -- (17,168)
------- --------- -------- -------- ---------
Income before income
taxes and extraordinary
item................... -- 4,742 17,939 -- 22,681
Provision for income
taxes.................. -- (1,173) (8,580) -- (9,753)
Equity income from
affiliates............. 11,134 -- -- (11,134) --
------- --------- -------- -------- ---------
Income before
extraordinary item..... -- 3,569 9,359 -- 12,928
Extraordinary item, (net
of tax benefit)........ -- (320) (1,474) -- (1,794)
------- --------- -------- -------- ---------
Net income.............. $11,134 $ 3,249 $ 7,885 $(11,134) $ 11,134
======= ========= ======== ======== =========
</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 September 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................... $ -- $ 8,098 $ 2,951 $ -- $ 11,049
Accounts receivable,
net................... -- 28,541 7,064 -- 35,605
Inventories............ -- 32,338 7,006 -- 39,344
Other current assets... -- 1,696 381 -- 2,077
-------- -------- ------- -------- --------
Total current assets.. -- 70,673 17,402 -- 88,075
Property, plant &
equipment, net......... -- 65,228 54,527 -- 119,755
Deferred income taxes... -- 4,772 -- -- 4,772
Other non-current
assets................. 92,984 4,491 26 -- 97,501
Investment in
subsidiaries........... 31,131 -- -- (31,131) --
-------- -------- ------- -------- --------
Total assets.......... $124,115 $145,164 $71,955 $(31,131) $310,103
======== ======== ======= ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long
term debt............. $ 400 $ -- $ 400 $ -- $ 800
Trade accounts payable
and accrued
liabilities........... 2,415 24,057 6,619 -- 33,091
Intercompany payable
(receivable).......... (86,786) 89,315 (2,529) -- --
Other debt and
obligation under
capital leases........ 675 -- 75 -- 750
-------- -------- ------- -------- --------
Total current
liabilities.......... (83,296) 113,372 4,565 -- 34,641
Long-term liabilities:
Long term debt......... 187,201 -- 47,401 -- 234,602
Other long term
liabilities........... -- (1,921) 11,438 -- 9,517
-------- -------- ------- -------- --------
Total liabilities..... 103,905 111,451 63,404 -- 278,760
Stockholders' equity.... 20,210 33,713 8,551 (31,131) 31,343
-------- -------- ------- -------- --------
Total liabilities and
stockholders' equity. $124,115 $145,164 $71,955 $(31,131) $310,103
======== ======== ======= ======== ========
</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 nine months ended September 30, 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... -- $1,941 $5,992 -- $7,933
----- ------ ------ ----- ------
Cash flows from
investing activities:
Acquisition costs, net
of acquired cash...... --
Acquisition of
property, plant and
equipment............. (420) (1,564) (1,984)
----- ------ ------ ----- ------
Net cash used in
investing activities... -- (420) (1,564) -- (1,984)
----- ------ ------ ----- ------
Cash flows from
financing activities:
Contribution from
parent................ 1,000 1,000
Repayment of long-term
debt.................. (495) (1,854) (2,349)
Decrease (increase) in
intercompany debt..... --
Payment of financing
costs................. --
Obligation under
capital leases........ (154) (53) (207)
Payment of revolving
credit facility, net.. (845) (2,689) (3,534)
Bank overdraft......... --
----- ------ ------ ----- ------
Net cash used in
financing activities... -- (494) (4,596) -- (5,090)
----- ------ ------ ----- ------
Net (decrease) increase
in cash................ -- 1,027 (168) -- 859
Cash--Beginning of
period................. -- 819 168 -- 987
----- ------ ------ ----- ------
Cash--End of period..... $ -- $1,846 $ -- $ -- $1,846
===== ====== ====== ===== ======
</TABLE>
F-36
<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 nine months ended September 30, 1999
<TABLE>
<CAPTION>
Issuer and Non-
Parent Subsidiary Guarantor
Guarantors Guarantors Subsidiary Eliminations Consolidated
---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash (used in)
provided by operating
activities............. $(4,714) $ 11,568 $ 18,144 $ -- $ 24,998
------- -------- -------- ----- ---------
Cash flows from
investing activities:
Acquisition costs, net
of acquired cash...... (78,188) (78,317) -- -- (156,505)
Acquisition of
property, plant and
equipment............. -- (4,203) (960) -- (5,163)
------- -------- -------- ----- ---------
Net cash used in
investing activities... (78,188) (82,520) (960) -- (161,668)
------- -------- -------- ----- ---------
Cash flows from
financing activities:
Issue of common stock.. 5,000 -- -- -- 5,000
Repayment of long-term
debt.................. (2,400) (17,808) (56,466) -- (76,674)
Proceeds from long-term
debt.................. 190,000 -- 50,000 -- 240,000
(Decrease) increase in
intercompany debt..... (84,184) 97,204 (13,020) -- --
Payment of financing
costs................. (14,593) -- -- -- (14,593)
Receivable from PIH.... (10,921) -- -- -- (10,921)
Obligation under
capital leases........ -- -- (29) -- (29)
------- -------- -------- ----- ---------
Net cash provided by
(used in) financing
activities............. 82,902 79,396 (19,515) -- 142,783
------- -------- -------- ----- ---------
Effect of exchange rate
on cash................ -- -- (520) -- (520)
------- -------- -------- ----- ---------
Net increase (decrease)
in cash................ -- 8,444 (2,851) -- 5,593
Cash--Beginning of
period................. -- (346) 5,802 -- 5,456
------- -------- -------- ----- ---------
Cash--End of period..... $ -- $ 8,098 $ 2,951 $ -- $ 11,049
======= ======== ======== ===== =========
</TABLE>
Note 7--Subsequent Event
On November 24, 1999, Panolam Holdings was recapitalized. In connection with
the recapitalization,
. an affiliate of The Carlyle Group purchased certain shares of common
stock of Panolam Holdings from its stockholders and directly from
Panolam Holdings for an aggregate purchase price of approximately $148
million.
. Panolam Holdings redeemed certain shares of its common stock from
certain of its stockholders for an aggregate purchase price of $19
million, payable with junior subordinated promissory notes, and
. Panolam Holdings accelerated the vesting and cancelled all of its
outstanding stock options in exchange for a cash payment based upon the
value of such options, or approximately $8.6 million in the aggregate.
Concurrently with the recapitalization, Robert J. Muller, Jr., our president
and chief executive officer, also purchased additional shares of common stock
of Panolam Holdings for a purchase price of approximately $3.5 million.
F-37
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
(unaudited)
Note 7--Subsequent Event--(continued)
Panolam Holdings has incurred approximately $8 million in expenses as a
result of the recapitalization which were funded by proceeds from the
transactions.
The recapitalization constituted a change of control under the terms of our
indenture relating to the notes. As a result, under the terms of the indenture,
the holders of the notes may require us, at their option, to repurchase all or
any part of their notes at a cash price equal to 101% of the principal amount
of the notes, plus accrued and unpaid interest and any liquidated damages that
have accrued under the notes. We have commenced an offer to repurchase the
notes in accordance with the terms of the indenture.
Concurrently with the recapitalization, we also refinanced all of our
indebtedness under our former DLJ/Credit Suisse credit facilities by entering
into new credit facilities with Bankers Trust Company and other senior lenders.
Our new credit facilities provide for an aggregate committed amount of up to
$285 million, consisting of up to $235 million of term loans and a $50 million
revolving loan. We used a portion of the funds available under our new credit
facilities to repay all of our indebtedness under our former DLJ/Credit Suisse
credit facilties. We intend to use the funds remaining under our new credit
facilities to fund the offer to repurchase our outstanding notes described
above, and for working capital requirements, permitted encumbrances, capital
expenditures and other general corporate purposes. Our new credit facilities
also provide for an uncommitted acquisition loan facility of $50 million to
fund future permitted acquisitions.
On December 21, 1999, we commenced a tender offer and a consent solicitation
with respect to the outstanding Series A Senior Subordinated Notes. Our tender
offer consists of an offer to purchase all of the outstanding notes at 101% of
their principal value, plus accrued and unpaid interest and liquidated damages.
In connection with the tender offer, we are also soliciting the consent of the
holders of the notes to amend the notes and the related indenture in exchange
for the payment of a consent fee in cash equal to 1.5% of the principal value
of the notes for which a consent is given. Our tender offer expires on January
21, 2000, unless extended. We intend to finance any payments made to repurchase
the notes and to pay the consent fee with funds borrowed under our new credit
facilities.
F-38
<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-39
<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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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-48
<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-49
<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-50
<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-51
<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-52
<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-53
<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-54
<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-55
<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-56
<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-57
<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-58
<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.............................................................. 14
The Pioneer Transactions.................................................. 25
The Carlyle Transactions.................................................. 25
Use of Proceeds........................................................... 29
Capitalization............................................................ 29
The Exchange Offer........................................................ 30
Unaudited Pro Forma Combined Financial Data............................... 39
Selected Historical Financial Data........................................ 45
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 49
Business.................................................................. 59
Management................................................................ 72
Security Ownership of Certain Beneficial Owners and Management............ 78
Certain Relationships and Related Transactions............................ 80
Description of Certain Indebtedness....................................... 84
Description of Exchange Notes............................................. 88
Material Federal Income Tax Consequences of the Exchange Offer............ 129
Plan of Distribution...................................................... 133
Legal Matters............................................................. 134
Experts................................................................... 134
Where You Can Find Additional Information................................. 134
Index to Financial Statements ............................................ F-1
</TABLE>
---------------
Until , 2000 (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.
2.3 Amendment No. 5 to Stock Purchase Agreement dated as of October 13, 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 Latham & Watkins
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
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
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.
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
10.15 Stock Purchase and Redemption Agreement, dated as of October 14, 1999 by and among
Genstar Capital Partners II, L.P., StarGen II LLC, Robert J. Muller, Jr., Panolam
Acquisition Company, L.L.C. and Panolam Industries Holdings, Inc.
10.16 Employment Agreement, dated as of November 24, 1999, by and among Panolam
Industries International, Inc., Panolam Industries Holdings, Inc. and Robert J.
Muller, Jr.
10.17 Executive Stockholders' Agreement, dated as of November 24, 1999, by and among
Panolam Industries Holdings, Inc., Panolam Acquisition Company, L.L.C. and Robert
J. Muller, Jr.
10.18 Executive Stock Option Agreement, dated as of November 24, 1999, by and among
Panolam Industries Holdings, Inc. and Robert J. Muller, Jr.
10.19 Executive Stock Purchase Agreement, dated as of November 24, 1999, by and among
Panolam Industries Holdings, Inc. and Robert J. Muller, Jr.
10.20 Executive Stock Pledge Agreement, dated as of November 24, 1999, by and among
Panolam Industries Holdings, Inc. and Robert J. Muller, Jr.
10.21 Promissory Note, dated November 24, 1999, from Robert J. Muller, Jr. to Panolam
Industries Holdings, Inc.
10.22 Stockholders Agreement, dated as of November 24, 1999, by and among Panolam
Industries Holdings, Inc., Panolam Acquisition Company, L.L.C., Genstar Capital
Partners II, L.P., StarGen II LLC.
10.23 Management Agreement, dated as of November 24, 1999, by and among Panolam
Industries International, Inc. and TC Group Management, L.L.C.
10.24 Credit Agreement, dated as of November 24, 1999, by and among Panolam Acquisition
Company, L.L.C., Panolam Industries Holdings, Inc., Panolam Group, Inc., PII
Second, Inc., Panolam Industries International, Inc., Panolam Industries Ltd.,
the Lenders party thereto from time to time and Bankers Trust Company, as
Syndication Agent and Administrative Agent.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.25 Promissory Note, dated November 24, 1999, from Panolam Industries Holdings, Inc. to Genstar Capital
Partners II, L.P.
10.26 Promissory Note, dated November 24, 1999, from Panolam Industries Holdings, Inc. to StarGen II LLC.
10.27 Warrant Agreement, dated as of November 24, 1999, among Panolam Industries Holdings, Inc., Genstar
Capital Partners II, L.P., and StarGen II LLC.
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 Latham & Watkins (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.
II-4
<PAGE>
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 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-5
<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 December 28, 1999.
ISSUER:
PANOLAM INDUSTRIES INTERNATIONAL, INC.
/s/ Robert J. Muller, Jr.
By: __________________________________
Name: Robert J. Muller, Jr.
Title: Chairman, 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-6
<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. Chairman, President, December 22, 1999
__________________________________ Chief Executive Officer
Robert J. Muller, Jr. (principal executive
officer) and Director
of the Issuer and each
Guarantor
/s/ Michael C. Malota Controller (principal December 22, 1999
__________________________________ financial officer and
Michael C. Malota principal accounting
officer) of the Issuer
and each Guarantor
/s/ Jerome H. Powell Director of the Issuer December 22, 1999
---------------------------------- and each Guarantor
Jerome H. Powell
/s/ Philip B. Dolan Director of the Issuer December 22, 1999
---------------------------------- and each Guarantor
Philip B. Dolan
/s/ W. Robert Dahl Director of the Issuer December 22, 1999
---------------------------------- and each Guarantor
W. Robert Dahl
</TABLE>
II-7
<PAGE>
Report of Independent Accountants on
Financial Statement Schedule
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 schedule listed in Item 21 (b) of this Form S-4. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
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 $ 99 $ (437) $ 226
Reserve for excess and obsolete
inventory....................... 512 472 (797) 187
------ ------ ------- ------
Total.......................... $1,076 $ 571 $(1,234) $ 413
====== ====== ======= ======
Year ended December 31, 1997
Deducted from asset accounts:
Allowance for doubtful accounts.. $ 642 $ 170 $ (248) $ 564
Reserve for excess and obsolete
inventory....................... 1,118 1,113 (1,719) 512
------ ------ ------- ------
Total.......................... $1,760 $1,283 $(1,967) $1,076
====== ====== ======= ======
Period from May 16, 1996 to
December 31, 1996
Deducted from asset accounts:
Allowance for doubtful accounts.. $ 587 $ 104 $ (49) $ 642
Reserve for excess and obsolete
inventory....................... 852 529 (263) 1,118
------ ------ ------- ------
Total.......................... $1,439 $ 633 $ (312) $1,760
====== ====== ======= ======
</TABLE>
- ---------------------
(1) Primarily represents the utilization of established reserves, net of
recoveries.
S-2
<PAGE>
EXHIBIT 2.3
AMENDMENT NO. 5
TO STOCK PURCHASE AGREEMENT
AMENDMENT NO. 5, dated as of October 13, 1999 ("Amendment No.
5"), to that certain Stock Purchase Agreement, dated as of July 17, 1998, and as
amended as of September 11, 1998, October 16, 1998, November 30, 1998 and May
25, 1999 (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., a
Delaware corporation (formerly known as PII Third, Inc.)
(the "Buyer").
WITNESSETH:
----------
WHEREAS, the Seller and the Buyer desire to amend the Agreement as
described below.
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
hereby agree to amend the Agreement pursuant to Section 17(m) thereof as
follows:
SECTION 1. Resolution of Disputes as to Closing Net Operating Assets
Statement. The Buyer and the Seller acknowledge their having differences with
respect to the Closing Net Operating Assets Statement delivered by the Buyer to
the Seller on May 19, 1999, and disputed by the Seller in its letter to the
Buyer, dated June 11, 1999 (the "Dispute Letter"). The Dispute Letter (and the
Exhibits A, B and C thereto) reflected an adjustment (reduction) to the
Estimated Purchase Price ($149,100,000) in the amount of $1,974,552, which
amount plus interest thereon of $53,489 was paid by the Seller to the Buyer by
wire transfer of $2,028,041 on or about June 11, 1999. Accordingly, the Buyer
and the Seller acknowledge and agree that the Estimated Purchase Price, as so
adjusted, was $147,125,478. The Buyer and the Seller further agree that the
Estimated Purchase Price shall hereby be adjusted (reduced) to $145,885,389 and
that the $5,000,000 payment to be made by the Buyer to the Seller described in
Section 5 of this Amendment is net of the disputed $1,240,089 amount payable by
the Seller to the Buyer pursuant to Section 2(e)(iv) of the Agreement as a
result of this adjustment (reduction). The Buyer and the Seller finally agree
that the Estimated Purchase Price, as so adjusted, shall equal and be the
Purchase Price and that no further adjustment shall be made pursuant to Section
2(e)(iv) or otherwise under the Agreement.
SECTION 2. Deletion of "Additional Consideration." The Agreement is
hereby amended to delete Section 2(e)(v) so that no Earn-Out Amount shall be
paid by the Buyer to the Seller.
SECTION 3. Release of Indemnification Claim. The Seller acknowledges
that the Buyer has asserted an indemnification claim under the Agreement as
described in the Buyer's letters to the Seller, dated August 9, 20 and 31, 1999,
relating to the "Seller's computer system," the
<PAGE>
"functionality, integrity and integration" thereof and Losses allegedly
associated therewith (the "Computer System Claim").
The Buyer and the Seller further acknowledge that the reference to the
"Seller's computer system" is a reference to the computer system of Pioneer
Plastics Corporation ("Pioneer"). The Buyer acknowledges that the Seller has
denied and rejected the Computer System Claim by the Seller's letters to the
Buyer, dated August 17 and 28, 1999.
In order to avoid the burden and expense of protracted litigation, the
Buyer and the Seller desire to fully settle any and all claims related to the
Computer System Claim. Therefore, the Buyer, on its own behalf and on behalf of
each Buyer Indemnified Party, irrevocably and unconditionally releases and
forever discharges the Seller and each Seller Indemnified Party of and from any
and all past, present and future claims, suits, debts, covenants, contracts,
agreements, promises, obligations, losses, damages, costs and expenses, actions,
causes of action and demands whatsoever which relate to, arise out of or result
from the matters set forth in the Computer System Claim. The Buyer's making the
foregoing release and discharge, and the Seller's acceptance and reliance on the
same, does not constitute an admission of liability of any kind on the part of
the Seller.
SECTION 4. Amendments to Distributor Agreements. The Buyer and the
Seller hereby agree to cause Pioneer and Rugby Building Products, Inc. ("RBP"),
respectively, to execute and deliver to one another, coincident to the execution
and delivery of this Amendment No. 5, an amendment to each of the Pionite
Decorative Laminates Distributor Agreement and the Pionite Solid Surface
Distributor Agreement, dated September 14, 1998, between Pioneer and RBP in the
form of Amendment No. 1 attached hereto.
SECTION 5. Effectiveness upon Payment. Sections 1 through 4 hereof
shall become effective upon the delivery by the Buyer to the Seller of
$5,000,000 payable by wire transfer of immediately available funds to the
account specified by the Seller, such payment to be made within five Business
Days after the date hereof.
SECTION 6. Reference to and Effect on the Agreement.
(a) Upon the effectiveness of Sections 1 through 5 hereof, on and
after the date hereof each reference in the Agreement to "this Agreement," "the
Agreement," "hereunder," "hereof," "herein" or words of like import shall mean
and be a reference to the Agreement as amended by Section 1 hereof.
(b) Except as specifically amended above, the Agreement shall
remain in full force and effect and is hereby ratified and confirmed.
SECTION 7. Execution and Counterparts. This Amendment No. 5 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.
2
<PAGE>
IN WITNESS WHEREOF, each party hereto has caused its duly authorized
officer to execute this Amendment No. 5 as of the date first written above.
RUBGY USA, INC.
By:
--------------------------------
Name: R. Michael Sharp
Title: Vice President
PANOLAM INDUSTRIES INTERNATIONAL, INC.
By:
--------------------------------
Name: Robert Muller
Title: President and Chief
Executive Officer
Acknowledged
THE RUGBY GROUP PLC
By:
------------------------------
Name: R. Michael Sharp
Title: Finance Director
3
<PAGE>
EXHIBIT 5.1
[LATHAM & WATKINS LETTERHEAD]
December 28, 1999
Panolam Industries International, Inc.
20 Progress Drive
Shelton, Connecticut 06484
Re: Registration Statement on Form S-4
----------------------------------
Ladies and Gentlemen:
In connection with the registration of $135,000,0000 aggregate principal
amount of 11 1/2% Series B Senior Subordinated Notes due 2009 (the "Exchange
Notes") by Panolam Industries International, Inc., a Delaware corporation (the
"Company"), and the related guarantees (the "Guarantees") of Panolam Group,
Inc., a Delaware corporation, PII Second, Inc., a Delaware corporation, Panolam
Industries, Inc., a Delaware corporation, and Pioneer Plastics Corporation, a
Delaware corporation (collectively, the "Guarantors"), under the Securities
Exchange Act of 1933, as amended, on Form S-4 originally filed with the
Securities and Exchange Commission on May 14, 1999 (as amended and supplemented,
the "Registration Statement"), you have requested our opinion with respect to
the matters set forth below. The Exchange Notes will be issued pursuant to an
Indenture, dated as of February 18, 1999, among the Company, the Guarantors, and
State Street Bank and Trust Company, as trustee (the "Trustee"). The Exchange
Notes will be issued in exchange for the Company's 11 1/2% Series A Senior
Subordinated Notes due 2009 on the terms set forth in the prospectus forming a
part of the Registration Statement and the Letter of Transmittal filed as an
exhibit to the Registration Statement (the "Exchange Offer").
In our capacity as your special counsel in connection with the Exchange
Offer, we have made such legal and factual examinations and inquiries, including
an examination of originals or copies certified or otherwise identified to our
satisfaction of such documents, corporate records and instruments, as we have
deemed necessary or appropriate for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity to
authentic original documents of all documents submitted to us as copies.
We are opining herein as to the effect on the subject transactions only of
the General Corporation Law of the State of Delaware, including statutory and
reported decisional law thereunder, and the internal laws of the State of New
York, and we express no opinion with respect to the applicability thereto, or
the effect thereon, of the laws of any other jurisdiction or, in the case of
Delaware, any other laws, or as to any matters of municipal law or the laws of
any local agencies within any state.
<PAGE>
Subject to the foregoing and the other matters set forth herein, it is our
opinion that, as of the date hereof:
1. The Exchange Notes have been duly authorized by all necessary
corporate action of the Company, and when duly executed, issued, authenticated
and delivered in accordance with the terms of the Exchange Offer and the
Indenture, the Exchange Notes will be legally valid and binding obligations of
the Company, enforceable against the Company in accordance with their terms.
2. The Guarantees have been duly authorized by all necessary corporate
action of the Guarantors, and when duly executed, issued and delivered in
accordance with the terms of the Exchange Offer and the Indenture, the
Guarantees will be legally valid and binding obligations of the Guarantors,
enforceable against the Guarantors in accordance with their terms.
The opinions rendered above relating to the enforceability of the Exchange
Notes and the Guarantees are subject to the following exceptions, limitations
and qualifications: (i) the effect of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws now or hereafter in
effect relating to or affecting the rights and remedies of creditors; (ii) the
effect of general principles of equity, whether enforcement is considered in a
proceeding in equity or law, and the discretion of the court before which any
proceeding therefor may be brought; (iii) the unenforceability under certain
circumstances under law or court decisions of provisions providing for the
indemnification of or contribution to a party with respect to a liability where
such indemnification or contribution is contrary to public policy; (iv) the
unenforceability of any provision requiring the payment of attorney's fees,
except to the extent that a court determines such fees to be reasonable; and (v)
we express no opinion concerning the enforceability of the waiver of rights or
defenses contained in Section 4.6 of the Indenture.
To the extent that the obligations of the Company under the Indenture may
be dependent upon such matters, we assume 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, (ii) that the Trustee is duly
qualified to engage in the activities contemplated by the Indenture, (iii) that
the Indenture has been duly authorized, executed and delivered by the Trustee
and constitutes the legally valid, binding and enforceable obligation of the
Trustee, enforceable against the Trustee in accordance with its terms, (iv) that
the Trustee is in compliance, generally and with respect to acting as a trustee
under the Indenture, with all applicable laws and regulations, and (v) that the
Trustee has the requisite organizational and legal power and authority to
perform its obligations under the Indenture. We have also assumed, with your
consent, that the choice of law provisions in the Indenture would be enforced by
any court in which enforcement thereof might be sought.
We consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our firm contained under the heading "Legal
Matters."
Very truly yours,
/s/ LATHAM & WATKINS
<PAGE>
EXHIBIT 10.15
- --------------------------------------------------------------------------------
STOCK PURCHASE AND REDEMPTION AGREEMENT
dated as of October 14, 1999
by and among
GENSTAR CAPITAL PARTNERS II, L.P.
STARGEN II LLC
ROBERT J. MULLER, JR.
(the "Shareholders"),
PANOLAM ACQUISITION COMPANY, L.L.C.
(the "Purchaser")
and
PANOLAM INDUSTRIES HOLDINGS, INC.
(the "Company")
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS............................................................................. 2
SECTION 1.1 Certain Definitions.............................................................. 2
-------------------
SECTION 1.2 Certain Additional Definitions................................................... 7
------------------------------
ARTICLE II PURCHASE AND SALE OF COMPANY CAPITAL STOCK AND REDEMPTION OF REDEEMED SHARES........... 9
SECTION 2.1 Purchase and Sale of Company Common Stock........................................ 9
-----------------------------------------
SECTION 2.2 Cancellation of Company Options.................................................. 9
-------------------------------
SECTION 2.3 Redemption of Redeemed Shares.................................................... 10
-----------------------------
SECTION 2.4 Negotiation of New Credit Facility............................................... 10
----------------------------------
SECTION 2.5 The Closing; Closing Deliveries.................................................. 10
-------------------------------
SECTION 2.6 No Further Ownership Rights in Redeemed Shares or Company Options................ 12
-----------------------------------------------------------------
SECTION 2.7 Lost Share Certificates.......................................................... 12
-----------------------
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.................................... 12
SECTION 3.1 Authority........................................................................ 13
---------
SECTION 3.2 Organization..................................................................... 13
------------
SECTION 3.3 Ownership of Shares.............................................................. 13
-------------------
SECTION 3.4 Conflicts........................................................................ 14
---------
SECTION 3.5 Consents, Approvals, Etc......................................................... 14
------------------------
SECTION 3.6 Brokers.......................................................................... 14
-------
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS..................... 14
SECTION 4.1 Authority........................................................................ 15
---------
SECTION 4.2 Organization..................................................................... 15
------------
SECTION 4.3 Company Capital Stock............................................................ 15
---------------------
SECTION 4.4 Company Subsidiaries............................................................. 17
--------------------
SECTION 4.5 Conflicts........................................................................ 18
---------
SECTION 4.6 Consents, Approvals, Etc......................................................... 19
------------------------
SECTION 4.7 Financial Statements; SEC Reports................................................ 19
---------------------------------
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 4.8 Undisclosed Liabilities.......................................................... 20
-----------------------
SECTION 4.9 Certain Changes or Events........................................................ 20
-------------------------
SECTION 4.10 Tax Matters...................................................................... 21
-----------
SECTION 4.11 Litigation and Governmental Orders............................................... 23
----------------------------------
SECTION 4.12 Compliance with Laws............................................................. 23
--------------------
SECTION 4.13 Permits, Licenses, Governmental Authorizations, Etc.............................. 23
---------------------------------------------------
SECTION 4.14 Tangible Property................................................................ 24
-----------------
SECTION 4.15 Intellectual Property............................................................ 24
---------------------
SECTION 4.16 Certain Contracts................................................................ 26
-----------------
SECTION 4.17 Employee Benefit Matters......................................................... 27
------------------------
SECTION 4.18 Labor Matters.................................................................... 29
-------------
SECTION 4.19 Environmental Matters............................................................ 29
---------------------
SECTION 4.20 Insurance........................................................................ 30
---------
SECTION 4.21 Transactions with Affiliates..................................................... 30
----------------------------
SECTION 4.22 Year 2000 Compliance............................................................. 30
--------------------
SECTION 4.23 Distributors and Suppliers....................................................... 30
--------------------------
SECTION 4.24 Product Warranties; Product Recalls.............................................. 31
-----------------------------------
SECTION 4.25 Products Liability............................................................... 31
------------------
SECTION 4.26 Antitrust........................................................................ 32
---------
SECTION 4.27 Brokers; Fees and Expenses....................................................... 32
--------------------------
SECTION 4.28 Prior Agreements................................................................. 32
----------------
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER......................................... 33
SECTION 5.1 Authority........................................................................ 33
---------
SECTION 5.2 Organization..................................................................... 34
------------
SECTION 5.3 Conflicts........................................................................ 34
---------
SECTION 5.4 Consents, Approvals, Etc......................................................... 34
------------------------
SECTION 5.5 Litigation and Governmental Orders............................................... 34
----------------------------------
SECTION 5.6 Financing........................................................................ 35
---------
SECTION 5.7 Investment Intent................................................................ 35
-----------------
SECTION 5.8 Due Diligence Investigation...................................................... 35
---------------------------
SECTION 5.9 Brokers.......................................................................... 36
-------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 5.10 Solvency......................................................................... 36
--------
ARTICLE VI ADDITIONAL AGREEMENTS.................................................................. 36
SECTION 6.1 No Solicitation.................................................................. 36
---------------
SECTION 6.2 Conduct of the Company Prior to Closing.......................................... 37
---------------------------------------
SECTION 6.3 Conduct of the Purchaser Prior to Closing........................................ 39
-----------------------------------------
SECTION 6.4 Access to Information............................................................ 39
---------------------
SECTION 6.5 Confidentiality.................................................................. 40
---------------
SECTION 6.6 Efforts; Consents; Regulatory and Other Authorizations; Financing................ 40
-----------------------------------------------------------------
SECTION 6.7 Further Action................................................................... 41
--------------
SECTION 6.8 Indemnification; Officers' and Directors' Insurance.............................. 41
---------------------------------------------------
SECTION 6.9 Books and Records................................................................ 43
-----------------
SECTION 6.10 Termination of Certain Agreements; Continuation of Engagement Agreement.......... 43
-----------------------------------------------------------------------
SECTION 6.11 No Solicitation.................................................................. 43
---------------
SECTION 6.12 Tax Matters...................................................................... 43
-----------
ARTICLE VII CONDITIONS TO CLOSING................................................................. 44
SECTION 7.1 Conditions to Obligations of the Shareholders and the Company.................... 44
-------------------------------------------------------------
SECTION 7.2 Conditions to Obligations of the Purchaser....................................... 45
------------------------------------------
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.................................................... 47
SECTION 8.1 Termination...................................................................... 47
-----------
SECTION 8.2 Effect of Termination............................................................ 48
---------------------
ARTICLE IX SURVIVAL AND INDEMNIFICATION........................................................... 48
SECTION 9.1 Survival of Representations, Warranties and Covenants............................ 48
-----------------------------------------------------
SECTION 9.2 Indemnification of the Purchaser................................................. 49
--------------------------------
SECTION 9.3 Intentionally Omitted............................................................ 50
---------------------
SECTION 9.4 Indemnification of the Shareholders; Defense of Claims........................... 50
------------------------------------------------------
SECTION 9.5 Claims for Indemnification....................................................... 50
---------------------------
SECTION 9.6 Defense by Indemnifying Party.................................................... 51
-----------------------------
SECTION 9.7 Pledge of Shareholder Notes; Manner of Indemnification........................... 52
------------------------------------------------------
SECTION 9.8 Limitations on Indemnification................................................... 54
------------------------------
ARTICLE X GENERAL PROVISIONS...................................................................... 56
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
SECTION 10.1 Expenses......................................................................... 56
--------
SECTION 10.2 Costs and Attorneys' Fees........................................................ 57
-------------------------
SECTION 10.3 Notices.......................................................................... 57
-------
SECTION 10.4 Public Announcements............................................................. 58
--------------------
SECTION 10.5 Interpretation................................................................... 58
--------------
SECTION 10.6 Severability..................................................................... 59
------------
SECTION 10.7 Entire Agreement................................................................. 59
----------------
SECTION 10.8 Assignment....................................................................... 59
----------
SECTION 10.9 No Third Party Beneficiaries..................................................... 59
----------------------------
SECTION 10.10 Waivers and Amendments........................................................... 60
----------------------
SECTION 10.11 Equitable Remedies............................................................... 60
------------------
SECTION 10.12 Governing Law; Consent to Jurisdiction........................................... 60
--------------------------------------
SECTION 10.13 WAIVER OF JURY TRIAL............................................................. 61
--------------------
SECTION 10.14 Exclusivity of Representations and Warranties.................................... 61
---------------------------------------------
SECTION 10.15 Counterparts..................................................................... 61
------------
EXHIBIT 2.2 Consideration Spreadsheet........................................................
-------------------------
EXHIBIT 2.3 Schedule of Options..............................................................
-------------------
EXHIBIT 2.3A Junior Subordinated Notes Term Sheet.............................................
------------------------------------
EXHIBIT 7.1(f) Form of Stockholders Agreement...................................................
------------------------------
EXHIBIT 7.1(i) Form of Opinion of Gibson Dunn & Crutcher LLP....................................
---------------------------------------------
EXHIBIT 7.2(f) Employment Agreement Term Sheet..................................................
-------------------------------
EXHIBIT 7.2(g) Form of Opinion of Latham & Watkins..............................................
-----------------------------------
</TABLE>
iv
<PAGE>
STOCK PURCHASE AND REDEMPTION AGREEMENT
THIS STOCK PURCHASE AND REDEMPTION AGREEMENT (as amended from time to time
pursuant to the terms hereof, this "Agreement") is made and entered into as of
October 14, 1999 by and among Genstar Capital Partners II, L.P. ("Genstar"), a
Delaware limited partnership, StarGen II LLC, a Delaware limited liability
company ("Stargen"), and Robert J. Muller, Jr. (together with Genstar and
Stargen, the "Shareholders"), Panolam Acquisition Company, L.L.C., a Delaware
limited liability company (the "Purchaser"), and Panolam Industries Holdings,
Inc., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Shareholders collectively own all of the issued and
outstanding shares of Class A Common Stock, par value $0.01 per share, of the
Company, comprising all of the issued and outstanding shares of capital stock of
the Company.
WHEREAS, the Purchaser desires to purchase shares from the Shareholders and
to purchase newly issued shares from the Company, so that the aggregate number
of shares of capital stock of the Company held by the Purchaser, after the
Redemption (as defined herein), will represent approximately 93.1% of the issued
and outstanding shares of capital stock of the Company, upon the terms and
subject to the conditions set forth herein (such transactions sometimes being
referred to herein as the "Share Purchases").
WHEREAS, the Company desires to consummate the Share Purchases and to
redeem (the "Redemption") simultaneously with the Share Purchases such number of
issued and outstanding shares of capital stock of the Company owned or held of
record, or to be owned or held of record, by each of the Shareholders,
respectively, as are set forth on Exhibit 2.3 hereto under the caption "Number
of Shares Redeemed for Note" (the "Redeemed Shares").
WHEREAS, the Shareholders desire to have the Company effect the Redemption.
WHEREAS, the issued and outstanding shares of capital stock of the Company
as are set forth on Exhibit 2.3 hereto under the caption "Roll-Over Equity"
shall not be redeemed in the Redemption, but shall remain outstanding after the
Share Purchases and the Redemption (the "Retained Shares").
WHEREAS, it is intended that the Share Purchases be accounted for as a
recapitalization for financial reporting purposes.
WHEREAS, upon the terms and subject to the conditions set forth herein, in
connection with the Share Purchases, the Company, the Shareholders and the
Purchaser desire to cancel, or cause to be canceled, all outstanding options,
warrants and other rights to purchase or otherwise acquire shares of capital
stock of the Company, whether vested or unvested, in exchange for the
consideration set forth herein.
1
<PAGE>
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants, promises and agreements hereinafter set forth, the mutual benefits to
be gained by the performance thereof, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged and
accepted, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Certain Definitions. As used in this Agreement, the
-------------------
following terms shall have the following respective meanings:
"Acquisition Date" means, with respect to the Company and each Company
Subsidiary (other than Pioneer Plastics Corporation), the respective date on
which the Shareholders acquired control of the Company or such Company
Subsidiary, or in the case of Pioneer Plastics Corporation, July 17, 1998.
"Action" means any claim, action, suit or proceeding, arbitral action,
governmental inquiry, criminal prosecution or other investigation.
"Affiliate" means, when used with respect to a specified Person, another
Person that either directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the Person
specified.
"Business" means the business and operations of the Company and the Company
Subsidiaries, as conducted as of the date hereof by the Company and the Company
Subsidiaries and, with respect to a Predecessor, the business and operations as
conducted by such Predecessor.
"Business Day" means any day that is not a Saturday, Sunday or other day on
which banks are required or authorized by Law to be closed in the State of New
York.
"Carlyle Affiliate" means the (i) Purchaser, (ii) any Person that controls,
is controlled by or is under common control with the Purchaser, including any of
the Purchaser's members or any other corporation, limited liability company,
limited partnership or other entity directly or indirectly controlled by TC
Group, L.L.C. or CEP General Partner L.P. or any partner or any member of a
Carlyle Affiliate or (iii) any entity that is controlled by one or more of the
persons who control TC Group, L.L.C.
"Company Capital Stock" means the authorized capital stock of the Company.
"Company Class A Common Stock" means the authorized Class A Common Stock,
par value $0.01 per share, of the Company.
2
<PAGE>
"Company Common Stock" means the authorized Common Stock, par value $0.01
per share, of the Company.
"Company Employee" means each employee of the Company or any Company
Subsidiary.
"Company Option Plan" means the Panolam Industries Holdings, Inc. 1996
Equity Incentive Plan.
"Company Options" means all outstanding options, warrants and other rights
to purchase or otherwise acquire shares of Company Common Stock, whether vested
or unvested.
"Confidentiality Agreement" means the letter agreement, dated as of June
16, 1999, between The Carlyle Group and Warburg Dillon Read LLC, on behalf of
the Company and the Company Subsidiaries.
"Contract" means any currently enforceable contract, agreement, indenture,
note, bond, loan, instrument, lease, conditional sales contract, mortgage,
license, franchise agreement, binding commitment or other arrangement, whether
written or oral.
"DGCL" means the General Corporation Law of the State of Delaware.
"Encumbrance" means any security interest, pledge, mortgage, lien, charge,
adverse claim of ownership or use, restriction on transfer (such as a right of
first refusal or other similar rights), defect of title, or other encumbrance of
any kind or character.
"Engagement Agreement" means that certain letter agreement, dated January
24, 1999 between Panolam Industries International and Genstar Capital LLC
relating to a negotiation fee payable in connection with the acquisition by the
Company of Pioneer Plastics Corporation from Rugby.
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, causes of action, demands, demand letters, claims,
liens, notices of non-compliance or violations, investigations, proceedings,
consent orders or consent or settlement agreements relating in any way to any
Environmental Law or any License required under any Environmental Law to the
extent arising out of any action, inaction, event, condition, liability or
obligation of the Company or any Predecessor or any Company Subsidiary occurring
or existing prior to the Closing, whether or not disclosed on the Company
Disclosure Schedule or otherwise known by the Purchaser or the Company or any
Company Subsidiary.
"Environmental Law" means any Law pertaining to land use, air, soil,
surface water, groundwater (including the protection, cleanup, removal,
remediation or damage thereof), public or employee health or safety or any other
environmental matter, including the following laws as in effect on the Closing
Date: (i) Clean Air Act (42 U.S.C. (S)7401, et seq.); (ii) Clean Water Act (33
U.S.C. (S)1251, et seq.); (iii) Resource Conservation and Recovery Act (42
U.S.C. (S)6901, et seq.); (iv) Comprehensive Environmental Resource Compensation
and Liability Act (42 U.S.C.
3
<PAGE>
(S)9601, et seq.); (v) Safe Drinking Water Act (42 U.S.C. (S)300f, et seq.);
(vi) Toxic Substances Control Act (15 U.S.C. (S)2601, et seq.); (vii) Rivers and
Harbors Act (33 U.S.C. (S)401, et seq.); (viii) Endangered Species Act (16
U.S.C. (S)1531, et seq.); and (ix) Occupational Safety and Health Act (29 U.S.C.
(S)651, et seq.); and (ix) any other Laws relating to Hazardous Materials or
Hazardous Materials Activities.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, any successor statute thereto, and the rules and regulations
promulgated thereunder.
"GAAP" means generally accepted accounting principles in the United States.
"Governmental Authority" means any government, any governmental entity,
department, commission, board, agency or instrumentality, and any court,
tribunal, or judicial body, whether federal, state, county, local or foreign.
"Governmental Order" means any statute, rule, regulation, order, judgment,
injunction, decree, stipulation or determination issued, promulgated or entered
by or with any Governmental Authority of competent jurisdiction.
"Hazardous Material" means any material or substance that is prohibited or
regulated by any Environmental Law or that has been designated by any
Governmental Authority to be radioactive, toxic, hazardous or otherwise a danger
to health, reproduction or the environment, including asbestos, petroleum, radon
gas, and radioactive matter.
"Hazardous Materials Activity" means the handling, transportation,
transfer, recycling, storage, use, treatment, manufacture, disposal, generation,
recycling, investigation, removal, remediation, release, exposure of others to,
sale, or distribution of any Hazardous Material or any product containing a
Hazardous Material.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, any successor statute thereto, and the rules and regulations
promulgated thereunder.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, any successor statute thereto, and the rules and regulations
promulgated thereunder.
"IRS" means the United States Internal Revenue Service, and any successor
agency thereto.
"Knowledge of the Company" or "known to the Company" and any other phrases
of similar import means, with respect to any matter in question relating to the
Company, if any of Robert J. Muller, Jr., the President and Chief Executive
Officer of the Company, Sara M. Foster, the Company's Director of Finance, Jean-
Pierre Conte, Richard D. Paterson or Richard F. Hoskins, directors of the
Company, has actual knowledge of such matter after reasonable inquiry.
"Law" means any federal, state, county, local or foreign statute, law,
ordinance, regulation, rule, code, order or rule of common law.
4
<PAGE>
"Liability" means any and all debts, liabilities and obligations of any
kind or nature, whether accrued or fixed, absolute or contingent, matured or
unmatured, or determined or determinable.
"License" means any license, permit and other governmental authorization
required for the operation of the Business as conducted by the Company and the
Company Subsidiaries.
"Loss" means any Liability, loss, damage, claim, cost or expense, including
attorneys' fees and expenses, and disbursement and settlement costs.
"Management Services Agreement" shall mean the Amended and Restated
Management Advisory and Consulting Agreement amended and restated as of January
24, 1999 among the Company, Panolam Industries, Ltd. and Genstar Capital LLC.
"Material Adverse Effect" or "Material Adverse Change" means any effect or
change that, individually or in the aggregate, is materially adverse to the
operations, business, financial condition or results of operations of the
Company and the Company Subsidiaries, taken as a whole, except for any such
effects or changes resulting directly or indirectly from (i) the announcement or
performance of the transactions contemplated by this Agreement, (ii) regulatory
changes, (iii) changes in the industries in which the Company and the Company
Subsidiaries operate and not specifically related to the Company, Company
Subsidiaries or the Purchaser, or (iv) changes in general economic conditions or
the securities markets generally.
"Notes" means the $135,000,000 principal amount 11-1/2% Senior Subordinated
Notes due 2009 issued by Panolam Industries on February 18, 1999.
"Panolam Industries" means Panolam Industries International, Inc., a
Delaware corporation and an indirect, wholly-owned subsidiary of the Company.
"Permitted Encumbrances" means (i) all statutory or other liens for Taxes
or assessments which are not yet due or delinquent or the validity of which are
being contested in good faith by appropriate proceedings for which adequate
reserves are being maintained on the Current Balance Sheet in accordance with
GAAP, (ii) all cashiers', landlords', workmen's and repairmen's, warehousemen's
and carriers' liens and other similar liens imposed by law, incurred in the
ordinary course of business, (iii) all Laws and Governmental Orders, (iv) all
leases, subleases, licenses, concessions or service contracts to which any
Person or any of its Subsidiaries is a party, (v) Encumbrances identified on
title policies or preliminary title reports or other documents or writings
included in the public records, (vi) Encumbrances securing the Senior Debt and
(vii) all other liens and mortgages, covenants, imperfections in title, charges,
easements, restrictions and other Encumbrances which, in the case of any such
Encumbrances pursuant to the foregoing clauses (i) through (vi), do not
materially detract, individually or in the aggregate, from the value of,
materially interfere with, or otherwise affect the present use and enjoyment of
the asset or property subject thereto or affected thereby.
"Person" means any individual, general or limited partnership, firm,
corporation, limited liability company, association, trust, unincorporated
organization or other entity, as well as any
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<PAGE>
syndicate or group that would be deemed to be a person under Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended, any successor statutes thereto,
and the rules and regulations promulgated thereunder.
"Pioneer Agreement" means the Stock Purchase Agreement and related
agreements dated as of July 17, 1998 by and between P-II Third, Inc., a Delaware
corporation and an indirect, wholly-owned subsidiary of the Company, and Rugby.
"Predecessor" means a predecessor in interest to the Business.
"Proprietary Rights" means (i) United States and foreign patents, patent
applications, patent disclosures and improvements thereto, including any
continuations, continuations in part, renewals and applications for any of the
foregoing ("Patents"), (ii) United States and foreign trademarks, service marks,
trade dress, logos, trade names, corporate names, designs and general
intangibles of like nature, together with all the goodwill associated therewith,
and the registrations and applications for registration thereof ("Trademarks"),
(iii) United States and foreign copyrights, and the registrations and
applications for registration thereof ("Copyrights"), (iv) computer software,
(v) computer databases, (vi) works of authorship, (vii) mask works, (viii)
technology, and (ix) trade secrets and other confidential information, know-how,
proprietary processes, formulae, algorithms, models, user interfaces, customer
lists, inventions, discoveries, concepts, ideas, techniques, methods, source
codes, object codes, methodologies and, with respect to all of the foregoing,
related confidential data or information (collectively, "Trade Secrets").
"Rugby" means Rugby U.S.A., Inc., a Georgia corporation.
"SEC" means the United States Securities and Exchange Commission, and any
successor agency thereto.
"Securities Act" means the Securities Act of 1933, as amended, any
successor statute thereto, and the rules and regulations promulgated thereunder.
"Senior Debt" means all indebtedness outstanding under (i) that certain
$75,000,000 Credit Agreement, dated as of February 18, 1999, entered into among
Panolam Industries International, Inc., a Delaware corporation, as the Borrower,
the financial institutions and other entities listed on the signature pages
thereto, as Initial Lenders, DLJ Capital Funding, Inc., for itself as an Initial
Lender and as Syndication Agent, Credit Suisse First Boston, for itself as an
Initial Lender and as Administrative Agent, and Royal Bank of Canada, for itself
as an Initial Lender and as Documentation Agent, as amended, and (ii) the
US$15,000,000 Senior Secured Revolving Credit Facility and US$50,000,000 Senior
Secured Term Credit Facilities provided under that certain US$65,000,000 Credit
Agreement, dated as of February 18, 1999, among Panolam Industries Ltd., an
Ontario corporation, as the Borrower, the other Loan Parties signatory thereto,
the financial institutions and other entities listed on the signature pages
thereof, as Initial Lenders, Credit Suisse First Boston Canada, for itself as an
Initial Lender and as Administrative Agent, and Royal Bank of Canada, for itself
as an Initial Lender and as Documentation Agent, as amended.
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"Subsidiary" means, with respect to a Person, any other Person in which
such Person has a direct or indirect equity or other ownership interest in
excess of fifty percent (50%).
"Tax" or "Taxes" means any federal, state, local or foreign income, gross
receipts, sales, use, employment, franchise, profits, property, capital stock,
premium, minimum and alternative minimum or other taxes, fees stamp taxes and
duties, assessments or charges of any kind whatsoever (whether payable directly
or by withholding), together with any interest and any penalties, additions to
tax or additional amounts imposed by the IRS or any other Governmental Authority
with respect thereto.
"Tax Return" means a report, return, declaration, claim for refund, or
other information, return or statement relating to Taxes, including any schedule
or attachment thereto, and including any amendment thereof, required to be filed
with, or supplied to, the IRS or any other Governmental Authority with respect
to any Tax.
SECTION 1.2 Certain Additional Definitions. As used in this Agreement, the
------------------------------
following terms shall have the respective meanings ascribed thereto in the
respective sections of this Agreement set forth opposite each such term below:
Term Section
Aggregate Share Purchase Price 2.1(b)
Aggregate Option Purchase Price 2.2(b)
Agreement Preamble
Antitrust Matter 4.26
Antitrust Losses 9.8(c)
Audited Company Financial Statements 4.7(a)
Balance Sheet Date 4.7(a)
Bank Facility 2.4
Closing 2.5(a)
Closing Date 2.5(a)
Company Preamble
Company Benefit Plan(s) 4.17(a)
Company Bylaws 4.2
Company Certificate of Incorporation 4.2
Company Disclosure Schedule Article IV Preamble
Company Financial Statements 4.7(a)
Company Indemnified Parties 6.8(a)
Company Subsidiary(ies) 4.4(a)
Company Subsidiary Shares 4.4(a)
Counter Indemnification Notice 9.7(c)
Current Balance Sheet 4.7(a)
Domtar Industries 6.10
Domtar Stockholders' Agreement 6.10
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Term Section
DOJ 4.26
Environmental Losses 9.8(b)
Equity Funds 5.6
Financing Commitment 5.6
Form S-4 4.7(b)
Indemnification Notice 9.7(c)
Leased Real Property 4.14(a)
Leases 4.14(c)
Listed Contract(s) 4.16(a)
New Share Certificate 2.5(b)
New Share Purchase Price 2.1(b)
Newly Issued Shares 2.1(c)
Occurrence 4.25
Option Agreement 6.10
Optionholder(s) 2.2(a)
Option Purchase Price 2.2(b)
Owned Real Property 4.14(a)
Purchaser Preamble
Purchased Shares 2.1(a)
Purchaser Disclosure Schedule Article V Preamble
Redeemed Shares Recitals
Redeemed Share Certificate(s) 2.5(d)
Redemption Recitals
Redemption Price 2.3(b)
Repayment 2.4
Response Activities 9.8(c)
Retained Shares Recitals
Retrofits 4.25
Shareholders Preamble
Shareholder Notes 2.3(b)
Shareholders Disclosure Schedule Article III Preamble
Share Certificate(s) 2.5(d)
Share Purchases Recitals
Stock Option Agreement 6.10
Stockholders Agreement 7.1(f)
Tax Matters 9.2
Unaudited Company Financial Statements 4.7(a)
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<PAGE>
ARTICLE II
PURCHASE AND SALE OF COMPANY CAPITAL STOCK
AND REDEMPTION OF REDEEMED SHARES
SECTION 2.1 Purchase and Sale of Company Common Stock.
-----------------------------------------
(a) Upon the terms and subject to the conditions set forth herein, at
the Closing, the Purchaser shall purchase from the Shareholders, and the
Shareholders shall sell to the Purchaser, an aggregate of 105,894.4 shares of
Company Class A Common Stock (collectively, the "Purchased Shares"), free and
clear of all Encumbrances.
(b) As consideration for the purchase and sale of the Purchased
Shares pursuant to Section 2.1(a) hereof, at the Closing, the Purchaser shall
deliver and pay to the Shareholders (in the amounts set forth on Exhibit 2.3) an
aggregate in cash of an amount equal to (i) One Hundred Forty-Eight Million
Dollars ($148,000,000) less (ii) Eleven Million Six Hundred Thirteen Thousand
Nine Hundred Seventy-Four Dollars ($11,613,974) (the "New Share Purchase Price"
and such net amount being referred to herein as the "Aggregate Share Purchase
Price").
(c) Upon the terms and subject to the conditions set forth herein, at
the Closing, the Purchaser will purchase from the Company, and the Company will
sell to the Purchaser, as aggregate of 9.017.5shares of Company Class A Common
Stock (collective the "Newly Issued Shares"), free and clear of all
Encumbrances. The purchase price for the Newly Issued Shares purchased by the
Company shall be an amount equal to the amount equal to the New Share Purchase
Price of $11,613,974.
SECTION 2.2 Cancellation of Company Options.
-------------------------------
(a) Upon the terms and subject to the conditions set forth herein,
the Board of Directors of the Company shall adopt resolutions to the effect that
each outstanding Company Option shall become exercisable in full immediately
prior to the Closing and, effective upon the Closing, shall be cancelled,
retired and extinguished and upon the cancellation thereof, each holder of a
Company Option (each, an "Optionholder" and, collectively, the "Optionholders")
shall cease to have any rights with respect thereto, except the right to receive
the Option Purchase Price payable with respect thereto pursuant to Section
2.2(b) hereof.
(b) As consideration for the cancellation of all Company Options
pursuant to Section 2.2(a) hereof, at the Closing, the Company shall distribute
to each Optionholder an amount in cash equal to the product obtained by
multiplying (x) the aggregate number of shares of Company Common Stock issuable
upon the exercise in full of each Company Option held by such Optionholder, by
(y) the excess of (A) the $1,287.94, over (B) the exercise price per share of
each such Company Option. The amount of cash payable in respect of each Company
Option by the Company to the Optionholder thereof pursuant to this Section
2.2(b) shall be referred to herein as the "Option Purchase Price." The aggregate
amount of cash payable by the Company to all of the Optionholders pursuant to
this Section 2.2(b) shall be $8,613,974 (the "Aggregate Option Purchase Price").
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(c) The name of each Optionholder, the aggregate number of shares of
Company Common Stock issuable upon the exercise in full of each Company Option
held by such Optionholder, the per share exercise price of each such Company
Option, and the consideration payable by the Company in exchange for the
cancellation thereof pursuant to the terms and conditions of this Section 2.2
are set forth on Exhibit 2.2 hereto.
SECTION 2.3 Redemption of Redeemed Shares.
-----------------------------
(a) Upon the terms and subject to the conditions set forth herein, at
the Closing, each Shareholder shall sell to the Company, and the Company shall
purchase and redeem from Genstar and Stargen, the number of Redeemed Shares set
forth opposite such Shareholder's name on Exhibit 2.3 hereto under the caption
"Number of Shares Redeemed for Note." The Redeemed Shares are an aggregate of
14,752.2 shares of Company Class A Common Stock.
(b) As consideration for the sale and redemption of the Redeemed
Shares pursuant to Section 2.3(a) hereof, at the Closing, the Company shall
deliver and pay to the Shareholders junior subordinated notes of the Company
(each, a "Shareholder Note" and, collectively, the "Shareholder Notes," and,
together with the Cash Redemption Consideration, the "Redemption Price"), with
the terms set forth in Exhibit 2.3A hereto, having an aggregate principal amount
of Nineteen Million Dollars ($19,000,000). The Redeemed Shares delivered to the
Company at the Closing shall thereafter be canceled and held as treasury shares
or retired and no longer be outstanding.
(c) Exhibit 2.3 hereto sets forth the name of each Shareholder, the
number of Purchased Shares and the number of Redeemed Shares held of record by
each such Shareholder as of the date hereof, the amount of the Aggregate Share
Purchase Price payable by the Purchaser to each of the Shareholders in exchange
for the Purchased Shares pursuant to Section 2.1(b) hereof, the aggregate
principal amount of each Shareholder Note issuable as consideration for the
Redeemed Shares pursuant to Section 2.3(b) hereof, and the number of Retained
Shares held of record by each such Shareholder.
SECTION 2.4 Negotiation of New Credit Facility. Prior to the Closing, the
----------------------------------
Purchaser shall use commercially reasonable efforts to negotiate the terms of a
senior credit facility to be entered into by the Company or a Company Subsidiary
(the "Bank Facility") that will replace all outstanding Senior Debt. The closing
of the Bank Facility and the repayment of the Senior Debt (the "Repayment")
shall occur concurrently with the Share Purchases and the Redemption.
SECTION 2.5 The Closing; Closing Deliveries.
-------------------------------
(a) The consummation of the Share Purchases, the Redemption and the
other transactions contemplated hereby shall take place at a closing (the
"Closing") to be held at 10:00 a.m., Washington time, on a date to be designated
by the Shareholders, the Purchaser and the Company, which date shall be no later
than the second (2nd) Business Day after satisfaction or, if permissible
pursuant to the terms hereof, waiver of the conditions set forth in Article VII
hereof
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(the "Closing Date"), at the offices of Latham & Watkins, 1001 Pennsylvania
Avenue, N.W., Washington, D.C. 20004, unless another time, date or place is
mutually agreed upon in writing by the Shareholders, the Purchaser and the
Company.
(b) At the Closing, the Company shall deliver, or cause to be
delivered, the following:
(i) to each of Genstar and Stargen, a Shareholder Note
issuable to each such Shareholder pursuant to Section 2.3 hereof and in the
principal amount set forth on Exhibit 2.3 hereto;
(ii) to the Purchaser, a certificate representing the Newly
Issued Shares (the "New Share Certificate"); and
(iii) all other certificates, instruments and other documents
required to be delivered by the Company on or before the Closing pursuant to
this Agreement, including the certificates, instruments and other documents
referred to in Section 7.2 hereof, or as may reasonably be requested by the
Purchaser in order to consummate the transactions contemplated hereby.
(c) At the Closing, the Purchaser shall deliver, or cause to be
delivered, the following:
(i) to each Shareholder, that portion of the Aggregate Share
Purchase Price payable to each such Shareholder pursuant to Section 2.1(b)
hereof and in the amount set forth on Exhibit 2.3 hereto, payable by certified
or cashier's check, or by wire transfer of immediately available funds to an
account designated by each such Shareholder in writing at least one (1) day
prior to the Closing Date;
(ii) to the Company, the New Share Purchase Price; and
(iii) all other certificates, instruments and other documents
required to be delivered by the Purchaser on or before the Closing pursuant to
this Agreement, including the certificates, instruments and other documents
referred to in Section 7.1 hereof, or as may reasonably be requested by the
Company or the Shareholders in order to consummate the transactions contemplated
hereby.
(d) At the Closing, the Shareholders shall deliver, or cause to be
delivered, the following:
(i) to the Purchaser, certificates representing the Shares
(each a "Share Certificate" and collectively the "Share Certificates"), duly
endorsed or accompanied by stock powers duly endorsed in blank with any required
transfer stamp affixed thereto;
(ii) to the Company, certificates representing the Redeemed
Shares (each a "Redeemed Share Certificate" and collectively the "Redeemed Share
Certificates"), duly
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endorsed or accompanied by stock powers duly endorsed in blank with any required
transfer stamp affixed thereto;
(iii) to the Purchaser, the Shareholder Note to which such
Shareholder is entitled under Section 2.3 hereof and Exhibit 2.3 hereto, as
security for such Shareholder's indemnification obligations under this
Agreement; and
(iv) all other certificates, instruments and other documents
required to be delivered by the Shareholders on or before the Closing pursuant
to this Agreement, including the certificates, instruments and other documents
referred to in Section 7.2 hereof, or as may reasonably be requested by the
Purchaser in order to consummate the transactions contemplated hereby.
(e) At the Closing, the Company shall (i) distribute to each
Optionholder the cash amount set forth opposite the name of each such
Optionholder on Exhibit 2.2 hereto, less an amount equal to any applicable
withholding Taxes required to be withheld upon the cancellation of each Company
Option held by each such Optionholder, and (ii) disburse all amounts so withheld
pursuant to clause (i) of this Section 2.5(e) to the applicable federal and
state taxing authorities. No interest will accrue or be paid on any amounts
payable upon cancellation of a Company Option pursuant to this Article II.
SECTION 2.6 No Further Ownership Rights in Redeemed Shares or Company
---------------------------------------------------------
Options. The Shareholder Notes paid as consideration for the redemption and
- -------
surrender of Redeemed Share Certificates representing Redeemed Shares pursuant
to this Article II shall be deemed to have been paid in full satisfaction of all
rights pertaining to the Redeemed Shares represented by such Redeemed Share
Certificates. All cash amounts paid as consideration for the cancellation of
Company Options pursuant to this Article II shall be deemed to have been paid in
full satisfaction of all rights pertaining to such Company Options.
SECTION 2.7 Lost Share Certificates. In the event that any certificate
-----------------------
representing Shares or Redeemed Shares shall have been lost, stolen or
destroyed, upon (i) the making of an affidavit of that fact by the Shareholder
claiming such certificate to be lost, stolen or destroyed, and (ii) the
execution and delivery to the Company of an indemnity agreement in customary
form and substance, the Company shall issue to such Shareholder, in exchange for
such lost, stolen or destroyed certificate, a new share certificate.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
Subject to the exceptions and qualifications set forth in the Form S-4 and
in the disclosure schedule of even date herewith collectively delivered by the
Shareholders to the Purchaser on or prior to the date hereof (the "Shareholders
Disclosure Schedule"), each of the Shareholders hereby severally, but not
jointly, represents and warrants to the Purchaser and to the Company as follows:
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<PAGE>
SECTION 3.1 Authority. Such Shareholder has all requisite power and
---------
authority (and, if an individual, legal capacity) to enter into this Agreement,
to perform such Shareholder's obligations hereunder and to consummate the
transactions contemplated hereby. To the extent that such Shareholder is an
entity, the execution and delivery of this Agreement by such Shareholder, the
performance by such Shareholder of its obligations hereunder, and the
consummation by such Shareholder of the transactions contemplated hereby, have
been duly authorized by the Board of Directors or other managing body of such
Shareholder and no other corporate or other action, as the case may be, on the
part of such Shareholder is necessary to authorize the execution and delivery of
this Agreement by such Shareholder, the performance by such Shareholder of its
obligations hereunder or the consummation by such Shareholder of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by such Shareholder and, assuming due authorization, execution and
delivery by the other parties hereto, this Agreement constitutes a legally valid
and binding obligation of such Shareholder, enforceable against such Shareholder
in accordance with its terms, except as such enforceability may be limited by
principles of public policy, and subject to (i) the effect of any applicable
Laws of general application relating to bankruptcy, reorganization, insolvency,
moratorium or similar Laws affecting creditors' rights and relief of debtors
generally, and (ii) the effect of rules of law and general principles of equity,
including rules of law and general principles of equity governing specific
performance, injunctive relief and other equitable remedies (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
SECTION 3.2 Organization. If such Shareholder is an entity, such
------------
Shareholder is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization or incorporation, as applicable.
SECTION 3.3 Ownership of Shares. Such Shareholder is the sole record owner
-------------------
of the Redeemed Shares and the shares of Company Common Stock set forth opposite
such Shareholder's name on Exhibit 2.3 hereto, free and clear of any
Encumbrances other than restrictions on the transfer of such shares imposed
under federal and state securities or "blue sky" Laws, and such shares are the
only shares of Company Capital Stock owned of record or beneficially by such
Shareholder. Such Shareholder has no other options, warrants or other rights to
purchase or otherwise acquire any shares of Company Capital Stock, except
options granted to such Shareholder under the Company Option Plan, all of which
are set forth opposite such Shareholder's name on Exhibit 2.3 hereto. Such
Shareholder is not a party to any Contract or subject to any Action pursuant to
which such Shareholder is or may be required to sell, deliver or transfer any of
the shares owned by such Shareholder to any other Person, or otherwise dispose
of such shares. Such Shareholder has the sole and unrestricted right and
authority (in the case of Genstar and Stargen, acting through their general
partners or managing members, respectively) to vote the shares of Company Stock
owned by such Shareholder and to transfer the Shares owned of record by such
Shareholder to the Purchaser and the Company, as the case may be. The delivery
of the Redeemed Share Certificates held by such Shareholder at the Closing
pursuant to Section 2.5(d) hereof will transfer to the Company good and valid
title to the Redeemed Shares held by such Shareholder at the Closing, free and
clear of all Encumbrances. The delivery of the Share Certificates held by such
Shareholder at the Closing pursuant to
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<PAGE>
Section 2.5(d) hereof will transfer to the Purchaser good and valid title to the
Shares held by such Shareholder at the Closing, free and clear of all
Encumbrances.
SECTION 3.4 Conflicts. Assuming all consents, approvals, authorizations,
---------
filings and notifications and other actions set forth in Section 3.5 hereof have
been obtained or made, and except as set forth in Section 3.4 of the
Shareholders Disclosure Schedule or as may result from any facts and
circumstances relating solely to the Company, the execution and delivery of this
Agreement by such Shareholder, the performance by such Shareholder of such
Shareholder's obligations hereunder, and the consummation by such Shareholder of
the transactions contemplated hereby, does not and will not (i) conflict with or
result in a violation of the organizational documents of such Shareholder, if
such Shareholder is an entity, or (ii) conflict with or result in a violation of
any Law or Governmental Order applicable to such Shareholder or the assets or
properties of such Shareholder, except, in the case of clause (ii) of this
Section 3.4, as would not, individually or the aggregate, have a material
adverse effect on the ability of such Shareholder to perform such Shareholder's
obligations under this Agreement or consummate the transactions contemplated
hereby.
SECTION 3.5 Consents, Approvals, Etc. No consent, waiver, approval,
-------------------------
authorization, license, order or permit of, or declaration, filing or
registration with, or notification to, any Governmental Authority or third party
is required to be made or obtained by such Shareholder in connection with the
execution and delivery of this Agreement by such Shareholder, the performance by
such Shareholder of such Shareholder's obligations hereunder, or the
consummation by such Shareholder of the transactions contemplated hereby, except
(i) as set forth in Section 3.5 of the Shareholders Disclosure Schedule, (ii)
applicable requirements, if any, under applicable federal or state securities or
"blue sky" Laws and the HSR Act, (iii) as may be necessary as a result of any
facts or circumstances relating solely to the Company, and (iv) where the
failure to obtain such consent, approval, authorization or action, or to make
such filing or notification, would not, when taken together with all other such
failures by such Shareholder, have a material adverse effect on the ability of
such Shareholder to perform such Shareholder's obligations under this Agreement
or consummate the transactions contemplated hereby.
SECTION 3.6 Brokers. No broker, finder or investment banker has been
-------
retained by such Shareholder in connection with the transactions contemplated by
this Agreement, nor is any broker, finder or investment banker entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon any agreements or other
arrangements made by or on behalf of such Shareholder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE SHAREHOLDERS
Subject to the exceptions and qualifications set forth in the disclosure
schedule of even date herewith delivered by the Company and the Shareholders to
the Purchaser on or prior to the date hereof, which disclosure schedule shall be
deemed to include and incorporate therein the
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<PAGE>
Form S-4 (the "Company Disclosure Schedule"), the Company and each of the
Shareholders hereby jointly and severally represent and warrant to the Purchaser
as follows:
SECTION 4.1 Authority. The Company has all requisite corporate power and
---------
authority to enter into this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by the Company, the performance by the Company of its
obligations hereunder, and the consummation by the Company of the transactions
contemplated hereby, have been duly authorized by the Board of Directors of the
Company, and no other corporate action on the part of the Company is necessary
to authorize the execution and delivery of this Agreement by the Company, the
performance by the Company of its obligations hereunder or the consummation by
the Company of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Company and, assuming due authorization,
execution and delivery by the other parties hereto, this Agreement constitutes a
legally valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by principles of public policy, and subject to (i) the effect of any
applicable Laws of general application relating to bankruptcy, reorganization,
insolvency, moratorium or similar Laws affecting creditors' rights and relief of
debtors generally, and (ii) the effect of rules of law and general principles of
equity, including rules of law and general principles of equity governing
specific performance, injunctive relief and other equitable remedies (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
SECTION 4.2 Organization. The Company is duly organized, validly existing
------------
and in good standing under the laws of the State of Delaware, and has all
requisite corporate power and authority to own, operate or lease the properties
and assets now owned, operated or leased by it, and to carry on its business as
currently conducted by the Company. The Company is duly qualified to do business
and is in good standing, under the Laws of each jurisdiction in which the
character of its properties owned, operated or leased, or the nature of its
activities, makes such qualification necessary, except in those jurisdictions
where the failure to be so qualified or in good standing, when taken together
with all other failures by the Company and any Company Subsidiaries to be so
qualified or in good standing, would not have a Material Adverse Effect. True
and complete copies of the Certificate of Incorporation (the "Company
Certificate of Incorporation") and Bylaws (the "Company Bylaws") of the Company,
each as amended and in effect as of the date of this Agreement, have been made
available to the Purchaser and its agents and representatives.
SECTION 4.3 Company Capital Stock.
---------------------
(a) The Company Capital Stock consists of 300,000 shares of Company
Common Stock, of which 150,000 shares have been designated Class A Common Stock,
par value $0.01 per share, and 150,000 shares have been designated Class B
Common Stock, par value $0.01 per share. As of the date hereof, 129,187.2 shares
of Class A Common Stock have been issued and are outstanding, and no shares of
Class B Common Stock have been issued or
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are outstanding. All such issued and outstanding shares of Company Common Stock
have been duly authorized and validly issued, are fully paid and nonassessable
and were not issued in violation of any preemptive or similar rights created by
statute, the Company Certificate of Incorporation, the Company Bylaws or any
agreement to which the Company is a party or by which it is bound, and have been
issued in compliance with applicable federal and state securities or "blue sky"
Laws. Exhibit 2.3 hereto sets forth, as of the date hereof, the name, address
and taxpayer identification number of each holder of shares of Company Common
Stock, and the number and type of shares of Company Common Stock held of record
by each such stockholder, and no other Person owns of record any outstanding
shares of capital stock of the Company. There are no accrued or unpaid dividends
with respect to any issued and outstanding shares of Company Common Stock. Other
than the shares of Company Common Stock issued and outstanding as of the date
hereof and held of record by the Persons set forth in Exhibit 2.3 hereto, there
are no other issued or outstanding shares of Company Capital Stock.
(b) The Shares have been duly and validly authorized and are validly
issued, fully paid and non-assessable. The Newly Issued Shares have been duly
and validly authorized for issuance and when issued at the Closing pursuant to
this Agreement will be validly issued, fully paid and non-assessable.
(c) As of the date hereof, there are no outstanding subscriptions,
options, warrants, calls, rights of conversion or other rights, agreements,
arrangements or commitments of any kind or character, whether written or oral,
relating to the Company Capital Stock to which the Company is a party, or by
which it is bound, obligating the Company to issue, deliver or sell, or cause to
be issued, delivered or sold, any shares of Company Capital Stock, other than
outstanding Company Options granted under the Company Option Plan representing
the right to purchase an aggregate of 9,123.2 shares of Company Common Stock.
Exhibit 2.2 hereto sets forth, as of the date hereof, the name, address and
taxpayer identification number of each Optionholder, each Company Option held by
each such Optionholder, the aggregate number of shares of Company Common Stock
issuable upon the exercise in full of each such Company Option, and the per
share and aggregate exercise price of each such Company Option.
(d) Except as set forth in Section 4.3(d) of the Company Disclosure
Schedule, as of the date hereof, there are (i) no rights, agreements,
arrangements or commitments of any kind or character, whether written or oral,
relating to the Company Capital Stock to which the Company is a party, or by
which it is bound, obligating the Company to repurchase, redeem or otherwise
acquire any issued and outstanding shares of Company Capital Stock, (ii) no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to the Company, and (iii) no
voting trusts, stockholder agreements, proxies or other agreements or
understandings in effect to which the Company is a party, or by which it is
bound, with respect to the governance of the Company or the voting or transfer
of any shares of Company Capital Stock.
(e) The delivery at the Closing of the Share Certificates and the New
Share Certificate representing the Shares and the Newly Issued Shares,
respectively, pursuant to Section 2.5(b) hereof will transfer to the Purchaser
good and valid title to the Shares and the
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Newly Issued Shares, respectively, free and clear of all Encumbrances, and the
Shares, the Newly Issued Shares and the Retained Shares, at the time of the
Closing, immediately following the Redemption, will represent all of the issued
and outstanding capital stock of the Company.
SECTION 4.4 Company Subsidiaries.
--------------------
(a) Section 4.4(a) of the Company Disclosure Schedule sets forth (i)
the legal name and jurisdiction of organization of each Subsidiary of the
Company (each, a "Company Subsidiary" and, collectively, the "Company
Subsidiaries"), (ii) the authorized capital stock of each Company Subsidiary,
(iii) the number and designation of all issued and outstanding shares of capital
stock of each Company Subsidiary (collectively, the "Company Subsidiary
Shares"), and (iv) the current ownership of all outstanding Company Subsidiary
Shares by the Company, other Company Subsidiaries and any third party owners
thereof. Other than the Company Subsidiaries set forth in Section 4.4(a) of the
Company Disclosure Schedule, there are no other Persons in which the Company or
any Company Subsidiary owns, of record or beneficially, any direct or indirect
equity interest or any right (contingent or otherwise) to acquire such an equity
interest. Except as set forth in Section 4.4(a) of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary is a member of any
partnership or limited liability company, nor is the Company or any Company
Subsidiary a participant in any joint venture or similar arrangement
constituting a legal entity.
(b) Except as set forth in Section 4.4(b) of the Company Disclosure
Schedule, each of the Company Subsidiaries is duly organized, validly existing
and in good standing under the laws of its respective jurisdiction of
organization, and has the requisite corporate power and authority to own,
operate or lease the respective properties and assets now owned, operated or
leased by it, and to carry on its respective business as currently conducted by
each such Company Subsidiary. Each of the Company Subsidiaries is duly qualified
to do business as a foreign corporation, and is in good standing, under the Laws
of each jurisdiction in which the character of its properties owned, operated or
leased, or the nature of its activities, makes such qualification necessary,
except in those jurisdictions where the failure to be so qualified or in good
standing, when taken together with all other failures by the Company and other
Company Subsidiaries to be so qualified or in good standing, would not have a
Material Adverse Effect. True and complete copies of the charter documents of
each Company Subsidiary, each as amended and in effect as of the date of this
Agreement, have been made available to the Purchaser and its agents and
representatives.
(c) All of the issued and outstanding Company Subsidiary Shares have
been duly authorized and validly issued, are fully paid and nonassessable and
were not issued in violation of any preemptive or similar rights created by
statute, the respective charter documents of the Company Subsidiary issuing such
Company Subsidiary Shares, or any agreement to which each such Company
Subsidiary is a party or by which it is bound, and have been issued in
compliance with applicable federal and state securities or "blue sky" Laws.
Except as set forth in Section 4.4(c) of the Company Disclosure Schedule, as of
the date hereof, there are no outstanding options, warrants, calls, rights of
conversion or other rights, agreements, arrangements or commitments of any kind
or character, whether written or oral, relating to the
17
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capital stock of any Company Subsidiary to which the Company or any Company
Subsidiary is a party, or by which any of them are bound, obligating any Company
Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold,
any shares of capital stock of any Company Subsidiary. As of the date hereof,
except as set forth in Section 4.4(c) of the Company Disclosure Schedule, there
are (i) no rights, agreements, arrangements or commitments of any kind or
character, whether written or oral, relating to the capital stock of any Company
Subsidiary to which the Company or any Company Subsidiary is a party, or by
which any of them is bound, obligating the Company or any Company Subsidiary to
repurchase, redeem or otherwise acquire any issued and outstanding Company
Subsidiary Shares, (ii) no outstanding or authorized stock appreciation, phantom
stock, profit participation, or other similar rights with respect to any Company
Subsidiary, and (iii) no voting trusts, stockholder agreements, proxies or other
agreements or understandings in effect to which the Company or any Company
Subsidiary is a party, or by which any of them is bound, with respect to the
governance of any Company Subsidiary or the voting or transfer of any Company
Subsidiary Shares.
SECTION 4.5 Conflicts. Assuming all consents, approvals, authorizations,
---------
filings and notifications and other actions set forth in Section 4.6 hereof have
been obtained or made, and except as set forth in Section 4.5 of the Company
Disclosure Schedule or as may result from any facts or circumstances relating
solely to the Shareholders, the execution and delivery of this Agreement by the
Company, the performance by the Company of its obligations hereunder, and the
consummation by the Company of the transactions contemplated hereby, does not
and will not (i) conflict with or result in a violation of the Company
Certificate of Incorporation or Company Bylaws, or the organizational documents
or bylaws of any Company Subsidiary, (ii) conflict with or result in a violation
of any Law or Governmental Order applicable to the Company or any Company
Subsidiary, or their respective assets or properties, or (iii) result in a
breach of, or constitute a default (or event which with the giving of notice or
lapse of time, or both, would become a default) under, or give rise to any
rights of termination, amendment, modification, acceleration or cancellation of
or loss of any benefit under, or result in the creation of any Encumbrance on
any of the assets or properties of the Company or any Company Subsidiary
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, concession, franchise or other instrument to which the Company
or any Company Subsidiary is a party, or by which any of the assets or
properties of the Company or any Company Subsidiary is bound or affected,
except, in the case of clause (ii) and (iii) of this Section 4.5, as would not,
individually or in the aggregate, have a Material Adverse Effect or,
individually or in the aggregate, would not have a material adverse effect on
the ability of the Company to perform its obligations under the Agreement or
consummate the transactions contemplated hereby. Except as set forth in Section
4.5 of the Company Disclosure Schedule, the Company will not become obligated to
make any severance, "excess parachute payment" (within the meaning of Section
280G of the Internal Revenue Code) or other similar type of payment or any
gross-up payment in connection therewith (including under the employment
agreement referred to in Section 6.6(f)) to any employee of the Company solely
as a result of the execution and delivery of this Agreement by the parties
hereto, their performance of their obligations hereunder or the consummation of
the transactions contemplated hereby. As of the date hereof Panolam Industries
is not, and immediately prior to the Closing it will not be, in material breach
or violation of the Indenture dated as of February 18, 1999 between Panolam
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Industries and State Street Bank and Trust Company, and there is, and
immediately prior to the Closing there will not be, any material default or
event which with notice or the passage of time would become a material default.
Neither the Company nor any Company Subsidiary will be obligated to pay any
prepayment, termination or other fee to the lenders of the Senior Debt upon the
repayment of the outstanding Senior Debt and the termination of the related bank
facilities as contemplated by Section 2.4.
SECTION 4.6 Consents, Approvals, Etc. No consent, waiver, approval,
------------------------
authorization, license, order or permit of, or declaration, filing or
registration with, or notification to, any Governmental Authority or third party
is required to be made or obtained by the Company or any Company Subsidiary in
connection with the execution and delivery of this Agreement by the Company, the
performance by the Company of its obligations hereunder, or the consummation by
the Company of the transactions contemplated hereby, except (i) as set forth in
Section 4.6 of the Company Disclosure Schedule, (ii) applicable requirements, if
any, under the DGCL, federal or state securities or "blue sky" Laws and the HSR
Act, (iii) as may be necessary as a result of facts or circumstances relating
solely to the Shareholders, and (iv) where the failure to obtain such consent,
approval, authorization or action, or to make such filing or notification, would
not, when taken together with all other such failures by the Company and the
Company Subsidiaries, have a Material Adverse Effect.
SECTION 4.7 Financial Statements; SEC Reports.
---------------------------------
(a) The Company has prepared, or caused to be prepared, and made
available to the Purchaser and its agents and representatives the audited
consolidated financial statements of the Company (including the balance sheet
and the related statements of income and cash flows) as of and for each of the
twelve month periods ended December 31, 1998, 1997, 1996, respectively (the
"Audited Company Financial Statements"), and unaudited condensed consolidated
financial statements of the Company (including the balance sheet and the related
statements of income and cash flows) as of and for the six month period ended
June 30, 1999 (the "Unaudited Company Financial Statements" and, together with
the Audited Financial Statements, the "Company Financial Statements"). Except as
set forth therein, the Company Financial Statements (i) have been prepared in
accordance with the books and records of the Company, (ii) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
indicated therein and with each other (except that the Unaudited Company
Financial Statements may not contain all of the notes required by GAAP), and
(iii) present fairly, in all material respects, the consolidated financial
position, results of operations and cash flows of the Company and the Company
Subsidiaries as of the respective dates and during the respective periods
indicated therein, subject in the case of the Unaudited Company Financial
Statements to normal recurring year-end adjustments, which would not be material
in amount. The balance sheet of the Company as of June 30, 1999 shall be
referred to herein as the "Current Balance Sheet" and the date thereof shall be
referred to herein as the "Balance Sheet Date."
(b) Except as set forth on Section 4.7 of the Company Disclosure
Schedule and except for the transactions contemplated by this Agreement: (a) the
Company's Registration
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Statement on Form S-4, Amendment No. 1 (File No. 333-78569) ("Form S-4"), filed
with the SEC on August 30, 1999 complied, and if it is declared effective prior
to the Closing Date, will comply, at the time it is declared effective, in all
material respects with the requirements of the Securities Act and (b) the Form
S-4 did not contain, at the time it was filed and, if it is declared effective
prior to the Closing Date, will not contain at the time it is declared
effective, any untrue statement of a material fact or omit to state a material
fact required to be stated or incorporated by reference therein or necessary in
order to make the statements therein in light of the circumstances under which
they were made not misleading.
SECTION 4.8 Undisclosed Liabilities. Neither the Company nor any Company
-----------------------
Subsidiary has any Liability that is required to be reflected on a balance sheet
or in the financial notes thereto in accordance with GAAP, except as (i)
reflected in, reserved against or disclosed in the Company Financial Statements,
(ii) disclosed in Section 4.8 of the Company Disclosure Schedule or in any of
the documents set forth in the Company Disclosure Schedule, (iii) incurred in
the ordinary course of business since the Balance Sheet Date, or (iv)
individually or in the aggregate would not have a Material Adverse Effect.
SECTION 4.9 Certain Changes or Events. Except as set forth in Section 4.9
-------------------------
of the Company Disclosure Schedule or as contemplated by this Agreement, since
the Balance Sheet Date, there has not been, occurred or arisen:
(a) any damage to, or destruction or loss of, any of the assets or
properties of the Company or any Company Subsidiary which has had a Material
Adverse Effect;
(b) any declaration, setting aside or payment of any dividend, or
other distribution or capital return in respect of any shares of Company Capital
Stock, or any redemption, repurchase or other acquisition by the Company or any
Company Subsidiary of any shares of Company Capital Stock;
(c) any sale, assignment, transfer, lease, license or other
disposition, or agreement to sell, assign, transfer, lease, license or otherwise
dispose of, any of the assets of the Company or any Company Subsidiary (except
for sales of inventory in the ordinary course of business) having a value, in
any individual case, in excess of $100,000;
(d) any acquisition (by merger, consolidation or other combination,
or acquisition of stock or assets) by the Company or any Company Subsidiary of
any corporation, partnership or other business organization, or any division
thereof;
(e) except for borrowings under existing agreements in the ordinary
course of business or inter-company indebtedness between the Company and any of
the Company Subsidiaries or between the Company Subsidiaries, (i) any incurrence
by the Company or any Company Subsidiary of any indebtedness for borrowed money,
(ii) any issuance by the Company or any Company Subsidiary of any debt
securities, or (iii) any assumption, granting, guarantee, endorsement or other
accommodation or arrangement making the Company or any Company Subsidiary
responsible for the indebtedness for borrowed money or debt securities of any
Person
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other than another Company Subsidiary, in the case of each of clauses (i), (ii)
and (iii) of this Section 4.9(e), having an aggregate value in excess of $50,000
for all such occurrences;
(f) any material change in any method of accounting or accounting
practice used by the Company or any Company Subsidiary;
(g) (i) any employment, deferred compensation, severance or similar
agreement entered into or amended by the Company or any Company Subsidiary,
except any individual employment agreement providing for compensation of less
than $200,000 per annum entered into in the ordinary course of business
consistent with past practice, and any individual severance agreement entered
into in the ordinary course of business consistent with past practice, (ii) any
increase in the compensation payable, or to become payable, by the Company or
any Company Subsidiary to any Company Employees, or any directors or officers of
the Company or any Company Subsidiaries, (iii) any payment of or provision for
any bonus, stock option, stock purchase, profit sharing, deferred compensation,
pension, retirement or other similar payment or arrangement to any Company
Employee, or any director or officer of the Company or any Company Subsidiary,
or (iv) any increase in the coverage or benefits available under any severance
pay, termination pay, vacation pay, company awards, salary continuation or
disability, sick leave, deferred compensation, bonus or other incentive
compensation, insurance, pension or other employee benefit plan, payment or
arrangement made to, for or with such directors, officers, employees, agents or
representatives, other than, in the case of clauses (ii), (iii) and (iv) of this
Section 4.9(g), normal increases in the ordinary course of business consistent
with past practice, and except, in the case of clause (iii) of this Section
4.9(g), to the extent that the Company or any Company Subsidiary is
contractually obligated to do so or required to do so by applicable Law;
(h) make or authorize any individual capital expenditure exceeding
$1,000,000 in the aggregate, except as contemplated by, and disclosed in, the
Company's operating budget previously provided to Purchaser;
(i) any event or condition of any kind or character that has had a
Material Adverse Effect; or
(j) any agreement, other than this Agreement, to take any actions
specified in this Section 4.9.
SECTION 4.10 Tax Matters.
------------
(a) Except as set forth in Section 4.10 of the Company Disclosure
Schedule, (i) the Company and each Company Subsidiary has prepared and timely
filed, will prepare and timely file, or has been or will be included in, all Tax
Returns required to be filed by or on behalf of the Company or any Company
Subsidiary with respect to material Taxes concerning or attributable to the
Company and any Company Subsidiary or their operations for any taxable period
ending on or before the Closing Date, taking into account any extension of time
to file that has been granted to, or obtained by or on behalf of, the Company or
any Company Subsidiary, (ii) neither the Company nor any Company Subsidiary is
the beneficiary of any
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extension of time within which to file any Tax Return, (iii) all such Tax
Returns are, or will be as of the Closing Date, correct and complete in all
material respects, (iv) all Taxes owed by the Company and each Company
Subsidiary for any taxable period ending on or before the Closing Date (whether
or not shown to be payable on such Tax Returns) have been paid or will be paid
as of the Closing Date, or adequate reserves have been or will be established
with respect thereto, and (v) no material deficiency, dispute or claim with
respect to Taxes of the Company or any Company Subsidiary has been proposed,
asserted or assessed by the IRS or any other Government Authority (A) in
writing, and (B) to the Knowledge of the Company.
(b) Except as set forth in Section 4.10 of the Company Disclosure
Schedule, as of the date hereof, (i) no waivers of statutes of limitations have
been given with respect to any Taxes of the Company or any Company Subsidiary,
which waivers are currently in effect, and no request for any such waiver is
currently pending, (ii) neither the Company nor any Company Subsidiary has
agreed to any extension of time with respect to a Tax assessment or deficiency,
(iii) no requests for ruling or determination letters or competent authority
relief with respect to the Company or any Company Subsidiary is currently
pending with the IRS or any Government Authority with respect to any Taxes, (iv)
no audit or other examination of any Tax Return of the Company or any Company
Subsidiary is presently in progress, nor has the Company or any Company
Subsidiary been notified in writing of any request for such an audit or other
examination, and (v) the Purchaser has received correct and complete copies of
all statements of deficiencies, closing agreements or other similar statements
assessed against or agreed to by the Company or any Company Subsidiary with
respect to Taxes.
(c) Except as set forth in Section 4.10 of the Company Disclosure
Schedule, (i) neither the Company nor any Company Subsidiary has filed a consent
under Internal Revenue Code (S)341(f) concerning collapsible corporations, (ii)
neither the Company nor any Company Subsidiary has made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Internal Revenue Code (S)280G, and (iii) neither the Company
nor any Company Subsidiary has been a United States real property holding
corporation within the meaning of Internal Revenue Code (S)897(c)(2) during the
applicable period specified in Internal Revenue Code (S)897(c)(1)(A)(ii).
(d) Except as set forth in Section 4.10(d) of the Company Disclosure
Schedule, (i) neither the Company nor any Company Subsidiary is a party to any
Tax allocation, Tax sharing or other similar agreement, and (ii) neither the
Company nor any Company Subsidiary (A) has been a member of an affiliated group
within the meaning of Internal Revenue Code (S)1504(a) (or any similar group
defined under a similar provision of state, local or foreign law) filing a
consolidated Tax Return (other than a group the common parent of which was the
Company) or (B) has any Liability for the Taxes of any Person (other than the
Company or any Company Subsidiary) under Treasury Regulation (S)1.1502-6 (or any
similar provision of Law), as a transferee or successor, by Contract, or
otherwise.
(e) The unpaid Taxes of the Company and the Company Subsidiaries (A)
did not, as of June 30, 1999, exceed by any material amount the reserve for Tax
Liability (rather than
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any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the Unaudited Company Financial
Statements (rather than in any notes thereto) and (B) will not exceed by any
material amount that reserve as adjusted for the passage of time through (and
including) the Closing Date in accordance with the past custom and practice of
the Company and the Company Subsidiaries.
SECTION 4.11 Litigation and Governmental Orders. Except as set forth in
----------------------------------
Section 4.11 of the Company Disclosure Schedule, as of the date hereof, (i)
there are no Actions pending or, to the Knowledge of the Company, threatened
against the Company or any Company Subsidiary, or any of the assets or
properties of the Company or any Company Subsidiary, that would have a Material
Adverse Effect, and (ii) the Company, each Company Subsidiary and their
respective assets and properties, are not subject to any material Governmental
Order relating specifically to the Company, any Company Subsidiary or any of
their respective assets or properties.
SECTION 4.12 Compliance with Laws. The Company and each Company Subsidiary
--------------------
has conducted its respective part of the Business, including its use, occupancy
and operations of the Owned Real Property and the Leased Real Property, in
compliance with all applicable Laws, except where the failure to so comply, when
taken together with other such failures by the Company and the Company
Subsidiaries to so comply, would not have a Material Adverse Effect; provided
that the foregoing representation as it relates to Laws other than Environmental
Laws and the Antitrust Matter, is hereby given for the time period since the
Acquisition Date. Except as set forth in Section 4.12 of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary has received any
written, nor to the Knowledge of the Company, any oral notice from any
Governmental Authority to the effect that the Company or any Company Subsidiary
is not in compliance with any applicable Laws, except where the failure to so
comply, when taken together with all other such failures by the Company and the
Company Subsidiaries to so comply, would not have a Material Adverse Effect.
Except as set forth in Section 4.12 of the Company Disclosure Schedule, to the
Knowledge of the Company, as of the date hereof, there is no inquiry or other
investigation pending before, or threatened in writing by, any Governmental
Authority against the Company or any of the Company Subsidiaries.
SECTION 4.13 Permits, Licenses, Governmental Authorizations, Etc. The
---------------------------------------------------
Company and the Company Subsidiaries have all Licenses required to permit the
Company and the Company Subsidiaries to conduct their respective part of the
Business, including its use, occupancy and operations of the Owned Real Property
and the Leased Real Property, except for such failures to have such Licenses,
when taken together with all other such failures by the Company and the Company
Subsidiaries to have such Licenses, as would not have a Material Adverse Effect.
As of the date hereof, all of the Licenses held by or issued to the Company or
any of the Company Subsidiaries are in full force and effect, and the Company or
the respective Company Subsidiary that is a party thereto is in compliance with
each such License held by or issued to it, except for such failures to so
comply, when taken together with all other such failures by the Company and the
Company Subsidiaries to so comply, as would not have a Material Adverse Effect.
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SECTION 4.14 Tangible Property.
-----------------
(a) Section 4.14(a) of the Disclosure Schedule contains a true,
correct and complete list of (i) each item of real property owned, as of the
date hereof, by the Company or any Company Subsidiary ("Owned Real Property"),
(ii) each item of real property leased from or to a third party, as of the date
hereof, by the Company or any Company Subsidiary ("Leased Real Property"), the
name of the third party lessor(s) or lessee(s) thereof, as the case may be, the
date of the lease contract relating thereto and all amendments thereof. Except
as set forth in Section 4.14(a) of the Company Disclosure Schedule, either the
Company or a Company Subsidiary has legal, valid and marketable title to all
Owned Real Property, and a valid and subsisting leasehold interest in all Leased
Real Property, in each case free and clear of all Encumbrances other than
Permitted Encumbrances, and has the right to use the Owned Real Property and the
Leased Real Property in the manner and for the purposes as each is currently
being used by the Company or a Company Subsidiary, as the case may be.
(b) Except as set forth in Section 4.14(b) of the Company Disclosure
Schedule, the Company and the Company Subsidiaries have legal and valid title
to, or in the case of leased assets and properties, valid and subsisting
leasehold interests in, all of the material tangible personal assets and
properties used or held for use by the Company or any Company Subsidiary in
connection with the conduct of the Business, free and clear of all Encumbrances
other than Permitted Encumbrances.
(c) A true and complete copy of each lease with respect to Leased
Real Property with all amendments and modifications has been delivered to
Purchaser (the "Leases"), and there has been no default, nor any event which
with passage of time or the giving of notice would constitute a default, under
any of the Leases on the part of the tenant or, to the Company's Knowledge, the
landlord, that remains uncured, except for defaults that would not, individually
or in the aggregate, have a Material Adverse Effect.
SECTION 4.15 Intellectual Property.
---------------------
(a) Section 4.15(a) of the Company Disclosure Schedule contains a
true, correct and complete list of all material Proprietary Rights owned by the
Company or any Company Subsidiary, including: (i) for each material Patent, as
applicable, the number, normal expiration date, title and priority information
for each country in which such Patent has been issued, or the application
number, date of filing, title and priority information for each such country,
(ii) for each material Trademark, the application serial number or registration
number thereof, if applicable, the class of goods or the nature of the goods or
services covered thereby, the countries in which such Trademark is registered,
if applicable, and the expiration date for each country in which such Trademark
has been registered, if applicable, and (iii) for each material registered
Copyright, the number and date of registration thereof for each country in which
a Copyright application has been registered.
(b) Except as set forth in Section 4.15(b) of the Company Disclosure
Schedule, (i) all Trademark registrations are currently in compliance with all
legal requirements
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(including the timely post-registration filing of affidavits of use and
incontestability and renewal applications) other than any requirement that, if
not satisfied, is not likely to result in a cancellation of any such
registration or otherwise result in a Material Adverse Effect, and (ii) all
Trademarks have been in continuous use by the Company or Company Subsidiaries
since the Acquisition Date, other than Trademarks as to which the lack of such
continuous use would not have a Material Adverse Effect.
(c) Except as set forth in Section 4.15(c) of the Company Disclosure
Schedule, all Patents are currently in compliance with legal requirements
(including payment of filing, examination, and maintenance fees) other than any
requirement that, if not satisfied, would not result in a revocation of the
Patent in question or otherwise result in a Material Adverse Effect.
(d) Section 4.15(d) of the Company Disclosure Schedules sets forth a
complete and accurate list of all license agreements granting to the Company or
any Company Subsidiary (other than license agreements between the Company and
one or more of the Company Subsidiaries or between Company Subsidiaries) any
right to use or practice any rights under any third party Proprietary Rights (i)
used in connection with the design, development, use, maintenance and support,
testing, assembly and manufacture of the Company's or the Company Subsidiary's
products, and (ii) in software that is commercially available on reasonable
terms to any Person, in each case for a license fee of more than $50,000 per
annum, indicating for each the title and the parties thereto.
(e) Except as set forth in Section 4.15(e) of the Company Disclosure
Schedule, (i) the Company and the Company Subsidiaries own or have a valid right
to use, free and clear of all Encumbrances (other than Encumbrances that would
not have a Material Adverse Effect), the Proprietary Rights used by them in
connection with the conduct of the Business as presently conducted by the
Company and the Company Subsidiaries, and (ii) the Company and the Company
Subsidiaries will not cease to have a valid right to use such Proprietary Rights
by reason of the execution and delivery of this Agreement by the Company, the
performance by the Company of its obligations hereunder, or the consummation by
the Company of the transactions contemplated hereby except, in each of clause
(i) and (ii) of this Section 4.15(e), any Proprietary Right as to which the
failure of the Company or Company Subsidiaries to have a valid right to use such
Proprietary Right, individually or in the aggregate, would not have a Material
Adverse Effect.
(f) The Company and the Company Subsidiaries have taken reasonable
steps in accordance with normal industry practice, except in circumstances where
the failure to take such steps would not have a Material Adverse Effect, to
protect the Company's and the Company Subsidiaries' rights in confidential
information and Trade Secrets of the Company and the Company Subsidiaries.
(g) Except as set forth in Section 4.15(g) of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary has received any
written notice, nor is the Company or any Company Subsidiary aware of any
claims, threatened or pending, that
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would have a Material Adverse Effect (i) challenging the ownership, use,
validity or enforceability of any of the Proprietary Rights owned or used by the
Company or any Company Subsidiary in connection with the conduct of the Business
as presently conducted by the Company and the Company Subsidiaries, or (ii)
alleging infringement, violation or unauthorized use of the Proprietary Rights
of others due to any activity or conduct by the Company or any Company
Subsidiary. To the Knowledge of the Company, no other Person is infringing upon,
misappropriating, diluting or violating in any way any Proprietary Rights owned
by the Company or a Company Subsidiary and no such claims have been brought
against any third party by the Company or any Company Subsidiary, in any case
where such infringement, misappropriation, dilution or violation would have a
Material Adverse Effect. Except as set forth in Section 4.15(g) of the Company
Disclosure Schedules, no Proprietary Rights owned or licensed by the Company or
the Company Subsidiaries are subject to any outstanding order, judgment, decree,
stipulation or agreement restricting the use thereof by the Company or any
Company Subsidiary where such restriction, individually or in the aggregate,
would have a Material Adverse Effect.
SECTION 4.16 Certain Contracts.
-----------------
(a) Section 4.16 of the Company Disclosure Schedule contains a true,
correct and complete list of all Contracts referred to in clauses (i) through
(ix), inclusive, of this Section 4.16 to which the Company or any Company
Subsidiary is a party (each, a "Listed Contract" and, collectively, the "Listed
Contracts"). True, correct and complete copies of each Listed Contract has been
made available to the Purchaser:
(i) notes, debentures, other evidences of indebtedness,
guarantees, loans, credit or financing agreements or instruments, or other
Contracts for money borrowed, including any agreements or commitments for future
loans, credit or financing, in each case in excess of $500,000 (including the
Notes), other than any of the foregoing relating to any intercompany
indebtedness;
(ii) employment agreements involving annual salary payments by
the Company or any Company Subsidiary in excess of $200,000 which are not
terminable without penalty within sixty (60) days;
(iii) Contracts entered into other than in the ordinary course of
business and requiring the Company or any Company Subsidiary to make
expenditures or involving receipts by the Company and the Company Subsidiaries
in excess of $500,000 individually and which are not terminable without penalty
within one (1) year;
(iv) leases, rental or occupancy agreements, licenses,
installment and conditional sale agreements, and other Contracts affecting the
ownership of, leasing of, title to, use of, or any leasehold or other interest
in, any real or personal property involving aggregate annual payments in excess
of $1,000,000 and which are not terminable;
(v) indemnity arrangements arising in connection with any sale
or disposition of assets for proceeds in excess of $250,000, other than sales of
assets by the
26
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Company or any Company Subsidiary in the ordinary course of business, wherein
the Company or any Company Subsidiary is the indemnitor thereunder;
(vi) joint venture Contracts, partnership agreements, or
limited liability company agreements;
(vii) Contracts explicitly requiring capital expenditures
exceeding $500,000 after the date hereof, except as contemplated by, and
disclosed in, the Company's operating budget previously provided to the
Purchaser;
(viii) material licensing agreements with respect to Proprietary
Rights; and
(ix) agreements containing covenants presently limiting, in any
material respect, the freedom of the Company or any Company Subsidiary to
compete with any person in any line of business or in any area or territory.
(b) Except as set forth in Section 4.16 of the Company Disclosure
Schedule or as would not, individually or in the aggregate, have a Material
Adverse Effect, (i) each Listed Contract is in full force and effect and
represents a legally valid and binding obligation of the Company or the Company
Subsidiary which is a party thereto, and to the Knowledge of the Company,
represents a legally valid and binding obligation of the other parties thereto,
(ii) since the Acquisition Date, each of the Company and the Company
Subsidiaries has performed, in all material respects, all obligations required
to be performed by it under each of the Listed Contracts to which it is a party,
(iii) neither the Company or any Company Subsidiary is in material breach or
violation of, or material default under, any of the Listed Contracts to which it
is a party, nor has the Company or any Company Subsidiary received any written
notice that it has breached, violated or defaulted under any of the Listed
Contracts to which it is a party, and (iv) to the Knowledge of the Company,
there is no breach by any other party or parties to any of the Listed Contracts.
(c) The Replacement Promissory Note, dated June 30, 1996, in the
aggregate principal amount of $27,629,949.49, payable to the order of Rugby USA,
Inc. by Pioneer Plastics Corporation (the "Rugby Note"), has been canceled and
neither the Company nor any Company Subsidiary has any Liability under the Rugby
Note.
SECTION 4.17 Employee Benefit Matters.
------------------------
(a) Except as set forth in Section 4.17(b) of the Company Disclosure
Schedule, neither the Company nor any commonly controlled entity has incurred
any material liability under Title IV of ERISA or any similar Canadian law which
could become or remain a material liability of the Company after the Closing and
the consummation of the Share Purchases. None of the Company, any Company
Subsidiary, or any director, officer or employee thereof, or any of the Company
Benefit Plans (or to the Knowledge of the Company with respect to any
Multiemployer Plan (as defined in Section 4001(a)(3) of ERISA), or any trust
created thereunder, or any fiduciary thereof, has engaged in a transaction or
taken any other action or
27
<PAGE>
omitted to take any action involving any Company Benefit Plan which could
constitute a prohibited transaction within the meaning of Section 406 of ERISA
or similar Canadian law which is not otherwise exempted and which would result
in a material liability to the Company, or would cause the Company to be subject
to either a material liability or material civil penalty assessed pursuant to
Sections 409 or 502 of ERISA or a material tax imposed pursuant to Sections 4975
or 4976 of the Internal Revenue Code or similar Canadian laws. Except as set
forth in Section 4.17(b) of the Company Disclosure Schedule, each of the Company
Benefit Plans (to the Knowledge of the Company with respect to any Multiemployer
Plan) has been operated and administered in all material respects in accordance
with its terms and applicable laws, including but not limited to ERISA and the
Internal Revenue Code. Except as set forth in Section 4.17(b) of the Company
Disclosure Schedule, each Company Benefit Plan intended to be qualified under
Section 401(a) of the Internal Revenue Code has been determined by the IRS to be
so qualified and has remained tax qualified to this date, and its related trust
is tax exempt and has been so since its creation or the remedial amendment
period maintaining such tax qualified status has not expired and no events have
occurred that could reasonably be expected to adversely effect such tax
qualified status. All benefits due under any Company Benefit Plan have been
timely paid, and there are no material pending or, to the Knowledge of the
Company, threatened claims by or on behalf of any of the Company Benefit Plans
or any fiduciary, by any employee or beneficiary covered under any such plan, or
otherwise, involving any such plan or fiduciary for which the Company could have
any material Liability (other than routine claims for benefits).
(b) Section 4.17(c) of the Company Disclosure Schedule contains a
true, correct and complete list of (i) each material severance agreement and
plan of the Company and each Company Subsidiary with or relating to their
respective employees, and (ii) each material plan and agreement of the Company
and each Company Subsidiary with or relating to its respective employees which
contain change of control provisions. A true, correct and complete copy of each
of the agreements and plans set forth in Section 4.17(c) of the Company
Disclosure Schedule has been made available to the Purchaser and its agents and
representatives.
(c) Except as set forth in Section 4.17(d) of the Company Disclosure
Schedule or as otherwise required by applicable Law, no Company Benefit Plan
provides retiree medical or retiree life insurance benefits to any person.
(d) Except as required by applicable Law, each Company Benefit Plan
can be amended or terminated at any time without approval from any person, and
without material liability to the Company, other than for benefits accrued prior
to such amendment or termination. All material contributions and payments to or
with respect to each Employee Benefit Plan have been timely made and Seller has
made adequate provision for reserves to satisfy material contributions and
payments that have not been made because they are not yet due under the terms of
such Employee Benefit Plan or applicable Law. Except as set forth in Section
4.17(e) of the Company Disclosure Schedule, no agreement, commitment, or
obligation exists to increase any benefits under any Employee Benefit Plan or to
adopt any new Employee Benefit Plan.
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(e) No ERISA Pension Plan (as defined in section 3(2) of ERISA) has
incurred any "accumulated funding deficiency" or "waived funding deficiency"
within the meaning of Section 302 of ERISA or Section 412 of the Internal
Revenue Code.
(f) The fair market value of the plan assets of each ERISA Pension
Plan are at least equal to (i) the present value of its benefit liabilities (as
defined in ERISA Section 4001(a)(16), including any unpredictable contingent
event benefits within the meaning of Internal Revenue Code Section 412(l)(7),
and determined on the basis of assumptions prescribed by the PBGC for purposes
of ERISA Section 4044), and (ii) the Projected Benefit Obligations thereunder,
as defined in Statement of Financial Accounting Standards No. 87, including any
allowance for indexation and ad hoc increases. Except as set forth in Section
-- ---
4.17(g) of the Company Disclosure Schedule, no ERISA Pension Plan has been
completely or partially terminated or been the subject of a Reportable Event
under ERISA Section 4043. No proceeding by the PBGC to terminate any ERISA
Pension Plan has been instituted, and the Company has not incurred any material
liability to the PBGC (other than the PBGC premiums, all of which have been
timely paid) or otherwise under Title IV of ERISA with respect to any ERISA
Pension Plan.
(g) The Company does not maintain, participate in, contribute to, or
have any obligation to contribute or any liability with respect to any
Multiemployer Plan. The Company has not had any obligation with respect to any
Multiemployer Plan since the Acquisition Date. The Company neither maintains nor
participates in any Voluntary Employees' Beneficiary Association ("VEBA"), under
Internal Revenue Code Sections 419 and 419A, which is intended to be exempt from
taxation under section 501(c)(9) of the Internal Revenue Code.
SECTION 4.18 Labor Matters. Neither the Company nor any Company
-------------
Subsidiary is a party to any labor agreement with respect to its employees with
any labor organization, group or association, nor have there been any material
attempts to organize the employees of the Company or any Company Subsidiary
within the one (1) year period prior to the date hereof. Except as set forth in
Section 4.18 of the Company Disclosure Schedule or as would not have a Material
Adverse Effect, there is no labor strike, labor disturbance or work stoppage
pending against the Company or any Company Subsidiary.
SECTION 4.19 Environmental Matters. Except as set forth in Section 4.19
---------------------
of the Company Disclosure Schedule, (i) no Hazardous Material is present at any
of the real property owned or leased by the Company or any Company Subsidiary in
violation of, or that would result in any Liability to the Company or any
Company Subsidiary under, any applicable Law, (ii) neither the Company nor any
of the Company Subsidiaries has engaged in any Hazardous Materials Activity in
violation of, or that would result in any Liability to the Company or any
Company Subsidiary under, any applicable Law, (iii) no Action is pending or, to
the Knowledge of the Company, threatened against the Company or any Company
Subsidiary concerning any of the Hazardous Materials Activities of the Company
and the Company Subsidiaries, or any of the real property owned or leased by the
Company or any of the Company Subsidiaries, and (iv) to the Knowledge of the
Company, no Hazardous Material has migrated or threatened to migrate from any of
the Owned Real Property or Leased Real Property upon or beneath other
properties,
29
<PAGE>
and no Hazardous Material has migrated or threatened to migrate from other
properties upon or beneath any of the Owned Real Property or Leased Real
Property, except, in the case of clause (i), (ii) (iii) and (iv) of this Section
4.19, for such violations, activities and actions as have not had, and would not
have, individually or in the aggregate, a Material Adverse Effect.
SECTION 4.20 Insurance. Section 4.20 of the Company Disclosure Schedule
---------
sets forth a true, correct and complete list of all insurance policies which are
in force as of the date hereof which the Company or any Company Subsidiary is a
named insured or beneficiary (the "Named Insurance Policies"). Neither the
Company nor any Company Subsidiary has received any notice or other
communication since the Acquisition Date canceling or materially amending or
materially increasing the premium payable under any of the Named Insurance
Policies, and to the Knowledge of the Company, no such cancellation, amendment
or increase of premiums is threatened. All of the Named Insurance Policies are
on an occurrence basis and will be in full force and effect at, and immediately
following the Closing.
SECTION 4.21 Transactions with Affiliates. Except as set forth in Section
----------------------------
4.21 of the Company Disclosure Schedule, since the Acquisition Date, there have
been and there currently exist, no transactions, agreements or arrangements
(other than employment arrangements entered into in the ordinary course of
business) between the Company and the Company Subsidiaries, on the one hand, and
any director or officer of the Company or any of its Affiliates, on the other
hand, with an aggregate value in excess of $60,000 per transaction or per annum,
as applicable, other than those constituting an employee benefit plan or
compensation arrangement.
SECTION 4.22 Year 2000 Compliance. Except as set forth on Section 4.22 of
--------------------
the Company Disclosure Schedule, all computer systems and software and all
related components (including hardware, firmware, system software,
communications software, application software, personal computers and
workstations, servers, networking and peripheral equipment) owned or used by the
Company or any Company Subsidiary in connection with its respective business
have been tested for Year 2000 Compliance and on or prior to December 31, 1999
will be Year 2000 Compliant, except where the failure to be Year 2000 Compliant
would not have a Material Adverse Effect. "Year 2000 Compliant" or "Year 2000
Compliance" means accurately processing, providing or receiving date data
(including calculating, comparing and sequencing dates) from, into and between
the twentieth and twenty-first centuries, the years 1999 and 2000, and leap year
calculations, when used in accordance with applicable specifications or
documentation. The Company and the Company Subsidiaries will not be required to
spend in excess of $1,000,000 after the date hereof (excluding compensation
costs for employees) for the Company and the Company Subsidiaries to be Year
2000 Compliant.
SECTION 4.23 Distributors and Suppliers.
--------------------------
(a) As of the date hereof, to the Knowledge of the Company, except as
set forth in Section 4.23 of the Company Disclosure Schedule, the Company is not
involved in any material controversy with any of its material distributors,
customers or suppliers, and no material customer or material supplier of the
Company or any Company Subsidiary has terminated or
30
<PAGE>
threatened in writing to terminate a material agreement with the Company
relating to its purchase of products from, or sale to, the Company or any
Company Subsidiary.
(b) As of the date hereof, to the Knowledge of the Company, customers
or distributors accounting for more than twenty five percent (25%) of the
Company's consolidated revenue for the first six months of 1999 from all
customers or distributors, or suppliers accounting for more than twenty five
percent (25%) of the Company's consolidated expense for the first six months of
1999 to all suppliers, respectively, have not asserted any material controversy
or material dispute with the Company or any Company Subsidiary, terminated or
ceased to do business with the Company or any Company Subsidiary, or threatened
in writing to do any of the foregoing.
SECTION 4.24 Product Warranties; Product Recalls.
-----------------------------------
(a) To the Knowledge of the Company, Section 4.24 of the Company
Disclosure Schedule contains the forms of express product warranties and
guaranties that have been used by the Company and each Company Subsidiary in
their respective businesses at any time during the period from January 1, 1997
to the date hereof (or since the Acquisition Date, if shorter). To the Knowledge
of the Company, except as set forth in Section 4.24 of the Company Disclosure
Schedule, (i) neither the Company nor any Company Subsidiary has offered any
materially different forms of express product warranties and guaranties after
January 1, 1997 (or since the Acquisition Date, if shorter), and (ii) no defects
exist in the products manufactured and sold by the Company or any Company
Subsidiary since the Acquisition Date that would result in an increase in such
product warranty expense claims that in the aggregate would have a Material
Adverse Effect.
(b) To the Knowledge of the Company, none of the products designed,
manufactured, packaged, labeled, shipped or sold in connection with the
respective businesses of the Company and each Company Subsidiary has, since
January 1, 1997 (or since the Acquisition Date, if shorter), been subject to, or
is currently subject to, any recall mandated by any Governmental Authority.
SECTION 4.25 Products Liability. To the Knowledge of the Company, (i)
------------------
since the Acquisition Date, there has not been any Occurrence that would have a
Material Adverse Effect, and (ii) there is no material rework or change of a
part or parts in an entire class of products (collectively, "Retrofits"), by or
on behalf of the Company or any Company Subsidiary, other than Retrofits
conducted by the Company or any Company Subsidiary in the ordinary course of
business consistent with past practices. The term "Occurrence" shall mean and
refer to any accident, happening or event that took place since January 1, 1997
(or the Acquisition Date, if shorter) which was caused or allegedly was caused
by any alleged hazard or alleged defect in manufacture, design, materials or
workmanship, including any alleged failure to warn or any breach of express or
implied warranties or representations with respect to, or any such accident,
happening or event otherwise involving, any product manufactured or distributed
by or on behalf of the Company or any Company Subsidiary (including any parts or
components) that is reasonably likely to result in a claim or loss.
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SECTION 4.26 Antitrust. As of the date hereof, the Company has been
---------
orally advised by an attorney from the United States Department of Justice
("DOJ") who is handling the investigation by DOJ relating to the Subpoena issued
by the United States District Court of the District of Maryland dated May 5,
1999, issued to James Tees, Pioneer Plastics Corp. and the Company that the
Company is not the target of such investigation and that nothing in DOJ's
investigation is inconsistent with the Company's not being a target in the
investigation, and to the Company's actual knowledge, there has been no act,
event or occurrence, and to the Company's actual knowledge the Company has not
received information from any source, that could reasonably result in the
Company being named as a target in such investigation. For purposes of the
previous sentence, the "Company's actual knowledge" means the actual knowledge
of the persons named in the definition of "Knowledge of the Company" without
obligation of inquiry. As used in this Agreement, "Antitrust Matter" means the
antitrust matters that are the subject of the investigation or the Subpoena
(including any governmental or private claim or action arising out of the
occurrences that constitute the subject matter of such investigation or
Subpoena), to the extent arising out of any action, inaction, event, condition,
liability or obligation of the Company or any Company Subsidiary, or any
officer, director, employee or agent of the Company or any Company Subsidiary,
occurring or existing prior to the Closing.
SECTION 4.27 Brokers; Fees and Expenses. Except for Warburg Dillon Read
--------------------------
LLC and Genstar Capital LLC, each of whom are entitled to certain investment
banking and advisory fees in connection with the Agreement and the transactions
contemplated hereby (which fees shall be paid in full by the Company), no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon any arrangements made by or on behalf of the Company.
Section 4.27 of the Company Disclosure Schedule sets forth a good faith estimate
- ------------
of the amount of the fees and expenses that the Company or a Company Subsidiary
will be required to make as a result of the transactions contemplated by this
Agreement. The total fees and expenses of the Company and the Company
Subsidiaries for Warburg Dillon Read, Genstar Capital LLC, accountants and legal
counsel in connection with the transactions contemplated by this Agreement will
be no more than $5,500,000. The Shareholders will reimburse the Company or a
Company Subsidiary, as applicable, for any such fees and expenses paid by the
Company or any Company Subsidiary which are in excess of $5,500,000.
SECTION 4.28 Prior Agreements. Neither the execution nor the performance
of this Agreement or Amendment No. 5 to the Pioneer Agreement, dated as of
October 13, 1999, or any of the transactions contemplated hereby or thereby,
including the sale of the Shares and the sale and redemption of the Redeemed
Shares pursuant to this Agreement, will result in the loss of any
indemnification and guarantee rights, or related remedies, that the Company or
any Company Subsidiary has under any of the following agreements (the "Prior
-----
Agreements"):
- ----------
(a) the Pioneer Agreement;
(b) the Asset Purchase Agreement and any related agreements, dated
February 15, 1996, between Domtar Industries, Inc. and Panolam Industries, Inc.,
a Delaware corporation;
32
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(c) the Asset Purchase Agreement and any related agreements, dated as
of February 15, 1996, between Domtar Industries, Inc. and Panolam Industries,
Ltd., a corporation formed and existing under the laws of the Province of
Ontario; and
(d) the Settlement Agreement and Release and any related agreements,
dated December 22, 1994, among Pioneer Plastics Corporation, Sterling Engineered
Products, Inc. and Trinova Corporation.
Neither the Company nor any Company Subsidiary has received notice
from any of the other parties to the Prior Agreements that as of the date hereof
the Company or any Company Subsidiary is not entitled to the benefits of the
indemnification and guarantee rights, or related remedies, that the Company or
any Company Subsidiary has under any of the Prior Agreements. To the Knowledge
of the Company, neither the Company nor any Company Subsidiary is in material
breach or violation of, or material default under, any of the Prior Agreements
to which it is a party, nor has the Company or any Company Subsidiary received
any written notice that it has breached, violated or defaulted under any of the
Prior Agreements to which it is a party.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Subject to the exceptions and qualifications set forth in the
disclosure schedule of even date herewith collectively delivered by the
Purchaser to the Shareholders and the Company on or prior to the date hereof
(the "Purchaser Disclosure Schedule"), the Purchaser hereby represents and
warrants to the Shareholders and the Company as follows:
SECTION 5.1 Authority. The Purchaser has all requisite power and
---------
authority to enter into this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by the Purchaser, the performance by the Purchaser of its
obligations hereunder, and the consummation by the Purchaser of the transactions
contemplated hereby, have been duly authorized by the Board of Directors or
other managing body of the Purchaser and no other corporate or other action on
the part of the Purchaser is necessary to authorize the execution and delivery
of this Agreement by the Purchaser, the performance by the Purchaser of its
obligations hereunder or the consummation by the Purchaser of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Purchaser and, assuming due authorization, execution and delivery by the other
parties hereto, this Agreement constitutes a legally valid and binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms, except as such enforceability may be limited by principles of
public policy, and subject to (i) the effect of any applicable Laws of general
application relating to bankruptcy, reorganization, insolvency, moratorium or
similar Laws affecting creditors' rights and relief of debtors generally, and
(ii) the effect of rules of law and general principles of equity, including
rules of law and general principles of equity governing specific performance,
injunctive relief and other equitable remedies (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
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SECTION 5.2 Organization. The Purchaser is duly organized, validly
------------
existing and in good standing under the laws of the jurisdiction of its
organization, and has all requisite corporate or other organizational power and
authority to own, operate or lease the properties and assets now owned, operated
or leased by it, and to carry on its business as currently conducted by the
Purchaser. The Purchaser is duly qualified to do business, and is in good
standing, under the Laws of each jurisdiction in which the character of its
properties owned, operated or leased, or the nature of its activities, makes
such qualification necessary, except in those jurisdictions where the failure to
be so qualified or in good standing would not have a material adverse effect on
the ability of the Purchaser to perform its obligations under this Agreement or
consummate the transactions contemplated hereby.
SECTION 5.3 Conflicts. Assuming all consents, approvals, authorizations,
---------
filings and notifications and other actions set forth in Section 5.4 hereof have
been obtained or made, and except as set forth in Section 5.3 of the Purchaser
Disclosure Schedule, the execution and delivery of this Agreement by the
Purchaser, the performance by the Purchaser of its obligations hereunder, and
the consummation by the Purchaser of the transactions contemplated hereby, does
not and will not (i) conflict with or result in a violation of the
organizational documents of the Purchaser, (ii) conflict with or result in a
violation of any Law or Governmental Order applicable to the Purchaser or the
assets or properties of the Purchaser, or (iii) result in a breach of, or
constitute a default (or event which with the giving of notice or lapse of time,
or both, would become a material default) under, or give rise to any rights of
termination, amendment, modification, acceleration or cancellation of or loss of
any benefit under, or result in the creation of any Encumbrance on any of the
assets or properties of the Purchaser pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, concession, franchise or
other instrument to which the Purchaser is a party, or by which any of the
assets or properties of the Purchaser is bound or affected, except, in the case
of clauses (ii) and (iii) of this Section 5.3, as would not, individually or in
the aggregate, have a material adverse effect on the ability of the Purchaser to
perform its obligations under this Agreement or consummate the transactions
contemplated hereby.
SECTION 5.4 Consents, Approvals, Etc. No consent, waiver, approval,
------------------------
authorization, license, order or permit of, or declaration, filing or
registration with, or notification to, any Governmental Authority or third party
is required to be made or obtained by the Purchaser in connection with the
execution and delivery of this Agreement by the Purchaser, the performance by
the Purchaser of its obligations hereunder, and the consummation by the
Purchaser of the transactions contemplated hereby, except (i) as set forth in
Section 5.4 of the Purchaser Disclosure Schedule, (ii) applicable requirements,
if any, under applicable federal or state securities or "blue sky" Laws and the
HSR Act, and (iii) where the failure to obtain such consent, approval,
authorization or action, or to make such filing or notification would not, when
taken together with all other such failures by the Purchaser, have a material
adverse effect on the ability of the Purchaser to perform its obligations under
this Agreement or consummate the transactions contemplated hereby.
SECTION 5.5 Litigation and Governmental Orders. As of the date hereof,
----------------------------------
(i) there are no Actions pending against the Purchaser or any of its
Subsidiaries, or any of the assets or
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properties of the Purchaser or any of its Subsidiaries, that individually or in
the aggregate, would prevent the Purchaser from performing its obligations under
this Agreement or consummating the transactions contemplated hereby, and (ii)
the Purchaser, its Subsidiaries and their respective assets and properties are
not subject to any Governmental Order that would prevent the Purchaser from
performing its obligations under this Agreement or consummating the transactions
contemplated hereby.
SECTION 5.6 Financing. Section 5.6 of the Purchase Disclosure Schedule
---------
sets forth a complete and correct copies of a commitment letter from Bankers
Trust Company for the aggregate amount of $335 million (including a $50 million
uncommitted acquisition revolver) in financing including a term sheet accurately
describing the proposed terms and conditions of such financing (the "Financing
Commitment"). The Financing Commitment has not been withdrawn or terminated,
assuming the due execution and delivery by the Company of the Financing
Commitment, and the Purchaser has no reason to believe that the Financing
Commitment will not lead to the financing as contemplated by the Financing
Commitment. The Purchaser can obtain the funds (the "Equity Funds") required to
pay the Aggregate Share Purchase Price without the prior consent, approval or
other discretionary action of any third party. The Financing Commitment,
together with the Equity Funds, constitute all of the required financing
required to be provided by the Purchaser for the consummation of the
transactions contemplated by this Agreement and the payments of all fees and
expenses incurred by the Purchaser in connection therewith.
SECTION 5.7 Investment Intent. The Purchaser acknowledges that the Shares
-----------------
have not been registered under the Securities Act, and may not be resold absent
registration under the Securities Act or an applicable exemption from the
registration and prospectus delivery requirements of the Securities Act. The
Purchaser further acknowledges that the Company is under no obligation, and
assumes no obligation pursuant to the terms hereof, or the terms of any other
certificate, instrument or other document executed and delivered by the Company
in connection with the transactions contemplated hereby, to register the Shares
under the Securities Act or any state securities or "blue sky" Laws. The
Purchaser is acquiring the Shares for its own account, for investment purposes
only and not with a view toward any resale or other distribution thereof (within
the meaning of the Securities Act). The Purchaser qualifies as an "accredited
investor" as that term is defined in Rule 501 of Regulation D promulgated under
the Securities Act.
SECTION 5.8 Due Diligence Investigation. The Purchaser has had an
---------------------------
opportunity to discuss the business, management, operations and finances of the
Company with its officers, directors, employees, agents, representatives and
affiliates (including the Shareholders), and has had an opportunity to inspect
the facilities of the Company. The Purchaser has conducted its own independent
investigation of the Company and has been furnished by the Company, or its
agents or representatives, with all information, documents and other material
relating to the Company, and its business, management, operations and finances,
that the Purchaser has requested. In making its decision to execute and deliver
this Agreement and to consummate the transactions contemplated hereby, the
Purchaser has relied solely upon the representations and warranties of the
Shareholders and the Company set forth in Article III and Article IV and in the
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Company Disclosure Schedule hereof, respectively, and has not relied upon any
other information provided by, for or on behalf of the Company, or its agents or
representatives, to the Purchaser in connection with the transactions
contemplated hereby.
SECTION 5.9 Brokers. No broker, finder or investment banker is entitled
-------
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon any arrangements made by
or on behalf of the Purchaser or its Affiliates.
SECTION 5.10 Solvency. Immediately after giving effect to the
--------
transactions contemplated by this Agreement and the closing of any financing to
be obtained by the Company or any of its Affiliates in order to effect the
transactions contemplated by this Agreement, the Company and the Company
Subsidiaries shall be able to pay their debts as they become due and shall own
property having a fair saleable value greater than the amounts required to pay
its debts (including a reasonable estimate of the amount of all contingent
liabilities). Immediately after giving effect to the transactions contemplated
by this Agreement and the closing of any financing to be obtained by the Company
or any of its Affiliates in order to effect the transactions contemplated by
this Agreement, the Company and the Company Subsidiaries shall have adequate
capital to carry on its business. No transfer of property is being made and no
obligation is being incurred in connection with the transactions contemplated by
this Agreement and the closing of any financing to be obtained by the Company or
any of its Affiliates in order to effect the transactions contemplated by this
Agreement with the intent to hinder, delay or defraud either present or future
creditors of the Purchaser.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 No Solicitation. The Company and the Shareholders hereby
---------------
agree that neither the Company, the Company Subsidiaries or the Shareholders,
nor any of their respective officers, directors, general or limited partners,
managers, employees, agents, representatives or Affiliates shall, during the
period commencing with the execution and delivery hereof and terminating upon
the earlier to occur of the Closing or the termination of this Agreement
pursuant to and in accordance with Section 8.1 hereof, directly or indirectly
solicit, initiate or continue any discussions or negotiations with, or encourage
or respond to any inquiries or proposals by, or participate in any negotiations
with, provide any information to, or otherwise cooperate in any way or enter
into any agreement with, any Person or group other than the Purchaser and its
officers, directors, employees, agents and representatives, concerning any
proposed sale of the Company or any Company Subsidiary, all or a substantial
portion of their respective assets and properties, or the Business, any merger,
consolidation or combination, any sale of all or a majority of the outstanding
Company Capital Stock or outstanding capital stock of any Company Subsidiary,
any liquidation, dissolution or winding up of the Company, or any similar
transaction or series of transactions involving the Company or any of the
Company Subsidiaries. The Company will promptly notify the Purchaser in the
event that, during the period commencing with the execution and delivery of this
Agreement by all of the parties hereto and terminating upon the earlier to occur
of the Closing and the termination of this Agreement
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pursuant to and in accordance with Section 8.1 hereof, the Company shall receive
any such inquiry or proposal or offer to discuss or negotiate any such
transaction.
SECTION 6.2 Conduct of the Company Prior to Closing.
---------------------------------------
(a) Unless the Purchaser otherwise consents in writing (which consent
shall not be unreasonably withheld) and except as otherwise set forth herein or
in the Company Disclosure Schedule (including Section 6.2 thereof), during the
period commencing with the execution and delivery of this Agreement by all of
the parties hereto and terminating upon the earlier to occur of the Closing and
the termination of this Agreement pursuant to and in accordance with Section 8.1
hereof, the Company shall, and shall cause each Company Subsidiary to, (i)
conduct the Business only in the usual, regular and ordinary course, (ii) use
commercially reasonable efforts consistent with past practices and policies,
subject to the limitations set forth herein, to keep available the services of
the officers and key employees of the Company and the Company Subsidiaries, and
to preserve intact the current relationships of the Company and the Company
Subsidiaries with their respective customers, suppliers, distributors, and other
Persons with which the Company and the Company Subsidiaries have significant
business relationships as of the date hereof, (iii) use commercially reasonable
efforts consistent with past practices and policies to maintain the assets and
properties of the Company and the Company Subsidiaries in their current
condition, normal wear and tear excepted, and (iv) maintain the books, accounts
and records of the Company and the Company Subsidiaries in the usual, regular
and ordinary manner, on a basis consistent with past practice.
(b) Except as expressly provided in this Agreement or Section 6.2 of
the Company Disclosure Schedule, during the period commencing with the execution
and delivery of this Agreement by all of the parties hereto and terminating upon
the earlier to occur of the Closing and the termination of this Agreement
pursuant to and in accordance with Section 8.1 hereof, the Company shall not,
and shall cause the Company Subsidiaries not to, do or cause to be done any of
the following without the prior written consent of the Purchaser (which consent
shall not be unreasonably withheld):
(i) except in the ordinary course of business, create any
Encumbrance on any assets or properties (whether tangible or intangible) of the
Company or any Company Subsidiary, other than (A) Permitted Encumbrances, (B)
Encumbrances that will be released at or prior to the Closing, and (C)
Encumbrances on assets or properties having an aggregate value not in excess of
$100,000;
(ii) except for sales of inventory in the ordinary course of
business and except for transactions among the Company and Company Subsidiaries,
sell, assign, transfer, lease or otherwise dispose of, or agree to sell, assign,
transfer, lease or otherwise dispose of, any of assets of the Company or any
Company Subsidiary having a value, in any individual case, in excess of
$100,000;
(iii) acquire by merger, consolidation or combination, or
acquisition of stock or assets) any corporation, partnership or other business
organization or division thereof;
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(iv) (A) enter into or amend any employment, deferred
compensation, severance or similar agreement, except any individual employment
agreement providing for compensation of less than $200,000 per annum entered
into in the ordinary course of business consistent with past practice, or any
severance agreement entered into in the ordinary course of business consistent
with past practice, (B) increase the compensation payable, or to become payable,
by the Company or any Company Subsidiary to any Company Employees, or any
directors or officers of the Company or any Company Subsidiaries, (C) pay or
make provision for the payment of any bonus, stock option, stock purchase,
profit sharing, deferred compensation, pension, retirement or other similar
payment or arrangement to any Company Employee, or any director or officer of
the Company or any Company Subsidiary, or (D) increase the coverage or benefits
available under any severance pay, termination pay, vacation pay, company
awards, salary continuation or disability, sick leave, deferred compensation,
bonus or other incentive compensation, insurance, pension or other employee
benefit plan, payment or arrangement made to, for or with Company Employees or
any director or officer of the Company or any Company Subsidiary, other than, in
the case of clauses (B), (C) and (D) of this Section 6.2(b)(iv), normal
increases in the ordinary course of business consistent with past practice, and
except, in the case of clause (C) of this Section 6.2(b)(iv), to the extent that
the Company or any Company Subsidiary is contractually obligated to do so or
required to do so by applicable Law;
(v) materially change any method of accounting or accounting
practice used by the Company or any Company Subsidiary, other than such changes
required by GAAP;
(vi) issue or sell any additional shares of the Company
Capital Stock, or any capital stock or other equity interests in any Company
Subsidiary, or securities convertible into or exchangeable for any such shares
of capital stock of, or equity interests in, the Company or any Company
Subsidiary, or issue or grant any options, warrants, calls, subscription rights
or other rights of any kind to acquire additional shares of such capital stock
of, or other equity interests in, the Company or any Company Subsidiary, except
pursuant to Company Options outstanding on the date hereof;
(vii) amend in any respect the Company Certificate of
Incorporation or Company Bylaws, or the organizational documents of any Company
Subsidiary, or effect any recapitalization, reclassification or similar change
in the capitalization of the Company;
(viii) take any action which would materially interfere with the
consummation of the transactions contemplated hereby, make such consummation
more difficult, or materially delay the consummation of such transactions;
(ix) incur, guarantee or assume any indebtedness for borrowed
money, except for (A) borrowings under existing agreements in the ordinary
course of business or to make the payment to Rugby described in Amendment No. 5
to the Pioneer Agreement and related fee to Genstar Capital LLC and (B)
borrowings under inter-company indebtedness between the Company and any of the
Company Subsidiaries or between the Company Subsidiaries;
38
<PAGE>
(x) pay the additional consideration payable under the
Pioneer Agreement;
(xi) declare, set aside or pay any dividend or distribution or
other capital return in respect of any shares of Company Capital Stock, or
redeem, purchase or acquire any shares of Company Capital Stock;
(xii) make or authorize any individual capital expenditure
exceeding $500,000 except as contemplated by, and disclosed in, the Company's
operating budget previously provided to Purchaser;
(xiii) enter into or amend any agreement or arrangement with
Genstar or its Affiliates; or
(xiv) enter into any agreement to take, or cause to be taken,
any of the actions set forth in this Section 6.2(b).
SECTION 6.3 Conduct of the Purchaser Prior to Closing. During the period
-----------------------------------------
commencing with the execution and delivery of this Agreement by all of the
parties hereto and terminating upon the earlier to occur of the Closing and the
termination of this Agreement pursuant to and in accordance with Section 8.1
hereof, the Purchaser shall not take, or cause to be taken, any action which
would materially interfere with the consummation of the transactions
contemplated hereby, make such consummation more difficult or materially delay
the consummation of such transactions.
SECTION 6.4 Access to Information. Subject to the terms of the
---------------------
Confidentiality Agreement, during the period commencing upon the execution of
this Agreement by all of the parties hereto and terminating upon the earlier to
occur of the Closing and the termination of this Agreement pursuant to and in
accordance with Section 8.1 hereof, upon reasonable notice and during normal
business hours, the Company shall, and shall cause the officers, employees,
auditors and agents of the Company to, (i) afford the officers, employees and
authorized agents and representatives of the Purchaser reasonable access to the
offices, properties, books and records of the Company and the Company
Subsidiaries, and (ii) furnish to the officers, employees and authorized agents
and representatives of the Purchaser such additional financial and operating
data and other information regarding the assets, properties, goodwill and
business of the Company and the Company Subsidiaries as the Purchaser may from
time to time reasonably request; provided, however, that the Purchaser shall not
unreasonably interfere with any of the businesses or operations of the Company
or any Company Subsidiary. The Company shall provide the Purchaser, as soon as
available, its unaudited condensed consolidated financial statements for the
nine month-period ended September 30, 1999, which shall (i) have been prepared
in accordance with the books and records of the Company, (ii) have been prepared
in accordance with GAAP applied on a basis consistent with that reflected in the
Audited Company Financial Statements, and (iii) present fairly, in all material
respects, the consolidated financial position, results of operations and cash
flows of the Company and the Company Subsidiaries as of its date and during the
respective periods indicated therein.
39
<PAGE>
SECTION 6.5 Confidentiality. The terms of the Confidentiality Agreement
---------------
are hereby incorporated herein by reference and shall continue in full force and
effect until the Closing, such that the information obtained by any party
hereto, or its officers, employees, agents or representatives, during any
investigation conducted pursuant to Section 6.4 hereof, or in connection with
the negotiation and execution of this Agreement or the consummation of the
transactions contemplated hereby, or otherwise, shall be governed by the terms
of the Confidentiality Agreement. Upon the Closing, the Confidentiality
Agreement and the obligations of the parties thereto and under this Section 6.5
shall terminate and be of no further force or effect. Genstar and Stargen agree
to keep confidential information and documents of the Company, unless disclosure
is required by court or administrative order.
SECTION 6.6 Efforts; Consents; Regulatory and Other Authorizations;
-------------------------------------------------------
Financing.
---------
(a) Each party hereto shall use its reasonable best efforts to (i)
take, or cause to be taken, all appropriate action, and do, or cause to be done,
all things necessary, proper or advisable under applicable Law or otherwise to
promptly consummate and make effective the transactions contemplated by this
Agreement, (ii) obtain all authorizations, consents, orders and approvals of,
and give all notices to and make all filings with, all Governmental Authorities
and other third parties that may be or become necessary for the performance of
its obligations under this Agreement and the consummation of the transactions
contemplated hereby, including approval by the Board of Directors of the Company
of the Share Purchases and the Redemption, and those consents set forth in the
Shareholders Disclosure Schedule, the Company Disclosure Schedule or the
Purchaser Disclosure Schedule, as applicable, (iii) lift or rescind any
injunction or restraining order or other order adversely affecting the ability
of the parties hereto to consummate the transactions contemplated hereby, and
(iv) fulfill all conditions to the obligations of such parties under this
Agreement. Each party hereto shall cooperate fully with the other parties hereto
in promptly seeking to obtain all such authorizations, consents, orders and
approvals, giving such notices, and making such filings. The parties hereto
shall not to take any action that is reasonably likely to have the effect of
unreasonably delaying, impairing or impeding the receipt of any required
authorizations, consents, orders or approvals.
(b) In furtherance and not in limitation of the terms of Section
6.6(a) hereof, to the extent required by applicable Law, each party hereto shall
file, or cause to be filed, a Notification and Report Form pursuant to the HSR
Act with respect to the transactions contemplated hereby within seven (7)
Business Days of the date hereof, shall supply promptly any additional
information and documentary material that may be requested by any Governmental
Authority (including the Antitrust Division of the United States Department of
Justice and the United States Federal Trade Commission) pursuant to the HSR Act,
and shall cooperate in connection with any filing under applicable antitrust
Laws and in connection with resolving any investigation or other inquiry
concerning the transactions contemplated by this Agreement commenced by any
Governmental Authority, including the United States Federal Trade Commission,
the Antitrust Division of the United States Department of Justice, or the office
of any state attorney general.
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(c) In furtherance and not in limitation of the terms of Section
6.6(a) hereof, as promptly as practicable following the execution and delivery
of this Agreement by all of the parties hereto, the Purchaser shall take, or
cause to be taken, all action necessary, proper or advisable to obtain all
financing necessary to make the payments required under Article II hereof
(including the Aggregate Share Purchase Price and the Aggregate Option Purchase
Price), to pay all fees and expenses to be paid by the Purchaser in connection
with the transactions contemplated hereby, and to satisfy any other payment
obligations that the Purchaser may incur in connection with, and may be required
in order to consummate, the transactions contemplated hereby, including the
closing of the Bank Facility and the Repayment of all outstanding Senior Debt.
The Purchaser hereby agrees that it shall not amend (other than to extend the
termination date thereof), waive, discharge or terminate any material provision
of the Financing Commitment or any other agreement relating to the financing of
the transactions contemplated hereby without the prior written consent of the
Shareholders, which consent shall not be unreasonably withheld or delayed. In
the event that any portion of such financing becomes unavailable, regardless of
the reason therefor, the Purchaser shall use its commercially reasonable efforts
to obtain alternative financing on substantially comparable or more favorable
terms from other sources.
(d) The Company shall timely effect a tax election under Section
338(h)(10) of the Internal Revenue Code with respect to the acquisition by the
Company of Pioneer Plastics Corporation.
(e) The Shareholders and the Company shall cooperate with any
reasonable requests of the Purchaser related to the recording of the
transactions contemplated by this Agreement as a recapitalization for financial
reporting purposes.
(f) The Purchaser shall use its commercially reasonable best efforts
to negotiate an employment agreement contemplated by the term sheet included in
Exhibit 7.2(f), on terms consistent with such term sheet, and shall deliver to
Mr. Muller or his counsel an employment agreement that the Purchaser is prepared
to have the Company or a Company Subsidiary execute in satisfaction of the
condition set forth in Section 7.2(f).
SECTION 6.7 Further Action. Subject to the terms and conditions herein
--------------
provided, each of the parties hereto shall use its reasonable best efforts to
deliver, or cause to be delivered, such further certificates, instruments and
other documents, and to take, or cause to be taken, such further actions, as may
be necessary, proper or advisable under applicable Laws to consummate and make
effective the transactions contemplated by this Agreement.
SECTION 6.8 Indemnification; Officers' and Directors' Insurance.
---------------------------------------------------
(a) From and after the Closing, the Purchaser shall, and shall cause
the Company to, (i) indemnify and hold harmless each present and former director
and officer of the Company and each present and former Company Subsidiary (the
"Company Indemnified Parties"), against any Losses incurred or suffered by any
of the Company Indemnified Parties in connection with any Liabilities or any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or
41
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occurring at or prior to the Closing, whether asserted or claimed prior to, at
or after the Closing, to the fullest extent that the Company or any Company
Subsidiary would have been permitted under the Company Certificate of
Incorporation and Company Bylaws, or other organizational documents of any
Company Subsidiary, in each case as in effect on the date hereof, to indemnify
such Company Indemnified Parties, and (ii) advance reasonable expenses as
incurred by any Company Indemnified Party in connection with any matters for
which such Company Indemnified Party is entitled to indemnification from the
Purchaser pursuant to this Section 6.8(a) to the fullest extent permitted under
the Company Certificate of Incorporation and Company Bylaws, or other
organizational documents of any Company Subsidiary; provided, however, the
Company Indemnified Party to whom expenses are advanced provides an undertaking
to repay such advances if it is ultimately determined that such Company
Indemnified Party is not entitled to indemnification under the Company
Certificate of Incorporation and Company Bylaws, or other organizational
documents of any Company Subsidiary, or pursuant to this Section 6.8(a). The
foregoing indemnification shall not entitle any Company Indemnified Party to
seek indemnification for any amount for which such person is obligated to
provide indemnification pursuant to Section 9.2. The Company will not amend the
provisions of the Company's Certificate of Incorporation or Bylaws relating to
elimination of liability of directors and indemnification of officers,
directors, employees and other persons in a way that would adversely affect such
officers, directors, employees and other persons.
(b) For a period of six (6) years following the Closing, the
Purchaser shall maintain, or shall cause the Company for itself and the Company
Subsidiaries to maintain (to the extent available in the market), in effect a
directors' and officers' liability insurance policy covering those persons who
are currently covered by the Company's directors' and officers' liability
insurance policy (copies of which have been heretofore delivered by the Company
to the Purchaser and its agents and representatives) with coverage in amount and
scope at least as favorable as the Company's existing coverage; provided,
however, that in no event shall the Purchaser or the Company be required to
expend in the aggregate in excess of one hundred and fifty percent (150%) of the
annual premium currently paid by the Company for such coverage, and if such
premium would at any time exceed one hundred and fifty percent (150%) of such
amount, then the Purchaser or the Company shall maintain insurance policies
which provide the maximum and best coverage available at an annual premium equal
to one hundred and fifty percent (150%) of such amount; provided further that
this Section 6.8(b) shall be deemed to have been satisfied if a prepaid policy
or policies (i.e., "tail coverage") have been obtained by the Company which
policy or policies provide such directors and officers with the coverage
described in this Section 6.8(b) for an aggregate period of not less than six
(6) years with respect to claims arising from facts or events that occurred on
or before the Closing Date, including with respect to the transactions
contemplated by this Agreement.
(c) The terms and provisions of this Section 6.8 are intended to be
in addition to the rights otherwise available to the Company Indemnified Parties
by applicable Law, charter, bylaw or agreement, and shall operate for the
benefit of, and shall be enforceable by, the Company Indemnified Parties and
their respective heirs and representatives.
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SECTION 6.9 Books and Records. For a period of five (5) years (or with
-----------------
respect to Taxes, six (6) years) following the Closing, the Purchaser shall, and
shall cause the Company and the Company Subsidiaries to, provide to any
Shareholder for any proper purpose relating to such Shareholder's ownership of
any securities of the Company, access to the books and records of the Company
upon reasonable advance written notice during regular business hours for the
sole purpose of obtaining information for use as aforesaid and will permit such
Shareholder to make such extracts and copies thereof as may be necessary. Such
Shareholder shall reimburse the Company or the Company Subsidiary for the
reasonable out-of-pocket expenses incurred by any of them in performing the
covenants set forth in this Section 6.9.
SECTION 6.10 Termination of Certain Agreements; Continuation of Engagement
-------------------------------------------------------------
Agreement. On or prior to the Closing, Genstar, the Company and the relevant
- ---------
Company Subsidiaries shall take all actions necessary, if any, to terminate (i)
that certain Stock Option Agreement, dated as of June 7, 1996 (the "Stock Option
Agreement"), as amended, among Panolam Industries International, Genstar, CCFL
Subordinated Debt Fund and Company, Limited Partnership, a limited partnership
organized and existing under the laws of the Province of Quebec ("CCFL"), Domtar
Industries Inc., a corporation organized and existing under the laws of the
State of Delaware ("Domtar Industries"), and Claude P. Arcand, such that any
option granted pursuant to such Stock Option Agreement shall be canceled,
retired and extinguished unexercised, (ii) that certain Stockholders' Agreement,
dated as of June 7, 1996 (the "Domtar Stockholders' Agreement"), as amended,
among Company, Genstar, CCFL, Domtar Industries, Claude P. Arcand and Stargen,
such that all rights and obligations of the parties thereunder shall terminate,
and (iii) the Management Services Agreement. The Company hereby confirms that
Panolam Industries will continue to be obligated to make, and shall make, all
unpaid payments required under clause (ii) of the Engagement Agreement and the
Company and after the Closing the Purchaser shall cause Panolam Industries to
fulfill such obligations.
SECTION 6.11 No Solicitation. The Shareholders hereby agree that from the
---------------
date hereof until the third anniversary of the Closing, neither they nor any of
their affiliates shall solicit the employment of any person who is employed by
the Company as of the date hereof.
SECTION 6.12 Tax Matters.
-----------
(a) The Company shall prepare or cause to be prepared and file or
cause to be filed all Tax Returns for the Company and the Company Subsidiaries
for all periods (or portions thereof) ending on or prior to the Closing Date
which are filed after the Closing Date. The Purchaser shall permit the
Shareholders to review and comment on each such Tax Return described in the
preceding sentence prior to filing, and shall make such revisions to such Tax
Returns as reasonably requested by the Shareholders.
(b) The Company agrees to assign and promptly remit all refunds
(including interest thereon), net of any Tax effect to the Company, received by
the Company or any Company Subsidiary of any Taxes paid by the Company with
respect to any taxable period ending on or prior to the Closing Date; provided,
however, that the Company shall be entitled to the portion of any refund
resulting from a carryback of a net operating loss, net capital loss, Tax
43
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credit or similar item sustained or arising in any period (or portion thereof)
ending after the Closing Date. Notwithstanding the foregoing, no payment shall
be required to be made pursuant to this Section 6.12(b) unless the amount of
such payment would have been indemnifiable under the Agreement (had it been an
obligation of the Company).
ARTICLE VII
CONDITIONS TO CLOSING
SECTION 7.1 Conditions to Obligations of the Shareholders and the Company
-------------------------------------------------------------
The obligations of the Shareholders and the Company to consummate the Share
Purchases, the Redemption and the other transactions contemplated by this
Agreement to be consummated as of the Closing shall be subject to the
satisfaction, fulfillment or written waiver, at or prior to the Closing, of each
of the following conditions:
(a) Representations and Warranties; Covenants. (i) The
-----------------------------------------
representations and warranties of the Purchaser set forth in Article V hereof
shall be true and correct as of the Closing, with the same force and effect as
if made as of the Closing or, in the case of representations and warranties
which address matters only as of a particular date, as of such date, with only
such exceptions as, individually or in the aggregate, have not had and would not
have a material adverse effect on the ability of the Purchaser to perform its
obligations under this Agreement or consummate the transactions contemplated
hereby, (ii) the covenants and agreements set forth in this Agreement to be
performed or complied with by the Purchaser at or prior to the Closing, shall
have been performed or complied with in all material respects, and (iii) the
Shareholders and the Company shall have received a certificate of the Purchaser,
dated as of the Closing Date, certifying as to the matters set forth in clauses
(i) and (ii) of this Section 7.1(a), signed on behalf of the Purchaser by a duly
authorized officer thereof.
(b) No Governmental Order. No Governmental Authority shall have
---------------------
enacted, issued, promulgated, enforced or entered any Governmental Order which
is in effect and has the effect of making the Share Purchases or any other
transactions contemplated by this Agreement illegal or otherwise restraining or
prohibiting the consummation of the Share Purchases or any other transactions
contemplated hereby.
(c) HSR Act. The waiting period under the HSR Act, if applicable,
-------
shall have expired or been terminated.
(d) Governmental Approvals. All consents and approvals of
----------------------
Governmental Authorities necessary for consummation of the Share Purchases and
the other transactions contemplated by this Agreement shall have been obtained.
(e) Legal Actions or Proceedings. No legal action or proceeding
----------------------------
shall have been instituted seeking to restrain, prohibit, invalidate or
otherwise affect the transactions contemplated by this Agreement.
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(f) Stockholders Agreement. The Purchaser shall deliver to the
----------------------
Company and the Shareholders the Stockholders Agreement, substantially in the
form attached hereto as Exhibit 7.1(f) (the "Stockholders Agreement").
(g) Solvency Certificate. The Shareholders and the Company shall
--------------------
have received copies of any solvency opinions of appraisal firms or investment
banks obtained at the request of the Purchaser's financing sources or otherwise
delivered in connection with the transactions contemplated by this Agreement,
addressed to the Shareholders and the Board of Directors of the Company (or
stating that the Shareholders and the Board of Directors of the Company may rely
thereon as if addressed to the Purchaser).
(h) Shareholder Notes, Payments and Deliveries. The Company shall
------------------------------------------
have executed and delivered the Shareholder Notes to the Shareholders and the
Purchaser and the Company shall have made all payments required to be made
pursuant to Article II hereof. The Company shall have paid Genstar Capital LLC
all fees and expenses accrued through the Closing Date under the Management
Services Agreement as set forth in Section 7.1(h) of the Company Disclosure
--------------
Schedule.
(i) Opinion of Counsel for the Purchaser. The Shareholders shall
------------------------------------
have received the favorable opinion of Gibson Dunn & Crutcher, LLP, counsel for
the Purchaser, dated the Closing Date, in substantially the form attached hereto
as Exhibit 7.1(i).
SECTION 7.2 Conditions to Obligations of the Purchaser. The obligations
------------------------------------------
of the Purchaser to consummate the Share Purchases and the other transactions
contemplated by this Agreement to be consummated as of the Closing shall be
subject to the satisfaction, fulfillment or written waiver, at or prior to the
Closing, of each of the following conditions:
(a) Representations and Warranties; Covenants. (i) the
-----------------------------------------
representations and warranties of the Shareholders and the Company set forth in
Article III and Article IV hereof, respectively, shall be true and correct as of
the Closing, with the same force and effect as if made as of the Closing or, in
the case of representations and warranties which address matters only as of a
particular date, as of such date, with only such exceptions as, individually or
in the aggregate, have not had and would not have a Material Adverse Effect,
(ii) the covenants and agreements set forth in this Agreement to be performed or
complied with by the Shareholders or the Company at or prior to the Closing,
shall have been performed or complied with in all material respects, and (iii)
the Purchaser shall have received a certificate of the Shareholders, dated as of
the Closing Date, certifying as to the matters set forth in clauses (i) and (ii)
of this Section 7.2(a) with respect to the Shareholders, signed by each of the
Shareholders or a duly authorized officer thereof, and (iv) the Purchaser shall
have received a certificate of the Company, dated as of the Closing Date,
certifying as to the matters set forth in clauses (i) and (ii) of this Section
7.2(a) with respect to the Company, signed on behalf of the Company by a duly
authorized officer thereof.
(b) No Governmental Order. No Governmental Authority shall have
---------------------
enacted, issued, promulgated, enforced or entered any Governmental Order which
is in effect and has the
45
<PAGE>
effect of making the Share Purchases or any other transactions contemplated by
this Agreement illegal or otherwise restraining or prohibiting the consummation
of the Share Purchases or any other transactions contemplated hereby.
(c) HSR Act. The waiting period under the HSR Act, if applicable,
-------
shall have expired or been terminated.
(d) Governmental Approvals. All consents and approvals of
----------------------
Governmental Authorities necessary for consummation of the transactions
contemplated hereby shall have been obtained.
(e) Resignations. The Purchaser shall have received a letter of
------------
resignation from each member of the Board of Directors of the Company.
(f) Employment Agreements. Robert J. Muller, Jr. shall have entered
---------------------
into an employment agreement, in form and substance satisfactory to the
Purchaser in its sole discretion, on terms that are consistent with the terms
set forth on the term sheets included in Exhibit 7.2(f).
(g) Opinion of Counsel for Shareholder. Purchaser shall have
----------------------------------
received the favorable opinion of Latham & Watkins, counsel for Shareholder,
dated the Closing Date, substantially in the form attached hereto at Exhibit
7.2(g).
(h) Legal Actions or Proceedings. No legal action or proceeding
----------------------------
shall have been instituted seeking to restrain, prohibit, invalidate or
otherwise affect the transactions contemplated by this Agreement.
(i) Delivery of Share Certificates. The Shareholders shall have
------------------------------
delivered to the Purchaser the Share Certificates representing the Shares, free
and clear of any Encumbrances.
(j) Delivery of Redeemed Share Certificates. The Shareholders shall
---------------------------------------
have delivered to the Company the Redeemed Share Certificates representing the
Redeemed Shares, and any other required endorsements and documents of transfer
and all other required documents, certificates and agreements necessary to
convey good and valid title to the Redeemed Shares, free and clear of any
Encumbrances.
(k) Refinancing. The Bank Facility shall have closed and the
-----------
Repayment shall have occurred, unless the failure to obtain the Bank Facility
was the result of a willful failure by the Purchaser to perform any covenant or
condition contained therein, the inaccuracy of any representation or warranty
arising out of the bad faith or willful misconduct of the Purchaser.
(l) Termination of Agreements. The Stock Option Agreement, the
--------------------------
Domtar Stockholders' Agreement and the Management Services Agreement shall have
been terminated pursuant to and in accordance with Section 6.10 hereof, and the
Purchaser shall have received satisfactory evidence thereof.
46
<PAGE>
(m) Pledge of Notes. Each Shareholder shall have delivered to the
---------------
Purchaser the Shareholder Note issued by the Company to such Shareholder
pursuant to Section 2.3(b) hereof, as the sole security for such Shareholder's
indemnification obligations hereunder.
(n) Stockholders Agreement. The Company and the Shareholders shall
----------------------
deliver to the Purchaser the Stockholders Agreement.
(o) Material Adverse Change. From the date hereof, there shall not
-----------------------
have occurred a Material Adverse Change or an event that with the passage of
time would reasonably be likely to result in a Material Adverse Change.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be terminated at any time
-----------
prior to the Closing:
(a) by the mutual written consent of the Shareholders, the Company
and the Purchaser;
(b) by either the Shareholders and the Company, on the one hand, or
the Purchaser, on the other hand, by written notice to the other party or
parties, as the case may be, if any Governmental Authority with jurisdiction
over such matters shall have issued a Governmental Order permanently
restraining, enjoining or otherwise prohibiting the Share Purchases or any other
transactions contemplated hereby, and such Governmental Order shall have become
final and unappealable; provided, however, that the terms of this Section 8.1(b)
shall not be available to any party or parties, as the case may be, unless such
party or parties shall have used its reasonable best efforts to oppose any such
Governmental Order or to have such Governmental Order vacated or made
inapplicable to the Share Purchases or other transaction contemplated by this
Agreement to which such Governmental Order relates;
(c) by either the Shareholders and the Company, on the one hand, or
the Purchaser, on the other hand, by written notice to the other party or
parties, as the case may be, if the Closing shall not have been consummated on
or before November 30, 1999, unless the failure to consummate the Closing on or
prior to such date is the result of a default under this Agreement by the party
or parties, as the case may be, seeking to terminate the Agreement pursuant to
the terms of this Section 8.1(c);
(d) by the Purchaser upon written notice to the Shareholders and the
Company if the Shareholders or the Company shall have breached this Agreement in
any material respect and such breach shall not have been cured within twenty
(20) calendar days of the delivery of such written notice by the Purchaser to
the Shareholders and the Company;
(e) by the Shareholders and the Company upon written notice to the
Purchaser if the Purchaser shall have breached this Agreement in any material
respect and such breach shall
47
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not have been cured within twenty (20) calendar days of the delivery of such
written notice by the Shareholders and the Company to the Purchaser; and
(f) by the Shareholders and the Company if on or before October 31,
1999 the Financing Commitment has not been amended to (A) eliminate the
conditions set forth in paragraph (xxii) and (B) modify the conditions set forth
in paragraphs (i), (ii), (vi) and (xiii) to confirm that all documentation
described therein (to the extent theretofore delivered to Bankers Trust Company)
is satisfactory to Bankers Trust Company, it being understood that Bankers Trust
Company shall be required to be satisfied with any modifications or additions to
the documentation described in such clauses (and with any additional
documentation described in such clauses to the extent not finalized by October
31, 1999).
SECTION 8.2 Effect of Termination. In the event of termination of this
---------------------
Agreement and abandonment of the Share Purchases and the other transactions
contemplated by hereby pursuant to and in accordance with Section 8.1 hereof,
this Agreement shall forthwith become void and of no further force or effect
whatsoever and there shall be no liability on the part of any party hereto;
provided, however, that notwithstanding the foregoing, nothing herein contained
shall relieve any party hereto from any liability resulting from or arising out
of any breach of any agreement or covenant hereunder; and provided further,
however, that notwithstanding the foregoing, the terms of Section 6.5, Article
IX and Article X hereof shall survive any termination of this Agreement, whether
in accordance with Section 8.1 or otherwise.
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
SECTION 9.1 Survival of Representations, Warranties and Covenants. The
------------------------------------------------------
representations and warranties set forth in Article III, Article IV and Article
V of this Agreement shall survive until the 18 month anniversary of the Closing,
except for the representations and warranties contained in Section 4.10, Section
4.17, Section 4.19 and Section 4.26 hereof, which shall survive until the third
(3rd) anniversary of the Closing as provided in Section 10.3. Unless written
notice of a claim based on such representation or warranty specifying in
reasonable detail the facts on which the claim is based shall have been
delivered to the indemnifying party on or prior to the expiration date of such
representation or warranty, such representation or warranty shall be deemed to
be of no further force or effect. Any obligation of the Shareholders to provide
indemnification for Environmental Losses or Antitrust Losses shall survive until
the third (3rd) anniversary of the Closing, unless written notice of a claim for
indemnification shall be made in accordance with this Article IX and delivered
to the Shareholders on or prior to the expiration date, in which case the
indemnification obligation shall survive as to such claim until such claim has
been resolved. Any claim for indemnification for Environmental Losses and
Antitrust Losses must be made in accordance with this Article IX, including
Section 9.5(a), and must be delivered to the Shareholders as provided in Section
10.3 on or prior to the third (3rd) anniversary of the Closing. Except as
otherwise stated herein, each covenant and agreement set forth in this Agreement
shall survive the execution and delivery of this Agreement and shall continue
until the expiration of the applicable statute of limitations period. From and
after the Closing, the remedies contemplated by this Article IX shall be the
sole recourse of the parties hereto and their
48
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respective Affiliates for all Losses, Liabilities , Actions, damages or expenses
related to or arising, directly or indirectly, out of this Agreement, the
transactions contemplated hereby or otherwise arising at Law or in equity, and
each party hereto hereby waives any and all rights, claims, causes of action and
other remedies such party or its Affiliates may have against the other parties
hereto relating to the subject matter of this Agreement other than the remedies
expressly provided in this Article IX; provided, however, that notwithstanding
the foregoing, nothing contained in this Agreement or otherwise shall in any way
limit any claim, suit, cause or action or remedy that may be available to the
Purchaser, the Company or the Shareholders based on intentional
misrepresentation.
SECTION 9.2 Indemnification of the Purchaser.
--------------------------------
(a) Subject to the provisions of this Article IX, the Shareholders
shall jointly and severally indemnify and hold harmless the Purchaser and its
directors, officers and Affiliates from and against, and in respect of, any and
all Losses incurred by, resulting from, arising out of, relating to, imposed
upon or incurred by the Purchaser or any of its directors, officers or
Affiliates, or the Company after the Closing Date, by reason of (i) any
inaccuracy in, or breach of, any of the representations and warranties of the
Company or the Shareholders contained in this Agreement, (ii) any breach of any
covenants or agreements of the Company or the Shareholders contained in this
Agreement, (iii) any Environmental Claims or (iv) the Antitrust Matter. For
purposes of the indemnification obligations hereunder and the calculation of
Losses, any inaccuracy in, or breach of a representation and warranty shall be
deemed to constitute a breach of such representation or warranty,
notwithstanding any limitation or qualification as to the materiality set forth
in such representation or warranty as to the scope, accuracy or completeness
thereof, it being the intention of the parties that the Purchaser shall, subject
to Section 9.8 hereof, be indemnified and held harmless from and against any and
all Losses to which the Purchaser is entitled to indemnification hereunder.
(b) Subject to the provisions of this Article IX, the Shareholders
shall jointly and severally indemnify and hold harmless the Purchaser and its
directors, officers and Affiliates from and against, and in respect of, any and
all Taxes that the Company or any Company Subsidiary is required to pay as a
result of the Tax Audits (as defined below), which are in addition to the Taxes
previously paid with respect to the matters and the Tax periods covered by such
Tax Audits and that are in excess of the amounts reserved on the Financial
Statements. The Purchaser shall cause the Company and the Company Subsidiaries
to use their reasonable efforts to defend such Tax Audits in an effort to
mitigate the Taxes payable as a result of such Tax Audits. The Shareholders
shall have the right to participate in the Tax Audits, and in the event that it
becomes reasonably likely that the Shareholders would be obligated to indemnify
the Purchaser for such Tax Audits, the Shareholders may elect to control the
defense of the Tax Audits. For purposes of this Section 9.2(b), "participate"
shall mean the right to participate in conferences, meetings or proceedings with
any Tax Authority, the subject matter of which includes an item for which the
Shareholders may have liability hereunder, and participation in the submission
and determination of the content of documentation and oral presentations to or
before a Tax Authority in connection with the Tax Audits. The Purchaser and the
Company agree that without the written consent of the Shareholders, which
consent will not be
49
<PAGE>
unreasonably withheld, they will not settle (and they will cause the Company
Subsidiaries not to settle) any of such Tax Audits, if the Shareholders would be
responsible for any portion of such settlement pursuant to this Article IX. The
"Tax Audits" are the audits identified as items 3 (Maine Sales, Use & Transient
Rentals Tax, Withholding Tax and Income Tax), 5 (Indiana Use, Income and Payroll
Tax) and 6 (Tennessee Department of Revenue for PPC Disposition) of Section 4.10
of the Company Disclosure Schedule.
SECTION 9.3 Intentionally Omitted
---------------------
SECTION 9.4 Indemnification of the Shareholders; Defense of Claims. The
------------------------------------------------------
Purchaser shall indemnify and hold harmless the Shareholders and each of their
respective directors, officers, partners and Affiliates from and against, and in
respect of, any and all Losses incurred by, resulting from, arising out of,
relating to, imposed upon or incurred by the Shareholders or any of their
respective directors, officers, partners and Affiliates by reason of (i) any
inaccuracy in, or breach of, any of the representations and warranties of the
Purchaser contained in this Agreement and (ii) any breach of any covenants or
agreements of the Purchaser contained in this Agreement.
In the event that a third party commences any action against any of
the Shareholders or any of their respective directors, officers, partners or
Affiliates which relates to (A) the Purchaser's ownership of the Company and the
Company Subsidiaries and the operations of the Company and the Company
Subsidiaries after the Closing Date, or (B) any failure by the Company or the
Company Subsidiaries after the Closing Date to perform and discharge all of
their respective obligations under any Contracts or other undertakings after the
Closing Date, then the Company and the Company Subsidiaries shall, and the
Purchaser shall cause the Company and the Company Subsidiaries to, use their
commercially reasonable best efforts to defend, at the expense of the Company
and the Company Subsidiaries, any Shareholder or any director, officer, partner
or Affiliate of a Shareholder against whom or which such action is brought in
order to have such action dismissed against such person without liability to
such person; provided that the Company and the Company Subsidiaries shall not be
obligated to hire counsel separate from Company counsel.
For purposes of the indemnification obligations hereunder and the
calculation of Losses, any inaccuracy in, or breach of a representation and
warranty shall be deemed to constitute a breach of such representation or
warranty, notwithstanding any limitation or qualification as to the materiality
set forth in such representation or warranty as to the scope, accuracy or
completeness thereof, it being the intention of the parties that the
Shareholders shall, subject to Section 9.8 hereof, be indemnified and held
harmless from and against any and all Losses to which the Shareholders are
entitled to indemnification hereunder.
SECTION 9.5 Claims for Indemnification.
--------------------------
(a) After a party who is entitled to indemnification hereunder (the
"indemnified party") either (a) receives notice of any claim or the commencement
of any action by any third party which such indemnified party reasonably
believes may give rise to a claim for
50
<PAGE>
indemnification from the other party (the "indemnifying party") or (b) sustains
any Loss not involving a third-party claim, such indemnified party shall, if a
claim is to be made against an indemnifying party under this Article IX,
promptly (and, with respect to a third-party action, within fifteen (15)
calendar days after service of the citation or summons, notify such indemnifying
party in writing in reasonable detail of such claim, action or Loss, as the case
may be; provided that the failure to so notify the indemnifying party shall not
affect the rights to indemnification hereunder except to the extent that the
indemnifying party is actually prejudiced by such failure. In the event of any
claim for indemnification hereunder resulting from or in connection with any
claim or legal proceedings by a third party, the notice to the indemnifying
party shall specify, if known, the amount or an estimate of the amount of the
liability arising therefrom. Notwithstanding the foregoing, with respect to the
Antitrust Matter, an indemnified party shall have the right to notify the
indemnifying party and a "claim" shall be deemed to exist only after the Company
or a Company Subsidiary (A) has incurred after Closing at least $100,000 in
Antitrust Losses in respect of the Antitrust Matter or (B) has been named a
defendant in a civil or criminal action related to such Antitrust Matter or
received notification from DOJ or other Governmental Authority that the Company
or a Company Subsidiary will be so named or has been advised by DOJ that it is a
target of the investigation related to the Antitrust Matter; provided, however,
if on the third anniversary of the Closing none of the events described in
clause (B) shall have occurred and be pending, then the obligations of the
Shareholders to provide indemnification for Antitrust Losses shall expire on the
third anniversary of the Closing (except to the extent of indemnifiable
Antitrust Losses incurred prior to the third anniversary of the Closing Date
that are the subject of a claim properly made prior to the third anniversary).
(b) The Shareholders hereby appoint Genstar as their representative
(the "Shareholder Representative") to take any and all action on their behalf in
respect of the indemnification provisions contained in this Agreement and the
Purchaser is authorized to rely on any such action as being the duly authorized
action of the Shareholders. The Shareholders shall indemnify and hold harmless
the Shareholder Representative so designated pursuant to the foregoing sentence
from and against any Actions brought against the Shareholder Representative in
connection with the performance of its duties under this Agreement.
SECTION 9.6 Defense by Indemnifying Party. In connection with any claim
-----------------------------
giving rise to indemnity hereunder resulting from or arising out of any claim or
legal proceeding by a person who is not a party to this Agreement, the
indemnifying party at its sole cost and expense may, upon written notice to the
indemnified party, assume the defense of any such claim or legal proceeding if
it acknowledges to the indemnified party in writing its obligations to indemnify
the indemnified party with respect to such claim. If the indemnifying party does
not assume control of the defense, the indemnified party shall control such
defense. The party that does not assume control of the defense shall be entitled
to participate in (but not control) the defense of any such action, with its
counsel and at its own expense. The party controlling the defense shall keep the
other party advised of the status of such action, suit, proceeding or claim and
the defense thereof and shall consider recommendations made by the other party
with respect thereto. The indemnified party shall not agree to any settlement of
such action, suit, proceeding or claim without the prior written consent of the
indemnifying party. The indemnifying party shall not
51
<PAGE>
agree to any settlement of such action, suit, proceeding or claim that does not
include a complete release of the indemnified party from all liability with
respect thereto or that imposes any liability or obligation on the indemnified
party without the prior written consent of the indemnified party.
SECTION 9.7 Pledge of Shareholder Notes; Manner of Indemnification.
------------------------------------------------------
(a) All indemnification by the Purchaser hereunder shall be effected
by the payment of cash or the delivery of a certified or official bank check in
the amount of the indemnifiable Loss.
(b) All indemnification by the Shareholders hereunder shall be
effected solely by the reduction of amounts owed by the Company under the
Shareholder Notes, in accordance with this Section 9.7. Each Shareholder hereby
pledges and grants to the Purchaser a security interest in such Shareholder's
Shareholder Note, and in the proceeds of, and payments and distributions on,
such Shareholder Note, as security for, and as the exclusive source of recovery
against such Shareholder in respect of, such Shareholder's indemnification
obligations hereunder. On the third anniversary, the Purchaser shall release the
security interest and return the Shareholder Notes to the Shareholders and shall
execute and deliver such other documents as the Shareholders may reasonably
request in order to effect such release, unless any claim is then pending, in
which case Shareholder Notes (which may be replacement notes) equal to the
aggregate dollar amount of such claim (as provided in the Indemnification Notice
of such claim delivered prior to the expiration of the applicable survival
period) shall be retained by the Purchaser and the balance of the Shareholder
Notes (which may be replacement notes) released to the Shareholders. Upon any
final determination with respect to such an Indemnification Claim, the Purchaser
shall cause the Shareholder Notes in the amount of the award to be canceled and
the remaining Shareholder Notes shall be released to the Shareholders or the
Company may execute replacement Shareholder Notes with the reduced principal
amount.
(c) From time to time, the Purchaser may give notice (the
"Indemnification Notice") to the Shareholder Representative specifying the
nature and dollar amount of any claim for indemnification it may have under this
Article IX. If the Shareholder Representative does not give notice to the
Purchaser disputing such claim (a "Counter Indemnification Notice") within
thirty (30) calendar days after receipt of the Indemnification Notice, then the
dollar amount of damages claimed by the Purchaser set forth in its
Indemnification Notice shall be deemed conclusive for purposes of this
Agreement, and, at the end of such 30-day period, the principal amount of the
Shareholder Notes shall be reduced by (and only to the extent of) the dollar
amount claimed in the Indemnification Notice and the Company may execute
replacement Shareholder Notes with the reduced principal amount.
(d) If a Counter Indemnification Notice is given with respect to a
Claim, the principal amount of the Shareholder Notes shall be reduced (and
replacement Shareholder Notes shall be issued) only after a final decision has
been obtained by a court or as a result of an arbitration award with respect to
the amount of, and the liability for, such indemnification claim, and then in
accordance with such decision.
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<PAGE>
(e) If the Company is obligated to redeem or repay all or a portion
of the Shareholder Notes before the third anniversary of the Closing, then the
payment will be put into an interest-bearing, indemnification escrow account. If
the Company is obligated to redeem or repay all or a portion of the Shareholder
Notes after the third anniversary and at such time as there is a pending
Indemnification Notice, then the payment (up to the amount of the pending
Indemnification Notice) will be put into an interest-bearing, indemnification
escrow account. The escrow agent shall be a bank reasonably acceptable to the
Company and the Shareholder Representative. The escrow agent shall release funds
from the escrow account to satisfy an indemnification claim only (i) in
accordance with joint written instructions of the Purchaser and the Shareholder
Representative or (ii) after a final decision has been obtained by a court or as
a result of an arbitration award with respect to the amount of, and the
liability for, such indemnification claim, and then in accordance with such
decision. On the third anniversary of the Closing Date, the Escrow Agent shall
pay and distribute the then amount of escrow account to Shareholders, unless any
claim is then pending, in which case an amount equal to the aggregate dollar
amount of such claim (as provided in the Indemnification Notice of such claim
delivered prior to expiration of the applicable survival period) shall be
retained by the escrow agent and the balance paid to the Shareholders. Upon any
final determination with respect to such an Indemnification Claim, the escrow
agent shall deliver the amount awarded to the Purchaser and the balance of the
Indemnification Fund shall be distributed to the Shareholders.
(f) If an indemnification claim is resolved at a time when there are
both outstanding Shareholder Notes and funds held in escrow, the indemnification
claim shall be satisfied first by a reduction of the principal amount of the
Shareholder Notes and thereafter by a release of cash from the escrow account.
(g) The Shareholders agree that the amount of an indemnification
claim would be allocated among the Shareholders in proportion to the principal
amounts of their respective Shareholder Notes.
(h) If the Shareholders assume the defense of an indemnified claim,
then any amount paid or incurred by the Shareholders in respect of that claim
shall be reimbursed by the Company as follows: (i) if the minimum dollar
thresholds set forth in Section 9.8(a) are applicable to the claim and if the
amount paid or incurred by the Shareholders is less than either of the minimum
dollar thresholds set forth in Section 9.8(a), then the Company shall reimburse
the Shareholders for such amount; (ii) if the amount is greater than both of the
minimum dollar thresholds set forth in Section 9.8(a), but less than the
applicable aggregate limitation with respect to such claim, then the Company
shall reimburse the Shareholders for such amount and shall offset such amount
against the Shareholder Notes, and reissue replacement Shareholder Notes in
accordance with this Section 9.7 (or funds from the escrow account shall be paid
in accordance with this Section 9.7); and (iii) if the amount is greater than
the aggregate limitation with respect to such claim, then the Company shall
reimburse the Shareholders for such amount in excess of such limitation;
provided that if the amount has exceeded the maximum, then the Company shall
have the right to assume the defense of the matter and the Shareholders shall
have the right to tender the defense of the matter to the Company. As a
precondition to receiving any
53
<PAGE>
such reimbursement, the Shareholders shall deliver to the Company reasonable
documentation as evidence of the payment or the amount incurred.
SECTION 9.8 Limitations on Indemnification.
------------------------------
(a) General. Notwithstanding anything to the contrary set forth
-------
herein, neither the Purchaser nor the Shareholders shall be entitled to recover,
and the other party or parties, as the case may be, shall not be obligated to
pay, any claim for indemnification under Section 9.2(a)(i) or Section 9.2(b)
(other than with respect to indemnification for Environmental Losses and
Antitrust Losses, which shall be governed by Section 9.8(b) and Section 9.9(c),
respectively) or Section 9.4(i) unless and until the aggregate dollar amount of
all indemnification claims against such party or parties hereunder exceeds
$1,000,000, in which event the party or parties entitled to such indemnification
shall be entitled to recover only the amount of their indemnification claims in
excess of $500,000. Notwithstanding anything herein to the contrary, no claim
for indemnification under this Article IX may be asserted by an indemnified
party unless such claim (or series of related claims) equals or exceeds $50,000
individually. Notwithstanding anything to the contrary set forth herein, the
aggregate indemnification obligation of the Shareholders hereunder for Losses
(including in connection with the Tax Audits), other than Environmental Losses
and Antitrust Losses, shall not exceed $10,000,000.
(b) Environmental Losses. Notwithstanding anything to the contrary
--------------------
set forth herein, the indemnification obligation of the Shareholders for Losses
relating to any (x) inaccuracy in, or breach of, the representations and
warranties set forth in Section 4.19 hereof or (y) Environmental Claims
("Environmental Losses") shall be as follows:
(i) for aggregate Environmental Losses up to $1,000,000, there
shall be indemnification by the Shareholders under this Article IX limited to
fifty percent (50%) of such Environmental Losses;
(ii) for aggregate Environmental Losses in excess of $1,000,000,
there shall be indemnification by the Shareholders under this Article IX;
provided that the aggregate indemnification obligation of the Shareholders for
Environmental Losses shall not exceed $10,000,000.
(c) Antitrust Losses. Notwithstanding anything to the contrary set
----------------
forth herein, the indemnification obligation of the Shareholders for Losses
incurred by the Company or the Shareholders relating to the Antitrust Matter
("Antitrust Losses") shall be as follows:
(i) for aggregate Antitrust Losses up to $2,000,000, there
shall be indemnification by the Shareholders under this Article IX limited to
fifty percent (50%) of such Antitrust Losses; and
(ii) for aggregate Antitrust Losses in excess of $2,000,000,
there shall be indemnification by the Shareholders under this Article IX;
provided that the aggregate indemnification obligation of the Shareholders for
Antitrust Losses shall not exceed $19,000,000.
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(d) Enforcement of Other Rights
---------------------------
(i) An indemnified party shall not have a right to
indemnification under this Article IX for Losses other than Environmental
----------
Losses, unless the Company or the appropriate Company Subsidiary first seeks, to
the fullest extent permitted by law and in a timely manner (including through
the commencement and reasonable prosecution of litigation, mediation or
arbitration by the Company or such Company Subsidiary seeking to enforce
contractual rights) and consistent with applicable agreements, to recover any
Losses from Rugby, Aeroquip Corporation, Aeroquip-Vickers, Inc. and Domtar
Industries, or any of their predecessors or successors, to the extent that the
Company or a Company Subsidiary has or may have a contractual, legal or
equitable right of indemnification, contribution or reimbursement from such
parties.
(ii) The Purchaser shall not have a right to receive
indemnification under this Article IX for Environmental Losses, unless the
----------
Company or the appropriate Company Subsidiary first (a) seeks, to the fullest
extent permitted by law and in a timely manner (including through the
commencement and reasonable prosecution of litigation, mediation or arbitration
by the Company or such Company Subsidiary seeking to enforce contractual rights)
and consistent with applicable agreements, to recover any Losses from Rugby,
Aeroquip Corporation, Aeroquip-Vickers, Inc. and Domtar Industries, or any of
their predecessors or successors, to the extent that the Company or a Company
Subsidiary has or may have a contractual right of indemnification, contribution
or reimbursement from such parties, or (b) asserts and reasonably prosecutes a
claim to recover any Losses from third parties (including any potentially liable
prior owner of the property) to the extent that the Company or such Company
Subsidiary has or may have a contractual, legal or equitable right of
indemnification, contribution or reimbursement.
(iii) The Purchaser will cause the Company and the Company
Subsidiaries (a) not to amend or modify in any material respect any contractual
rights of indemnification, reimbursement or contribution relating to Rugby,
Aeroquip Corporation, Aeroquip-Vickers, Inc. and Domtar Industries, or any of
their successors, without the prior written consent of the Shareholders, which
will not be unreasonably withheld and (b) to comply in all material respects
with the Prior Agreements.
(iv) Notwithstanding anything herein to the contrary, the
Purchaser may make a claim for indemnification if, at the expiration of the
applicable indemnification survival period pursuant to Section 9.1, the Company
or a Company Subsidiary has a pending dispute in which the Company or a Company
Subsidiary is seeking to recover from any third party for any Losses pursuant to
this Section 9.8(d).
(e) Environmental Matters. An indemnifying party shall not be liable
---------------------
for Environmental Losses under this Article IX, (A) to the extent that the Loss
arises from or is due to any actual or potential future use of the Owned Real
Property or Leased Real Property for other than an industrial use or (B) unless
the Response Activities (as defined below) are required under any Environmental
Law or any Contract existing on the Closing Date. If the Shareholders have an
obligation under this Agreement to indemnify the Purchaser from or against any
55
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Environmental Losses in connection with the performance of any investigation,
clean-up, removal, containment or other remediation or response actions
("Response Activities"), such Losses shall be limited to those Losses incurred
to meet the least stringent standards or requirements that the Company or any
Company Subsidiary is lawfully required to meet by Governmental Authorities
under the applicable Environmental Law (taking into consideration the zoning of
the property and the uses of the resources thereon at the time the Response
Activities are performed); provided that for purposes of this sentence, any
standards or requirements lawfully established by the Maine Department of
Environmental Protection pursuant to the terms of the Compliance Order on
Consent applicable to the Auburn, Maine facility (the "Auburn COC") or any
----------
subsequent order entered to enforce the terms of the Auburn COC shall be deemed
to be such least stringent standards or requirements. Environmental Losses shall
be limited to out-of-pocket expenditures.
(f) Subrogation. Upon making any payment to an indemnified party
-----------
(i.e., through set-off of the Shareholder Note or through the escrow account)
for any indemnification claim pursuant to this Article IX, the indemnifying
party shall be subrogated, to the extent of such payment, to any rights that the
indemnified party may have against any other persons with respect to the subject
matter underlying such indemnification claim and the indemnified party shall
take such actions as the indemnifying party may reasonably require to perfect
such subrogation or to pursue such rights against such other persons as the
indemnified party may have; provided that no such right of subrogation shall
exist unless and until the indemnified party's Losses with respect to the
subject matter underlying such indemnified claim are paid in full if the amount
of the indemnification payment is not sufficient to pay such Losses in full.
(g) Insurance; Reimbursements; Taxes. The amount of any Losses for
--------------------------------
which indemnification is provided under this Article IX shall be reduced by (i)
any related recoveries actually received by the indemnified party under
insurance policies or other related payments received from third parties, and
(ii) any Tax benefits actually received by the indemnified party or any of its
Affiliates on account of the matter resulting in such Losses or the payment of
such Losses. In the event that the indemnified party receives any such
recoveries or Tax benefits on account of Losses that have previously been paid
by the indemnifying party to the indemnified party, the indemnified party shall,
after receipt thereof, promptly pay over to the indemnifying party the full
amount of such recoveries or Tax benefits received. If an indemnified party
receives payment from a third party in respect of Losses for which an
indemnifying party has provided indemnification (i.e., through set-off of the
Shareholder Note or through the escrow account), then the indemnified party
shall reimburse the indemnifying party to the extent of such payment (up to the
amount of the indemnification provided by the indemnifying party).
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Expenses. Except as set forth in Section 10.2 hereof, all
--------
costs and expenses (including all fees and disbursements of counsel, financial
advisors and accountants) incurred in connection with the negotiation and
preparation of this Agreement, the performance of the terms hereof and the
consummation of the transactions contemplated hereby, shall be paid
56
<PAGE>
by the respective party incurring such costs and expenses, whether or not the
Closing shall have occurred.
SECTION 10.2 Costs and Attorneys' Fees. In the event that any action,
-------------------------
suit or other proceeding is instituted concerning or arising out of this
Agreement, the prevailing party shall recover all of such party's costs and
reasonable attorneys' fees incurred in connection with each and every such
action, suit or other proceeding, including any and all appeals and petitions
therefrom.
SECTION 10.3 Notices. All notices, requests, demands and other
-------
communications under this Agreement shall be in writing and shall be deemed to
have been duly given or made as follows: (i) if sent by registered or certified
mail in the United States return receipt requested, upon receipt; (ii) if sent
by nationally recognized overnight air courier (such as DHL or Federal Express),
two (2) business days after mailing; (iii) if sent by facsimile transmission,
with a copy mailed on the same day in the manner provided in clauses (i) or (ii)
of this Section 10.3, when transmitted and receipt is confirmed by telephone;
and (iv) if otherwise actually personally delivered, when delivered, provided
that such notices, requests, demands and other communications are delivered to
the address set forth below, or to such other address as any party shall provide
by like notice to the other parties hereto:
(a) if to the Shareholders or the Company, to:
Genstar Capital Partners, LLC
555 California Street
Suite 4850
San Francisco, California 94104
Facsimile: (415) 834-2383
Attention: Jean-Pierre L. Conte
and, prior to the Closing, to:
Panolam Industries International, Inc.
20 Progress Drive
Shelton, Connecticut 06484
Facsimile: (203) 925-0050
Attention: Robert J. Muller, Jr.
57
<PAGE>
with copies to:
Latham & Watkins
505 Montgomery Street
Suite 1900
San Francisco, California 94111
Facsimile: (415) 395-8095
Attention: Scott R. Haber, Esq.
Michael S. Ringler, Esq.
(b) if to the Purchaser, to:
The Carlyle Group
1001 Pennsylvania Avenue, N.W., Suite 220
Washington, D.C. 20004
Facsimile: (202) 347-1818
Attention: Mr. Jerome Powell, Managing Director
with a copy to:
Gibson, Dunn & Crutcher LLP
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Facsimile: (202) 467-0539
Attention: Howard B. Adler, Esq.
SECTION 10.4 Public Announcements. Unless otherwise required by
--------------------
applicable Law, no party to this Agreement shall make any public announcements
in respect of this Agreement or the transactions contemplated hereby, or
otherwise communicate with any news media regarding this Agreement or the
transactions contemplated hereby, without the prior written consent of the other
parties hereto. If a public statement is required to be made pursuant to
applicable Law, the parties shall consult with each other, to the extent
reasonably practicable, in advance as to the contents and timing thereof.
SECTION 10.5 Interpretation. The Article and Section headings in this
--------------
Agreement are for convenience of reference only and shall not be deemed to alter
or affect the meaning or interpretation of any provision hereof. References to
Articles or Sections in this Agreement, unless otherwise indicated, are
references to Articles or Sections of this Agreement. The parties to this
Agreement have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises with respect to any term or provision of this Agreement, this Agreement
shall be construed as if drafted jointly by the parties hereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party
hereto by virtue of the authorship of any of the terms or provisions hereof. Any
reference to any federal, state, county, local or foreign statute or Law shall
be deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. For all purposes of
58
<PAGE>
and under this Agreement, (i) the word "including" shall be deemed to be
immediately followed by the words "without limitation," (ii) words (including
defined terms) in the singular shall be deemed to include the plural and vice
versa, (iii) words of one gender shall be deemed to include the other gender as
the context requires, and (iv) the terms "hereof," "herein," "hereto,"
"herewith" and any other words of similar import shall, unless otherwise stated,
be construed to refer to this Agreement as a whole (including all of the
Schedules and Exhibits hereto) and not to any particular term or provision of
this Agreement, unless otherwise specified.
SECTION 10.6 Severability. In the event that any one or more of the terms
------------
or provisions contained in this Agreement or in any other certificate,
instrument or other document referred to herein, shall, for any reason, be held
to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other term or provision of
this Agreement or any other such certificate, instrument or other document
referred to herein, and the parties hereto shall use their commercially
reasonable efforts to substitute one or more valid, legal and enforceable terms
or provisions into this Agreement which, insofar as practicable, implement the
purposes and intent hereof. Any term or provision of this Agreement held invalid
or unenforceable only in part, degree or within certain jurisdictions will
remain in full force and effect to the extent not held invalid or unenforceable
to the extent consistent with the intent of the parties as reflected by this
Agreement. To the extent permitted by applicable Law, each party waives any term
or provision of Law which renders any term or provision of this Agreement to be
invalid, illegal or unenforceable in any respect.
SECTION 10.7 Entire Agreement. This Agreement (including the Shareholders
----------------
Disclosure Schedule, the Company Disclosure Schedule, the Purchaser Disclosure
Schedule and the Exhibits hereto) and the Confidentiality Agreement(s)
constitute the entire agreement of the parties hereto with respect to the
subject matter hereof, and supersede all prior agreements and undertakings, both
written and oral, among the Shareholders, the Purchaser and the Company with
respect to the subject matter hereof, except as otherwise expressly provided
herein.
SECTION 10.8 Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties hereto, and any purported assignment or other
transfer without such consent shall be void and unenforceable, except that the
Purchaser may assign any of its rights, interests or obligations to any Carlyle
Affiliate; provided, however, that no such assignment shall relieve the
Purchaser of its obligations under this Agreement. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective successors and assigns.
SECTION 10.9 No Third Party Beneficiaries. Except as specifically
----------------------------
provided in Section 6.8 hereof (and solely with respect to parties indemnified
thereunder), this Agreement is for the sole benefit of the parties hereto and
nothing herein, express or implied, is intended to or shall confer upon any
other Person any legal or equitable right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
59
<PAGE>
SECTION 10.10 Waivers and Amendments. This Agreement may be amended or
----------------------
modified only by a written instrument executed by the parties hereto. Any
failure of the parties hereto to comply with any obligation, covenant, agreement
or condition herein may be waived by the party entitled to the benefits thereof
only by a written instrument signed by the party granting such waiver. No delay
on the part of any party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
any party hereto of any right, power or privilege hereunder operate as a waiver
of any other right, power or privilege hereunder, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege hereunder. Unless otherwise provided, the rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies which
the parties hereto may otherwise have at law or in equity. Whenever this
Agreement requires or permits consent by or on behalf of a party, such consent
shall be given in writing in a manner consistent with the requirements for a
waiver of compliance as set forth in this Section 10.10.
SECTION 10.11 Equitable Remedies. Each of the parties hereto acknowledges
------------------
and agrees that the other parties hereto would be irreparably damaged in the
event that any of the terms or provisions of this Agreement are not performed in
accordance with their specific terms or otherwise are breached. Therefore,
notwithstanding anything to the contrary set forth in this Agreement, each of
the parties hereto hereby agrees that the other parties hereto shall be entitled
to an injunction or injunctions to prevent breaches of any of the terms or
provisions of this Agreement, and to enforce specifically the performance by
such first party under this Agreement, and each party hereto hereby agrees to
waive the defense in any such suit that the other parties hereto have an
adequate remedy at law and to interpose no opposition, legal or otherwise, as to
the propriety of injunction or specific performance as a remedy, and hereby
agrees to waive any requirement to post any bond in connection with obtaining
such relief. The equitable remedies described in this Section 10.11 shall be in
addition to, and not in lieu of, any other remedies at law or in equity that the
parties hereto may elect to pursue. The parties hereto hereby agree that
irreparable damage would occur in the event any of the terms or provision of
this Agreement required to be performed prior to the Closing were not performed
in accordance with the terms hereof and that, prior to the Closing, the parties
hereto shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or in equity.
SECTION 10.12 Governing Law; Consent to Jurisdiction. This Agreement
--------------------------------------
shall be governed by, and construed in accordance with, the laws of the State of
New York applicable to contracts executed in and to be performed entirely within
the Borough of Manhattan in the City of New York. Each of the parties hereto
hereby irrevocably and unconditionally submits, for itself and its assets and
properties, to the exclusive jurisdiction of any New York State court, or
Federal court of the United States of America, sitting within the Borough of
Manhattan in the City of New York, and any appellate court from any thereof, in
any action or proceeding arising out of or relating to this Agreement, the
agreements delivered in connection herewith, or the transactions contemplated
hereby or thereby, or for recognition or enforcement of any judgment relating
thereto, and each of the parties hereto hereby irrevocably and unconditionally
(i) agrees not to commence any such action or proceeding except in such courts,
(ii) agrees that any claim in respect of any such action or proceeding may be
heard and determined in such New York State
60
<PAGE>
court or, to the extent permitted by law, in such Federal court, (iii) waives,
to the fullest extent it may legally and effectively do so, any objection which
it may now or hereafter have to the laying of venue of any such action or
proceeding in any such New York State or Federal court, and (iv) waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such New York State or Federal
court. Each of the parties hereto hereby agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Each of the parties hereto hereby irrevocably consents to service of process in
the manner provided for notices in Section 10.3 hereof. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by applicable Law.
SECTION 10.13 WAIVER OF JURY TRIAL. EACH PARTY HERETO ACKNOWLEDGES AND
--------------------
AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE, IT HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY HERETO CERTIFIES AND
ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH WAIVERS, (II) IT UNDERSTANDS
AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (III) IT MAKES SUCH WAIVERS
VOLUNTARILY, AND (IV) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.13.
SECTION 10.14 Exclusivity of Representations and Warranties. It is the
---------------------------------------------
explicit intent and understanding of each of the parties hereto that no party
hereto, nor any of their respective Affiliates, representatives or agents, is
making any representation or warranty whatsoever, oral or written, express or
implied, other than those set forth in this Agreement (as qualified by the
Shareholders Disclosure Schedule, the Company Disclosure Schedule and the
Purchaser Disclosure Schedule, as the case may be), and none of the parties
hereto is relying on any statement, representation or warranty, oral or written,
express or implied, made by another party hereto or such other party's
Affiliates, representatives or agents, except for the representations and
warranties set forth herein.
SECTION 10.15 Counterparts. This Agreement 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 agreement.
61
<PAGE>
IN WITNESS WHEREOF, the Shareholders, the Purchaser and the Company
have executed this Agreement, or caused this Agreement to be executed by their
respective officers thereunto duly authorized, as of the date first above
written.
THE SHAREHOLDERS:
GENSTAR CAPITAL PARTNERS II, L.P.
By:
Its General Partner
By:______________________________________
Name:____________________________________
Title:___________________________________
STARGEN II LLC
By:______________________________________
Name:____________________________________
Title:___________________________________
_________________________________________
Robert J. Muller, Jr.
THE PURCHASER:
PANOLAM ACQUISITION COMPANY, L.L.C.
By:______________________________________
Name:____________________________________
Title: __________________________________
THE COMPANY:
PANOLAM INDUSTRIES HOLDINGS, INC.
By:______________________________________
Name:____________________________________
Title: __________________________________
62
<PAGE>
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of November 24, 1999 by and among Panolam Industries
International, Inc., a Delaware corporation (together with its successors and
assigns, the "Company"), Panolam Industries Holdings, Inc., a Delaware
-------
corporation (together with its successors and assigns, "Holdings") and Robert J.
--------
Muller, Jr. (the "Executive");
---------
W I T N E S S E T H:
------------ -------
WHEREAS, the Executive is currently employed as President and Chief Executive
Officer of the Company and of Holdings;
WHEREAS, Panolam Acquisition Company, L.L.C., a Delaware limited liability
company ("PAC") has entered into an agreement to acquire over 93% of the capital
---
stock of Holdings;
WHEREAS, the Company and Holdings desire to continue the employment of the
Executive with the Company and Holdings after such acquisition (the "PAC
---
Acquisition") and to enter into an agreement embodying the terms of such
- -----------
continued employment;
WHEREAS, the Executive desires to accept such continued employment, subject to
the terms and provisions of this Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein and for other good and valuable consideration, the receipt of which is
mutually acknowledged, the Company, Holdings and the Executive (collectively,
the "Parties") agree as follows:
-------
1. Definitions. Capitalized terms not otherwise defined herein shall have the
-----------
meanings set forth in Exhibit A.
2. Term of Employment. The Company and Holdings hereby agree to employ the
------------------
Executive under this Agreement, and the Executive hereby accepts such
employment, for the Term of Employment. The Term of Employment shall commence
as of the Effective Date and shall end on December 31, 2004; provided, however,
-------- -------
that the Term of Employment shall thereafter be automatically and indefinitely
extended for additional one year periods unless (x) Holdings and the Company
give the Executive, or (y) the Executive gives Holdings and the Company, at
least 180 days' prior written notice electing not to so extend the Term of
Employment. Following such notice, the Term of Employment shall terminate on
the last day of the first calendar year that ends (a) on or after December 31,
2004 and (b) at least 180 days after the giving of such notice. Notwithstanding
the foregoing, the Term of Employment may be earlier terminated in strict
accordance with the provisions of Section 9.
<PAGE>
3. Positions, Duties and Responsibilities.
---------------------------------------
(a) During the Term of Employment, the Executive shall serve as the
President and Chief Executive Officer of the Company, of Holdings and of such of
their Subsidiaries as the Holdings Board may reasonably request; shall have all
authorities, duties and responsibilities customarily exercised by an individual
serving in those positions in enterprises of a similar size and structure; shall
be assigned no duties or responsibilities that are materially inconsistent with,
or that materially impair his ability to discharge, the foregoing duties and
responsibilities; shall be a member of the Company Board, a member of the
Holdings Board, and a member of the Board of such of their Subsidiaries as the
Holdings Board may reasonably request; and shall report solely and directly to
the Holdings Board.
(b) The Executive shall devote substantially all of his business time
and efforts to the affairs of the Company and Holdings; provided, however, that
-------- -------
the Executive may also engage in the following activities: (i) serving on the
boards of a reasonable number of business entities, trade associations and/or
charitable organizations; (ii) engaging in charitable activities and community
affairs; (iii) accepting and fulfilling a reasonable number of speaking
engagements; and (iv) managing his personal investments and affairs; provided
--------
that such activities do not in the aggregate materially interfere with the
proper performance of his duties and responsibilities hereunder.
4. Base Salary. Commencing as of the Effective Date, the Company shall pay the
-----------
Executive an annualized Base Salary of $500,000, payable in accordance with the
regular payroll practices applicable to senior executives of the Company and
Holdings but no less frequently than monthly. The Base Salary shall be reviewed
no less frequently than annually during the Term of Employment for increase in
the discretion of the Holdings Board. The Base Salary shall not be decreased at
any time, or for any purpose, during the Term of Employment (including, without
limitation, for the purpose of determining benefits due under Section 9). The
Executive shall not be entitled to receive any additional consideration for
service during the Term of Employment as a member of the Holdings Board, the
Company Board, or the Board of any of their Subsidiaries.
5. Annual Bonus. The Executive's annual bonus for calendar year 1999 shall be
------------
determined in accordance with the current practices of Holdings and the Company
and shall be paid by the Company. In respect of each calendar year that ends
during the Term of Employment and begins on or after January 1, 2000, the
Executive shall receive an annual bonus from the Company determined as follows.
The annual bonus shall be based on the relationship between (x) Holdings' EBITDA
for the calendar year in question ("Actual EBITDA") and (y) the target EBITDA
-------------
("Target EBITDA") established for Holdings for such calendar year. The Target
- ---------------
EBITDA for each calendar year shall be established for Holdings during the last
45 days of the year preceding such calendar year by the Holdings Board
reasonably, in good faith, and in consultation with the Executive, and shall be
subject to later adjustment in light of significant acquisitions, significant
dispositions, significant changes in accounting practices, and other significant
occurrences to the extent necessary to avoid material distortion of the benefits
2
<PAGE>
intended to be provided under this Section 5. The size of the bonus paid for
any calendar year shall equal 75% of the Executive's Base Salary earned in
respect of such calendar year (such amount, the "Target Bonus") if Target EBITDA
------------
is equal to Actual EBITDA for such year. To the extent that Actual EBITDA is
less than Target EBITDA, the Target Bonus shall be reduced by a factor of two
and one-half (e.g., if Actual EBITDA is 90% of Target EBITDA, the Executive
----
shall be paid a bonus equal to 75% of the Target Bonus); provided, however, that
-------- -------
the Executive shall not be entitled to receive any annual bonus for a year if
Actual EBITDA is not equal to at least 80% of Target EBITDA for such year. To
the extent Actual EBITDA exceeds Target EBITDA, the Target Bonus shall be
increased by a factor of two and one-half (e.g., if Actual EBITDA is 120% of
----
Target EBITDA, the Executive shall be paid a bonus equal to 150% of the Target
Bonus). The Executive shall be paid bonus amounts, if any, earned pursuant to
this Section 5 promptly following certification of Holdings' audited year-end
consolidated financial statements, and in no event later than April 30th of the
calendar year following the calendar year to which the bonus relates. Neither
Holdings, nor the Company, nor any of their Subsidiaries shall, during the Term
of Employment, adopt a fiscal year that is not a calendar year without the
consent of the Executive, which consent shall not be unreasonably withheld.
Holdings and the Company agree to use commercially reasonable efforts to assure
timely availability of certified consolidated financial statements in respect of
each fiscal year that begins or ends during the Term of Employment.
6. Initial Equity Arrangements.
---------------------------
(a) Stockholders' Agreement. Concurrently with the execution of this
-----------------------
Agreement, the Executive and Holdings shall execute, and Holdings shall cause
PAC to execute, a stockholders' agreement in substantially the form attached
hereto as Exhibit B.
(b) Initial Stock Option Grant. As of the Closing Date, Holdings
--------------------------
shall grant the Executive an eleven-year option, in substantially the form
attached hereto as Exhibit C, to purchase no less than 10,514 shares of its
common stock at an exercise price of $1,287.94 per share.
(c) Initial Stock Purchase. As of the Closing Date, the Executive
----------------------
shall be entitled to purchase from Holdings (if the Executive so elects), and
Holdings (upon such election) shall sell to the Executive, up to 2,717.5 shares
of its common stock at a price of $1,287.94 per share, under a stock purchase
agreement in substantially the form attached hereto as Exhibit D and in return
for a promissory note (the "Executive Promissory Note") for the amount of the
-------------------------
aggregate purchase price, which Executive Promissory Note shall be in
substantially the form attached hereto as Exhibit E and shall be secured by a
pledge agreement in substantially the form attached hereto as Exhibit F.
(d) Adjustments. The prices and numbers of shares set forth in
-----------
Sections 6(b) and 6(c) are subject to adjustment as of the Closing Date to
reflect changes in the fully diluted number of shares of Holdings common stock
outstanding as of the Closing Date, and any
3
<PAGE>
adjustments in the per share price to be paid at the closing of the PAC
Acquisition, as set forth in Exhibits C and D.
7. Other Long-Term Incentives.
--------------------------
The Executive shall be eligible to receive additional long-term compensation
incentives during the Term of Employment at the discretion of the Holdings
Board. Such incentive awards shall be at a level, and on terms and conditions,
that are commensurate with his positions and responsibilities at the Company and
Holdings and appropriate in light of corresponding awards to other senior
executives of the Company and Holdings.
8. Other Benefits.
--------------
(a) Employee Benefits. During the Term of Employment, the Executive
-----------------
shall be eligible to participate in all employee benefit plans and programs made
available generally to senior executives of the Company or Holdings, including,
without limitation, pension, profit-sharing, income deferral, savings and other
retirement plans or programs, accidental death and dismemberment protection,
medical, dental and hospitalization plans, life insurance, short- and long-term
disability programs, travel accident insurance, and any other employee welfare
benefit plans or programs that may from time to time be made available,
including any plans or programs that supplement the above-listed types of plans
or programs, whether funded or unfunded; provided, however, that nothing in this
-------- -------
Agreement shall be construed to require the Company or Holdings to establish or
maintain such plans or programs, except as expressly set forth herein. The
Executive's participation in all such plans and programs shall be at a level,
and on terms and conditions, that are commensurate with his positions and
responsibilities at the Company and at Holdings and no less favorable to him
than to other senior executives of the Company or Holdings. During the Term of
Employment, no benefit or coverage available to the Executive under any such
plan or program shall be materially reduced without his prior written consent,
unless a substantially equivalent reduction is applied generally to the other
senior executives of the Company or Holdings. The Executive shall be entitled
to post-retirement welfare benefits on a basis no less favorable than that
applying to other senior executives of the Company and Holdings.
(b) Fringe Benefits, Perquisites and Vacations. During the Term of
------------------------------------------
Employment, the Executive shall participate in all fringe benefits and
perquisites available to senior executives of the Company or Holdings at levels,
and on terms and conditions, that are commensurate with his positions and
responsibilities at the Company and at Holdings and no less favorable than those
applying to other senior executives of the Company or Holdings; shall receive
such additional fringe benefits and perquisites as the Company or Holdings may,
in their discretion, from time-to-time provide; and shall be entitled to no less
than 4 weeks' paid vacation per year.
(c) Reimbursement of Business and Other Expenses. The Executive is
--------------------------------------------
authorized to incur reasonable expenses in carrying out his duties and
responsibilities under this
4
<PAGE>
Agreement, and the Company shall promptly reimburse him for all such expenses
(including, without limitation, first class air travel), subject to
documentation in accordance with reasonable policies of the Company or Holdings
previously communicated to the Executive by the Company or Holdings. The Company
shall also promptly reimburse the Executive (i) for all reasonable expenses
(including, without limitation, reasonable attorneys' fees and other charges of
counsel) incurred by him in connection with the negotiation and documentation of
these employment arrangements and (ii) for annual financial, estate and tax
counseling that the Executive may choose to obtain from professional providers
of such services, in an amount not to exceed $25,000 for any fees incurred prior
to December 31, 2000, and in an amount not to exceed $10,000 for each calendar
year thereafter.
9. Termination of Employment.
-------------------------
(a) Termination Due to Death. The Term of Employment is terminated
------------------------
upon the Executive's death. In the event that the Executive's employment under
this Agreement is terminated due to his death, his estate or his beneficiaries
(as the case may be) shall be entitled to the following:
(i) Base Salary for a period of 90 days following the date of
death;
(ii) prompt payment of a Pro-Rata Annual Bonus for the year in
which his death occurs;
(iii) any Stock Option that becomes exercisable solely with the
passage of time, without satisfaction of any performance criterion other than
continued service, shall become exercisable as of the date of death to the
extent provided in the agreement granting such Option, but at least to the
extent that it was then scheduled to become exercisable within six months
following such date if the Executive's employment hereunder had continued; and
(iv) any Stock Option that is, or becomes, exercisable as of the
date of death shall remain exercisable as provided in the agreement granting
such Option, but at least through the second anniversary of such date.
(b) Termination Due to Disability. The Term of Employment may be
-----------------------------
terminated due to Disability as provided in this Section 9(b). In the event
that the Executive's employment under this Agreement is terminated due to
Disability, he shall be entitled to the following:
(i) to receive, to age 65 and no less frequently than monthly,
periodic disability payments at a rate equal to 60% of the Base Salary in effect
at the termination of his employment, less the amount of any periodic disability
benefits provided (other than benefits attributable to his own unreimbursed
contributions) under any disability insurance plan or program of the Company,
Holdings, or any of their Affiliates;
5
<PAGE>
(ii) prompt payment of a Pro-Rata Annual Bonus for the year in
which his employment terminates;
(iii) any Stock Option that becomes exercisable solely with the
passage of time, without satisfaction of any performance criterion other than
continued service, shall become exercisable as of the Termination Date to the
extent provided in the agreement granting such Option, but at least to the
extent that it was then scheduled to become exercisable within six months
following such date if the Executive's employment hereunder had continued;
(iv) any Stock Option that is, or becomes, exercisable as of the
Termination Date, shall remain exercisable as provided in the agreement granting
such Option, but at least through the second anniversary of such date; and
(v) continued participation, through the third anniversary of
the Termination Date, in all medical, dental, vision, hospitalization and life
insurance coverages and in all other employee welfare benefit plans, programs
and arrangements in which he or his family members were participating on the
Termination Date, on terms and conditions that are no less favorable than those
that applied on such date.
No termination of the Executive's employment for Disability shall be effective
unless (x) Holdings and the Company first give the Executive, or (y) the
Executive first gives Holdings and the Company, 15 days' written notice of such
termination.
(c) Termination for Cause.
---------------------
(i) No termination of the Executive's employment under this
Agreement for Cause shall be effective unless the provisions of this Section
9(c)(i) shall have been complied with. The Executive shall be given written
notice by the Holdings Board of the intention to terminate him for Cause, such
notice (A) to state in detail the particular circumstances that constitute the
grounds on which the proposed termination for Cause is based and (B) to be given
no later than 180 days after the Holdings Board first learns of such
circumstances. The Executive shall have 15 days after receiving such notice in
which to cure such grounds, to the extent such cure is possible. If he fails to
fully cure such grounds within such period, the Executive shall then be entitled
to a hearing before the Holdings Board. Such hearing shall be held within 20
days of his receiving such notice, provided that he requests such hearing within
--------
15 days of receiving such notice. If, within five days following such hearing,
the Holdings Board gives written notice to the Executive confirming that, in the
judgment of at least two-thirds of the members of the Holdings Board, Cause for
terminating his employment on the basis set forth in the original notice exists,
his employment hereunder shall thereupon be terminated for Cause, subject to de
--
novo review, at the Executive's election, through arbitration in accordance with
- ----
Section 15.
(ii) In the event that the Executive's employment hereunder is
terminated for Cause in accordance with Section 9(c)(i), (A) any Stock Option
that is exercisable as of the Termination Date shall expire 30 days after the
Termination Date, (B) any Stock Option
6
<PAGE>
that later becomes exercisable shall expire 30 days after if becomes
exercisable, (C) all other Stock Options shall expire upon termination of the
Executive's employment, and (D) the Executive shall be entitled to the benefits
described in Section 9(f)(i).
(d) Termination Without Cause. In the event that the Executive's
-------------------------
employment under this Agreement is terminated in a Termination Without Cause, he
shall be entitled to:
(i) prompt payment of a Pro Rata Annual Bonus for the year in
which his employment terminates;
(ii) a prompt lump-sum payment equal to (A) the sum of his (x)
---
Base Salary, at the annualized rate in effect on the Termination Date, plus (y)
----
the annual bonus award he earned for the year prior to the year of termination
times (B) the lesser of (x) 1095 and (y) the number of days in the period that
- ----- ------
begins on the Termination Date and ends on December 31, 2004 (but in no event
less than 730), divided by (C) 365; provided that, in connection with such
------- -- -------- ----
payment, if the Company and Holdings execute a waiver and release of claims
against the Executive, then the Executive shall execute a waiver and release of
claims against the Company, Holdings or any of their officers, directors,
representatives, agents or Affiliates, in each case as reasonably agreed by the
Parties and excluding claims under this Agreement and other contractual claims
as appropriate;
(iii) any Stock Option that becomes exercisable solely with the
passage of time, without satisfaction of any performance criterion other than
continued service, shall become exercisable as of the Termination Date to the
extent provided in the agreement granting such Option, but at least to the
extent that it was then scheduled to become exercisable within six months
following such date if the Executive's employment hereunder had continued;
(iv) any Stock Option (x) that is, or becomes, exercisable as of
the Termination Date shall remain exercisable as provided in the agreement
granting such Option, but at least through the second anniversary of such date
and (y) that becomes exercisable in connection with a Liquidity Event that
occurs within one year following the Termination Date shall remain exercisable
as provided in the agreement granting such Option, but at least through the
second anniversary of the occurrence of such Liquidity Event; and
(v) continued participation, through the second anniversary of
the Termination Date, in all medical, dental, vision, hospitalization and life
insurance coverages and in all other employee welfare benefit plans, programs
and arrangements in which he or his family members were participating on the
Termination Date, on terms and conditions that are no less favorable than those
that applied on such date, provided that the Executive's entitlements under this
--------
Section 9(d)(v) shall expire to the extent that equivalent coverages and
benefits (determined on a coverage-by-coverage and benefit-by-benefit basis) are
provided under the plans, programs or arrangements of a subsequent employer.
7
<PAGE>
(e) Voluntary Termination. In the event that the Executive terminates
---------------------
his employment under this Agreement prior to the then-scheduled expiration of
the Term of Employment on his own initiative, other than by death, for
Disability, or in a Constructive Termination Without Cause, he shall have the
same entitlements as provided in Section 9(c) in the case of a termination for
Cause. The Executive shall provide the Company and Holdings 90 days' prior
written notice of his election to voluntarily terminate his employment pursuant
to this Section 9(e), except that the Executive may terminate his employment
hereunder immediately if an event described in clauses (i)-(v) of the definition
of Constructive Termination Without Cause occurs after he gives such notice. A
voluntary termination in accordance with this Section 9(e) shall not be deemed a
breach of this Agreement.
(f) Miscellaneous.
-------------
(i) On any termination of the Executive's employment under this
Agreement, he shall be entitled to:
(A) Base Salary through the Termination Date;
(B) the balance of any annual, long-term, or other incentive
or bonus award earned, accrued or owing to him (but not yet paid);
(C) any amounts due under Section 8;
(D) a lump-sum payment in respect of accrued but unused
vacation days at his Base Salary rate in effect on the Termination Date;
(E) other or additional benefits, if any, in accordance with
applicable plans, programs and arrangements of the Company, Holdings and their
Affiliates (including, without limitation, Sections 6, 7, 10(b) and 11(a), the
Executive Promissory Note, and the agreements of which forms of agreement are
attached as Exhibits B, C, D and F); and
(F) payment promptly when due, by check or (at his election)
by wire transfer of immediately available funds, of all amounts owed to him in
connection with the termination.
(ii) In the event that the Executive, or any member of his family
entitled thereto hereunder, is precluded from continuing full participation in
any employee benefit plan, program or arrangement as provided in Sections
9(b)(v) or 9(d)(v), the Executive shall be provided with the after-tax economic
equivalent of any benefit or coverage foregone. For this purpose, the economic
equivalent of any benefit or coverage foregone shall be deemed to be the total
cost to the Executive of obtaining such benefit or coverage himself on an
individual basis. Payment of such after-tax economic equivalent shall be made
quarterly in advance, without discount.
8
<PAGE>
(iii) In the event that the Executive's employment under this
Agreement terminates in accordance with Section 2 pursuant to a notice of non-
extension:
(x) in the case of non-extension pursuant to notice from
the Executive, any Stock Option that is or becomes exercisable as of the
Termination Date shall remain exercisable as provided in the agreement granting
such Option, but at least for six months following the Termination Date; and
(y) in the case of non-extension pursuant to notice from
the Company and Holdings, (I) any Stock Option that is or becomes exercisable as
of the Termination Date shall remain exercisable as provided in the agreement
granting such Option, but at least through the second anniversary of the
Termination Date and (II) any Stock Option that becomes exercisable in
connection with a Liquidity Event that occurs within one year following the
Termination Date shall remain exercisable as provided in the agreement granting
such Option, but at least through the second anniversary of the occurrence of
such Liquidity Event.
(iv) In the event of any termination of the Executive's
employment under this Agreement, the Executive shall be under no obligation to
seek other employment or otherwise mitigate the obligations of the Company,
Holdings or any of their Affiliates under this Agreement or otherwise, and there
shall be no offset against amounts due the Executive under this Agreement on
account of (A) any Claim that the Company, Holdings or any of their Affiliates
may have against him or (B) any remuneration or other benefit earned or received
by the Executive after such termination except as specifically provided in
Section 9(d)(v). Any amounts due under this Section 9 are considered to be
reasonable by the Company and Holdings, and are not in the nature of a penalty.
10. Liquidity Event; Parachute Payment Protection.
----------------------------------------------
(a) All Stock Options shall, except to the extent otherwise provided
in the agreement of which a form of agreement is appended as Exhibit C, become
fully exercisable if a Liquidity Event occurs either (x) during the Term of
Employment, or (y) in the event that the Executive's employment hereunder has
been terminated (I) in a Termination Without Cause or (II) by expiration of the
Term of Employment in accordance with Section 2 pursuant to notice of non-
extension from the Company and Holdings, within one year after the Termination
Date.
(b) The Company and Holdings covenant and agree to use their best
commercially reasonable efforts to structure any payment or benefit made to or
for the benefit of the Executive in connection with his employment by the
Company or Holdings (or the termination thereof) so as to avoid having any such
payment or benefit be subject to tax under Section 4999 of the Code (as an
"excess parachute payment"). In the event that, notwithstanding any efforts of
Holdings and the Company under this Section 10(b), any of the Executive's
payments or benefits in connection with his employment with the Company or
Holdings (or the termination thereof) are subject to tax under Section 4999 of
the Code, the Executive shall be
9
<PAGE>
entitled to an additional payment in cash from the Company, immediately prior to
the time that any such Section 4999 tax is due (through withholding or
otherwise), of an amount sufficient to ensure that the Executive receives the
same net after-tax benefit (taking into account all federal, state and local
income and other taxes) that the Executive would have received had no tax under
Section 4999 (or any similar or comparable state or local tax) been imposed. The
amount and timing of any such additional cash payment shall promptly be
determined by Holding's independent accounting firm and written notice thereof,
along with a schedule detailing such accounting firm's calculations, shall be
furnished to the Executive within ten (10) days of such determination. If the
Executive objects in a written notice received by the Company and Holdings
within ten (10) days of his receipt of the accounting firm's notice of its
determination, then the Executive, Holdings and the Company shall promptly agree
on an accounting firm to make a final determination of the amount and timing of
such additional cash payment, with the costs of such accounting firm to be paid
by the non-prevailing party; if the Parties fail to promptly agree upon such an
accounting firm, the matter shall be resolved in accordance with Section 15.
11. Indemnification and Insurance.
-----------------------------
(a) The Company and Holdings jointly and severally agree that (i)
if the Executive is made a party, or is threatened to be made a party, to any
Proceeding by reason of the fact that he is or was a director, officer,
employee, agent, manager, consultant or representative of the Company, Holdings
or any of their Affiliates, or is or was serving at the request of the Company,
Holdings or any of their Affiliates, or in connection with his service
hereunder, as a director, officer, member, employee, agent, manager, consultant
or representative of another Person, or (ii) if any Claim is made, or is
threatened to be made, that arises out of or relates to the Executive's service
in any of the foregoing capacities, then the Executive shall promptly be jointly
and severally indemnified and held harmless by the Company and Holdings, to the
fullest extent legally permitted, or authorized, by the certificate of
incorporation, bylaws, other organizational documents, or Board resolutions of
Holdings, the Company or any of their Subsidiaries, against any and all costs,
expenses, liabilities and losses (including, without limitation, judgments,
interest, expenses of investigation, penalties, fines, ERISA excise taxes or
penalties, reasonable attorneys' fees, and amounts paid or to be paid in
settlement) incurred or suffered by the Executive in connection therewith and
such indemnification shall continue as to the Executive even if he has ceased to
be a director, officer, member, employee, agent, manager, consultant or
representative of the Company, Holdings or other Person and shall inure to the
benefit of the Executive's heirs, executors, administrators and legal
representatives. The Company and Holdings jointly and severally agree to advance
to the Executive all costs and expenses incurred by him in connection with any
such Proceeding or Claim to the fullest extent legally permitted, or authorized,
by their certificates of incorporation, bylaws or other organizational documents
or Board resolutions within 15 days after receiving written notice requesting
such an advance, which notice (x) shall include an undertaking by the Executive
to repay the amount advanced if he is ultimately determined not to be entitled
to indemnification against such costs and expenses and (y) shall be accompanied
by reasonable documentation of the costs and expenses for which advancement is
sought. No amendment by either the Company
10
<PAGE>
or Holdings, at any time on or after the Effective Date, of the provisions of
the Company's or Holdings' certificates of incorporation or bylaws shall be
effective to reduce any of the Executive's rights to indemnification, or
advancement of costs and expenses, under this Section 11(a).
(b) During the Term of Employment and for a period of six years
thereafter, a directors and officers' liability insurance policy (or policies)
shall be kept in place providing comprehensive coverage to the Executive to the
extent that such coverage is then provided by the Company, Holdings or any of
their Affiliates for any other present or former senior executive or director of
the Company or Holdings with respect to such senior executive's or director's
service as such.
12. Restrictive Covenants.
---------------------
(a) For a period of one year following any termination of the
Executive's employment under this Agreement (x) in a Termination Without Cause
or (y) by expiration of the Term of Employment in accordance with Section 2
pursuant to a notice of non-extension, the Executive shall not knowingly perform
material services for, or knowingly have any material involvement (whether as a
director, officer, employee, agent, representative, partner, security holder,
consultant or otherwise) with, any Person that competes directly and materially
with the Company, Holdings or any of their Subsidiaries in the Decorative
Laminates Business anywhere in the world; provided, however, that the Executive
-------- -------
may in any event (i) perform services that do not directly relate to business
activities that compete directly and materially with the Company, Holdings or
any of their Subsidiaries in the Decorative Laminates Business and (ii) own up
to 5% (measured by value) of the outstanding securities of any publicly-traded
entity.
(b) During the Term of Employment and for a period of two years
following any termination of the Executive's employment under this Agreement to
which Section 12(a) does not apply, and including (for avoidance of doubt) any
voluntary termination to which Section 9(e) applies, and except during the Term
of Employment in connection with the performance of his duties hereunder, the
Executive shall not knowingly perform services for, or have any involvement
(whether as a director, officer, employee, agent, representative, partner,
security holder, consultant or otherwise) with, any Person that materially
competes with any business of the Company, Holdings or any of their
Subsidiaries; provided, however, that the Executive may in any event (i) perform
-------- -------
services that do not directly relate to business activities that compete with a
business of the Company, Holdings or any of their Subsidiaries and (ii) own up
to 5% (measured by value) of the outstanding securities of any publicly-traded
entity.
(c) During the Term of Employment and thereafter, the Executive shall
maintain in confidence and shall not directly, indirectly or otherwise, without
the prior written consent of the Company or Holdings, divulge, use, disseminate,
disclose or make accessible to any other Person any confidential, non-public or
proprietary document, record or information (or any portion of any computer
program, notebook or similar depository in which confidential, non-public or
proprietary information is contained) concerning the business or affairs of the
11
<PAGE>
Company or Holdings that he has acquired in the course of his employment with
the Company or Holdings except (x) to the Company, Holdings, any of their then-
------
current Affiliates, or any authorized (or apparently authorized) agent or
representative of any of the foregoing, (y) in connection with performing his
duties under this Agreement or (z) when required to do so by law or by a court,
governmental agency, legislative body, arbitrator or other Person with apparent
jurisdiction to order him to divulge, disclose or make accessible such document,
record or information; provided that the restrictions set forth in this Section
--------
12(c) shall not apply to any document, record or information that (i) has
previously been disclosed to the public, or is in the public domain, other than
as a result of the Executive's breach of this Section 12(c), or (ii) is known or
generally available within any trade or industry of the Company, Holdings or any
of their Affiliates.
(d) For a period of one year following any termination of his
employment under this Agreement to which Section 12(a) applies, and for a period
of two years following any termination of his employment under this Agreement to
which Section 12(b) applies, the Executive shall not (A) directly or indirectly
solicit, or accept if offered to him (with or without solicitation), on his own
behalf or on behalf of any other Person, the services of any individual who is
an employee of the Company or Holdings (other than an employee who within the
previous two years has been the Executive's personal assistant or secretary), or
solicit any of the Company's or Holdings' employees to terminate employment with
the Company or Holdings or (B) directly or indirectly solicit, or accept if
offered to him (with or without solicitation), on his own behalf or on behalf of
any other Person, business of any supplier or customer of the Company or
Holdings, or any Person who has been solicited within the previous year to
become a customer by the Company or Holdings, in connection with any business
that competes with any business of the Company or Holdings, or directly or
indirectly solicit any customer or supplier of the Company or Holdings to
terminate its relationship with the Company or Holdings. The restrictions set
forth in this Section 12(d) shall supersede, and be in lieu of, any restrictions
set forth in the Stock Purchase Agreement.
(e) In the event of any actual or threatened breach by the Executive
of any of the provisions of Section 12(a), 12(b), 12(c) or 12(d), the Company
and Holdings shall be entitled to seek an injunction, through arbitration in
accordance with Section 15 or from any court with jurisdiction over the matter
and the Executive, restraining the Executive from violating such provision.
Costs and attorneys fees relating to any court proceeding shall be treated as
provided in Section 15.
13. Assignability; Binding Nature.
-----------------------------
(a) This Agreement shall be binding upon and inure to the benefit of
the Executive, the Company, Holdings and their respective successors, heirs (in
the case of the Executive) and assigns.
(b) No rights or obligations of the Company or Holdings under this
Agreement may be assigned or transferred by the Company or Holdings (each a
"Transferring
------------
12
<PAGE>
Entity"), except that such rights or obligations may be assigned or transferred
- ------ ------
pursuant to a merger, consolidation or other combination in which the
Transferring Entity is not the continuing entity, or a sale or liquidation of
all or substantially all of the business and assets of the Transferring Entity,
provided that the assignee or transferee is the successor to all or
- --------
substantially all of the business and assets of the Transferring Entity and such
assignee or transferee expressly assumes the liabilities, obligations and duties
of the Transferring Entity as set forth in this Agreement. In the event of any
sale of business and assets or liquidation as described in the preceding
sentence, the Transferring Entity shall use its best commercially reasonable
efforts to cause such assignee or transferee to promptly and expressly assume
the liabilities, obligations and duties of the Transferring Entity hereunder.
(c) No rights or obligations of the Executive under this Agreement
may be assigned or transferred by the Executive other than his rights to
compensation and benefits, which may be transferred only by will or operation of
law, except as provided in Section 17(e) or as may subsequently be agreed by the
Parties.
14. Representations.
---------------
(a) The Company and Holdings each represent and warrant that: (i) it
is fully authorized by action of its Board (and of any other Person or body
whose action is required) to enter into this Agreement and to perform its
obligations under it; (ii) the execution, delivery and performance of this
Agreement by it does not violate any applicable law, regulation, order, judgment
or decree or any agreement, plan or corporate governance document to which it is
a party or by which it is bound; and (iii) upon the execution and delivery of
this Agreement by the Executive, the Company and Holdings, this Agreement shall
be a valid and binding obligation of it, enforceable against it in accordance
with its terms, except to the extent that enforceability may be limited by
applicable bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally.
(b) The Executive represents and warrants that: (i) delivery and
performance of this Agreement by him does not violate any applicable law,
regulation, order, judgment or decree or any agreement to which the Executive is
a party or by which he is bound; and (ii) upon the execution and delivery of
this Agreement by the Executive, the Company and Holdings, the Agreement shall
be the valid and binding obligation of the Executive, enforceable against him in
accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally.
15. Resolution of Disputes.
----------------------
Any Claim arising out of or relating to this Agreement, the Executive Promissory
Note, the agreements of which forms of agreement are appended as Exhibits B, C,
D and F, the Executive's employment with the Company or Holdings, or the
termination thereof (collectively, "Covered Claims") shall (except as otherwise
--------------
provided in Section 12(e) with respect to certain requests for injunctive
relief) be resolved by binding confidential arbitration, to be held in New York
City, in
13
<PAGE>
accordance with the Commercial Arbitration Rules of the American Arbitration
Association and this Section 15. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. The
Company and Holdings jointly and severally agree to advance, promptly upon
written request accompanied by reasonable documentation, 50% of any costs and
expenses, including without limitation attorneys' fees, incurred by the
Executive or his beneficiaries or other transferees in connection with resolving
any such Covered Claim, provided that any amounts so advanced shall be promptly
--------
repaid to the extent that the recipient is ultimately determined not to be
entitled to be indemnified with respect to such amounts pursuant to the
following sentence. Upon the final resolution of any Covered Claim, the Company
and Holdings shall be jointly and severally required to indemnify the Executive
(and his beneficiaries and other transferees) for all reasonable costs and
expenses, including without limitation reasonable attorneys' fees, incurred in
resolving such claim, but only to the extent that the indemnified Person has
prevailed on such claim. Pending the resolution of any Covered Claim, the
Executive (and his beneficiaries and other transferees) shall continue to
receive all undisputed payments and benefits due under this Agreement, except to
the extent that the arbitrator(s) otherwise provide.
16. Notices.
-------
Any notice, consent, demand, request or other communication given to a Person in
connection with this Agreement shall be in writing and shall be deemed to have
been given to such Person (a) when delivered personally to such Person or (b)
provided that a written acknowledgment of receipt is obtained, five days after
being sent by prepaid certified or registered mail, or two days after being sent
by a nationally recognized overnight courier, to the address (if any) specified
below for such Person (or to such other address as such Person shall have
specified by ten days advance notice given in accordance with this Section 16)
or (c), in the case of the Company and Holdings, on the first business day after
it is sent by facsimile to the facsimile number set forth below (or to such
other facsimile number as shall have been specified by ten days advance notice
given in accordance with this Section 16), with a confirmatory copy sent by
certified or registered mail or by overnight courier in accordance with this
Section 16.
If to the Company: Panolam Industries International, Inc.
20 Progress Drive
Shelton, CT 06484
Attn: Secretary
Facsimile: (203) 225-0051
If to Holdings: Panolam Industries Holdings, Inc.
20 Progress Drive
Shelton, CT 06484
Attn: Secretary
Facsimile #: (203) 225-0051
If to the Executive: To the address of his principal residence as it
14
<PAGE>
appears in the Company's records, with a copy
to him (during the Term of Employment) at the
Company's principal executive office.
If to a beneficiary or To the address most recently specified by the
transferee of the Executive, beneficiary or transferee through
Executive: notice given in accordance with this Section 16.
17. Miscellaneous.
--------------
(a) Entire Agreement. This Agreement, and the agreements of which
----------------
forms are attached hereto, contain the entire understanding and agreement among
the Executive, the Company and Holdings concerning the subject matter hereof and
supersede all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, among them with respect thereto,
including without limitation the term sheet attached as Exhibit 7.2(f) to the
Stock Purchase Agreement.
(b) Severability. In the event that any provision or portion of this
------------
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law so as to achieve the purposes of this Agreement.
(c) Amendment or Waiver. No provision in this Agreement may be
-------------------
amended unless such amendment is set forth in a writing that specifically refers
to this Agreement and is signed by the Parties. No waiver by any Person of any
breach of any condition or provision contained in this Agreement shall be deemed
a waiver of any similar or dissimilar condition or provision at the same or any
prior or subsequent time. To be effective, any waiver must be set forth in a
writing that specifically refers to the condition or provision that is being
waived and is signed by the waiving Person.
(d) Headings. The headings of the Sections and sub-sections contained
--------
in this Agreement are for convenience only and shall not be deemed to control or
affect the meaning or construction of any provision of this Agreement.
(e) Beneficiaries/References. The Executive shall be entitled, to the
------------------------
extent permitted under applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit under this Agreement,
following the Executive's death by giving the Company and Holdings written
notice thereof. In the event of the Executive's death or a judicial
determination of his incompetence, references in this Agreement to the Executive
shall be deemed, where appropriate, to refer to his beneficiary, transferee,
estate or other legal representative.
15
<PAGE>
(f) Survivorship. Except as otherwise set forth in this Agreement,
------------
the respective rights and obligations of the Parties hereunder shall survive any
termination of the Executive's employment under this Agreement.
(g) Withholding Taxes. The Company and Holdings may withhold from any
-----------------
amounts or benefits payable under this Agreement, or under any of the agreements
of which forms are attached hereto, any taxes that are required to be withheld
pursuant to any applicable law or regulation.
(h) Timing of Payments. The timing of any payment due under Section
------------------
9(d)(ii) is subject to any restrictions imposed by the Company's or Holdings'
credit agreements; provided that (i) the Company and Holdings shall use their
-------- ----
best commercially reasonable efforts to obtain waivers from their lenders in the
event any such payment is so restricted, (ii) the Company, or Holdings, shall
make any such payment at the earliest time, and to the fullest extent, permitted
under such restrictions and waivers, (iii) no portion of any such payment shall
be delayed more than 18 months, and (iv) any amount whose payment is delayed
shall accrue interest at an annual rate of 10%.
(i) Guarantee of Performance. Holdings unconditionally guarantees,
------------------------
without limitation or qualification, the prompt performance by the Company of
each and every obligation of the Company under this Agreement.
(j) Governing Law. This Agreement shall be governed, construed,
-------------
performed and enforced in accordance with its express terms, and otherwise in
accordance with the laws of the State of New York, without reference to
principles of conflict of laws.
(k) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall be deemed to be one and the same instrument.
16
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first set forth above.
Panolam Industries International, Inc.
By:____________________________________
Name:
Title:
Panolam Industries Holdings, Inc.
By:____________________________________
Name:
Title:
The Executive
_______________________________________
Robert J. Muller, Jr.
17
<PAGE>
EXHIBIT A
DEFINITIONS
"Actual EBITDA" shall have the meaning specified in Section 5.
-------------
"Affiliate" of a Person shall mean a Person that directly or indirectly
---------
controls, is controlled by, or is under common control with, the Person
specified.
"Agreement" shall mean this Employment Agreement, which includes for all
---------
purposes the agreements of which forms of agreement are appended as Exhibits.
"Base Salary" shall mean the salary provided for in Section 4 or any increased
-----------
salary granted to the Executive pursuant to Section 4.
"Board" shall mean, in the case of a corporation, the corporation's board of
-----
directors and, in the case of any other entity, the analogous governing Person
or body.
"Cause" shall mean: (i) the Executive willfully steals or embezzles a not
-----
insignificant amount of the property (tangible or intangible) of Holdings or the
Company in circumstances that would render him, in the judgment of a reasonable
person, manifestly unfit to continue as Chief Executive Officer and President of
the Company or Holdings; (ii) the Executive engages in conduct that constitutes
willful gross neglect or willful gross misconduct and that (x) results in
significant economic harm to the Company or Holdings or (y) results, and
reasonably should be expected to result, in acute public embarrassment to
Holdings; (iii) willful and unjustified failure of the Executive to act in
accordance with any material, reasonable and lawful written instruction given to
him by the Holdings Board (which instruction has been approved by at least two-
thirds of the members of the Holdings Board) concerning material aspects of the
Executive's duties for the Company or Holdings and excluding matters outside the
Executive's direct personal control; (iv) the Executive is convicted of a
felony; (v) any willful and material breach by the Executive of Section 12(b) or
12(c); or (vi) any willful material breach by the Executive of Section 2, 5(a),
6 or 9 of the stockholders' agreement of which a form of agreement is attached
as Exhibit B, Section 6 or 7 of the stock option agreement of which a form of
agreement is attached as Exhibit C, or Section 2 of the pledge agreement of
which a form of agreement is attached as Exhibit F.
"Claim" shall mean any claim, demand, request, investigation, dispute,
-----
controversy, threat, discovery request, or request for testimony or information.
"Closing Date" shall mean the date on which the PAC Acquisition is consummated.
------------
"Code" shall mean the Internal Revenue Code of 1986, as amended. Any reference
----
to a particular section of the Code shall include any provision that modifies,
replaces or supersedes such section.
<PAGE>
"Company" shall have the meaning set forth in the Preamble to this Agreement.
-------
"Company Board" shall mean the Board of the Company.
-------------
"Constructive Termination Without Cause" shall mean a termination by the
--------------------------------------
Executive of his employment under this Agreement on 30 days' written notice
given by him to the Company and Holdings following the occurrence of any of the
following events without the Executive's express prior written consent, unless
the Company or Holdings shall have fully cured all grounds for such termination
within 20 days after the Executive gives notice thereof:
i. any reduction in his Base Salary or target annual bonus; or any
material reduction in any employee benefit or perquisite enjoyed by him (other
than as part of an across-the-board reduction applying to senior executives of
the Company and Holdings generally);
ii. any material breach (A) by the Company or Holdings of any of
their material obligations under Section 4, 5, 6, 7, 8, 10(b) or 11, (B) by
Holdings, PAC or any of their Affiliates of any of their material obligations
under Section 7, 8 or 10 of the stockholders' agreement of which a form is
attached as Exhibit B; or (C) by Holdings of any of its material obligations
under Section 2, 3, 4, 5 or 8 of the stock option agreement of which a form of
agreement is attached as Exhibit C, Section 4(b) or 4(c) of the Executive
Promissory Note, or Section 6 of the pledge agreement of which a form of
agreement is attached as Exhibit F;
iii. any failure to elect or appoint the Executive to any of the
positions described in Section 3(a) or to continue him in each such position;
any material diminution in the Executive's duties or responsibilities or the
assignment to him of duties or responsibilities that materially impair his
ability to perform the duties or responsibilities then assigned to him or
normally assigned to the president and chief executive officer of an enterprise
of the size and structure of the Company or Holdings; or any change in the
reporting structure so that the Executive reports to someone other than the
Holdings Board;
iv. any relocation of the Company's or Holdings' principal office, or
of the Executive's own principal office as assigned to him by the Company and
Holdings, to a location more than 50 miles from Shelton, Connecticut or from
Wilton, Connecticut; or
v. the failure of the Company or Holdings to obtain the assumption
in writing of its obligations under this Agreement by any successor to all or
substantially all of its business or assets within 15 days after any merger,
consolidation, sale, liquidation or similar transaction.
"Covered Claims" shall have the meaning specified in Section 15.
--------------
2
<PAGE>
"Decorative Laminates Business" shall mean the business of producing or
-----------------------------
distributing (a) high-pressure decorative laminates (analogous to formica) or
(b) particle board with melamine (or an analogous) plastic facing.
"Disability" shall mean the Executive's inability to perform his duties
----------
hereunder on a full-time basis for a period of 180 consecutive days during any
365 day period or an aggregate of 180 days in any consecutive 270 day period, as
a result of physical or mental incapacity as determined by a medical doctor
selected by mutual agreement between the Company and Holdings on the one hand,
and the Executive on the other. If the Parties cannot agree on a medical
doctor, the Company and Holdings on the one hand, and the Executive on the
other, shall each select a medical doctor and the two doctors shall select a
third who shall be the approved medical doctor for this purpose.
"EBITDA" shall mean, for a given calendar year, Holdings' consolidated earnings
------
before interest expense and income tax expense adjusted by (x) adding thereto
------
(without duplication) the sum of (i) management fees, (ii) depreciation and
---
amortization expenses and other non-cash charges, (iii) extraordinary losses,
(iv) any loss on the sale of assets, (v) any non-cash compensation related to
stock options or other equity compensation or payment arrangements, and (vi) any
loss during such period from any change in accounting, from any discontinued
operations or the disposition thereof, or from any prior period adjustments, in
each case that were deducted in arriving at consolidated earnings before
interest expense and income tax expense for such calendar year, and (y)
subtracting therefrom the sum of (i) any interest income, (ii) any extraordinary
- ----------- ---
gains, (iii) any gain on the sale of assets, and (iv) any net gain during such
calendar year from any change in accounting, from any discontinued operations or
the disposition thereof, or from any prior period adjustments, in each case that
were added in arriving at consolidated earnings before interest expense and
income tax expense for such calendar year, all as reflected on Holdings' audited
consolidated financial statements for such calendar year when such statements
are first certified by Holdings' independent accountants.
"Effective Date" shall mean the date as of which this Agreement is dated.
--------------
"Executive" shall have the meaning set forth in the Preamble as modified by
---------
Section 17(e).
"Executive Promissory Note" shall have the meaning ascribed to such term in
-------------------------
Section 6(c).
"Holdings" shall have the meaning set forth in the Preamble to this Agreement.
--------
"Holdings Board" shall mean the Board of Holdings.
--------------
"Liquidity Event" shall have the meaning set forth in, and be determined in
---------------
accordance with, Exhibit B.
3
<PAGE>
"PAC Acquisition" shall have the meaning set forth in the third "Whereas" clause
---------------
in the Preamble to this Agreement.
"Parties" shall mean the Company, Holdings and the Executive.
-------
"Person" shall mean any individual, corporation, partnership, limited liability
------
company, joint venture, trust, estate, board, committee, agency, body, employee
benefit plan, or other person or entity.
"Proceeding" shall mean any threatened or actual action, suit or proceeding,
----------
whether civil, criminal, administrative, investigative, appellate or other.
"Pro Rata Annual Bonus" shall mean an amount equal to the product obtained by
---------------------
multiplying (x) the average of (i) the amount of the annual bonus, if any, that
- ----------- -------
the Executive earned for the calendar year immediately preceding the year in
which his employment hereunder terminated, and (ii) 75% of his annualized Base
Salary as of the Termination Date times (y) a fraction, the numerator of which
-----
is the number of days the Executive was employed by the Company or Holdings
during the calendar year in which the Termination Date occurred and the
denominator of which is 365.
"Stock Option" shall mean any compensatory option granted to the Executive to
------------
acquire securities of Holdings, the Company or any of their Affiliates; any
compensatory stock appreciation right, phantom stock option or analogous right
granted to the Executive by Holdings, the Company or any of their Affiliates;
and any option or right received in respect of any of the foregoing options or
rights.
"Stock Purchase Agreement" shall mean the Stock Purchase and Redemption
------------------------
Agreement, dated as of October 14, 1999, by and among the Executive, Holdings,
PAC and certain additional parties.
"Subsidiary" of any Person shall mean any Person of which such Person owns,
----------
directly or indirectly, more than half of the equity ownership interests
(measured either by value or by ability to elect or control the Board).
"Target Bonus" shall have the meaning specified in Section 5.
------------
"Target EBITDA" shall have the meaning specified in Section 5.
-------------
"Term of Employment" shall mean the period specified in Section 2.
------------------
"Termination Date" shall mean the date on which the Executive's employment under
----------------
this Agreement terminates in accordance with this Agreement.
4
<PAGE>
"Termination Without Cause" shall mean any termination of the Executive's
-------------------------
employment under this Agreement, other than (v) voluntary termination in
accordance with Section 9(e), (w) due to his death, (x) for Disability in
accordance with Section 9(b), (y) for Cause in accordance with Section 9(c), or
(z) by expiration of the Term of Employment due to non-extension of such Term in
accordance with Section 2; "Termination Without Cause" accordingly includes any
"Constructive Termination Without Cause."
5
<PAGE>
EXHIBIT B
FORM OF EXECUTIVE STOCKHOLDERS' AGREEMENT
<PAGE>
EXHIBIT C
FORM OF EXECUTIVE STOCK OPTION AGREEMENT
<PAGE>
EXHIBIT D
FORM OF EXECUTIVE STOCK PURCHASE AGREEMENT
<PAGE>
EXHIBIT E
FORM OF EXECUTIVE PROMISSORY NOTE
<PAGE>
EXHIBIT F
FORM OF EXECUTIVE STOCK PLEDGE AGREEMENT
<PAGE>
EXHIBIT 10.17
EXECUTIVE STOCKHOLDERS' AGREEMENT
---------------------------------
This Executive Stockholders' Agreement (the "Agreement") is made as of this
---------
24th day of November, 1999 (the "Effective Date") among Panolam Industries
--------------
Holdings, Inc. a Delaware corporation (together with its successors and assigns,
"Holdings"), Panolam Acquisition Company, L.L.C., a Delaware limited liability
--------
company (together with its successors and assigns, "PAC"), and Robert J. Muller,
---
Jr. (the "Executive").
---------
WHEREAS, the Executive is and, pursuant to the Stock Purchase and
Redemption Agreement, dated as of October 14, 1999, by and among Genstar Capital
Partners II L.P., Stargen II, L.L.C., the Executive, PAC and Holdings (the "PAC
---
Acquisition Agreement") immediately after the Closing Date, will remain the
- ---------------------
owner of 1,552.9 shares of common stock of Holdings (the "Retained Shares");
---------------
WHEREAS, Holdings, the Executive and Panolam Industries International,
Inc., a Delaware corporation (together with its successors and assigns,
"International") have entered into an employment agreement of even date herewith
-------------
(the "Employment Agreement") under which the Executive will continue to be
--------------------
employed as the President and Chief Executive Officer of Holdings and
International;
WHEREAS, Holdings has agreed to sell to the Executive, on the Closing Date
and at his election, shares of common stock of Holdings (the "Purchased Shares")
----------------
having a Fair Market Value of up to $3.5 million pursuant to and subject to the
terms and conditions of the Executive Purchase Agreement, in exchange for a
promissory note dated as of the Closing Date (the "Executive Promissory Note")
-------------------------
in a principal amount equal to such Fair Market Value;
WHEREAS, Holdings has agreed to grant to the Executive, as of the Closing
Date, certain compensatory options (the "Options") to purchase additional shares
-------
of common stock of Holdings (the "Option Shares"), pursuant to and subject to
-------------
the terms and conditions of the Executive Option Agreement;
WHEREAS, the Parties wish to enter into certain agreements and
understandings with respect to any Purchased Shares, Option Shares or Retained
Shares that are held by any Executive Holder (collectively, "Executive Stock");
---------------
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the Parties hereby agree as follows:
1. Certain Definitions. Any capitalized term not otherwise defined herein
-------------------
shall have the meaning specified in the Employment Agreement. The following
capitalized terms shall have the following meanings:
1
<PAGE>
"Agreement" shall have the meaning specified in the Preamble.
---------
"Approved Sale" shall have the meaning specified in Section 5(a).
-------------
"Business Day" shall mean any day that is not a Saturday, Sunday or other
------------
day on which banks are authorized or required by law to be closed in the State
of New York.
"CEP General Partner" shall mean CEP General Partner L.P., a Delaware
-------------------
limited partnership.
"Call Right" shall have the meaning specified in Section 3(a).
----------
"Carlyle Affiliate" shall mean (i) PAC, (ii) any Person that controls, is
-----------------
controlled by or is under common control with PAC, including any of PAC's
members or any other corporation, limited liability company, limited partnership
or other entity directly or indirectly controlled by TC Group or CEP General
Partner or a partner or member of any Carlyle Affiliate, (iii) any entity that
is controlled by one or more of the Persons who control TC Group and (iv) any
Person (other than an Executive Holder) who then is, or was at any time on or
after the Closing Date, any of the foregoing.
"Carlyle's Cost" shall mean (i) as of any date, the aggregate consideration
--------------
paid by PAC and any Carlyle Affiliate for all shares of common stock of Holdings
theretofore purchased by them, less the amount of any distributions or proceeds
received by PAC and any Carlyle Affiliates in respect of such shares of common
stock, with any distributions of equity in Holdings valued at their Fair Market
Value.
"Carlyle Drag-Along Notice" shall have the meaning specified in Section
-------------------------
6(b).
"Carlyle Drag-Along Seller" shall have the meaning specified in Section
-------------------------
6(a).
"Carlyle Tag-Along Notice" shall have the meaning specified in Section
------------------------
7(b).
"Carlyle Tag-Along Seller" shall have the meaning specified in Section
------------------------
7(a).
"Cause" shall have the meaning specified in, and be determined in
-----
accordance with, the Employment Agreement.
"Closing Date" shall have the meaning specified in the PAC Acquisition
------------
Agreement.
"Demand Registering Executive Holder" shall have the meaning specified in
-----------------------------------
Section 10(d)(iii).
2
<PAGE>
"Disability" shall have the meaning specified in, and shall be determined
----------
in accordance with, the Employment Agreement.
"Drag-Along Right" shall have the meaning specified in Section 6(a).
----------------
"Drag-Along Sale" shall have the meaning specified in Section 6(a).
---------------
"Effective Date" shall have the meaning specified in the Preamble.
--------------
"Election Notice" shall have the meaning specified in Section 2(b).
---------------
"Election Period" shall have the meaning specified in Section 2(b).
---------------
"Employment Agreement" shall have the meaning specified in the second
--------------------
"Whereas" clause in the Preamble.
"Endorsed Certificates" shall have the meaning specified in Section 2(b).
---------------------
"Equity Interest" shall mean any outstanding equity interest in any form,
---------------
including without limitation capital stock of any corporation, membership
interests in any limited liability company, partnership interests in any
partnership, and securities convertible into, or exchangeable or exercisable
for, any of the foregoing.
"Executive" shall have the meaning specified in the Preamble.
---------
"Executive Drag-Along Shares" shall have the meaning specified in Section
---------------------------
6(a).
"Executive Holder" shall mean any Executive Stockholder or Executive Option
----------------
Holder.
"Executive Option Agreement" shall mean the agreement of which a form of
--------------------------
agreement is attached as Exhibit C to the Employment Agreement.
"Executive Option Holder" shall mean the Executive and any Person to whom
-----------------------
the Executive transfers any interest in an Option in accordance with the
Executive Option Agreement.
"Executive Promissory Note" shall mean the promissory note of which a form
-------------------------
of note is attached as Exhibit E to the Employment Agreement.
"Executive Purchase Agreement" shall mean the agreement of which a form of
----------------------------
agreement is attached as Exhibit D to the Employment Agreement.
"Executive Sale Notice" shall have the meaning specified in Section 2(b).
---------------------
3
<PAGE>
"Executive Seller" shall have the meaning specified in Section 2(b).
----------------
"Executive Stock" shall mean any Option Shares, Purchased Shares, or
---------------
Retained Shares that are held by any Executive Stockholder.
"Executive Stockholder" shall mean (i) the Executive and (ii) any Permitted
---------------------
Executive Transferee to whom Executive Stock has been Transferred in accordance
with this Agreement.
"Executive Tag-Along Notice" shall have the meaning specified in Section
--------------------------
7(b).
"Executive Tag-Along Shares" shall have the meaning specified in Section
--------------------------
7(a).
"Exempt Transfer" shall mean (i) any Transfer by any Carlyle Affiliate to
---------------
any Person who is a Carlyle Affiliate immediately prior to such Transfer,
including without limitation a Transfer in the form of dividends or
distributions (whether upon liquidation or otherwise) by a Carlyle Affiliate to
its stockholders, members or partners, as the case may be (and any subsequent
Transfer by any such stockholder, member or partner), (ii) any Transfer by any
Carlyle Affiliate in accordance with this Agreement to any Proposed Purchaser in
an Approved Sale, Tag-Along Sale or Drag-Along Sale, (iii) any Transfer by any
Executive Holder to any Person who is a Permitted Executive Transferee at the
time of such Transfer, (iv) any Transfer by any Carlyle Affiliate or Executive
Holder effected pursuant to Rule 144 or an effective registration under the 1933
Act, (v) any Transfer by any Executive Holder pursuant to, and in accordance
with, Section 2, 3, 5, 6 or 7, and (vi) any pledge of Executive Stock by the
Executive to Holdings to secure the Executive Promissory Note pursuant to the
Stock Pledge Agreement or otherwise; provided, however: (A) in the case of any
-------- -------
Transfer by any Carlyle Affiliate pursuant to clause (i) or to any Carlyle
Affiliate pursuant to clause (v), that the Transferee shall become a party to
this Agreement, by executing a counterpart of it as a Carlyle Affiliate, at the
time of Transfer; (B) in the case of any Transfer by any Executive Stockholder
to a Permitted Executive Transferee pursuant to clause (iii), that (I) the
Transferee shall become a Party to this Agreement, by executing a counterpart of
it as an Executive Holder, at the time of Transfer and (II) either the
Transferee or the Transferor shall, upon reasonable request of PAC or Holdings,
deliver to PAC or Holdings a reasonably satisfactory opinion of counsel that
such Transfer does not violate this Agreement, the 1933 Act, or any applicable
securities laws; (C) in the case of any Transfer by any Carlyle Affiliate or any
Executive Stockholder pursuant to clause (ii) or (v), that (I) the Transferee
shall agree to become a party to and be bound by the Stockholders' Agreement by
executing a signature page to the Stockholders' Agreement as provided in Section
7(k) thereof at the time of Transfer and (II) if the Transferee is an Executive
Holder, the Transferee shall, upon reasonable request of PAC or Holdings,
deliver to PAC or Holdings a reasonably satisfactory opinion of counsel that
such Transfer does not violate this Agreement, the 1933 Act or any applicable
securities laws; (D) in the case of any Transfer by any Carlyle Affiliate
pursuant to clause (i), that such Carlyle Affiliate shall have given each
Executive Holder at least five (5) Business Days' notice of such Transfer; and
(E) in the case of any Transfer by an Executive Holder pursuant to clause (iii),
that such Executive Holder shall have given each Carlyle Affiliate at least five
(5) Business Days' notice of such Transfer.
4
<PAGE>
"Fair Market Value" shall mean fair market value as determined with due
-----------------
regard to values established by contemporaneous arms-length transactions. As
applied to Holdings Securities, Fair Market Value shall mean fair market value
without discount for lack of control, lack of liquidity, call rights, drag-along
rights, or similar factors and assuming a market consisting of amply-funded
strategic investors. To the extent feasible, Fair Market Value shall be
determined by prompt agreement between (x) Holdings, PAC and any directly-
affected Carlyle Affiliate (collectively, the "Holdings Parties") and (y) the
----------------
Executive and any directly-affected Executive Holder (collectively, the
"Executive Parties"). In the event that Fair Market Value is not promptly
-----------------
determined pursuant to the preceding sentence, the matter shall be submitted to
binding arbitration in New York City and shall be settled in accordance with the
Commercial Arbitration Rules of the American Arbitration Association, using the
Expedited Procedures in such Rules to the extent such procedures are consistent
with the provisions of this Agreement. For purposes of such arbitration, the
Holdings Parties shall be treated as one "party" and the Executive Parties shall
be treated as the other "party". Such arbitration shall be conducted by a
neutral arbitrator to be jointly and promptly selected by the "parties", and if
the "parties" are unable to agree promptly upon an arbitrator, then one
experienced in the valuation of the securities or other property or interests
whose Fair Market Value is at issue shall promptly be selected in accordance
with the Commercial Arbitration Rules. At the commencement of such arbitration,
each "party" shall promptly supply to the other "party", in confidence and on
reasonable terms and conditions, any data or information that the other "party"
may reasonably request and that is pertinent to the determination of Fair Market
Value that is at issue. Promptly thereafter, each "party" shall, unless the
arbitrator for good reason otherwise provides, submit to the arbitrator a
proposed Fair Market Value, together with such supporting information and
evidence as such "party" may choose to provide. Unless the "parties" otherwise
agree or the arbitrator for good reason otherwise provides, the process shall be
designed so that neither "party" is made aware of the other "party's" proposed
Fair Market Value until after its submission to the arbitrator. In the event
that the Fair Market Value proposed by the Executive Parties does not exceed the
Fair Market Value proposed by the Holdings Parties by at least ten percent
(10%), then the Fair Market Value shall be the average of the two values
proposed by the "parties". In all other cases, the Fair Market Value shall be as
determined by the arbitrator, who shall (unless the arbitrator for good reason
otherwise provides) be required to designate as the Fair Market Value one of the
two values proposed by the "parties". All costs of the arbitration process,
including the fees and costs of the arbitrator, of the American Arbitration
Association, and of experts and attorneys retained by the "parties" shall be
paid currently by Holdings, subject to reimbursement by the Executive Parties
for all costs and expense of the arbitrator, of the American Arbitration
Association, and of experts and attorneys retained by the Executive Parties in
the event that the value proposed by the Holdings Parties is chosen as the Fair
Market Value by the arbitrator. Judgment upon the award rendered by such
arbitrator may be entered in any court of competent jurisdiction.
"Holdings" shall have the meaning specified in the Preamble.
--------
"Holdings Securities" shall mean any outstanding Equity Interest in
-------------------
Holdings.
5
<PAGE>
"IPO" shall have the meaning specified in Section 10(a).
---
"Independent Third Party", when used in respect of a proposed transaction,
-----------------------
shall mean any Person who is not, as of the Closing Date or at any time prior to
the consummation of such transaction, a Carlyle Affiliate.
"International" shall have the meaning specified in the second "Whereas"
-------------
clause in the Preamble.
"Liquidity Event" shall mean any Sale of Holdings or consummation of a
----------------
Qualified Public Offering provided, that, the value associated with the direct
-------- ----
or indirect Holdings interests, business or assets involved in such transaction
(net of any underwriters' discounts or other investment banking fees) results in
a value attributable to all Holdings common stock theretofore purchased by
Carlyle Affiliates being at least equal to Carlyle's Cost; and provided, that,
--------
in the case of a Sale of Holdings, (i) only cash and securities (including debt
instruments) that are publicly traded on a registered securities exchange or
through the Nasdaq automated quotation system (or on an equivalent exchange or
system) shall be considered in determining the value associated with the direct
or indirect Holdings interests, business or assets involved in such transaction
and (ii) no Liquidity Event shall be deemed to have occurred unless the cash and
publicly traded securities received by one or more Carlyle Affiliates exceed
Carlyle's Cost.
"1933 Act" shall mean the Securities Act of 1933, as amended from time to
--------
time, and any successor to such Act; provided that any reference to any Section
-------------
of, or Rule or Form promulgated under, the 1933 Act shall include any successor
to such Section, Rule or Form and that any reference to "registration" under the
1933 Act shall include any successor procedures implemented by the SEC after the
Effective Date.
"Offered Shares" shall have the meaning specified in Section 2(b).
--------------
"Option Shares" shall mean any shares or other securities purchased by an
-------------
Executive Option Holder pursuant to the Options, together with any securities
issued in respect of such shares or securities (regardless of whether issued by
way of stock dividend or stock split or in connection with any conversion,
merger, consolidation or recapitalization or other reorganization affecting such
shares or securities).
"Other Registering Holders" shall have the meaning specified in Section
-------------------------
10(a).
"PAC" shall have the meaning specified in the Preamble.
---
"PAC Acquisition Agreement" shall have the meaning specified in the first
-------------------------
"Whereas" clause in the Preamble.
"PAC Subsidiary" shall mean any Subsidiary of PAC of which Holdings is a
--------------
Subsidiary.
6
<PAGE>
"Parties" shall mean Holdings, PAC, the Executive, and any other Person
-------
who, at the time in question, is a signatory to this Agreement.
"Permitted Executive Transferee" shall mean (i) in the case of a gratuitous
------------------------------
Transfer, any of the Executive's "family members", as such term is defined in
Section (A)(1)(a)(5) of the General Instructions to Form S-8 under the 1933 Act
as in effect on the Effective Date, (ii) any entity of which more than 50% of
the voting interests are owned by the Executive or his "family members" and to
which a Transfer is made in exchange for an interest in the entity as described
in clause (ii) of such Section (A)(1)(a)(5), and (iii) any recipient of a
Transfer by will or by the laws of descent and distribution.
"Piggyback Registering Executive Holder" shall have the meaning specified
--------------------------------------
in Section 10(a).
"Proposed Transferred Shares" shall have the meaning specified in Section
---------------------------
7(a).
"Proposed Purchaser" shall have the meaning specified in Section 5(d),
------------------
Section 6(a) or Section 7(a), as applicable.
"Prospectus" shall have the meaning specified in Section 10(c).
----------
"Purchased Shares" shall mean the shares described in the third "Whereas"
----------------
clause in the Preamble, together with any securities issued in respect of such
shares (regardless of whether issued by way of stock dividend or stock split or
in connection with any conversion, merger, consolidation or recapitalization or
other reorganization affecting such shares).
"Put Right" shall have the meaning specified in Section 3(b).
---------
"Qualified Public Offering" shall mean any Transfer, in a public offering
-------------------------
registered under the 1933 Act of Equity Interests of (i) PAC, (ii) any PAC
Subsidiary or (iii) Holdings.
"Registering Executive Holders" shall have the meaning specified in Section
-----------------------------
10(d)(iii).
"Registrable Shares" shall have the meaning specified in Section 10(b)(i).
------------------
"Registration Notice" shall have the meaning specified in Section 10(a).
-------------------
"Registration Statement" shall have the meaning specified in Section 10(e).
----------------------
"Retained Shares" shall mean the shares described in the first "Whereas"
---------------
clause in the Preamble, together with any securities issued in respect of such
shares (regardless of whether issued by way of stock dividend or stock split or
in connection with any conversion, merger, consolidation or recapitalization or
other reorganization affecting such shares).
7
<PAGE>
"Sale of Holdings" shall mean any transaction or series of related
----------------
transactions that results in the Transfer (whether by sale, merger,
consolidation or otherwise) to one or more Independent Third Parties or one or
more affiliated groups of Independent Third Parties pursuant to which such party
or parties acquire (x) 50% or more (measured either by value or by the power to
elect the Board of the entity in question) of the Equity Interests of (i) PAC,
(ii) any PAC Subsidiary, (iii) Holdings or (iv) any Subsidiary of Holdings that
accounts for 65% or more the value of Holdings on a consolidated basis or (y)
65% or more of the business or assets of Holdings (measured by value), including
for these purposes the business and assets of Holdings' Subsidiaries.
"SEC" shall mean the United States Securities and Exchange Commission.
---
"Stock Pledge Agreement" shall mean the agreement of which a form of
----------------------
agreement is attached as Exhibit F to the Employment Agreement.
"Stockholders' Agreement" shall mean the form of Stockholder Agreement
-----------------------
among PAC, Genstar Capital Partners II and Stargen II, L.L.C., that is attached
as an Exhibit to the PAC Acquisition Agreement.
"Tag-Along Right" shall have the meaning specified in Section 7(a).
---------------
"Tag-Along Sale" shall have the meaning specified in Section 7(a).
--------------
"TC Group" shall mean TC Group, L.L.C., a Delaware limited liability
--------
company.
"Third-Party Purchaser" shall have the meaning specified in Section 2(b).
---------------------
"Transfer" (and its variants) shall mean any transfer of any kind,
--------
contingent or otherwise, including any sale, assignment, pledge, conveyance or
other disposition, whether with or without consideration and whether voluntarily
or involuntarily or by operation of law.
2. Restrictions on Transfer.
------------------------
(a) Transfer of Executive Stock. No Executive Holder may, at any time
---------------------------
prior to the occurrence of a Qualified Public Offering of Holdings common stock
or a Sale of Holdings, Transfer any interest in Holdings common stock other than
in an Exempt Transfer.
(b) First Refusal. (i) In the event that, at any time prior to the
-------------
occurrence of a Qualified Public Offering of Holdings common stock or a Sale of
Holdings, any Executive Holder desires to Transfer any Executive Stock, other
than in an Exempt Transfer, such Executive Holder (an "Executive Seller") shall
----------------
provide a notice (an "Executive Sale Notice") to Holdings, which notice shall
---------------------
set forth (A) confirmation that such Executive Seller intends to Transfer some
or all of the Executive Stock held by such Executive Seller (or acquirable by
such
8
<PAGE>
Executive Holder upon exercise of Options) in a bona fide transaction with one
---- ----
or more third parties (each a "Third-Party Purchaser"), (B) the amount of
---------------------
Executive Stock proposed to be transferred (the "Offered Shares"), (C) the
--------------
proposed amount and form of consideration to be paid for the Offered Shares and
(D) all other material terms of the proposed Transfer. Within ten (10) Business
Days after receiving such Executive Sale Notice (the "Election Period"),
---------------
Holdings may elect to purchase all, but not less than all, of the Offered Shares
at the price and on the terms and conditions set forth in the Executive Sale
Notice by delivery of a notice to such Executive Seller (an "Election Notice"),
---------------
which Election Notice shall constitute the binding agreement of Holdings to
purchase, and such Executive Seller to sell, all of such Offered Shares at the
purchase price and on the terms and conditions set forth in the Executive Sale
Notice. Within ten (10) Business Days after delivery of the Election Notice,
Holdings shall deliver, or cause to be delivered, a certified check payable to
such Executive Seller, or to such other Person as such Executive Seller may
request, in the amount of the purchase price (as calculated below) of such
Offered Shares to be purchased under the Election Notice; provided, however,
-------- -------
that payment shall be made by wire transfer of immediately available funds if
such Executive Holder so requests. Upon receipt of payment for the Offered
Shares from Holdings, such Executive Seller shall deliver instruments of
transfer duly endorsed in blank, together with the corresponding certificate(s)
representing all such Offered Shares, to Holdings. The Parties acknowledge that,
if Holdings delivers an Election Notice, it may, at its election, cause or
permit any Carlyle Affiliate to purchase all or any part of the Offered Shares
in lieu of Holdings in accordance with the time periods and terms and conditions
set forth above. For purposes of calculating the purchase price of any Transfer,
any non-cash consideration shall be valued at its Fair Market Value. If no
Election Notice is received by an Executive Seller prior to expiration of the
Election Period, or if Holdings (together with its designees) elects to purchase
less than all of the Offered Shares or fails to promptly deliver the purchase
price of the Offered Shares in accordance with the terms hereof, such Executive
Seller shall have the right to Transfer the Offered Shares specified in the
Executive Sale Notice to the Third-Party Purchaser(s) in accordance with the
terms of this Agreement, but only at a price and upon terms and conditions no
less favorable to the Executive Seller than those stated in the Executive Sale
Notice and only if the consummation of such Transfer occurs within 45 days after
the end of the Election Period.
(c) Transfer by or to Carlyle Affiliates. If any Carlyle Affiliate
------------------------------------
Transfers Holdings Securities or is the Transferee of such securities in any
Transfer described in clause (i), (ii) or (v) of the definition of Exempt
Transfer, then such Carlyle Affiliate shall comply with the applicable
provisions set forth in the definition of Exempt Transfer.
9
<PAGE>
3. Repurchase of Shares.
--------------------
(a) Holdings Call Rights. If the Executive's employment under the
--------------------
Employment Agreement terminates at any time prior to the occurrence of a
Qualified Public Offering of common stock of Holdings, other than in accordance
with the Employment Agreement due to the Executive's death or Disability,
Holdings shall have the right to purchase from each Executive Holder, and upon
exercise of such right each Executive Holder shall sell to Holdings, at their
Fair Market Value as of the Termination Date, all (and not less than all) of the
Retained Shares and Option Shares held by such Executive Holder as of the
Termination Date. If Holdings elects to purchase the Retained Shares and Option
Shares held by an Executive Holder pursuant to the right granted under this
Section 3(a) (a "Call Right"), it shall notify such Executive Holder of such
----------
election within 60 days after the Termination Date.
(b) Executive Put Rights. If the Executive's employment under the
--------------------
Employment Agreement terminates, at any time prior to the occurrence of a
Qualified Public Offering of common stock of Holdings, due to death, Disability,
a Termination Without Cause, or expiration of the Term of Employment in
accordance with Section 2 of the Employment Agreement pursuant to a notice of
non-extension from Holdings and International, each Executive Holder shall have
the right (a "Put Right") to require Holdings to purchase, and upon exercise of
---------
such right Holdings shall purchase, at their Fair Market Value as of the
Termination Date all, or any portion, of the Retained Shares held by such
Executive Holder. If an Executive Holder elects to sell Retained Shares
pursuant to a Put Right, such Executive Holder shall notify Holdings of such
election within 60 days after the Termination Date.
(c) Payment. Payment of the purchase price for purchases of Executive
-------
Stock pursuant to Section 3(a) or 3(b) shall be made by certified check within
30 days after the date (the "Notice Date") on which Holdings or the selling
-----------
Executive Holder delivers notice of its election to exercise its Call Rights or
Put Rights, as applicable; provided that Holdings shall only make payment to a
-------- ----
selling Executive Holder at such time as such Executive Holder has presented to
Holdings all certificates evidencing the Executive Stock being sold that are not
already in the possession of Holdings, PAC or a Carlyle Affiliate, duly endorsed
for transfer (or, in the case of stock certificates in the possession of
Holdings, PAC or a Carlyle Affiliate, has duly endorsed such certificates and
returned them to Holdings) (the "Endorsed Certificates"). Notwithstanding the
---------------------
preceding sentence, in the event that the purchase is being made pursuant to
Section 3(b), the timing of any payment due shall be subject to any restrictions
imposed by Holdings' or its Subsidiaries' credit agreements, provided that (i)
-------- ----
Holdings uses commercially reasonable efforts to promptly obtain waivers from
its lenders in the event that any payment is so restricted, (ii) Holdings makes
any such payment at the earliest time, and to the fullest extent, permitted
under such restrictions and waivers, (iii) no portion of any such payment is
delayed more than 18 months, and (iv) any amount whose payment is delayed
pursuant to this sentence shall accrue interest at any annual rate of 10%. If a
selling Executive Holder fails to deliver the Endorsed Certificates within 30
days after the Notice Date, the Executive Stock represented thereby shall be
deemed to have been purchased upon the earlier to occur of (x) the payment by
Holdings of the purchase price to such Executive Holder or (y) notice to such
Executive Holder that Holdings
10
<PAGE>
is holding the purchase price for the account of such Executive Holder. Upon
such payment or notice pursuant to the preceding sentence, such Executive Holder
shall have no further rights in or to such Executive Stock.
4. Additional Restrictions on Transfer.
-----------------------------------
(a) The certificates representing the Retained Shares shall bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE
OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN EXECUTIVE
STOCKHOLDERS' AGREEMENT AMONG THE COMPANY, THE EXECUTIVE AND PANOLAM
ACQUISITION COMPANY, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY. A
COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT
COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(b) The certificates representing the Purchased Shares shall bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE
OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN EXECUTIVE STOCK
PURCHASE AGREEMENT BETWEEN THE COMPANY AND ROBERT J. MULLER, JR. AND
IN AN EXECUTIVE STOCKHOLDERS' AGREEMENT AMONG THE COMPANY, THE
EXECUTIVE AND PANOLAM ACQUISITION COMPANY, L.L.C., A DELAWARE LIMITED
LIABILITY COMPANY. COPIES OF SUCH AGREEMENTS MAY BE OBTAINED BY THE
HOLDER HEREOF
11
<PAGE>
AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(c) The certificates representing the Option Shares shall, if
appropriate when issued, bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE
OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN AN EXECUTIVE
STOCKHOLDERS' AGREEMENT AMONG THE COMPANY, THE EXECUTIVE AND PANOLAM
ACQUISITION COMPANY, L.L.C., A DELAWARE LIMITED LIABILITY COMPANY. A
COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE
COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(d) The issuer of Executive Stock shall modify, or remove, the
forgoing legends from certificates representing Executive Stock promptly upon
reasonable request provided that such legends are no longer appropriate.
(e) Each Executive Holder agrees not to effect any public sale or
distribution of Executive Stock during the seven days prior to, and the 90 days
after, the effectiveness of any underwritten public offering of equity
securities of the same issuer, except as part of such underwritten public
offering or as otherwise permitted by Holdings.
5. Sale of Holdings.
----------------
(a) Approved Sales. If (x) the Holdings Board and the holders of two-
--------------
thirds of all Holdings' common stock (measured by value) approve a Sale of
Holdings (an "Approved Sale") prior to the occurrence of a Qualified Public
-------------
Offering of common stock of Holdings and (y) no Sale of Holdings has previously
occurred, each Executive Holder shall consent to, and raise no objections
against, such Approved Sale.
(b) Purchaser Representatives. If Holdings or holders of a majority
-------------------------
of the common stock of Holdings (measured by value) enter into any negotiation
or transaction for which Rule 506 under the 1933 Act may be available, any
Executive Holder that is not an "accredited investor" shall, upon Holdings'
reasonable request, appoint a "purchaser
12
<PAGE>
representative" (as such term is defined in Rule 501 under the 1933 Act) to
advise such Executive Holder in connection with such negotiation or transaction.
If an Executive Holder appoints a purchaser representative designated by
Holdings, Holdings shall pay the fees of such purchaser representative, but if
any Executive Holder declines to appoint the purchaser representative designated
by Holdings, such Executive Holder shall appoint another purchaser
representative and such Executive Holder shall pay the fees of such purchaser
representative.
(c) Costs. Each Executive Holder agrees to pay its pro rata share
----- --- ----
(based upon the value of the consideration received by such Executive Holder in
respect of Executive Stock) of the costs of any sale of Holdings Securities in
an Approved Sale to the extent such costs are incurred solely for the pro rata
--- ----
benefit of all holders of Holdings common stock and are not otherwise paid by
Holdings or any acquiring party. Costs incurred by any Executive Holder on its
own behalf shall not be considered costs of the transaction hereunder. Any
Executive Holder may, at such Executive Holders' election, pay such Executive
Holder's share of such costs with any form of consideration received by such
Executive Holder in connection with such Approved Sale.
(d) Other Documentation and Actions. In connection with any Transfer
-------------------------------
of Executive Stock by any Executive Holder to any Person proposing to purchase
such Executive Stock in connection with an Approved Sale (a "Proposed
--------
Purchaser") (x) such Executive Holder shall, subject to the satisfaction of such
- ---------
reasonable conditions as such Executive Holder may reasonably establish, take
any action that Holdings, PAC, any Carlyle Affiliate or such Proposed Purchaser
may reasonably request and (y) Holdings, PAC, any Carlyle Affiliate and such
Proposed Purchaser shall, subject to the satisfaction of such reasonable
conditions as they may reasonably establish, take any action that such Executive
Holder may reasonably request.
6. Drag-Along Rights.
-----------------
(a) Sales by Carlyle Affiliates. In the event that, prior to a
---------------------------
Qualified Public Offering of Holdings common stock or Sale of Holdings, one or
more Carlyle Affiliates (each a "Carlyle Drag-Along Seller") shall propose to
-------------------------
Transfer, in one or more related arms-length transactions (other than Exempt
Transfers), common stock of Holdings whose Fair Market Value equals at least ten
percent (10%) of the Fair Market Value of all Holdings Securities, (a "Drag-
-----
Along Sale") to one or more Independent Third Parties (each a "Proposed
- ---------- --------
Purchaser"), then such Carlyle Drag-Along Sellers shall collectively have the
- ---------
right and option (a "Drag-Along Right"), but not the obligation, to require any
----------------
Executive Holder to Transfer to such Proposed Purchaser(s) in connection with
such Drag-Along Sale a pro rata (or lesser) portion of the Executive Stock then
--- ----
held by such Executive Holder (such pro rata portion of such Executive Stock
--- ----
being the "Executive Drag-Along Shares"), which pro rata portion shall be a
--------------------------- --- ----
fraction, the numerator of which shall be the Fair Market Value (as of the
---------
effective date of such Drag-Along Sale) of the Holdings common stock that the
Carlyle Drag-Along Sellers propose to transfer to such Proposed Purchaser(s) in
connection with such proposed Drag-Along Sale, and the denominator of which
-----------
shall be the Fair Market Value (as of the effective date of such Drag-Along
Sale) of all Holdings common stock (x) held by any Carlyle Affiliate immediately
prior to such Drag-Along
13
<PAGE>
Sale or (y) Transferred by any Carlyle Affiliate in connection with, or in
anticipation of, such Drag-Along Sale; provided, however, that in the event that
-------- -------
the Carlyle Drag-Along Sellers propose to Transfer, in one or more related
transactions, Holdings common stock representing more than two-thirds of the
value of all Holdings Securities then (m) such Carlyle Drag-Along Sellers' Drag-
Along Rights shall include the right to require each Executive Holder to sell to
the Proposed Purchaser(s) any Option Shares acquirable on exercise of any part
of any Option that is then held by such Executive Holder and that is then
exercisable and any (n) such Drag-Along Sale shall necessarily be deemed to be a
Sale of Holdings. Any Executive Holder who Transfers Executive Shares in any
Drag-Along Sale shall be entitled to do so on terms and conditions that are in
no respect less favorable to such Executive Holder (including, without
limitation, with respect to the forms of consideration received, the value of
the consideration received, rights to elect among different forms of
consideration, registration rights, put rights, other liquidity rights, anti-
dilution rights, conversion rights, voting rights, control rights, first-refusal
rights, tag-along rights, representations made and received, warranties made and
received, information provided and required, indemnifications provided and
required (with any indemnification required from such Executive Holder being (x)
limited to the value of the consideration received by such Executive Holder in
such Drag-Along Sale and (y) made pro rata in proportion to the value of
--- ----
such consideration) and other material rights and obligations) than the terms
and conditions that apply (or applied) to any Carlyle Affiliate that Transfers
(or Transferred) Holdings common stock in connection with, or in anticipation
of, such Drag-Along Sale.
(b) Notices. All Carlyle Drag-Along Sellers shall jointly notify, or
-------
cause to be notified, any Executive Holder against whom they plan to exercise
Drag-Along Rights of any proposed Drag-Along Sale that they propose to make at
least twenty (20) Business Days prior to the effective date of such proposed
Drag-Along Sale (a "Carlyle Drag-Along Notice"). Any such Carlyle Drag-Along
-------------------------
Notice delivered to an Executive Holder in connection with a proposed Drag-Along
Sale shall set forth: (i) the name and address of each Proposed Purchaser and
each Carlyle Drag-Along Seller; (ii) a description of the Holdings common stock
to be Transferred by the Carlyle Drag-Along Sellers in the proposed Drag-Along
Sale, (iii) a description of any Transfer of Holdings common stock made, or to
be made, by any Carlyle Affiliate in anticipation of such proposed Drag-Along
Sale, (iv) the proportion of such Executive Holder's Executive Stock that is
required to be transferred in such proposed Drag-Along Sale, together with a
detailed explanation of how such proportion was determined; (v) the proposed
amount and form of consideration to be delivered by the Proposed Purchaser(s) in
exchange for (m) Executive Drag-Along Shares and (n) other Holdings common stock
to be Transferred in such Drag-Along Sale, setting forth the terms of any non-
cash consideration and a good faith estimate of the value of any such
consideration; (vi) the proposed effective date of the proposed Drag-Along Sale;
(vii) all other material terms and conditions of such proposed Drag-Along Sale;
and (viii) a representation that each Proposed Purchaser(s) has been informed of
the Drag-Along Rights set forth in this Agreement and that the Proposed
Purchaser(s) have collectively agreed to purchase all of the Executive Drag-
Along Shares in accordance with the terms of this Agreement.
(c) Additional Documentation and Actions. In connection with any
------------------------------------
Drag-Along Sale, Holdings, PAC, any Carlyle Affiliate and any participating
Executive Holder
14
<PAGE>
shall, prior to the closing of such Drag-Along Sale, execute any purchase
agreement, certificate, instrument or other agreements reasonably required by
any Proposed Purchaser to consummate the Drag-Along Sale; provided, however,
-------- -------
that any such purchase agreement, certificate, instrument and other agreement
shall be on terms and conditions that are in no respect less favorable to any
participating Executive Holder than any corresponding purchase agreement,
certificate, instrument or other agreement executed by any Carlyle Affiliate in
connection with, or in anticipation of, such Drag-Along Sale. At the closing of
any Drag-Along Sale, each participating Executive Holder (or, in the case of
certificates and documentation held by Holdings, PAC or any Carlyle Affiliate,
then Holdings, PAC or such Carlyle Affiliate(s)) shall deliver to the Proposed
Purchaser(s) the certificate, certificates or other documentation representing
the Executive Stock to be Transferred by such Executive Holder in such Drag-
Along Sale, duly endorsed for transfer with signatures guaranteed and
accompanied by a custody agreement and power of attorney in form and substance
reasonable acceptable to the Proposed Purchaser(s), against receipt by such
Executive Holder of the purchase price or other consideration therefor. In
connection with any Drag-Along Sale, (x) any participating Executive Holder
shall, subject to the satisfaction of such reasonable conditions as such
Executive Holder may reasonably establish, take any other action that Holdings,
PAC, any Carlyle Affiliate, or any Proposed Purchaser may reasonably request and
(y) Holdings, PAC, any Carlyle Affiliate and any Proposed Purchaser shall,
subject to satisfaction of such reasonable conditions as they may reasonably
establish, take any action that such Executive Holder may reasonably request.
(d) Effect of Drag-Along Sale. In the event that an Executive Holder
-------------------------
shall have received all consideration due from a Drag-Along Sale that is made in
conformance with this Agreement but shall have failed to deliver a certificate
or certificates (or other documentation, if applicable) representing the
Executive Stock sold by such Executive Holder in connection with such Drag-Along
Sale, such Executive Holder shall thereafter no longer be deemed to be the
holder of such Executive Stock for any purpose and, with respect to such
Executive Stock, (i) shall have no voting rights, (ii) shall not be entitled to
any dividends or other distributions and (iii) shall have no other rights or
privileges granted to stockholders under law or this Agreement.
7. Tag-Along Rights.
----------------
(a) Sales by Carlyle Affiliates. In the event that, prior to a
---------------------------
Qualified Public Offering of Holdings common stock or Sale of Holdings, one or
more Carlyle Affiliates (each a "Carlyle Tag-Along Seller") shall propose to
-------------------------
Transfer, in one or a series of transactions (other than Exempt Transfers),
Holdings common stock whose Fair Market Value, when added to the Fair Market
Value of Holdings common stock previously Transferred by Carlyle Affiliates
(other than in Exempt Transfers or in Transfers that have previously triggered
Tag-Along Rights) equals at least ten percent (10%) of the Fair Market Value of
all Holdings Securities (a "Tag-Along Sale") to one or more Independent Third
--------------
Parties (each a "Proposed Purchaser") then each Executive Holder shall have the
------------------
right and option ("Tag-Along Right"), but not the obligation, to participate in
---------------
such Tag-Along Sale by Transferring to the Proposed Purchaser(s) a pro rata (or
--- ----
lesser) portion of the Executive Stock then held by such Executive Holder or
then obtainable
15
<PAGE>
upon exercise of vested Options held by such Executive Holder (the "Executive
---------
Tag-Along Shares"), which pro rata portion shall be a fraction, the numerator of
- ---------------- --- ---- ---------
which shall be the Fair Market Value (as of the effective date of such Tag-Along
Sale) of all Holdings common stock that any Carlyle Affiliate (x) proposes to
Transfer in connection with such Tag-Along Sale (the "Proposed Transferred
--------------------
Shares") or (y) previously Transferred other than in an Exempt Transfer or Tag-
- ------
Along Sale, and the denominator of which shall be the Fair Market Value (as of
-----------
the effective date of such Tag-Along Sale) of all Holdings common stock held by
any Carlyle Affiliate immediately prior to such Tag-Along Sale. Any Executive
Holder who Transfers Executive Stock in any Tag-Along Sale shall be entitled to
do so on terms and conditions that are in no respect less favorable to such
Executive Holder (including, without limitation, with respect to the forms of
consideration received, the value of the consideration received, rights to elect
among different forms of consideration, registration rights, put rights, other
liquidity rights, anti-dilution rights, conversion rights, voting rights,
control rights, first-refusal rights, tag-along rights, representations made and
received, warranties made and received, information provided and required,
indemnifications provided and required (with any indemnification required from
such Executive Holder being (m) limited to the value of the consideration
received by such Executive Holder in such Tag-Along Sale and (n) made pro rata
in proportion to the value of such consideration) and other material rights and
obligations) than the terms and conditions that apply (or applied) to any
Carlyle Affiliate that Transfers (or Transferred) Holdings common stock in
connection with, or in anticipation of, such Tag-Along Sale.
(b) Notices. Each Carlyle Tag-Along Seller shall notify, or cause to
-------
be notified, each Executive Holder of any proposed Tag-Along Sale in which it
proposes to participate at least twenty-five (25) Business Days prior to the
effective date of such proposed Tag-Along Sale (a "Carlyle Tag-Along Notice").
------------------------
Any such Carlyle Tag-Along Notice delivered to an Executive Holder in connection
with a proposed Tag-Along Sale shall set forth: (i) the name and address of
each Proposed Purchaser and of each Carlyle Tag-Along Seller; (ii) a description
of the Proposed Transferred Shares; (iii) a description of any Transfer made, or
to be made, by any Carlyle Affiliate in anticipation of such proposed Tag-Along
Sale; (iv) a good faith estimate of the proportion of such Executive Holder's
Executive Stock that may be transferred, by exercise of a Tag-Along Right, in
such Tag-Along Sale, together with a detailed explanation of how such estimate
was determined; (v) the proposed amount and form of consideration to be
delivered by the Proposed Purchaser(s) in exchange for (m) Executive Tag-Along
Shares and (n) other Holdings common stock to be Transferred in such Tag-Along
Sale, setting forth in detail the terms of any proposed non-cash consideration
and a good faith estimate of the value of such consideration; (vi) the proposed
effective date of such proposed Tag-Along Sale; (vii) all other material terms
and conditions of such proposed Tag-Along Sale; and (viii) a representation that
each Proposed Purchaser has been informed of the Tag-Along Rights set forth in
this Agreement and that the Proposed Purchaser(s) have collectively agreed to
purchase all of the Executive Tag-Along Shares in accordance with the terms of
this Agreement. Any Executive Holder may exercise its Tag-Along Right in
connection with a proposed Tag-Along Sale by delivering a written notice to the
Carlyle Tag-Along Sellers (an "Executive Tag-Along Notice") within fifteen (15)
--------------------------
Business Days following receipt of a Carlyle Tag-Along Notice from such Carlyle
Tag-Along Sellers, which Executive Tag-Along Notice shall set forth the amount
of Executive Stock
16
<PAGE>
that such Executive Holder proposes to include in such proposed Tag-Along Sale,
which amount shall not exceed the amount of Executive Tag-Along Shares that such
Executive Holder is entitled to transfer in connection with such proposed Tag-
Along Sale pursuant to Section 7(a); provided, however, that the Executive
Holders shall be entitled to transfer Tag-Along Rights among themselves by
written agreement.
(c) Number of Shares to be Sold. In the event that one or more
---------------------------
Executive Holders shall deliver an Executive Tag-Along Notice pursuant to
Section 7(b) in connection with a proposed Tag-Along Sale, (i) each such
Executive Holder shall be permitted to Transfer to the Proposed Purchaser in
connection with such proposed Tag-Along Sale up to the maximum amount of
Executive Tag-Along Shares applicable to such Executive Holder (after taking
into account the proviso at the end of Section 7(b)), and (ii) the Carlyle Tag-
Along Sellers proposing to Transfer Holdings common stock in connection with
such proposed Tag-Along Sale shall be permitted to Transfer to the Proposed
Purchaser(s), for a 45-day period immediately following the fifteen (15)
Business Day period set forth in Section 7(b), the Proposed Transferred Shares,
less the aggregate amount of Executive Tag-Along Shares elected to be
transferred by all Executive Holders pursuant to this Section 7, on terms and
subject to conditions no more favorable to any Carlyle Tag-Along Seller than the
terms and conditions described in the applicable Carlyle Tag-Along Notice.
(d) Additional Documentation and Actions. In connection with any Tag-
------------------------------------
Along Sale, Holdings, PAC, any Carlyle Affiliate and any participating Executive
Holder shall, prior to the closing of such Tag-Along Sale, execute any purchase
agreement, certificate, instrument or other agreement reasonably required by any
Proposed Purchaser to consummate such Tag-Along Sale; provided, however, that
-------- -------
any such purchase agreement or other certificate, instrument or other agreement
shall be on terms and conditions that are in no respect less favorable to any
participating Executive Holder than any corresponding purchase agreement,
certificate, instrument or other agreement executed by any Carlyle Affiliate in
connection with, or in anticipation of, such Tag-Along Sale. At the closing of
any Tag-Along Sale, each participating Executive Holder (or, in the case of
certificates and documentation held by Holdings, PAC or any Carlyle Affiliate,
then Holdings, PAC, or such Carlyle Affiliate(s)) shall deliver to the Proposed
Purchaser(s) the certificate or certificates representing the Executive Stock to
be Transferred by such Executive Holder in such Tag-Along Sale, duly endorsed
for transfer with signatures guaranteed and accompanied by a custody agreement
and power of attorney in form and substance reasonably acceptable to the
Proposed Purchaser(s) against receipt by such Executive Holder of the purchase
price or other consideration therefor. In connection with any Tag-Along Sale
(x) any participating Executive Holder shall, subject to the satisfaction of
such reasonable conditions as such Executive Holder may reasonably establish,
take any other action that Holdings, PAC, any Carlyle Affiliate or any Proposed
Purchaser may reasonably request and (y) Holdings, PAC, any Carlyle Affiliate
and any Proposed Purchaser shall, subject to satisfaction of such reasonable
conditions as they may reasonably establish, take any action that such Executive
Holder may reasonably request. Notwithstanding anything contained in this
Agreement, the Tag-Along Rights granted to Executive Holders under this
17
<PAGE>
Section 7 shall be no less favorable in any respect than those granted to any
Person under the Stockholders' Agreement.
8. Adjustments. If one or more Carlyle Affiliates (whether by sale,
-----------
merger, consolidation, sale of assets or otherwise, or in one or more of a
series of transactions) proposes to Transfer all or a portion of its interest in
PAC or any PAC Subsidiary to one or more Independent Third Parties and such
Transfer, together with all other such Transfers by Carlyle Affiliates, would
result in a reduction in the Carlyle Affiliates' indirect ownership of Holdings
Securities that would have triggered the Drag-Along Rights or Tag-Along Rights
granted by Section 6 or 7 if it were a sale of Holdings Securities, then the
Executive on behalf of all Executive Holders, and PAC on behalf of all Carlyle
Affiliates, shall agree on an adjustment to the provisions of this Agreement, if
any, so as to provide the Executive Holders and the Carlyle Affiliates with an
equivalent economic benefit to that they would have achieved if the rights
provided by Section 6 or 7 were available, as applicable. If the Executive and
PAC cannot agree on such an adjustment or whether such an adjustment is
appropriate, the matter shall be determined by arbitration in accordance with
Section 14(j). The provisions of this Agreement applying to shares of common
stock of, or Equity Interests in, Holdings shall also apply in respect of (x)
common stock (and equivalent Equity Interests) of, and (y) Equity Interests in,
any successor or assign of Holdings (whether by merger, consolidation, sale of
assets or otherwise).
9. Voting Agreement. Each Executive Holder agrees (x) to vote any
----------------
Executive Stock registered in such Executive Holder's name or in the names of
such Executive Holder's nominees (and any other Holdings' securities which the
Executive Holder is entitled to vote) in favor of the individuals from time to
time nominated for election to the Holdings Board by PAC or any Carlyle
Affiliate designated by PAC and (y) not to vote any such Executive Stock (or
other securities) in connection with the removal of any such nominee from the
Holdings Board unless and until PAC or the pertinent Carlyle Affiliate directs
such Executive Holder how to vote on such removal. The voting agreement set
forth in the preceding sentence shall remain effective until one or more of the
following four events occurs: (i) Persons who are Carlyle Affiliates and all
Executive Holders cease to hold, in the aggregate, more than fifty percent (50%)
of the voting Equity Interests in Holdings (measured by value), (ii) PAC ceases
to be controlled, directly or indirectly, by TC Group and/or CEP General
Partner, (iii) a Qualified Public Offering of common stock of Holdings occurs,
or (iv) the tenth anniversary of the Closing Date occurs. Such voting agreement
is coupled with an interest and may not be revoked or amended except as provided
in this Agreement. Except as otherwise provided in this Agreement or the Stock
Pledge Agreement, each Executive Holder shall at all times retain the right to
vote such Executive Holder's Executive Stock in such Executive's Holder's sole
discretion on all matters presented to holders of Holdings voting Equity
Interests for a vote, including the election and removal of directors other than
designees of PAC or of any Carlyle Affiliates designated by PAC.
10. Registration Rights.
-------------------
(a) Piggyback Registration Rights. If Holdings at any time proposes
-----------------------------
to register under the 1933 Act common stock of Holdings (i) for sale for its own
account, other than
18
<PAGE>
in an initial public offering ("IPO") or pursuant to a registration on a Form S-
---
4 or a Form S-8, on a Form and in a manner which would permit registration of
such securities for sale to the public under the 1933 Act or (ii) for sale for
the account of any holder of such common stock (including without limitation in
an IPO), Holdings shall give written notice of the proposed registration (a
"Registration Notice") to each Executive Holder not later than thirty (30) days
-------------------
prior to the filing thereof. Each Executive Holder shall have the right to
request that all or any part of such Executive Holder's Executive Stock
(including, without limitation, Option Shares obtainable on exercise of vested
Options) be included in such registration by giving written notice to Holdings
within ten (10) business days after receiving such Registration Notice (any
Executive Holder giving such notice being hereinafter referred to as a
"Piggyback Registering Executive Holder"); provided, however, that if the
-------------------------------------- -------- -------
registration is in connection with an underwritten offering and the managing
underwriters of such offering reasonably determine that the aggregate amount of
Holdings common stock that Holdings, Piggyback Registering Executive Holders and
all other holders of Holdings common stock entitled to register such common
stock in connection with such offering ("Other Registering Holders") propose to
-------------------------
include in such offering exceeds the maximum amount of securities that may be
sold in such offering without having a material adverse effect on the success of
such offering (including, without limitation, the selling price and other terms
of such offering), Holdings will include in such registration, first, the
Holdings common stock that Holdings proposes to sell for its own account and,
second, the Holdings common stock of the Piggyback Registering Executive Holders
and of Other Registering Holders, pro rata among all such Piggyback Registering
Executive Holders and Other Registering Holders, based on the relative amounts
of Holdings common stock (measured by value) requested to be included (it being
understood and agreed, however, that such underwriters shall have the right to
eliminate entirely the participation in such registration of all Piggyback
Registering Executive Holders if such underwriters eliminate entirely the
participation in such registration of all such Other Registering Holders).
Holdings may withdraw any registration statement that is governed by this
Section 10(a) at any time before it becomes effective, or postpone or terminate
any offering of securities, without obligation or liability to any Piggyback
Registering Executive Holder. Notwithstanding anything contained in this
Agreement, the registration rights granted to Executive Holder under this
Section 10 shall be no less favorable in any respect than those granted to any
Person under the Stockholders' Agreement.
(b) Demand Registration Rights.
--------------------------
(i) At any time after the one-hundred eighty-first (181st) day
after consummation of a Qualified Public Offering of Holdings common stock and
after receipt of a written request from the Executive, or from Executive Holders
holding at least half (measured by value) of the Executive Stock held by
Executive Holders (including, without limitation, Option Shares obtainable on
exercise of vested Options), requesting that Holdings register Executive Stock
under the 1933 Act on Form S-8 or Form S-3, as applicable, and specifying, in
the case of registration on a Form S-3, the intended method or methods of
dispositions thereof, Holdings shall promptly notify each Executive Holder not a
party to the original request, if any, in writing of the receipt of such
request. Any Executive Holder may elect (by written notice sent to Holdings
within 10 Business Days from the date of receipt of the aforementioned notice
from
19
<PAGE>
Holdings) to have Executive Stock then held by such Executive Holder, or
then obtainable by such Executive Holder on exercise of vested Options, included
in such registration subject to the limitations set forth below in this Section
10(b)(i). Notwithstanding any other provision of this Section 10(b), the
Holdings Board shall determine, at the time of any such request for
registration, the aggregate amount of Holdings common stock that it is
commercially reasonable for Holdings to be required to so register, provided,
--------
however, that in no event shall such amount be less than 2% of the outstanding
- -------
common stock of Holdings (measured by value). Holdings shall, as expeditiously
as possible, use commercially reasonable efforts to effect the registration
under the 1933 Act of all Holdings common stock that Holdings has been so
requested to register (subject to the limitation in the foregoing sentence) (the
"Registrable Shares"), all to the extent required to permit the disposition (in
------------------
accordance with the intended method or methods thereof, as aforesaid) of the
Holdings common stock so registered; provided, however, that (A) Holdings shall
-------- -------
not be required to effect more than one registration of Executive Stock pursuant
to this Section 10(b) and (B) Holdings may defer, for a single period not to
exceed 180 days, the filing or the effectiveness of such a registration
statement if, in the reasonable good-faith judgment of the Holdings Board, such
registration might reasonably be expected to have an adverse effect on any
proposed plan by Holdings or any of its Affiliates to engage in any underwritten
public offering of securities, acquisition of assets, merger, consolidation,
tender offer or other material transaction that, in the reasonable good-faith
judgment of the Holdings Board, would be required to be disclosed in such
registration statement.
(ii) Any request for registration pursuant to this Section 10(b)
may be withdrawn by the Executive, or by Executive Holders holding at least half
(measured by value) of the Executive Stock held by Executive Holders (including,
without limitation, Option Shares obtainable on exercise of vested Options), at
any time prior to the registration statement being declared effective, but
either such Person(s) shall pay the expenses of such registration as
contemplated by Section 10(c) or any further registration rights under this
Section 10(b) shall be forfeited.
(iii) Any Executive Holder who elects to have Executive Stock
registered pursuant to this Section 10(b) shall be referred to as a "Demand
------
Registering Executive Holder", and Demand Registering Executive Holders together
- ----------------------------
with Piggyback Registering Executive Holders shall be referred to collectively
as "Registering Executive Holders."
-----------------------------
(c) Expenses. Except as otherwise required by state securities or
--------
blue sky laws or the rules and regulations promulgated thereunder, all expenses,
disbursements and fees incurred by Holdings or any Executive Holder in
connection with any registration under this Section 10 shall be borne by
Holdings, except that the following expenses shall be borne by the Executive
Holder incurring the same: (i) the costs and expenses of counsel (other than
(i) counsel to Holdings and (ii) one counsel representing all Registering
Executive Holders and Other Registering Holders in connection with such
registration, which counsel shall be selected by holders of a majority (measured
by value) of the Executive Stock (including, without limitation, Option Shares
obtainable on exercise of vested Options) being registered on behalf of such
Holders; (ii) discounts, commissions, fees or similar compensation owing to
underwriters,
20
<PAGE>
selling brokers, dealer managers or other industry professionals, to the extent
relating directly to the distribution or sale of such Executive Holder's
securities; (iii) transfer taxes with respect to the securities sold by such
Executive Holder; and (iv) other expenses incurred by such Executive Holder that
are directly incidental to the sale and delivery of the securities to be sold by
such Executive Holder.
(d) Procedures for Underwritten Offerings. Executive Stock proposed
--------------------------------------
to be registered and sold under the 1933 Act for the account of any Registering
Executive Holder pursuant to Section 10 in an underwritten offering shall be
sold to the underwriter(s) selected or approved by Holdings on the terms and
conditions negotiated between Holdings and the prospective underwriter(s)
reasonably and in good faith; provided, that, such terms and conditions shall
--------
not be in any respect less favorable to any Registering Executive Holder than to
any other Person who sells, or proposes to sell, Holdings common stock in such
offering; and provided, further, that any provisions relating to fees and
-------- -------
expenses to be paid by any Registering Executive Holder shall be subject to the
reasonable approval of such Registering Executive Holders. In connection with
any such offering, Holdings shall timely consult with each Registering Executive
Holder concerning the form and content of any underwriting agreement, shall
provide to each Registering Executive Holder the form of any underwriting
agreement prior to Holdings' execution thereof and shall promptly provide to
each Registering Executive Holder and its representatives such other documents
(including comments by the SEC on the registration statement) as such
Registering Executive Holder shall reasonably request in connection with its
participation in such registration or offering.
(e) Other Procedures. In the event that Holdings prepares and files
----------------
with the SEC a registration statement or registration statements on any
appropriate form under the 1933 Act (a "Registration Statement") that provides
----------------------
for the sale of Holdings common stock held by any Registering Executive Holder
pursuant to its obligations under this Section 10, Holdings shall:
(i) upon filing any Registration Statement or any prospectus
included therein, whether preliminary or otherwise (each a "Prospectus"), or any
----------
amendments or supplements thereto, promptly furnish to each Registering
Executive Holder and the underwriter(s), if any, copies of all such documents;
(ii) promptly prepare and file with the SEC such amendments and
post-effective amendments to any Registration Statement as may be necessary to
keep such Registration Statement effective for the ninety (90) day or one
hundred-eighty (180) day period, as applicable, referenced in the last sentence
of this Section 10(e); cause the related Prospectus to promptly be supplemented
by any required Prospectus supplement, and as so supplemented to be timely filed
pursuant to Rule 424 under the 1933 Act; and timely comply with the provisions
of the 1933 Act with respect to the disposition of securities covered by such
Registration Statement;
(iii) promptly notify each Registering Executive Holder and the
managing underwriters, if any, and (if requested by any such Person) promptly
confirm such
21
<PAGE>
advice in writing, (A) when a Prospectus or any Prospectus supplement or post-
effective amendment has been filed, and, with respect to any Registration
Statement or any post-effective amendment, when the same has become effective,
(B) of any request by the SEC or any state blue sky commission for amendments or
supplements to a Registration Statement or related Prospectus or for additional
information, (C) of the issuance by the SEC or any state blue sky commission of
any stop order suspending the effectiveness of a Registration Statement or the
initiation of any proceedings for that purpose, (D) of the receipt by Holdings
of any notification with respect to the suspension of the qualification of any
of the Holdings common stock for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose and (E) of the existence of any
fact which results in a Registration Statement, a Prospectus or any document
incorporated therein by reference containing an untrue statement of a material
fact or omitting to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
(iv) use its best reasonable efforts to obtain the prompt
withdrawal of any order suspending the effectiveness of a Registration
Statement;
(v) if requested by the managing underwriter(s), if any, or any
Registering Executive Holder, promptly incorporate in a Prospectus supplement or
post-effective amendment such information as the managing underwriter(s) agree
should be included therein relating to the sale of such Holdings common stock
and make all required filings of such Prospectus supplement or post-effective
amendment as soon as notified of the matters to be incorporated in such
Prospectus supplement or post-effective amendment;
(vi) promptly furnish to each Registering Executive Holder and
each managing underwriter, if any, at least one signed copy of the Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules, all documents incorporated therein by reference and
all exhibits (including those incorporated by reference);
(vii) promptly deliver to each Registering Executive Holder and
each underwriter, if any, as many copies of any Prospectus (including each
preliminary Prospectus), and any amendment or supplement thereto, as such
Persons may reasonably request;
(viii) prior to any public offering of Holdings common stock,
promptly register or qualify or cooperate with the Registering Executive
Holders, the underwriter(s), if any, and their respective counsel in connection
with the prompt registration or qualification of such common stock for offer and
sale under the securities or blue sky laws or such jurisdictions within the
United States as any Registering Executive Holder or underwriter reasonably
requests and do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Holdings common stock
covered by the applicable Registration Statement; provided that Holdings shall
-------- ----
not be required to qualify generally to do business in any jurisdiction where it
is not then so qualified or to take any action which would subject it to general
service of process or taxation in any such jurisdiction where it is not then so
subject;
22
<PAGE>
(ix) promptly cooperate with each Registering Executive Holder
and the managing underwriter(s), if any, to facilitate the timely preparation
and delivery of certificates representing Holdings common stock to be sold
pursuant to any Registration Statement and not bearing any restrictive legends,
and enable such Holdings common stock to be in such denominations and registered
in such names as the managing underwriter(s), if any, may request at least two
business days prior to any sale of Holdings common stock to the underwriters;
(x) if any fact contemplated by Section 10(e)(iii)(E) shall
exist, promptly prepare a supplement or post-effective amendment to the
applicable Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter promptly delivered to the purchasers of Holdings common stock
being sold thereunder, such Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(xi) promptly cause all Holdings common stock covered by the
Registration Statement to be listed on each securities exchange, and qualified
for trading on each national market system, on which similar securities issued
by Holdings are then listed or qualified;
(xii) provide a CUSIP number for all Holdings common stock
included in such Registration Statement, not later than the effective date of
the applicable Registration Statement;
(xiii) promptly enter into such reasonable agreements, and
promptly take all such other reasonable actions in connection therewith, as
appropriate to expedite or facilitate the disposition of such Holdings common
stock;
(xiv) promptly make available for inspection by any
representative of any Registering Executive Holder, any underwriter
participating in any disposition pursuant to a Registration Statement, and any
attorney or accountant retained by any such Registering Executive Holder or
underwriter, all financial and other records, any pertinent corporate documents
and properties of Holdings reasonably requested by such representative,
underwriter, attorney or accountant in connection with such Registration
Statement; provided that any records, information or documents that
-------- ----
are designated by Holdings in writing as confidential shall be kept confidential
by such Persons unless disclosure of such records, information or documents is
required by court or administrative order; and
(xv) otherwise use its best reasonable efforts to comply with all
applicable rules and regulations of the SEC and relevant state blue sky
commissions, and make generally available to each Registering Executive Holder
earning statements satisfying the provisions of Section 11(a) of the 1933 Act no
later than forty-five (45) days after the end of any 12-month period (or ninety
(90) days, if such period is a fiscal year) commencing at the end of
23
<PAGE>
any fiscal quarter in which the Executive Stock of such Registering Executive
Holder are sold to underwriters in an underwritten offering, or, if not sold to
underwriters in such an offering, beginning with the first month of Holdings'
first fiscal quarter commencing after the effective date of a Registration
Statement, which statements shall cover said 12-month periods.
Notwithstanding the provisions of this Section 10, Holdings shall not, however,
be required to maintain the effectiveness of any Registration Statement, or to
supply copies of any Prospectus, for a period beyond (i) in the case of a
registration pursuant to Section 10(a), ninety (90) days and (ii) in the case of
a registration pursuant to Section 10(b), one hundred and eighty (180) days,
after the effective date of such Registration Statement and, at the end of such
period, Holdings may deregister all (but not less than all) of the securities
covered by such Registration Statement and not then sold or distributed.
(f) Conditions to Stockholder Rights; Indemnification by Stockholder.
----------------------------------------------------------------
It shall be a condition of each Registering Executive Holder's rights hereunder
to have Executive Stock (including, without limitation, Option Shares obtainable
on exercise of vested Options) owned by it registered that:
(i) such Registering Executive Holder shall cooperate with the
Holdings in all reasonable respects by supplying information and executing
documents relating to such Registering Executive Holder or the Executive Stock
(including, without limitation, Option Shares obtainable on exercise of vested
Options) owned by such Registering Executive Holder as reasonably requested in
connection with such registration;
(ii) such Registering Executive Holder shall enter into such
reasonable undertakings and take such other reasonable actions relating to the
conduct of the proposed offering which Holdings or the underwriters (if any) may
reasonably request as being necessary to ensure compliance with federal and
state securities laws and the rules or other requirements of the National
Association of Securities Dealers, Inc. or otherwise to effectuate the offering;
and
(iii) such Registering Executive Holder shall execute and
deliver an agreement to indemnify and hold harmless Holdings and each
underwriter, if any, (as defined in the 1933 Act), and each Person, if any, who
controls such underwriter within the meaning of the 1933 Act, against such
losses, claims, damages or liabilities (including reimbursement for legal and
other expenses) to which such underwriter or controlling Person may become
subject under the 1933 Act or otherwise, in such manner as is customary for
registrations of the type then proposed and, in any event, at least equivalent
in scope to indemnities given by Holdings in connection with such registration,
but only with respect to information furnished in writing by such Registering
Executive Holder, in such Holder's capacity as a seller of Holdings common
stock, specifically for use in the Registration Statement or Prospectus in
connection with such registration and with respect to such Registering Executive
Holder's failure to deliver Prospectuses as required under the 1933 Act (so long
as Holdings has delivered sufficient copies of the Prospectus to such
Registering Executive Holder as reasonably requested by such
24
<PAGE>
Executive Holder) and only to the extent of the consideration paid for the
Executive Stock sold by such Registered Executive Holder pursuant to such
registration.
(g) Registrable Securities. Executive Stock shall cease to be
----------------------
eligible for registration under the provisions of this Section 10 if and when
(i) such Executive Stock shall have been disposed of pursuant to an effective
registration statement under the 1933 Act, (ii) such Executive Stock shall have
become eligible for resale pursuant to Rule 144(k) under the 1933 Act and
Holdings shall have the issued certificates representing such Executive Stock
that do not bear a restrictive legend under the 1933 Act, (iii) such Executive
Stock shall have been otherwise transferred, if new certificates or other
evidence of ownership for such securities not bearing a legend restricting
further transfer and not subject to any stop transfer order or other
restrictions on transfer shall have been delivered by Holdings and subsequent
disposition of such Executive Stock shall not require registration or
qualification under the 1933 Act or (iv) such Executive Stock shall have ceased
to be outstanding.
(h) Indemnification by Holdings. In the event of any registration
---------------------------
under the 1933 Act pursuant to this Section 10, Holdings shall promptly execute
and deliver to each Registering Executive Holder an agreement to indemnify and
hold harmless each Registering Executive Holder disposing of such securities and
any underwriter in connection with such disposition against such losses, claims,
damages or liabilities (including reimbursement for legal and other expenses) to
which such Registering Executive Holder or underwriter may become subject under
the 1933 Act or otherwise, in such manner as is customary in registrations of
the type then proposed.
(i) Rule 144. Holdings shall file the reports required to be filed by
--------
it under the 1933 Act and the Securities Exchange Act of 1934, as amended, and
the rules and regulations adopted by the SEC thereunder so that the conditions
of Rule 144(c) are satisfied. Promptly, upon the request of any Executive
Holder, Holdings shall deliver to such Executive Holder a written statement as
to whether it has complied with such requirements.
(j) Priority. Holdings shall not grant registration rights with
--------
respect to any Holdings common stock that are prior in right, or superior, to
the registration rights granted to Executive Holders under this Section 10
without the prior written consent of (i) the Executive or (ii) Executive Holders
holding a majority (measured by value) of the Executive Stock then held by
Executive Holders (including, without limitation, Option Shares obtainable on
exercise of vested Options).
11. Notices. Any notice, consent, demand, request or other communication
-------
given to any Person in connection with this Agreement shall be in writing and
shall be deemed to have been given to such Person (a) when delivered personally
to such Person or (b) provided that a written acknowledgment of receipt is
obtained, five days after being sent by prepaid certified or registered mail, or
two days after being sent by a nationally recognized overnight courier, to the
address (if any) specified below for such Person (or to such other address as
such Person shall have specified in executing a counterpart of this Agreement or
by ten days advance notice given
25
<PAGE>
in accordance with this Section 11) or (c), in the case of Holdings and PAC, on
the first business day after it is sent by facsimile to the facsimile number set
forth below (or to such other facsimile number as shall have been specified by
ten days advance notice given in accordance with this Section 11), with a
confirmatory copy sent by certified or registered mail or by overnight courier
in accordance with this Section 11.
<TABLE>
<S> <C>
If to Holdings: Panolam Industries Holdings, Inc.
20 Progress Drive
Shelton, CT 06484
Attn: Secretary
Facsimile #: (203) 225-0051
If to the Executive: To the address of his principal residence as
it appears in Holdings' records, with a copy
to him (during the Term of Employment) at
Holdings' principal executive office.
If to an Executive Holder other than the The address most recently specified by the
Executive: Executive or Executive Holder in accordance
with this Section 11.
If to PAC or any Carlyle Affiliate: 1001 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2505
Attn: Jerome H. Powell
Telecopy: 202-347-9250
With copies to:
Gibson, Dunn & Crutcher LLP
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Attn: Howard B. Adler
Telecopy: 202-467-0539
</TABLE>
12. Assignability; Binding Nature.
------------------------------
(a) This Agreement shall be binding upon, inure to the benefit of,
and be enforceable by, the Executive, Holdings, PAC, any Executive Holder who
becomes such in accordance with this Agreement, any Carlyle Affiliate who
becomes such in accordance with this Agreement, and their respective successors,
heirs (in the case of an individual) and assigns.
(b) No rights or obligations of Holdings, PAC or any Carlyle Affiliate
under this Agreement may be assigned or transferred by Holdings, PAC or any
Carlyle Affiliate (each a "Transferring Carlyle Entity") except that such rights
--------------------------- ------
and obligations may be assigned or transferred (i) as expressly provided in this
Agreement, (ii) as agreed to in writing by the
26
<PAGE>
Executive or by Executive Holders holding a majority (measured by value) of the
Executive Stock, or (iii) pursuant to a merger, consolidation or other
combination in which the Transferring Carlyle Entity is not the continuing
entity, or a sale or liquidation of all or substantially all of the business and
assets of the Transferring Carlyle Entity, provided, that the assignee or
--------
transferee is the successor to all or substantially all of the business
and assets of the Transferring Carlyle Entity and such assignee or transferee
expressly assumes the liabilities, obligations and duties of the Transferring
Carlyle Entity as set forth in this Agreement. In the event of any sale of
business and assets or liquidation as described in clause (iii) of the preceding
sentence, the Transferring Carlyle Entity shall use commercially reasonable
efforts to cause such assignee or transferee to promptly and expressly assume
the liabilities, obligations and duties of the Transferring Carlyle Entity as
set forth in this Agreement.
(c) No right or obligation of any Executive Holder under this
Agreement may be assigned or transferred by such Executive Holder except that
------ ----
such rights and obligations may be assigned or transferred (i) as expressly
provided in this Agreement or (ii) as agreed to in writing by PAC, Holdings or
Carlyle Affiliates that hold a majority (measured by value) of the Holdings
Securities.
13. Representations.
---------------
(a) PAC and Holdings each represent and warrant that: (i) it is fully
authorized by action of its Board (and of any other Person or body whose action
is required) to enter into this Agreement and to perform its obligations under
it; (ii) the execution, delivery and performance of this Agreement by it does
not violate any applicable law, regulation, order, judgment or decree or any
agreement, plan or corporate governance document to which it is a party or by
which it is bound; and (iii) upon the execution and delivery of this Agreement
by the Executive, PAC and Holdings, this Agreement shall be a valid and binding
obligation of it, enforceable against it in accordance with its terms, except to
the extent that enforceability may be limited by applicable bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally.
(b) The Executive represents and warrants that: (i) delivery and
performance of this Agreement by him does not violate any applicable law,
regulation, order, judgment or decree or any agreement to which the Executive is
a party or by which he is bound; and (ii) upon the execution and delivery of
this Agreement by the Executive, PAC and Holdings, this Agreement shall be the
valid and binding obligation of the Executive, enforceable against him in
accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally.
(c) Each Executive Option Holder (i) acknowledges that securities
purchased by such holder pursuant to an exercise of an Option may not be
registered under the 1933 Act (whether in reliance upon Section 4(2) of the 1933
Act, Rule 701 promulgated under the 1933 Act, or otherwise); (ii) represents
that any securities purchased by such holder pursuant to an exercise of an
Option shall be purchased for the account of such holder and not on behalf of
27
<PAGE>
others; (iii) understands and acknowledges that federal and state securities
laws govern, and may restrict, such holder's right to offer, sell or otherwise
dispose of any securities purchased pursuant to an exercise of an Option unless
such offer, sale or other disposition is registered under the 1933 Act and state
securities laws, or such offer, sale or other disposition is exempt from
registration or qualification thereunder; and (iv) agrees not to offer, sell or
otherwise dispose of any securities purchased by such holder pursuant to an
exercise of an Option in any manner that (except as otherwise provided herein)
would (x) require Holdings to file any registration statement with the SEC (or
make any similar filing under state law) or (y) violate, or cause Holdings to
violate, the 1933 Act, any rule or regulation promulgated thereunder, or any
other state or federal law.
14. General Provisions.
------------------
(a) Transfers in Violation of Agreement. Any Transfer or attempted
-----------------------------------
Transfer of any Holdings Securities by any Person in violation of any provision
of this Agreement shall be void, and Holdings shall not record any such Transfer
on its books or treat any purported Transferee of such Holdings Securities as
the owner of such Holdings Securities or for any purpose.
(b) Severability. In the event that any provision or portion of this
------------
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law so as to achieve the purposes of this Agreement.
(c) Complete Agreement. This Agreement, and the other documents
------------------
expressly referred to herein, contain the entire understanding and agreement
among the Parties concerning the subject matter hereof and supersede all prior
agreements, understandings, discussions, negotiations and undertakings, whether
written or oral, among them with respect thereto, including without limitation
the term sheet attached as Exhibit 7.2(f) to the Stock Purchase Agreement.
(d) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall be deemed to be one and the same instrument.
(e) Governing Law. This Agreement shall be governed, construed,
-------------
performed and enforced in accordance with its express terms, and otherwise in
accordance with the laws of the State of New York, without reference to
principals of conflict of laws.
(f) Headings. The headings of the Sections and sub-sections contained
--------
in this Agreement are for convenience only and shall not be deemed to control or
affect the meaning or construction of any provision of this Agreement.
28
<PAGE>
(g) Amendment and Waiver. No provision in this Agreement may be
--------------------
amended unless such amendment is set forth in a written agreement that
specifically refers to this Agreement. No waiver by any Person of any breach of
any condition or provision contained in this Agreement shall be deemed a waiver
of any similar or dissimilar condition or provision at the same or any prior or
subsequent time. To be effective, any waiver must be set forth in a writing
signed by the waiving Person.
(h) Business Days. If any time period for giving notice or taking
-------------
action hereunder expires on a day which is a Saturday, Sunday or holiday in the
state in which Holdings' principal executive office is located, the time period
shall be automatically extended to the Business Day immediately following such
Saturday, Sunday or holiday.
(i) Continued Employment. Nothing in this Agreement shall interfere
--------------------
with or limit in any way the right of any Person to terminate the Executive's
employment at any time (with or without Cause), nor confer upon the Executive
any right to continue in the employ of any Person for any period of time or to
continue at the Executive's present (or any other) rate of compensation.
(j) Arbitration. Any Claim arising out of or relating to this
-----------
Agreement (a "Covered Claim") shall (except to the extent otherwise provided in
-------------
Section 1 with respect to determinations of Fair Market Value) be resolved by
binding confidential arbitration, to be held in New York City, in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
and this Section 14(j). Judgment upon the award rendered by the arbitrator(s)
may be entered in any court having jurisdiction thereof. Holdings agrees to
advance, promptly upon written request accompanied by reasonable documentation,
50% of any costs and expenses, including without limitation attorneys' fees,
incurred by the Executive or any Executive Holder in connection with resolving
any such Covered Claim, provided that any amounts so advanced shall be promptly
--------
repaid to the extent that the recipient is ultimately determined not to be
entitled to be indemnified with respect to such amounts pursuant to the
following sentence. Upon the final resolution of any Covered Claim, Holdings
shall be required to indemnify the Executive (and any Executive Holder) for all
reasonable costs and expenses, including without limitation reasonable
attorneys' fees, incurred in resolving such claim, but only to the extent that
the indemnified Person has prevailed on such claim.
29
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on the
date first written above.
THE EXECUTIVE
______________________________________
Robert J. Muller, Jr.
PANOLAM INDUSTRIES HOLDINGS, INC.
By: _____________________________________
Name:
Title:
PANOLAM ACQUISITION COMPANY, L.L.C.
By: _____________________________________
Name:
Title:
And, if and when Transferred in accordance with the
terms of this Agreement:
EXECUTIVE HOLDER
______________________________________
Name:
Address for Notices:
CARLYLE AFFILIATE
By: _____________________________________
Name:
Title:
Address for Notices:
30
<PAGE>
EXHIBIT 10.18
EXECUTIVE STOCK OPTION AGREEMENT
--------------------------------
This Executive Stock Option Agreement (the "Agreement") is made as of
---------
November 24, 1999 (the "Effective Date") between Panolam Industries Holdings,
--------------
Inc., a Delaware corporation (together with its successors and assigns,
"Holdings"), and Robert J. Muller, Jr. (the "Executive").
-------- ---------
WHEREAS, Panolam Acquisition Company, L.L.C., a Delaware limited liability
company ("PAC"), has entered into an agreement to acquire over 93% of the
---
capital stock of Holdings;
WHEREAS, the Executive and Holdings (the "Parties") and Panolam Industries
-------
International, Inc., a Delaware corporation (together with its successors and
assigns, "International") have entered into an employment agreement dated
-------------
November 24, 1999 (the "Employment Agreement"), in connection with such
--------------------
acquisition agreement;
WHEREAS, pursuant to the Employment Agreement, the Executive is to be
granted a compensatory option to purchase shares of Holdings' common stock,
subject to certain terms and conditions;
WHEREAS, the Parties and PAC have entered into a stockholders' agreement
dated as of November 24, 1999 (the "Executive Stockholders' Agreement"), which
---------------------------------
agreement sets forth certain rights and obligations relating to, among other
things, securities purchased under this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein and in the Employment Agreement, the Executive Stockholders'
Agreement and other related agreements, the Parties hereby agree as follows:
1. Certain Definitions. Any capitalized term not otherwise defined herein
-------------------
shall have the meaning set forth in the Employment Agreement, and any
capitalized term not otherwise defined herein or in the Employment Agreement
shall have the meaning set forth in the Executive Stockholders' Agreement. The
following capitalized terms shall have the following meanings:
"Agreement" shall have the meaning specified in the Preamble to this
---------
Agreement.
"Carlyle's Cost" shall have the meaning specified in, and shall be
--------------
determined in accordance with, the Executive Stockholders' Agreement.
"Cause" shall have the meaning specified in, and shall be determined in
-----
accordance with, the Employment Agreement.
1
<PAGE>
"Common Stock" shall mean common stock of Holdings, par value $0.01 per
------------
share.
"Cumulative EBITDA", as of a given calendar year-end, shall mean the total
-----------------
of Holdings' EBITDA from and after January 1, 1999, through such year-end.
"Cumulative EBITDA Target", when used in respect of any specified calendar
------------------------
year, shall mean the cumulative EBITDA Target set forth in Appendix A to this
Agreement, as such target may be modified pursuant to Section 8(b).
"Disability" shall have the meaning specified in, and shall be determined
----------
in accordance with, the Employment Agreement.
"EBITDA Target", when used in respect of any specified calendar year, shall
-------------
mean the EBITDA Target specified in Appendix A to this Agreement, as such target
may be modified pursuant to Section 8(b).
"EBITDA" shall mean Holdings' EBITDA as defined in, and determined in
------
accordance with, the Employment Agreement.
"Employment Agreement" shall have the meaning specified in the second
--------------------
"Whereas" clause in the Preamble to this Agreement.
"Executive" shall have the meaning specified in the Preamble to this
---------
Agreement, as modified by Section 9(b)(ix).
"Executive Option Holder" shall mean (x) the Executive and (y) any
-----------------------
Permitted Transferee to whom an Option has been Transferred, in whole or in
part, in accordance with Section 6.
"Exercise Price" shall mean the price per share at which shares may be
--------------
purchased pursuant to the Options. As of the Effective Date, the Exercise Price
shall be $1,287.94, which the Parties agree is the Fair Market Value of a share
of Common Stock as of the Effective Date. After the Effective Date, such price
may be adjusted from time to time pursuant to Section 8(a).
"Holdings" shall have the meaning set forth in the Preamble to this
--------
Agreement.
"Internal Rate of Return" shall have the meaning specified in Section
-----------------------
3(e)(ii) as determined in accordance with Section 3(e)(iii).
"International" shall have the meaning set forth in the second "Whereas"
-------------
clause in the Preamble to this Agreement.
"Option" and "Options" shall mean the Tier I Option and/or the Tier II
------ -------
Option.
"Parties" shall mean the Executive and Holdings.
-------
2
<PAGE>
"Plan" shall mean the 1999 Stock Option Plan as adopted by Holdings on
----
November 24, 1999.
"Terminating Year" shall have the meaning specified in Section 4(d).
----------------
"Tier I Option" and "Tier I Option Shares" shall have the meanings
------------- --------------------
specified in Section 2(a).
"Tier I-A Option Shares" and "Tier I-B Option Shares" shall have the
---------------------- ----------------------
meanings specified in Section 2(a).
"Tier II Option" and "Tier II Option Shares" shall have the meanings
-------------- ---------------------
specified in Section 2(b).
2. Grant of Options.
----------------
Subject to the terms and conditions set forth in this Agreement, Holdings
hereby grants to the Executive, effective as of the Effective Date, the Tier I
Option and Tier II Option (collectively, the "Options") described below. The
-------
Options are not intended to be "incentive stock options" within the meaning of
---
Section 422 of the Code. The Options are granted pursuant to the Employment
Agreement and the Plan. In the event of any inconsistency between the
provisions of this Agreement or of the Employment Agreement and the provisions
of the Plan, the provisions of this Agreement and of the Employment Agreement
shall control.
(a) The "Tier I Option" is an option to purchase seven thousand nine
-------------
(7,009) shares of Common Stock (the "Tier I Option Shares") at a price per share
--------------------
equal to the Exercise Price. Three thousand five hundred five (3,505) of such
shares shall be "Tier I-B Option Shares" and the remainder shall be "Tier I-A
---------------------- --------
Option Shares".
- -------------
(b) The "Tier II Option" is an option to purchase three thousand five
--------------
hundred five (3,505) shares of Common Stock (the "Tier II Option Shares") at a
---------------------
price per share equal to the Exercise Price.
(c) The Options shall expire at 11:59 p.m. on the eleventh anniversary
of the Effective Date, subject to earlier expiration as provided in Section 4
below.
3. Exercisability/Vesting of Options.
---------------------------------
(a) General. The Options may be exercised only to the extent that
-------
they are vested and exercisable. To the extent that they become vested and
exercisable, the Options shall remain vested and exercisable until either (i)
they are fully exercised or (ii) they expire pursuant to Section 2(c) or 4.
3
<PAGE>
(b) Tier I-A Option Vesting. Subject to the provisions of Section 4,
-----------------------
the Tier I Option shall vest and become exercisable (i) for fifty-nine (59) Tier
I Option Shares on the first day of each of the 59 calendar months that
immediately succeed the calendar month in which the Effective Date falls and
(ii) for all remaining unvested Tier I-A Option Shares on the first day of the
sixtieth such calendar month.
(c) Tier I-B Option Vesting.
-----------------------
(i) Subject to the provisions of Section 4, the Tier I Option
shall vest and become exercisable for all Tier I-B Option Shares on June 30,
2009.
(ii) Notwithstanding the foregoing and subject to the
provisions of Section 4, the Tier I Option shall vest and become exercisable
pursuant to this Section 3(c)(ii) for seven hundred one (701) Tier I-B Option
Shares on the date on which certified consolidated financial statements for
Holdings first become available for calendar year 2000, for calendar year 2001,
for calendar year 2002, and for calendar year 2003, and shall become exercisable
for seven hundred one (701) Tier I-B Option Shares on the date on which
certified consolidated financial statements for Holdings first become available
for calendar year 2004 if and only if Holding's EBITDA for the calendar year in
--------------
question at least equals the EBITDA Target for such year.
(iii) Notwithstanding the foregoing and subject to the
provisions of Section 4, in the event that Holdings' Cumulative EBITDA as of the
end of any calendar year that commences on or before January 1, 2004 equals or
exceeds the corresponding Cumulative EBITDA Target, then the Tier I Option shall
vest and become exercisable, on the date on which certified consolidated
financial statements for Holdings first become available for such year, for all
Tier I-B Option Shares for which it would then, or would previously, have become
vested and exercisable had Holdings' EBITDA for such year, and for all prior
calendar years, exceeded the corresponding EBITDA Targets.
For example, if Holdings fails to achieve its EBITDA Target
-----------
for calendar year 2000, then the Tier I Option will not vest
with respect to any Tier I-B Option Shares for such year.
However, if Holdings subsequently achieves its Cumulative
EBITDA Target for 2001, then the Tier I Option will vest and
become exercisable for one thousand four hundred two (1,402)
Tier I-B Option Shares on the date on which its certified
consolidated financial statements become available for 2001.
(d) Accelerated Vesting of Tier I Option on a Liquidity Event.
---------------------------------------------------------
Notwithstanding the foregoing and subject to the provisions of Section 3(f) and
Section 4 and to the proviso at the end of this sentence, the Tier I Option
shall, upon the occurrence of a Liquidity Event, vest and become exercisable for
100% of the Tier I Option Shares for which it has not then become vested and
exercisable; provided, however, that the Tier I Option shall not vest and become
-------- -------
exercisable pursuant to this Section 3(d) for any Tier I-B Option Shares with
respect to which it could have, but did not, become vested and exercisable
pursuant to Section 3(c)(ii) or 3(c)(iii) prior to the occurrence of the
Liquidity Event.
4
<PAGE>
For example, if (x) Holdings fails to achieve its EBITDA
-----------
Targets, and Cumulative EBITDA Targets, for the years 2000
and 2001 based on certified consolidated financial statement
available prior to July 15, 2002, and (y) a Liquidity Event
occurs on July 15, 2002, then vesting shall not be
---
accelerated with respect to those portions of the Tier I
Option that otherwise would have been accelerated if
Holdings had achieved the EBITDA Targets, or Cumulative
EBITDA Targets, for the years 2000 and 2001.
(e) Tier II Option Vesting.
----------------------
(i) Subject to the provisions of Section 4, the Tier II Option
shall become fully vested and fully exercisable on the tenth anniversary of the
Effective Date.
(ii) Notwithstanding the foregoing and subject to the
provisions of Section 3(f) and Section 4, in connection with the occurrence of a
Liquidity Event, the Tier II Option shall vest and become exercisable for (A)
seven hundred one (701) shares of Common Stock if the value associated with the
direct or indirect Holdings interests, business or assets involved in such
Liquidity Event (net of any underwriters' discounts or other investment banking
fees) results in (x) in the case of a Sale of Holdings, cash or publicly traded
securities being received by one or more Carlyle Affiliates, or (y) in the case
of a Qualified Public Offering, a value being attributable to all the shares of
Common Stock theretofore purchased by Carlyle Affiliates, in either case that
reflects an annualized rate of return on Carlyle's Cost (an "Internal Rate of
----------------
Return") that equals or exceeds 30%, (B) an additional seven hundred one (701)
- ------
shares of Common Stock for each 2.5%, up to 7.5%, by which such annualized
Internal Rate of Return exceeds 30%, and (C) all of the Tier II Option Shares if
the Internal Rate of Return equals or exceeds 40%.
(iii) The "Internal Rate of Return" shall mean the discount
-----------------------
rate at which the sum of the net present values, as of the Effective Date, of
(x) each cash investment (expressed for purposes of this calculation as a
negative number) made, through the date of calculation (i.e., the date of the
Liquidity Event), by any Carlyle Affiliate to purchase Common Stock measured as
of the date of such investment, and (y) each amount of cash or publicly traded
securities (expressed for purposes of this calculation as a positive number)
received, through the date of calculation (i.e., the date of the Liquidity
Event), by any Carlyle Affiliate (excluding, for the avoidance of doubt,
management fees) in respect of any direct or indirect Holdings interests,
business or assets measured as of the date of receipt, assuming in the case of a
Qualified Public Offering that Carlyle Affiliates have received amounts as of
the closing date thereof equal to the value associated with the direct or
indirect Holdings interests involved in such Qualified Public Offering (net of
any underwriters' discounts or other investment banking fees) that is
attributable to all of the shares of Holdings common stock theretofore purchased
by Carlyle Affiliates, is equal to zero, as mathematically represented by the
rate, r, such that:
5
<PAGE>
n
[SUMMATION A\\t\\ = 0
symbol] --------
t=0 (1+r)t
Where: A\\t// = Cash invested by Carlyle Affiliates, or cash
or publicly traded securities received by Carlyle
Affiliates (or assumed received as provided above
in the case of a Qualified Public Offering) at
time t (measured in years from the Effective
Date); and
n = Amount of time measured in years from the
Effective Date to the date of the Liquidity
Event.
For example, if (i) Carlyle Affiliates purchase Holdings
-----------
common stock for $150 million on the Effective Date, (ii)
Carlyle Affiliates make additional cash investments in
Holdings equal to $50 million on the second anniversary of
the Effective Date, (iii) a recapitalization of Holdings
occurs and Carlyle Affiliates receive cash outflows equal to
$100 million on the fourth anniversary of the Effective Date
and (iv) Carlyle Affiliates sell all their remaining Common
Stock in a Liquidity Event for $600 million in cash on the
fifth anniversary of the Effective Date, then the investment
would reflect an Internal Rate of Return of 32.6% (calculated
as follows:
-150.0 - 50.0 + 100.0 + 600.0 = 0; so r = 32.6%)
------ ------ ----- ------
(1+r)0 (1+r)2 (1+r)4 (1+r)5
and the Tier II Option would vest and become exercisable with respect
to one thousand four hundred two (1,402) of the Tier II Option Shares
in connection with the occurrence of the Liquidity Event.
(f) Further Agreement in Connection with a Sale of Holdings. Neither
-------------------------------------------------------
Holdings nor PAC shall agree, and each shall cause each of Holdings'
Subsidiaries not to agree, to any Sale of Holdings in which (i) the value of the
cash and publicly traded securities received by Carlyle Affiliates is not
sufficient to cause all the Tier II Options to vest pursuant to Section 3(e) and
---
(ii) consideration other than cash or publicly traded securities is received by
Carlyle Affiliates, unless one or more Carlyle Affiliates reasonably acceptable
to the Executive has agreed (which agreement must be reasonably acceptable in
form and substance to the Executive) to pay to the Executive, at the time or
times, if any, when any such consideration other than cash or publicly traded
securities is converted into cash or publicly traded securities, an amount in
cash equal to the economic benefit, if any, he would have received pursuant to
Sections 3(d) and 3(e) (beyond any economic benefit already received) if the
Sale of Holdings had occurred at the time of such conversion.
6
<PAGE>
4. Expiration of Options Upon Termination of the Executive's Employment.
--------------------------------------------------------------------
In the event that the Executive's employment under the Employment Agreement
terminates for any reason, the Options shall, to the extent that they are not
then vested and exercisable, and do not subsequently become vested and
exercisable pursuant to the provisions of this Section 4, immediately terminate
and expire.
(a) In the event that the Executive's employment under the Employment
Agreement terminates due to death, Disability or a Termination Without Cause:
(i) the Tier I-A Option Shares with respect to which the Tier I
Option is then scheduled to vest and become exercisable under Section 3(b)
during the six month period beginning on the first day of the first calendar
month following the Termination Date shall vest and become exercisable as of the
Termination Date;
(ii) the Options shall, to the extent that they are vested and
exercisable as of the Termination Date or later become vested and exercisable
pursuant to the provisions of this Section 4(a), remain vested and exercisable
through (x) in the case of shares for which they were vested and exercisable as
of the Termination Date, the second anniversary of the Termination Date and (y)
in the case of shares for which they later become vested and exercisable
pursuant to this Section 4(a), the second anniversary of the date on which they
become vested and exercisable for such shares; and
(iii) in the event that the Termination Date occurs on a date other
than December 31, the Tier I Option shall become vested and exercisable, on the
date that certified consolidated financial statements for Holdings for the
calendar year of termination are first available, for a pro rata portion of the
--- ----
Tier I-B Option Shares for which it would have become vested and exercisable
had the Executive remained employed under the Employment Agreement through
December 31st of the calendar year of termination, which pro rata portion shall
--- ----
equal a fraction, the numerator of which is the number of days in the calendar
---------
year of termination through the Termination Date and the denominator of which is
-----------
365.
(b) In the event that the Executive's employment under the Employment
Agreement is terminated for Cause or by the Executive voluntarily in a
termination governed by Section 9(e) of the Employment Agreement, the Options
shall, to the extent that they are vested and exercisable as of the Termination
Date or later become vested and exercisable pursuant to the provisions of
Section 4(d), remain exercisable (i) in the case of shares for which the Options
are vested and exercisable as of the Termination Date, 30 days following the
Termination Date and (ii) in the case of Tier I-B Option Shares for which the
Tier I Option later becomes vested and exercisable pursuant to Section 4(d), for
30 days following the date on which the Tier I Option becomes vested and
exercisable for such shares.
(c) In the event that the Term of Employment expires in accordance
with Section 2 of the Employment Agreement pursuant to a notice of non-
extension, the Options shall, to the extent that they are vested and exercisable
as of the Termination Date or later
7
<PAGE>
become vested and exercisable pursuant to the provisions of Section 4(d) or
4(e), remain exercisable for the period provided in this Section 4(c).
(i) In the event that the Term of Employment expires pursuant to
a notice of non-extension from Holdings and International, the Options shall
remain exercisable (A) in the case of shares for which they were vested and
exercisable as of the Termination Date, through the second anniversary of the
Termination Date and (B) in the case of any shares for which they later become
vested and exercisable pursuant to Section 4(d) or 4(e), through the second
anniversary of the date on which they become vested and exercisable for such
shares.
(ii) In the event that the Term of Employment expires pursuant to
a notice of non-extension from the Executive, the Options shall remain
exercisable (A) in the case of shares for which they are vested and exercisable
as of the Termination Date, through the 183rd day following such date and (B) in
the case of Tier I-B Option Shares for which the Tier I Option later becomes
vested and exercisable pursuant to Section 4(d), through the 183rd day following
the date on which the Tier I Option becomes vested and exercisable for such
shares.
(d) Notwithstanding the foregoing, in the event that the Executive's
employment under the Employment Agreement is terminated on or after the last day
of a given calendar year (the "Terminating Year") but prior to the date that
----------------
certified consolidated financial statements for Holdings for the Terminating
Year first become available, then the Tier I Option shall become exercisable for
additional Tier I-B Option Shares on the date that certified consolidated
financial statements for Holdings for the Terminating Year first become
available if and only if the EBITDA Target, or Cumulative EBITDA Target, for
--------------
such year is satisfied in accordance with Sections 3(c)(ii) and 3(c)(iii).
(e) In the event that (i) the Executive's employment under the
Employment Agreement is terminated (x) in a Termination Without Cause or (y) by
expiration of the Term of Employment in accordance with Section 2 of the
Employment Agreement pursuant to a notice of non-extension from Holdings and
International and (ii) a Liquidity Event occurs within one year following the
Termination Date, then the Options shall vest and become exercisable in
connection with the occurrence of the Liquidity Event to the extent provided in
Sections 3(d) and 3(e)(ii).
5. Procedure for Exercise of Options.
---------------------------------
(a) Any Executive Option Holder may exercise all or any portion of an
Option then held by such Executive Option Holder, to the extent that it is
vested and exercisable, at any time and from time to time prior to its
expiration, by delivering a written notice of exercise to Holdings, specifying
the number of shares to be purchased, signed by the Executive Option Holder (or
such Executive Option Holder's legal representative), and accompanied by
(i) payment in full (or an arrangement for payment in full
pursuant to Section 5(b)) of (x) the aggregate Exercise Price for such shares in
accordance with Section 5(b) and (y) any tax withholding obligations relating to
such exercise in accordance with Section 7;
8
<PAGE>
(ii) such reasonably requested representations and documents as
Holdings shall have specified to the Executive Option Holder in advance of such
exercise and as are necessary to effect compliance with applicable tax,
securities, and other laws and regulations; and
(iii) in the event that the Option shall be exercised by any
Person other than the Executive, appropriate proof of the right of such Person
to exercise the Option.
(b) The aggregate Exercise Price for shares to be purchased pursuant
to an exercise of an Option may be made:
(i) by wire transfer of immediately available funds;
(ii) by delivery of a certified or cashier's check, or of a
personal check backed by sufficient available funds, in each case made payable
to Holdings;
(iii) by delivery of shares of common stock of Holdings that have
been held by the Person exercising the Option for at least six (6) months, or
that otherwise may be delivered to Holdings as payment of the Exercise Price
without resulting in an accounting charge to Holdings, which securities have a
Fair Market Value at least equal to the aggregate Exercise Price;
(iv) through a commitment from a brokerage firm, or other Person
acceptable to Holdings, to pay the aggregate Exercise Price for the shares to be
purchased from the proceeds of a sale of shares issuable on the exercise of the
Option based on properly executed irrevocable instructions by the Person
exercising the Option to such broker or other Person to promptly deliver such
amount to Holdings;
(v) in the event that the exercise is in connection with a
Transfer of the securities obtained on the exercise in a Tag-Along Sale, in a
Drag-Along Sale, in an Approved Sale, or in connection with a Liquidity Event,
by an irrevocable arrangement to deliver to Holdings securities or other
property received in connection with such Transfer, which securities or other
property have a Fair Market Value at least equal to the aggregate Exercise
Price; provided that (1) the Executive Option Holder pays to Holdings, at the
-------------
time of exercise, the par value of the shares to be issued upon exercise, (2)
any such arrangement is permissible under the margin rules (if applicable) and
any other applicable rules and (3) such arrangement will not result in an
accounting charge to Holdings;
(vi) any combination of (i) through (v); or
(vii) any other reasonable method approved by Holdings (which
approval shall not be unreasonably withheld).
9
<PAGE>
Payment by delivery of securities may be effected by delivering one or more
certificates or by otherwise delivering securities to Holdings' reasonable
satisfaction, and in each case accompanied by such endorsements, stock powers,
signature guarantees or other documents or assurances as may reasonably be
required by Holdings. If a certificate or certificates or other documentation
representing securities in excess of the amount required are delivered, a
certificate (or other satisfactory evidence of ownership) representing the
excess securities shall be returned by Holdings. Holdings need not accept
fractional shares or securities.
(c) Holdings shall, upon satisfaction of the provisions of Section
5(a), make prompt delivery of the purchased shares, which shares shall be
registered on Holdings' books. Neither the Executive nor any other Person shall
be entitled to any of the rights or privileges of a stockholder of Holdings in
respect of any shares issuable upon any exercise of the Options unless and until
such shares shall have been registered in the name of such Person on the
Holdings' books. Except as otherwise provided in Section 8(a), no adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities, or other property) or distributions or other rights for which the
record date is prior to the date such shares are so registered.
(d) In the event that any Executive Option Holder elects to exercise
any portion of an Option in connection with a proposed Tag-Along Sale, Drag-
Along Sale, Approved Sale or Liquidity Event, then such Executive Option Holder
shall be entitled to deliver a conditional exercise notice pursuant to Section
5(a) hereof, under which such Executive Option Holder's exercise of the Option
shall become effective simultaneously with, and contingent upon, the
consummation of such Tag-Along Sale, Drag Along Sale, Approved Sale or
Liquidity Event, with payment for shares purchased under the Option pursuant to
such exercise to be made at the time of such consummation.
(e) To the extent that the Options are, or become, exercisable in
connection with a Liquidity Event, Holdings shall use its best commercially
reasonable efforts to allow any Executive Option Holder to exercise the Options
at a time, and in a fashion, that allows such Executive Option Holder to
participate in the Liquidity Event transaction. If a Liquidity Event occurs as
a result of which the Carlyle Affiliates cease to own any and all of the shares
of Common Stock theretofore held by the Carlyle Affiliates, then all of the
Options that have become exercisable as of the date of the consummation of such
Liquidity Event and that are not exercised either actually or contingently upon
or before the consummation of such Liquidity Event shall expire and cease to be
exercisable immediately after such Liquidity Event.
6. Non-Transferability of Options. The Options are personal to the holder
------------------------------
and may not be transferred, in whole or in part, other than in a Transfer, on
notice to Holdings, to a Permitted Transferee who has agreed to be bound by the
terms of this Agreement, and of the Executive Stockholders' Agreement, by
executing a counterpart of each; provided, that, no such Transfer shall be
-------- ----
effective unless Holdings is supplied, on reasonable written request by Holdings
------
made promptly after Holdings receives notice of the Transfer, an opinion of
counsel reasonably acceptable to Holdings to the effect that such Transfer is
not in violation of this Agreement, the 1933 Act or the securities laws of any
state. Any Transfer or attempted Transfer of all, or any part, of the Options in
violation of this Section 6 shall be void, and Holdings shall
10
<PAGE>
not record such Transfer on its books or treat any purported transferee of such
Options as the owner of such Options for any purpose.
7. Withholding of Taxes. The Executive shall pay to Holdings any sums
--------------------
that Holdings is required to withhold under any applicable income, excise, or
other tax law, or that the Executive desires to pay through withholding, with
respect to any exercise or disposition of the Options. The Executive may pay
such sums:
(i) by authorizing Holdings to withhold securities otherwise
issuable to him upon exercise of the Option, which securities shall have a Fair
Market Value no greater than the sum required to be withheld or paid as of the
date on which the amount of tax to be withheld is determined;
(ii) through any of the methods specified in Section 5(b),
provided that any payment by the method specified in Section 5(b)(v) is made in
- -------------
cash or cash equivalents;
(iii) by any combination of the methods referred to in clauses
(i) and (ii); or
(iv) through any other reasonable method approved by Holdings,
which approval shall not be unreasonably withheld.
Nothing in this Section 7 is intended to alter the Executive's liability for any
federal, state or local income or other taxes applicable upon the grant or
exercise of the Options or the disposition of the Option Shares.
8. Adjustments.
-----------
(a) Adjustments in Options. In the event that (x) the outstanding
----------------------
securities of the class or classes then subject to the Options are increased in
number, decreased in number, or exchanged for or converted into cash, property
and/or a different number or kind of securities, or (y) cash, property and/or
securities are distributed in respect of such outstanding securities, in either
case as a result of a reorganization, merger, consolidation, recapitalization,
reorganization, reclassification, dividend (other than a regular, quarterly cash
dividend), spin-off, split-up, or other distribution, stock split, reverse stock
split or the like, or in the event that substantially all of the business or
assets of Holdings are sold or otherwise disposed of, then Holdings shall adjust
the number and type of shares or other securities or cash or other property that
may thereafter be acquired upon the exercise of the Options and the Exercise
Price of the Options, and shall make corresponding adjustments in the provisions
of Section 3 relating to the vesting and exercisability of the Options for
specified numbers of shares and in any other terms and conditions of the Options
that are affected by the occurrences, in each case in a manner that is
consistent with Section 424 of the Code and the regulations thereunder and that
avoids diminishment or enlargement of the rights, value and after-tax economic
opportunity represented by the Options; provided, however, that any such
-------- -------
adjustments in the Options shall be made without changing the aggregate Exercise
Price of the then unexercised portion of the Options.
11
<PAGE>
(b) Adjustments in EBITDA Targets. The EBITDA Targets and the
-----------------------------
Cumulative EBITDA Targets specified in Appendix A are based upon certain revenue
and expense assumptions, made as of the Effective Date, about the future
business of Holdings. Accordingly, in the event that, after such date, any
acquisition of any business by Holdings or any of its Subsidiaries or any
dividend or other distribution (whether in the form of cash, Common Stock, other
securities, or other property), recapitalization, reclassification, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, or exchange of Common Stock or other securities of
Holdings or of any of its Subsidiaries, issuance of warrants or other rights to
purchase Common Stock or other securities of Holdings (other than pursuant to
the Plan or any successor), any unusual or nonrecurring transactions or events
affecting Holdings, any Affiliate of Holdings, or the financial statements of
Holdings or any Affiliate, or change in applicable laws, regulations, or
accounting principles occurs, in each case such that an adjustment is
appropriate in order to avoid diminishment or enlargement of the benefits or
potential benefits intended to be made available under the Options, then
Holdings shall, in good faith and in a reasonable and equitable manner, adjust
the financial targets set forth in Appendix A to avoid any such diminishment or
enlargement.
9. General Provisions.
------------------
(a) Right to Continued Employment. Nothing in this Agreement shall
-----------------------------
interfere with or limit in any way the right of International or Holdings to
terminate the Executive's employment at any time (with or without Cause), nor
confer upon the Executive any right to continue in the employ of International
or Holdings for any period of time or to continue at the Executive's present (or
any other) rate of compensation.
(b) Miscellaneous. The following Sections of the Employment
-------------
Agreement shall be deemed incorporated into this Agreement as if fully set forth
herein, except that (A) all references to "the Company" shall be disregarded,
(B) the laws of the State of Delaware shall govern all questions concerning the
"internal affairs" of Holdings, (C) the term "Covered Claim" as used in Section
15 of the Employment Agreement shall be deemed to include only claims arising
under or relating to this Agreement, (D) all references to attached "forms of
agreement" shall be disregarded and (E) all provisions relating to the vesting
and exercisability of (x) the Tier I Option with respect to Tier I-B Option
Shares, and (y) the Tier II Option, shall be construed and enforced in such a
fashion as to provide Holdings and each Executive Option Holder with the rights
and benefits intended under this Agreement:
(i) Section 13 (relating to assignments and transfers),
(ii) Section 14 (relating to representations),
(iii) Section 15 (relating to dispute resolution),
(iv) Section 16 (relating to notices),
12
<PAGE>
(v) Section 17(a) (the "integration clause") which shall be deemed
to include the Employment Agreement and the agreements forms of which are
attached to the Employment Agreement,
(vi) Section 17(b) (relating to severability),
(vii) Section 17(c) (relating to amendments and waivers),
(viii) Section 17(d) (relating to headings),
(ix) Section 17(e) (second sentence only) (relating to the
Executive's death or incompetence),
(x) Section 17(f) (relating to survival of provisions),
(xi) Section 17(j) (relating to governing law) and
(xii) Section 17(k) (relating to counterparts).
13
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first written above.
THE EXECUTIVE
________________________________________
Robert J. Muller, Jr.
PANOLAM INDUSTRIES HOLDINGS, INC.
By: __________________________________
Name:
Title:
PANOLAM ACQUISITION COMPANY, L.L.C.,
(for purposes of Section 3(f) hereof only)
By: __________________________________
Name:
Title (if applicable):
And, if and when Transferred in accordance with the
terms of this Agreement:
EXECUTIVE OPTION HOLDER
By: __________________________________
Name:
Title (if applicable):
APPENDIX A
EBITDA Targets
--------------
14
<PAGE>
Fiscal Year of Holdings Ending December 31,
--------------------------------------------------
2000 2001 2002 2003 2004
--------- -------- -------- -------- --------
Annual EBITDA Target $74.5 $80.5 $86.8 $91.1 $95.7
Cumulative EBITDA Target 74.5 155.0 241.8 332.9 428.6
15
<PAGE>
EXHIBIT 10.19
EXECUTIVE STOCK PURCHASE AGREEMENT
----------------------------------
This Executive Stock Purchase Agreement (the "Agreement") is made as of
---------
November 24, 1999 (the "Closing Date") between Panolam Industries Holdings,
Inc., a Delaware corporation ("Holdings") and Robert J. Muller, Jr. (the
--------
"Executive").
---------
WHEREAS, the Executive and Holdings (the "Parties") and Panolam Industries
-------
International, Inc., a Delaware corporation ("International") have entered into
-------------
a certain Employment Agreement dated as of November 24, 1999 (the "Employment
----------
Agreement").
- ---------
WHEREAS, pursuant to the Employment Agreement, the Executive has elected to
purchase certain shares of Holdings' common stock.
WHEREAS, the Parties and Panolam Acquisition Company, L.L.C., a Delaware
limited liability company ("PAC") have entered into a certain Executive
---
Stockholders' Agreement dated as of November 24, 1999 (the "Executive
---------
Stockholders' Agreement"), which agreement sets forth certain rights and
- -----------------------
obligations relating to, among other things, the shares of Holdings common stock
being purchased by the Executive under this Agreement.
NOW, THEREFORE, in consideration of the premises contained herein and other
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the Parties agree as follows:
1. Purchase of Shares. As of the date hereof, Holdings hereby sells to
------------------
the Executive, and the Executive hereby purchases from Holdings, 2,717.5 shares
of Holdings' common stock, par value $.01 per share (the "Purchased Shares"),
----------------
for a purchase price of $1,287.94 per share and an aggregate purchase price of
$3,500,000. Promptly upon full execution of this Agreement by the Parties, (i)
the Executive shall deliver to Holdings a promissory note (the "Executive
---------
Note"), in substantially the form attached as Exhibit E to the Employment
- ----
Agreement, for the aggregate purchase price of the Purchased Shares, (ii) the
Parties shall each execute a pledge agreement in substantially the form attached
as Exhibit F to the Employment Agreement under which the Executive pledges the
Purchased Shares to Holdings as security for his obligations under the Executive
Note, and (iii) Holdings shall deliver to the Executive a copy of, and a receipt
for, certificates representing the Purchased Shares.
2. Section 83(b) Election. Within 30 days after the Executive purchases
----------------------
the Purchased Shares, he shall make an election with the Internal Revenue
Service under Section 83(b) of the Internal Revenue Code in the form of Exhibit
-------
A attached hereto and shall make a similar election with the State of
- -
Connecticut.
3. Representations and Warranties of the Executive. In connection with
-----------------------------------------------
the purchase and sale of the Purchased Shares hereunder, the Executive
represents and warrants to Holdings that:
<PAGE>
(i) The Purchased Shares are being acquired for the Executive's own
account and not with a view to, or intention of, distribution thereof
in violation of the 1933 Act or any applicable state securities laws,
and the Purchased Shares will not be disposed of in contravention of
the 1933 Act or any applicable state securities laws.
(ii) The Executive is an "accredited investor" as defined under Rule
501(e)(2) of the 1933 Act and is sophisticated in financial matters
and is able to evaluate the risks and benefits of the investment in
the Purchased Shares.
(iii) The Executive is able to bear the economic risk of his
investment in the Purchased Shares for an indefinite period of time
and understands that the Purchased Shares have not been registered
under the 1933 Act, are being sold to the Executive in reliance on the
exemption from 1933 Act registration provided under Section 4(2) of
the 1933 Act, and cannot be sold or transferred by the Executive
unless subsequently registered under the 1933 Act or an exemption from
such registration is available.
(iv) The Executive has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the offering of
the Purchased Shares and has had full access to such other information
concerning Holdings as he has requested. The Executive has reviewed,
or has had an opportunity to review, a copy of the Purchase Agreement,
and the Executive is familiar with the transactions contemplated
thereby. The Executive has also reviewed, or has had an opportunity
to review, the following documents: (A) Holdings' Certificate of
Incorporation and Bylaws; (B) the loan agreements, notes and related
documents with Holdings' senior lenders; and (C) Holdings' pro forma
balance sheet dated as of September 30, 1999.
4. Acknowledgment by the Executive. As an inducement to Holdings to issue
-------------------------------
the Purchased Shares and as a condition thereto, the Executive acknowledges and
agrees that:
(i) neither the issuance of the Purchased Shares to the Executive nor
any provision contained herein shall entitle the Executive to remain
in the employment of International, Holdings or any of their
subsidiaries or affect the right of International and Holdings to
terminate the Executive's employment at any time and for any reason;
and
(i) Holdings shall have no duty or obligation to disclose to the
Executive, and the Executive shall have no right to be advised of, any
material information regarding Holdings or its subsidiaries (including
without limitation any financing, acquisition or going public plans or
proposals or any projections or forecasts) at any time prior to, upon
or in connection with any repurchase of Purchased Shares by Holdings.
2
<PAGE>
5. Compensatory Nature of Arrangement. Holdings and the Executive
----------------------------------
acknowledge and agree that this Agreement has been executed and delivered, and
the Purchased Shares have been issued hereunder, in connection with and as a
part of the compensation and incentive arrangements among Holdings,
International and the Executive.
6. Forfeiture of Shares. In the event (i) that the Executive's
--------------------
employment under the Employment Agreement is terminated (x) for "Cause" (as
defined in, and determined in accordance with, the Employment Agreement) or (y)
voluntarily by the Executive in a termination to which Section 9(e) of the
Employment Agreement applies, and (ii) neither a "Qualified Public Offering" nor
a "Sale of Holdings" (as such terms are defined in the Executive Stockholders'
Agreement) has occurred as of the Termination Date, then (a) the Purchased
Shares (and any securities received in respect of such Purchased Shares) shall,
except to the extent that such Purchased Shares or securities have previously
been "Transferred" pursuant to an exercise of "Tag-Along Rights," "Drag-Along
Rights" or an "Approved Sale" (as such terms are defined in the Executive
Stockholders' Agreement), be forfeited to Holdings and (b) the Promissory Note
shall be canceled; provided that, if any portion of the Promissory Note has
-------- ----
already been repaid by application of the proceeds received pursuant to the
exercise of Tag-Along Rights or Drag-Along Rights or in an Approved Sale, then
Purchased Shares with an aggregate Fair Market Value equal to the amount
outstanding under the Promissory Note shall be forfeited to Holdings.
7. Miscellaneous. The following Sections of the Employment Agreement
-------------
shall be deemed incorporated into this Agreement as if fully set forth herein,
except that (A) all references to "the Company" shall be disregarded, (B) the
term "Covered Claim" as used in Section 15 of the Employment Agreement shall be
deemed to include only claims arising under or relating to this Agreement and
(C) all references to attached "forms of agreement" shall be disregarded:
(i) Section 13 (relating to assignments and transfers),
(ii) Section 14 (relating to representations),
(iii) Section 15 (relating to dispute resolution),
(iv) Section 16 (relating to notices),
(v) Section 17(a) (the "integration clause"), which shall be deemed
to include the Employment Agreement and the agreements forms of which are
attached to the Employment Agreement,
(vi) Section 17(b) (relating to severability),
(vii) Section 17(c) (relating to amendments and waivers),
(viii) Section 17(d) (relating to headings),
3
<PAGE>
(ix) Section 17(e) (second sentence only) (relating to the Executive's
death or incompetence),
(x) Section 17(f) (relating to survival of provisions),
(xi) Section 17(j) (relating to governing law) and
(xii) Section 17(k) (relating to counterparts).
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first written above.
THE EXECUTIVE
________________________________________
Robert J. Muller, Jr.
PANOLAM INDUSTRIES HOLDINGS, INC.
By: __________________________________
Name:
Title:
4
<PAGE>
EXHIBIT A
---------
ELECTION TO INCLUDE STOCK IN GROSS
INCOME PURSUANT TO SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned purchased shares of Common Stock, par value $.01 per share
(the "Shares"), of Panolam Industries Holdings, Inc. (the "Company") on November
------ -------
24, 1999 (the "Closing Date"). Under certain circumstances, the Company has the
------------
right to cause the undersigned (or the holder of the Shares, if different from
the undersigned) to forfeit the Shares should the undersigned cease to be
employed by the Company or its subsidiaries. Hence, the Shares are subject to a
substantial risk of forfeiture and are non-transferable. The undersigned
desires to make an election to have the Shares taxed under the provisions of
Internal Revenue Code '83(b) at the time the undersigned purchased the Shares.
5
<PAGE>
Therefore, pursuant to Internal Revenue Code '83(b) and Treasury Regulation
(S)1.83-2 promulgated thereunder, the undersigned hereby makes an election, with
respect to the Shares (described below), to report as taxable income for
calendar year 1999 the excess (if any) of the Shares' fair market value on the
Closing Date over the purchase price thereof.
The following information is supplied in accordance with Treasury
Regulation (S)1.83-2(e):
1. The name, address and social security number of the undersigned:
2. A description of the property with respect to which the election is
being made: 2,717.5 shares of Panolam Industries Holdings, Inc. Common Stock,
par value $.01 per share.
3. The date on which the property was transferred: November 24, 1999.
The taxable year for which such election is made: Calendar year 1999.
4. The restrictions to which the property is subject:
5. The fair market value on the Closing Date of the property with respect
to which the election is being made, determined without regard to any lapse
restrictions: $1,287.94 per share of Common Stock.
6. The amount paid for such property: $1,287.94 per share of Common
Stock.
6
<PAGE>
A copy of this election has been furnished to the Secretary of the Company
pursuant to Treasury Regulations (S)1.83-2(e)(7).
Dated:
___________________________________
Robert J. Muller, Jr.
7
<PAGE>
EXHIBIT 10.20
EXECUTIVE STOCK PLEDGE AGREEMENT
--------------------------------
THIS PLEDGE AGREEMENT is made as of November 24, 1999 (the "Closing Date"),
------------
between Robert J. Muller, Jr. (the "Executive") and Panolam Industries Holdings,
---------
Inc., a Delaware corporation ("Holdings").
--------
WHEREAS, the Executive and Holdings (the "Parties") and Panolam Industries
-------
International, Inc., a Delaware corporation ("International") have entered into
-------------
a certain Employment Agreement dated as of November 24, 1999 (the "Employment
----------
Agreement");
- ---------
WHEREAS, pursuant to the Employment Agreement, the Parties have entered
into a certain Executive Stock Purchase Agreement, dated as of the Closing Date
(the "Executive Stock Agreement"), under which the Executive has purchased
-------------------------
2,717.5 shares (the "Pledged Shares") of Holdings' common stock, $.01 par value,
--------------
for an aggregate purchase price of $3,500,000;
WHEREAS, the Executive purchased the Pledged Shares by delivering to
Holdings a promissory note in the aggregate principal amount of $3,500,000 (the
"Executive Note");
--------------
WHEREAS, the Parties desire to set forth the terms and conditions upon
which the Executive Note is secured by the Executive's pledge to Holdings of the
Pledged Shares;
NOW, THEREFORE, in consideration of the premises contained herein and other
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, and in order to induce Holdings to accept the Executive Note as
full payment for the Pledged Shares, the Parties hereby agree as follows:
1. Pledge. The Executive hereby pledges to Holdings, and grants to
------
Holdings a security interest in, the Pledged Shares as security for the prompt
and complete payment when due of the unpaid principal of, and interest on, the
Executive Note. Holdings shall be deemed to hold the Pledged Shares for the
benefit of itself as lender pursuant to the Executive Note and otherwise in
trust for the Executive pursuant to the terms hereof.
2. Delivery of Pledged Shares. Upon the execution of this Pledge
--------------------------
Agreement, the Executive shall deliver to Holdings the certificate(s)
representing the Pledged Shares, together with such duly executed forms of
assignment sufficient to transfer title thereto as Holdings may reasonably
request.
3. Voting Rights; Cash Dividends. Notwithstanding anything to the
-----------------------------
contrary contained herein, during the term of this Pledge Agreement and until
such time as there exists a material default under the Executive Note, the
Executive shall be entitled to all voting rights with respect to the Pledged
Shares, and shall be entitled to receive all cash dividends paid in respect of
the Pledged Shares. Upon the occurrence of, and during the continuance of, any
such default, Holdings shall retain all such cash dividends payable on the
Pledged Shares as additional security hereunder.
<PAGE>
4. Stock Dividends, Distributions, etc. If, while this Pledge Agreement
-----------------------------------
is in effect, the Executive becomes entitled to receive or receives any
securities or other property in respect of, in substitution for, or in exchange
for any of the Pledged Shares (whether as a distribution in connection with any
recapitalization, reorganization or reclassification, a stock dividend or
otherwise), the Executive shall, upon reasonable request by Holdings, accept
such securities or other property on behalf of, and for the benefit of, Holdings
as additional security for the Executive's obligations under the Executive Note
and shall promptly deliver such additional security to Holdings together with
such duly executed forms of assignment as Holdings may reasonably request, and
such additional security shall be deemed to be part of the Pledged Shares
hereunder.
5. Default. If the Executive defaults in the payment of principal or
-------
interest under the Executive Note when it becomes due, Holdings may exercise any
and all the rights, powers and remedies of any owner of the Pledged Shares
(including the right to vote the Pledged Shares and receive dividends and
distributions with respect to the Pledged Shares) and shall have, and may
exercise, any and all the rights and remedies granted to a secured party upon
default under the Uniform Commercial Code of New York or otherwise available to
Holdings under applicable law. Without limiting the foregoing, Holdings is
authorized to sell, assign and deliver at its discretion, from time to time, all
or any part of the Pledged Shares at any private sale or public auction, on not
less than ten days written notice to the Executive, at such price or prices and
upon such terms as Holdings may deem advisable. The Executive shall have no
right to redeem the Pledged Shares after any such sale or assignment. At any
such sale or auction, Holdings may bid for, and become the purchaser of, the
whole or any part of the Pledged Shares offered for sale. In case of any such
sale, after deducting the costs, attorneys' fees and other expenses of sale and
delivery, the remaining proceeds of such sale shall be applied to the principal
of and accrued interest on the Executive Note; provided, however, that after
-------- -------
payment in full of the aggregate indebtedness evidenced by the Executive Note,
the balance of the proceeds of sale then remaining shall be paid to the
Executive and the Executive shall be entitled to the return of any of the
Pledged Shares remaining in the custody of Holdings. To the extent provided in
Section 4(a) of the Executive Note, the Executive shall be liable for any
deficiency if the remaining proceeds are insufficient to pay the indebtedness
under the Executive Note in full.
6. Payment of Indebtedness and Release of Pledged Shares. Upon payment of
-----------------------------------------------------
any portion of the aggregate indebtedness evidenced by the Executive Note,
Holdings shall promptly release a pro rata portion of the Pledged Shares to the
--- ----
Executive, together with all forms of assignment reasonably requested by the
Executive and other documentation reasonably requested by the Executive relating
to the released Pledged Shares. Upon full payment of all principal and interest
evidenced by the Executive Note, Holdings shall promptly release all Pledged
Shares to the Executive, together with all forms of assignment reasonably
requested by the Executive and other documentation reasonably requested by the
Executive relating to them.
If any Pledged Shares are to be transferred pursuant to an exercise of
"Tag-Along Rights" or "Drag-Along Rights" or in an "Approved Sale" (as such
terms are defined in the Executive Stockholders' Agreement of even date herewith
among Panolam Acquisition Company, L.L.C., Holdings and the Executive), then the
proceeds from such transfer, to the extent of the indebtedness then outstanding
under the Executive Note, shall be applied to prepay amounts
2
<PAGE>
outstanding under the Executive Note (provided that any non-cash proceeds shall
be valued at their Fair Market Value). Upon reasonable conditions as Holdings
may then in good faith establish, Holdings shall release all or any part of the
Pledged Shares to be transferred pursuant to an exercise of Tag-Along Rights or
Drag-Along Rights or in an Approved Sale.
7. Further Assurances. Each Party agrees that at any time, and from time
------------------
to time, upon the reasonable written request of the other Party, such Party
shall promptly execute and deliver such further documents, and promptly do such
further acts and things, as are reasonably necessary in order to effect the
purposes of this Pledge Agreement.
8. Miscellaneous. The following Sections of the Employment Agreement
-------------
shall be deemed incorporated into this Pledge Agreement as if fully set forth
herein, except that (A) all references to "the Company" shall be disregarded,
(B) all references to "this Agreement" shall be deemed to be references to this
Pledge Agreement, (C) the term "Covered Claim" as used in Section 15 of the
Employment Agreement shall be deemed to include only claims arising under or
relating to this Pledge Agreement and (D) references to attached "forms of
agreement" shall be disregarded:
(i) Section 13 (relating to assignments and transfers),
(ii) Section 14 (relating to representations),
(iii) Section 15 (relating to dispute resolution),
(iv) Section 16 (relating to notices),
(v) Section 17(a) (the "integration clause") which shall be deemed
to include the Employment Agreement and the agreements forms of which are
attached to the Employment Agreement,
(vi) Section 17(b) (relating to severability),
(vii) Section 17(c) (relating to amendments and waivers),
(viii) Section 17(d) (relating to headings),
(ix) Section 17(e) (second sentence only) (relating to the
Executive's death or incompetence),
(x) Section 17(f) (relating to survival of provisions),
(xi) Section 17(j) (relating to governing law) and
(xii) Section 17(k) (relating to counterparts).
3
<PAGE>
IN WITNESS WHEREOF, the Parties have entered into this Pledge Agreement as of
the date first set forth above.
THE EXECUTIVE
________________________
Robert J. Muller, Jr.
PANOLAM INDUSTRIES HOLDINGS, INC.
By: _________________________
Name:
Title:
4
<PAGE>
EXHIBIT 10.21
PROMISSORY NOTE
---------------
$3,500,000 November 24, 1999
1. For value received, Robert J. Muller, Jr. (the "Executive") promises to
---------
pay on the sixth anniversary of the date hereof (subject to extension in
accordance with the provisions of Section 4(c)) to the order of Panolam
Industries Holdings, Inc., a Delaware corporation ("Holdings"), at its
--------
principal executive offices or such other place as Holdings may previously have
designated in writing to the Executive, the aggregate principal sum of
$3,500,000. This Promissory Note (the "Note") is issued in connection with (x)
----
the Executive Stock Purchase Agreement of even date herewith between Holdings
and the Executive (the "Executive Stock Agreement") and (y) the Employment
-------------------------
Agreement dated as of November 24, 1999 among Holdings, Panolam Industries
International, Inc., a Delaware corporation ("International") and the Executive
-------------
(the "Employment Agreement"). Capitalized terms not otherwise defined herein
--------------------
shall have the meanings set forth in the Employment Agreement.
2. Interest shall accrue on amounts outstanding under this Note at an
annually compounded rate of 6.08% per annum, and such interest shall be payable
at such time as the principal of this Note becomes due and payable.
3. The amounts outstanding under this Note are secured by a pledge of
certain shares of Holdings' common stock, par value $0.01 per share, under a
pledge agreement of even date herewith between Holdings and the Executive (the
"Pledge Agreement"). "Pledged Shares" shall mean any and all securities and
---------------- --------------
other property held by Holdings pursuant to the Pledge Agreement.
4. This Note shall also be subject to the following terms and conditions:
(a) Recourse. Subject to the last two sentences of this Section 4(a),
--------
the Executive shall be personally liable only for 35% of any amounts outstanding
under this Note, and Holdings' sole recourse for amounts in excess thereof shall
be to the Pledged Shares. In the event that the Executive's employment under the
Employment Agreement terminates due to death or Disability (as defined in, and
determined in accordance with, the Employment Agreement), the Executive shall no
longer be personally liable for any amounts outstanding under this Note and
Holdings' sole recourse for payment under this Note shall be to the Pledged
Shares. In the event that the Executive's employment under the Employment
Agreement terminates (x) in a Termination Without Cause or (y) by expiration of
the Term of Employment in accordance with Section 2 of the Employment Agreement
pursuant to a notice of non-extension from Holdings and International, the
Executive shall thereafter be personally liable only for 17.5% of any amounts
outstanding under this Note, and Holdings' sole recourse for amounts in excess
thereof shall be to the Pledged Shares.
(b) Effect of Liquidity Event. Upon the occurrence of a Liquidity
-------------------------
Event, (A) if any portion of the "Tier II Option" (as defined in the Executive
Stock Option Agreement of
1
<PAGE>
even date herewith between Holdings and the Executive (the "Executive Option
----------------
Agreement")) becomes exercisable in connection with such Liquidity Event, then
- ---------
all amounts then outstanding under this Note shall be deemed paid and satisfied
in full as of the occurrence of such Liquidity Event and (B) if no portion of
the Tier II Option becomes exercisable in connection with such Liquidity Event
and such Liquidity Event occurs prior to the termination of the Executive's
employment under the Employment Agreement, then a pro rata portion of all
--- ----
amounts then outstanding under this Note shall be deemed paid and satisfied in
full, which pro rata portion shall be a fraction, the numerator of which shall
--- ---- ---------
be the number of "Tier I-B Option Shares" (as defined in the Executive Option
Agreement) with respect of which the "Tier I Option" (as defined in the
Executive Option Agreement) has become exercisable prior to the occurrence of
the Liquidity Event and the denominator of which shall be the aggregate number
-----------
of Tier I-B Option Shares eligible for exercisability under the Tier I Option
prior to the occurrence of the Liquidity Event. If the Executive's employment
under the Employment Agreement is terminated by a Termination Without Cause or
by expiration of the Term of Employment in accordance with Section 2 of the
Employment Agreement pursuant to a notice of non-extension from Holdings and
International within one year prior to the occurrence of a Liquidity Event, then
amounts outstanding under this Note shall be deemed paid and satisfied to the
extent set forth in the preceding sentence notwithstanding such termination of
employment.
(c) Extension of Maturity. In the event that the Termination Date has
---------------------
not occurred on or before the sixth anniversary of the date hereof, then the
date on which this Note shall become due and payable shall be extended until,
and any amounts owing under this Note shall become due and payable upon, the
twentieth day following the date on which the Termination Date subsequently
occurs.
5. This Note may be prepaid in whole or in part at any time prior to
maturity, without premium or penalty. Any partial prepayment shall be allocated
between principal and accrued interest in such a fashion that the amount
allocated to prepayment of accrued interest shall equal the accrued interest on
the amount of principal that is prepaid. Any payment hereunder may be made by
transferring to Holdings Pledged Shares whose Fair Market Value equals the
amount to be paid. If any Pledged Shares are to be transferred pursuant to an
exercise of "Tag-Along Rights" or "Drag-Along Rights" or in an "Approved Sale"
(as such terms are defined in the Executive Stockholders' Agreement of even date
herewith among Panolam Acquisition Company, L.L.C., Holdings and the Executive),
then the proceeds from such transfer, to the extent of the indebtedness then
outstanding under this Note, shall be applied to prepay amounts outstanding
under this Note (provided that any non-cash proceeds shall be valued at their
Fair Market Value). Notwithstanding the preceding sentence, if the exercise of
Tag-Along Rights or Drag-Along Rights or the Approved Sale occurs as part of a
Liquidity Event, then the provisions of Section 4(b) shall apply.
6. The Executive, and his successors and assigns, hereby waive diligence,
presentment, protest and demand and notice of protest, demand, dishonor and
nonpayment of this Note, and expressly agree that this Note, or any payment
hereunder, may be extended from time to time and that Holdings may accept
security for this Note or release security for this Note, all without in any way
affecting the liability of the Executive under this Note.
2
<PAGE>
7. Neither this Note, nor any indebtedness or other amount evidenced
hereby, nor any other rights or obligations of either Party under or in
connection with this Note, may be sold, assigned, pledged or otherwise
transferred or encumbered other than as provided in the Employment Agreement,
and any attempt to do so shall be null and void.
8. The following Sections of the Employment Agreement shall be deemed
incorporated into this Note as if fully set forth herein, except that (A) all
references to "the Company" shall be disregarded, (B) all references to "this
Agreement" shall be deemed to be references to this Note, (C) the term "Covered
Claim" as used in Section 15 of the Employment Agreement shall be deemed to
include only claims arising under or relating to this Note and (D) references to
attached "forms of agreement" shall be disregarded:
(i) Section 13(c) (relating to assignment and transfer) except that
the references to compensation and benefits shall be disregarded,
(ii) Section 14(b) (relating to representations),
(iii) Section 15 (relating to dispute resolution),
(iv) Section 16 (relating to notices),
(v) Section 17(a) (the "integration clause") which shall be deemed
to include the Employment Agreement and the agreements forms of which are
attached to the Employment Agreement,
(vi) Section 17(b) (relating to severability),
(vii) Section 17(c) (relating to amendments and waivers),
(viii) Section 17(d) (relating to headings),
(ix) Section 17(e) (second sentence only) (relating to the
Executive's death or incompetence),
(x) Section 17(f) (relating to survival of provisions) and
(xi) Section 17(j) (relating to governing law).
IN WITNESS WHEREOF, the Executive has executed and delivered this
Promissory Note as of the date first written above.
_______________________________
Robert J. Muller, Jr.
3
<PAGE>
EXHIBIT 10.22
STOCKHOLDERS AGREEMENT
This Stockholders Agreement ("Agreement") is entered into as of this
24th day of November, 1999, by and among Panolam International Holdings, Inc., a
Delaware corporation (the "Company"), Panolam Acquisition Company, L.L.C., a
Delaware limited liability company ("PAC"), Genstar Capital Partners II, L.P., a
Delaware limited partnership ("Genstar") and StarGen II LLC, a Delaware limited
liability company ("Stargen") (Genstar and Stargen each, individually, a
"Stockholder," and collectively the "Stockholders"). These parties are
sometimes referred to herein individually by name or as a "Party" and
collectively as the "Parties."
RECITALS
--------
WHEREAS, PAC, the Company and the Stockholders are parties to that
certain Stock Purchase and Redemption Agreement dated as of October 14, 1999
(the "Stock Purchase Agreement");
WHEREAS, as a condition of consummating the transactions contemplated
by the Stock Purchase Agreement, the Stockholders are executing this Agreement;
WHEREAS, as a result of the consummation of the transactions
contemplated by the Stock Purchase Agreement, the Stockholders will retain
shares of Class A Common Stock, par value $0.01 per share, of the Company
("Stockholders Common Stock") issued and outstanding prior to the date hereof;
WHEREAS, as a result of the consummation of the transactions
contemplated by the Stock Purchase Agreement, PAC will be the record and
beneficial holder of shares of Class A Common Stock, par value $0.0l per share,
of the Company (together with the Stockholders Common Stock, the "Common
Stock"); and
WHEREAS, the Company, PAC and the Stockholders desire to enter into
this Agreement to provide for certain matters with respect to the ownership and
transfer of the shares of Common Stock now held of record or beneficially by, or
hereafter acquired by, the Parties (collectively, the "Restricted Shares").
NOW, THEREFORE, in consideration of the foregoing, and the mutual
agreements set forth herein and other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the Parties hereto,
intending to be legally bound hereby, agree as follows:
SECTION 1. RIGHT OF FIRST REFUSAL.
(a) In the event that at any time prior to the Company's
consummation of an initial public offering, any Stockholder desires
to transfer convey, assign, pledge or otherwise dispose of
(collectively, "Transfer") any Restricted Shares to any third party
other than a Permitted Transferee (as defined below), such
Stockholder (the "Offeror") shall provide written notice (the
"Notice") to PAC and the Company, which notice shall set forth (i)
confirmation that such Offeror
<PAGE>
intends to Transfer all or certain of its Restricted Shares in a
bona fide transaction with a third party (the "Third Party
Purchaser"), (ii) the number of Restricted Shares proposed to be
Transferred (the "Offered Shares"), (iii) the proposed amount and
form of consideration to be paid for the Offered Shares and (iv) all
other material terms of the proposed Transfer. Within forty-five
(45) days of receipt of the Notice (the "PAC Election Period"), PAC
may elect to purchase all, but not less than all, of the Offered
Shares at the price and on the terms and conditions set forth in the
Notice by delivery of a written notice to the Offeror (the "PAC
Election Notice"), which PAC Election Notice shall constitute the
binding agreement of PAC and Offeror to purchase and sell all of
such Offered Shares at the price and on the terms and conditions set
forth in the Notice. Within forty-five (45) days of delivery of the
PAC Election Notice, PAC shall deliver a certified check payable to
such Offeror, or to such other person as such Offeror may request,
in the amount of the purchase price (as calculated below) of such
Offered Shares to be purchased by PAC. Upon receipt of payment for
the Offered Shares, such Offeror shall deliver instruments of
transfer duly endorsed in blank, together with the corresponding
certificate(s) representing all such Offered Shares to PAC.
Notwithstanding the foregoing, if any approval, consent or other
action by, or filing with, any governmental authority (a
"Governmental Action") is required in connection with any such
purchase of Offered Shares and such Governmental Action has not been
completed or obtained on or prior to the date scheduled for closing,
the closing of the purchase of all Offered Shares shall take place
on the second (2nd) business day after such Governmental Action has
been completed or obtained. The Parties shall use reasonable efforts
to complete or obtain any such required Governmental Actions;
provided that no Party shall be required to agree to any divestiture
or operational constraint or pay any material amount of money (other
than the filing fee payable in connection with any notification
required under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended) as a condition of obtaining such Governmental
Action. If each of the Parties have acted in good faith to complete
or obtain any such required Governmental Action and such
Governmental Action has not been completed or obtained on or before
the date which is ninety (90) days after the delivery to the Offeror
of the PAC Election Notice, the proposed sale of Offered Shares
subject to such required Governmental Action shall be canceled and,
for all purposes, PAC shall be deemed to have elected not to
purchase such Offered Shares pursuant to this Section 1 and the
Offeror shall be free to Transfer the Offered Shares to the Third
Party Purchaser. The Parties acknowledge that, if PAC delivers a PAC
Election Notice, it may, at the election of PAC, cause the Company,
its subsidiaries or any PAC Affiliate to purchase all or any part of
the Offered Shares in lieu of PAC in accordance with the time
periods set forth above.
(b) If the PAC Election Notice is not received by such Offeror
from PAC within the period specified in paragraph (a) above, or if
PAC (together with any of its designees) elects to purchase less
than all of the Offered Shares or fails to deliver the purchase
price of the Offered Shares in accordance with the terms hereof, the
Offeror shall have the right to Transfer the Offered Shares
specified in
2
<PAGE>
the Notice to the Third Party Purchaser in accordance with the terms
of this Agreement, but only at a price and upon terms and conditions
no less favorable to the Offeror than those stated in the Notice and
only if the consummation of sale occurs on a date within 90 days
from the end of the PAC Election Period.
(c) For purposes of calculating the purchase price of any such
transfer, sale or disposition, if any portion of the consideration
consists of other than cash, the fair market value of any non-cash
consideration shall be determined in accordance with Section 7(m)
below.
(d) The closing of the transactions contemplated by this
Section 1 shall occur at the principal place of business of the
Company unless otherwise agreed to in writing by PAC and the parties
to such transaction.
(e) Notwithstanding the foregoing, nothing in this Section 1
shall prevent the Transfer of any Restricted Shares by any
Stockholder to a Permitted Transferee. As used herein, the term
"Permitted Transferee" shall mean (i) for any Stockholder, the
Company or any of its wholly-owned Subsidiaries, (ii) for any
Stockholder that is an individual, his or her spouse, or his or her
lineal descendants (which term shall include biological as well as
adopted descendants) or trusts for their benefit provided that such
Stockholder retains the sole and exclusive right to vote or dispose
of any Restricted Shares transferred to such trust or any family
member, (iii) for any Stockholder that is an individual, upon such
Stockholder's death, such Stockholder's executors, administrators,
testamentary trustees, legatees and beneficiaries, (iv) for any
Stockholder that is an entity, any person or entity that directly or
indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with such Stockholder, and
(v) for any Stockholder that is an entity, its stockholders,
partners or members.
(f) As a condition of any Transfer to a Permitted Transferee or
a Third Party Purchaser permitted hereunder, the transferee shall,
if requested by the Company, deliver to the Company an opinion of
counsel reasonably acceptable to a majority of the Board of
Directors to the effect that such Transfer is not in violation of
this Agreement, the Securities Act or the securities laws of any
state and shall agree to be bound by this Agreement by executing a
copy of a signature page to this Agreement as provided in Section
7(k) hereof. Upon the delivery of such counterpart agreement (and
the opinion of counsel, if any, required pursuant to this subsection
(f)) and so long as such person or entity is the record holder of
Restricted Shares, the Permitted Transferee of a Stockholder shall
be deemed a "Stockholder" for all purposes hereunder. Any purported
Transfer in violation of the provisions of this Section 1 without
the written waiver executed by PAC of its rights hereunder shall be
null and void and shall have no force or effect.
SECTION 2. "TAG-ALONG" RIGHTS.
(a) Sales of PAC Shares by PAC Holders. In the event that any
----------------------------------
PAC Holder or PAC Holders (as hereinafter defined) shall propose to
transfer, sell or
3
<PAGE>
otherwise dispose, in one or more transactions, of PAC Shares (as
hereinafter defined) comprising ten percent (10%) or more of the
outstanding Common Stock, for value (a "Tag-Along Sale") to a third
party or third parties (a "Proposed Purchaser"), other than pursuant
to an Exempt Transfer (as hereinafter defined), each Stockholder
Holder (as hereinafter defined) shall have the right and option
("Tag-Along Rights"), but not the obligation, to participate in such
Tag-Along Sale, on the same terms and subject to the same conditions
as the Tag-Along Sale proposed by such PAC Holder, by transferring
up to a number of Stockholder Shares (as hereinafter defined) owned
by such Stockholder Holder equal to the number derived by
multiplying (x) the total number of PAC Shares which the PAC Holder
proposes to transfer in connection with such Tag-Along Sale (the
"Proposed Number of Transferred Shares"), by (y) a fraction, the
numerator of which is the total number of Stockholder Shares owned
by such Stockholder Holder, and the denominator of which is the
total number of PAC Shares then held by the PAC Holder proposing
such Tag-Along Sale(the "Proposed Stockholder Tag-Along Shares").
(b) Notices. A PAC Holder shall notify, or cause to be notified,
-------
each Stockholder Holder in writing of any proposed Tag-Along Sale at
least ten (10) Business Days (as such term is defined in the Stock
Purchase Agreement) prior to the effective date of such proposed
Tag-Along Sale (a "PAC Tag-Along Notice"). Any such PAC Tag-Along
Notice delivered to a Stockholder Holder in connection with a
proposed Tag-Along Sale shall set forth: (i) the Proposed Number of
Transferred Shares and the Proposed Stockholder Tag-Along Shares
which such Stockholder Holder is entitled to transfer in connection
with such Tag-Along Sale, (ii) the name and address of the Proposed
Purchaser of such Proposed Stockholder Tag-Along Shares in
connection with such Tag-Along Sale, (iii) the proposed amount and
form of consideration to be delivered by the Proposed Purchaser in
exchange for such Proposed Stockholder Tag-Along Shares in
connection with such Tag-Along Sale, setting forth the terms of any
proposed non-cash consideration, (iv) the material terms and
conditions of such proposed Tag-Along Sale; (v) the proposed
effective date of the proposed Tag-Along Sale, and (vi) that the
Proposed Purchaser has been informed of the Tag-Along Rights set
forth in Section 2(a) hereof, and has agreed to purchase Stockholder
Shares held by Stockholder Holders in accordance with the terms
hereof. Any Stockholder Holder may exercise the Tag-Along Rights set
forth in Section 2(a) in connection with a Tag-Along Sale described
in a PAC Tag-Along Notice by delivery of a written notice to the PAC
Holder proposing to transfer PAC Shares (a "Stockholder Tag-Along
Notice") within (5) Business Days following receipt of a PAC Tag-
Along Notice from such PAC Holder, as prescribed by the immediately
preceding sentence. Any Stockholder Tag-Along Notice delivered by a
Stockholder Holder to a PAC Holder in connection with a proposed
Tag-Along Sale shall set forth the number of Stockholder Shares that
such Stockholder Holder proposes to include in such proposed Tag-
Along Sale, which number shall not exceed the Proposed Stockholder
Tag-Along Shares which such Stockholder Holder is entitled to
transfer in connection with such proposed Tag-Along Sale pursuant to
Section 2(a) hereof.
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<PAGE>
(c) Number of Shares to be Sold. In the event that one or more
---------------------------
Stockholder Holders shall deliver a Stockholder Tag-Along Notice
pursuant to Section 2(b) hereof in connection with a proposed Tag-
Along Sale, (i) each such Stockholder Holder shall be permitted to
transfer to the Proposed Purchaser in connection with such proposed
Tag-Along Sale up to the maximum number of Proposed Stockholder Tag-
Along Shares applicable to such Stockholder Holder, and (ii) the PAC
Holder proposing to transfer PAC Shares in connection with such
proposed Tag-Along Sale shall be permitted to transfer to the
Proposed Purchaser for a 180-day period immediately following the
five (5) Business Day period set forth in Section 2(b) hereof up to
a number of PAC Shares equal to (x) the Proposed Number of
Transferred Shares, less (y) the aggregate number of Proposed
Stockholder Tag-Along Shares proposed to be transferred by all
Stockholder Holders pursuant to Section 2(b) hereof upon the
exercise of Tag-Along Rights in connection with such proposed Tag-
Along Sale, on terms and subject to conditions no more favorable to
the PAC Holder than those terms and conditions described in the PAC
Tag-Along Notice delivered by such PAC Holder pursuant to Section
2(b) hereof.
(d) Purchase Agreement and Stockholder Share Certificates. In
-----------------------------------------------------
the event that any Stockholder Holder shall elect to exercise Tag-
Along Rights in connection with a proposed Tag-Along Sale, such
Stockholder Holder shall (i) prior to closing of any such proposed
Tag-Along Sale, execute any purchase agreement or other certificate,
instrument or other agreement required by the Proposed Purchaser to
consummate the proposed Tag-Along Sale; provided, however, that any
such purchase agreement or other certificates instruments and other
agreements shall be on terms no less favorable to the Stockholder
Holder than as those executed by the PAC Holder with respect to the
PAC Shares proposed to be sold or otherwise disposed of in
connection with such Tag-Along Sale, including, without limitation,
the amount and form of the purchase price therefor, the provision
of, and representation and warranty as to, information requested by
such PAC Holder from the Proposed Purchaser, and the provision of
requisite indemnifications from the Proposed Purchaser; and
provided, further, that any indemnification provided by each PAC
Holder and Stockholder Holder participating in such proposed Tag-
Along Sale to the Proposed Purchaser shall be made pro rata in
proportion to the number of PAC Shares and Stockholder Shares to be
sold or otherwise disposed of in connection with such Tag-Along
Sale, and (ii) at the closing of any such proposed Tag-Along Sale,
deliver to the PAC Holder the certificate or certificates
representing the Stockholder Shares to be sold or otherwise disposed
of in connection with such proposed Tag-Along Sale by such
Stockholder Holder, duly endorsed for transfer with signatures
guaranteed, against receipt of the purchase price therefor.
(e) Custody Agreement and Power of Attorney. Upon delivery of a
---------------------------------------
Stockholder Tag Along Notice in connection with a proposed Tag Along
Sale pursuant to Section 2(b) hereof, the Stockholder Holder
delivering such Stockholder Tag-Along Notice shall, if requested by
the PAC Holder proposing to effect such Tag-Along Sale, execute and
deliver a custody agreement and power
5
<PAGE>
of attorney in form and substance reasonably satisfactory to such
PAC Holder with respect to Stockholder Shares which are to be sold
or otherwise disposed of in connection with such Tag-Along Sale to
the Proposed Purchase.
(f) Certain Definitions. As used in this Agreement, the
-------------------
following terms shall have the respective meanings:
"Exempt Transfer" means (i) a transfer by a PAC Holder to any PAC
Affiliate, or a transfer by a Stockholder Holder to any Stockholder Affiliate,
(ii) a transfer by any PAC Affiliate to another PAC Affiliate, or by any
Stockholder Affiliate to another Stockholder Affiliate, (iii) a transfer in the
form of dividends or distributions (whether upon liquidation or otherwise) by
PAC and a PAC Affiliate, or by a Stockholder and a Stockholder Affiliate, to its
stockholders, members, or partners, as the case may be (and any subsequent
transfer by any such stockholder, member, or partner), (iv) a transfer by any
PAC Holder or Stockholder Holder (a "Holder") effected pursuant to Rule 144
under the Securities Act, (v) a transfer by any PAC Holder or Stockholder Holder
effected pursuant to a Registration Statement declared or ordered effective by
the United States Securities and Exchange Commission (the "SEC") under the
Securities Act, (vi) a transfer by a Stockholder Holder to a Proposed Purchaser
pursuant to Section 2 or Section 3 hereof, (vii) upon the death of a PAC Holder
or Stockholder Holder that is an individual to his or her executors,
administrators, testamentary trustees, legatees or beneficiaries, or (viii) a
transfer by a PAC Holder or Stockholder Holder that is an individual to a trust,
the beneficiaries of which may include only the transferring Holder, his or her
spouse, or his or her lineal descendants (which term shall include biological as
well as adoptive descendants), or from the trustee of such trust to the
beneficiaries of such trust, or to another trustee of a trust with identical
beneficiaries (provided that such Holder retains the sole and exclusive right to
vote or dispose of any Restricted Shares transferred to such trust,
beneficiaries, spouse or lineal descendant); provided, however, that in the case
of clauses (i), (ii), (vii) and (viii) of this definition, the transferee agrees
in writing to be bound by the terms and provisions of this Agreement in the same
manner as the transferor.
"PAC Affiliate" means, (i) PAC, (ii) a person or entity that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, PAC, including, without
limitation, any of PAC's members or any other corporation, limited liability
company, limited partnership, general partnership or other entity, directly or
indirectly, controlled by TC Group, L.L.C. or CEP General Partner L.P., or (iii)
any stockholder, partner or member of any PAC Affiliate.
"PAC Holder" means, as of any date of determination, (i) PAC, (ii)
any PAC Affiliate and (iii) any other person or entity to whom PAC or any other
PAC Holder transfers PAC Shares, which person or entity is required by this
Agreement to be bound by the terms and provisions of this Agreement in the same
manner as the transferor.
"PAC Shares" means, as of any date of determination, (i) the shares
of Common Stock then held by any PAC Holders, and (ii) the shares of Common
Stock issuable upon the conversion, exercise or exchange of any options,
warrants, and other securities or any other rights to purchase or otherwise
acquire shares of Common Stock then held by any PAC Holders.
6
<PAGE>
"Stockholder Affiliate" means, with respect to any Stockholder, a
person or entity that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
such Stockholder, including, without limitation, any of Genstar's partners or
Stargen's members.
"Stockholder Holder" means, as of any date of determination, (i) any
Stockholder, (ii) any Stockholder Affiliate, and (iii) any other person or
entity to whom any Stockholder or any other Stockholder Holder transfers
Stockholder Shares, which person or entity is required by this Agreement to be
bound by the terms and provisions of this Agreement in the same manner as the
transferor.
"Stockholder Shares" means, as of any date of determination, (i) the
shares of Common Stock then held by any Stockholder Holders, and (ii) the shares
of Common Stock issuable upon the conversion, exercise or exchange of any
options, warrants, and other securities or any other rights to purchase or
otherwise acquire shares of Common Stock then held by any Stockholder Holders.
SECTION 3. "DRAG-ALONG" RIGHTS.
(a) Sales of PAC Shares by PAC Holders. Notwithstanding Section
----------------------------------
2 hereof, in the event that any PAC Holder or PAC Holders shall
propose to transfer, sell or otherwise dispose, in one or more
transactions, of PAC Shares comprising ten percent (10%) or more of
the outstanding Common Stock, for value (a "Drag-Along Sale") to a
Proposed Purchaser, other than pursuant to an Exempt Transfer, then
upon the request of such PAC Holder, each Stockholder Holder shall
sell to such Proposed Purchaser in connection with such Drag-Along
Sale, at the same price, upon the same terms and subject to the same
conditions applicable to the PAC Holder in connection therewith, the
number of Stockholder Fully-Diluted Shares (as hereinafter defined)
equal to the number derived by multiplying (x) the number of
Stockholder Fully-Diluted Shares then held by such Stockholder
Holder, by (y) a fraction, the numerator of which is the total
number of PAC Shares that the PAC Holder proposes to transfer to
such Proposed Purchaser in connection with such proposed Drag-Along
Sale, and the denominator of which is the total number of PAC Shares
(the "Stockholder Drag-Along Shares"). The rights set forth in this
Section 3(a) shall be referred to herein as "Drag-Along Rights."
(b) Notice. A PAC Holder shall notify, or cause to be notified,
------
each Stockholder Holder in writing of any proposed Drag-Along Sale
at least ten (10) Business Days prior to the effective date of such
proposed Drag-Along Sale (a "PAC Drag-Along Notice"). Any such Drag-
Along Notice delivered to a Stockholder Holder in connection with a
proposed Drag-Along Sale shall set forth: (i) the Stockholder Drag-
Along Shares to be transferred by such Stockholder Holder in
connection with such Drag-Along Sale, (ii) the name and address of
the Proposed Purchaser in connection with such Drag-Along Sale,
(iii) the proposed amount and form of consideration to be delivered
by the Proposed Purchaser in exchange for such Stockholder Drag-
Along Shares, setting
7
<PAGE>
forth the terms of any non-cash consideration, (iv) the material
terms and conditions of such Drag-Along Sale, (v) the proposed
effective date of the proposed Drag-Along Sale and the date upon
which the Stockholder Holders shall deliver to the PAC Holder the
certificates or other documentation representing the Stockholder
Fully-Diluted Shares to be transferred in connection with such Drag-
Along Sale, duly endorsed for transfer, and (vi) that the Proposed
Purchaser has been informed of the Drag-Along Rights, and has agreed
to purchase all of the applicable Stockholder Fully-Diluted Shares
in accordance with the terms hereof.
(c) Stockholder Share Certificates. In the event that any PAC
------------------------------
Holder shall elect to exercise Drag-Along Rights in connection with
a Drag-Along Sale, upon receipt of a PAC Drag-Along Notice, each
Stockholder Holder shall deliver to the PAC Holder the certificate
or certificates (or other documentation) representing the applicable
Stockholder Fully-Diluted Shares to be sold in connection with such
Drag-Along Sale, duly endorsed for transfer with signatures
guaranteed against receipt of the purchase price therefor, on or
before the date set forth in the Drag-Along Notice for such
delivery.
(d) Purchase Agreement and Stockholder Share Certificates. In
-----------------------------------------------------
the event that any PAC Holder shall elect to exercise Drag-Along
Rights in connection with a proposed Drag-Along Sale, such
Stockholder Holder shall (i) prior to closing of any such proposed
Drag-Along Sale, execute any purchase agreement or other
certificates, instruments and other Agreement required by the
Proposed Purchaser to consummate the proposed Drag-Along Sale;
provided, however, that any such purchase agreement or other
certificates instruments and other agreements shall be on terms no
less favorable to the Stockholder Holder than are those executed by
the PAC Holder with respect to the PAC Shares proposed to be sold or
otherwise disposed of in connection with such Drag-Along Sale,
including, without limitation, the amount and form of the purchase
price therefor, the provision of, and representation and warranty as
to, information requested by such PAC Holder from the Proposed
Purchaser, and the provision of requisite indemnifications from the
Proposed Purchaser; and provided, further, that any indemnification
provided by each PAC Holder and Stockholder Holder participating in
such proposed Drag-Along Sale to the Proposed Purchaser shall be
made pro rata in proportion to the number of PAC Shares and
Stockholder Shares to be sold or otherwise disposed of in connection
with such Drag-Along Sale, and (ii) at the closing of any such
proposed Drag-Along Sale, deliver to the PAC Holder the certificate
or certificates representing the Stockholder Shares to be sold or
otherwise disposed of in connection with such proposed Drag-Along
Sale by such Stockholder Holder, duly endorsed for transfer with
signatures guaranteed, against receipt of the purchase price
therefor.
(e) Effect of Drag-Along Sale. In the event that a Stockholder
-------------------------
Holder shall receive such Stockholder Holder's proportionate share
of the purchase price from a Drag-Along Sale, but has failed to
deliver a certificate or certificates (or other documentation, if
applicable) representing the Stockholder Fully-Diluted Shares sold
by such Stockholder Holder in connection with such Drag-Along
8
<PAGE>
Sale, as described in this Section 3, such Stockholder Holder shall
thereafter no longer be deemed to be the holder of such Stockholder
Fully-Diluted Shares for any purposes, shall have no voting rights,
shall not be entitled to any dividends or other distributions and
shall have no other rights or privileges granted to stockholders
under law or this Agreement with respect to such Stockholder Fully-
Diluted Shares.
(f) As used in this Section 3, "Stockholder Fully-Diluted
Shares" means, as of any date of determination, (i) all shares of
Common Stock then held by all Stockholder Holders, plus (ii) all
shares of Common Stock issuable upon the conversion, exercise or
exchange of any options, warrants, and other securities or any other
rights to purchase or otherwise acquire shares of Common Stock then
held by all Stockholder Holders.
SECTION 4. COMPANY SALE.
(a) If the Board of Directors and the holders of a majority of
the outstanding shares of Common Stock approve a Company Sale (as
defined below), each Stockholder agrees that he shall consent to and
raise no objections against such Company Sale, and if the Company
Sale is structured as a sale of stock, each Stockholder shall sell
all or any portion of the Restricted Shares in connection with such
Company Sale on the terms and conditions approved by the Board of
Directors and the holders of a majority of the outstanding shares of
Common Stock. Following approval of a Company Sale by holders of a
majority of the outstanding shares of Common Stock, each Stockholder
hereby agrees to take all actions that the Board of Directors and
the holders of a majority of the outstanding shares of Common Stock
reasonably deem necessary or desirable in connection with the
consummation of such Company Sale. Notwithstanding anything herein
to the contrary, a Stockholder shall be obligated under this Section
4 only if such Stockholder shall receive in connection with the
Company Sale the same consideration (or, with the Stockholder's
approval, an amount of cash of equivalent value) per share of Common
Stock held by such Stockholder to the consideration received by each
PAC Affiliate for each share of Common Stock held by such PAC
Affiliate in connection with such Company Sale.
(b) If the Company or the holders of the Company's securities
enter into any negotiation with respect to a Company Sale which
involves the issuance of Securities (as defined in the Securities
Act) to the holders of shares of Common Stock for which Rule 506 (or
any similar rule then in effect) promulgated under the Securities
Act may be available, each Stockholder that is unable to represent
that it is an accredited investor shall, if requested by the
Company, appoint a stockholder representative (as such term is
defined in Rule 501 of the Securities Act) reasonably acceptable to
the Company to advise Stockholder in connection with such Company
Sale. If such stockholder representative was designated by the
Company, the Company shall pay the fees of such stockholder
representative, but if Stockholder appoints another stockholder
representative, Stockholder shall be responsible for the fees of the
stockholder representative so appointed.
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<PAGE>
(c) Stockholders shall bear their pro-rata share (based upon
the number of shares held by Stockholders that are sold in such
Company Sale) of the costs of any sale of Common Stock pursuant to a
Company Sale to the extent such costs are incurred for the benefit
of all holders of Common Stock and are not otherwise paid by the
Company, the acquiring party, or any other person.
(d) For the purpose hereof, "Company Sale" shall mean the
consummation of any transaction or series of transactions pursuant
to which one or more persons or entities or group of persons or
entities (other than any PAC Affiliate) acquires (i) capital stock
of the Company possessing the voting power sufficient to elect a
majority of the members of the Board of Directors of the Company or
its successor(s) (whether such transaction is effected by merger,
consolidation, recapitalization, sale or transfer of the Company's
capital stock or otherwise) or (ii) all or substantially all of the
assets of the Company and its subsidiaries.
SECTION 5. REGISTRATION RIGHTS.
(a) Piggyback Registrations. If the Company at any time proposes to
-----------------------
register under the Securities Act any shares of Common Stock or any security
convertible into or exchangeable or exercisable for shares of Common Stock,
whether or not for sale for its own account, on a form and in a manner which
would permit registration of shares of Common Stock held by a Stockholder or PAC
Affiliate for sale to the public under the Securities Act other than in an
initial public offering, the Company shall give written notice of the proposed
registration to each Stockholder and PAC Affiliate not later than thirty (30)
days prior to the filing thereof. Each Stockholder and each PAC Affiliate shall
have the right to request that all or any part of his or its Common Stock be
included in such registration. Each Stockholder and each PAC Affiliate can make
such a request by giving written notice to the Company within ten (10) business
days after the giving of such notice by the Company (any Stockholder or PAC
Affiliate giving the Company a notice requesting that shares of Common Stock
owned by it be included in such proposed registration being hereinafter referred
to in this Section 5 as a "Registering Stockholder"); provided, however, that if
the registration is an underwritten registration and the managing underwriters
of such offering determine that the aggregate amount of securities of the
Company which the Company, all Registering Stockholders and all other
stockholders of the Company entitled to register securities in connection with
any offering ("Other Registering Stockholders") propose to include in such
registration statement exceeds the maximum amount of securities that may be sold
without having a material adverse effect on the success of the offering,
including, without limitation, the selling price and other terms of such
offering, the Company will include in such registration, first, the securities
which the Company proposes to sell and, second, the shares of Common Stock of
such Registering Stockholders and the shares of Common Stock to be sold for the
account of Other Registering Stockholders, pro rata among all such Registering
Stockholders and such Other Registering Stockholders, taken together, on the
basis of the relative number of shares of Common Stock owned by all Registering
Stockholders and such Other Registering Stockholders who have requested that
securities owned by them be so included (it being further agreed and understood,
however, that such underwriters shall have the right to eliminate entirely the
participation of the Registering Stockholders in such registration of all
Registering Stockholders if such underwriters eliminate entirely the
participation in such
10
<PAGE>
registration of all such Other Registering Stockholders). Shares of Common Stock
proposed to be registered and sold pursuant to an underwritten offering for the
account of any Registering Stockholder shall be sold to the prospective
underwriters selected or approved by the Company and on the terms and subject to
the conditions of one or more underwriting agreements negotiated between the
Company and the prospective underwriters. Any Registering Stockholder who holds
shares being registered in any offering shall have the right to receive a copy
of the form of underwriting agreement and shall have an opportunity to hold
discussions with the lead underwriter of the terms of such underwriting
agreement. The Company may withdraw any registration statement at any time
before it becomes effective, or postpone or terminate the offering of
securities, without obligation or liability to any Registering Stockholder.
(b) Holdback Agreements. Notwithstanding any other provision of this
-------------------
Section 5, each Stockholder and each PAC Affiliate agrees that (if so required
by the underwriters in an underwritten offering) he or she will not (and it
shall be a condition to the rights of each Stockholder or PAC Affiliate under
this Section 5 that such Stockholder or PAC Affiliate do not) offer for public
sale any shares of Common Stock during a period not to exceed one-hundred and
eighty (180) days after the effective date of any registration statement filed
by the Company in connection with an underwritten public offering (except as
part of such underwritten registration or as otherwise permitted by such
underwriters).
(c) Expenses. Except as otherwise required by state Securities or blue
--------
sky laws or the rules and regulations promulgated thereunder, all expenses,
disbursements and fees incurred by the Company and the Stockholders and PAC
Parties in connection with any registration under this Section 5 shall be borne
by the Company, except that the following expenses shall be borne by the
Stockholder or PAC Affiliate incurring the same: (i) the costs and expenses of
counsel to such Stockholder or PAC Affiliate to the extent such Stockholder or
PAC Affiliate retains counsel (other than (i) counsel to the Company, (ii) one
counsel representing the Stockholders and selected by the holders of a majority
of the Stockholder Shares and (iii) one counsel representing the PAC Parties,
whose reasonable fees and expenses shall be paid by the Company); (ii)
discounts, commissions, fees or similar compensation owing to underwriters,
selling brokers, dealer managers or other industry professionals, to the extent
relating to the distribution or sale of such Stockholder's or PAC Affiliate's
securities; (iii) transfer taxes with respect to the securities sold by such
Stockholder or such PAC Affiliate; and (iv) other expenses incurred by such
Stockholder or such PAC Affiliate and incidental to the sale and delivery of the
securities to be sold by such Stockholder or such PAC Affiliate.
(d) Registration Procedures. In connection with any registration of
shares of Common Stock under the Securities Act pursuant to this Agreement, the
Company will consult with each Registering Stockholder whose Common Stock is to
be included in any such registration concerning the form of underwriting
agreement, shall provide to such Registering Stockholder the form of
underwriting agreement prior to the Company's execution thereof and shall
provide to such Registering Stockholder and its representatives such other
documents (including comments by the SEC on the Registration Statement) as such
Registering Stockholder shall reasonably request in connection with its
participation in such registration. The Company will furnish each Registering
Stockholder whose Common Stock is registered thereunder and each underwriter, if
any, with a copy of the registration statement and all amendments thereto and
will supply each such Registering Stockholder and each underwriter, if any, with
copies of any
11
<PAGE>
prospectus included therein (a "Prospectus") (including a preliminary prospectus
and all amendments and supplements thereto), in such quantities as may be
reasonably necessary for the purposes of the proposed sale or distribution
covered by such registration. The Company shall not, however, be required to
maintain the registration statement effective or to supply copies of a
prospectus for a period beyond ninety (90) days after the effective date of such
registration statement and, at the end of such period, the Company may
deregister any securities covered by such registration statement and not then
sold or distributed. In the event that the Company prepares and files with the
SEC a registration statement or registration statements on any appropriate form
under the Securities Act (a "Registration Statement"), which provides for the
sale of shares of Common Stock held by any Registering Stockholder pursuant to
its obligations under this Section 5 and such Registration Statement becomes
effective under the Securities Act, the Company will:
(i) upon filing a Registration Statement or any Prospectus or any
amendments or supplements thereto, the Company will furnish to
the Registering Stockholders whose Common Stock is covered by
such Registration Statement and the underwriters, if any,
copies of all such documents;
(ii) prepare and file with the SEC such amendments and post-
effective amendments to a Registration Statement as may be
necessary to keep such Registration Statement effective for
the ninety (90) day period referenced in paragraph (a) above;
cause the related Prospectus to be supplemented by any
required Prospectus supplement, and as so supplemented to be
filed pursuant to Rule 424 under the Securities Act; and
comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such
Registration Statement during the applicable period in
accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement or
supplement to such Prospectus;
(iii) notify the Registering Stockholders and the managing
underwriters, if any, promptly, and (if requested by any such
person or entity) confirm such advice in writing, (A) when a
Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to a Registration
Statement or any post-effective amendment, when the same has
become effective, (B) of any request by the SEC or any state
blue sky commission for amendments or supplements to a
Registration Statement or related Prospectus or for additional
information, (C) of the issuance by the SEC or any state blue
sky commission of any stop order suspending the effectiveness
of a Registration Statement or the initiation of any
proceedings for that purpose, (D) of the receipt by the
Company of any notification with respect to the suspension of
the qualification of any of the Common Stock for sale in any
jurisdiction or the initiation or threatening of any
proceeding for such purpose, and (E) of the existence of any
fact which results in a Registration Statement, a Prospectus
or any document incorporated therein by reference containing
an untrue statement of a material fact or omitting to state a
material fact required to
12
<PAGE>
be stated therein or necessary to make the statements therein
not misleading;
(iv) use its reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of a Registration
Statement;
(v) if requested by the managing underwriters or a Registering
Stockholder, promptly incorporate in a Prospectus supplement
or post-effective amendment such information as the managing
underwriters or the Registering Stockholders holding a
majority of the Common Stock being sold by Registering
Stockholders agree should be included therein relating to the
sale of such Common Stock, including without limitation,
information with respect to the amount of Common Stock being
sold to such underwriters, the purchase price being paid
therefor by such underwriters and with respect to any other
terms of the underwritten (or best efforts underwritten)
offering of the Common Stock to be sold in such offering; and
make all required filings of such Prospectus supplement or
post-effective amendment as soon as notified of the matters to
be incorporated in such Prospectus supplement or post-
effective amendment;
(vi) furnish to such Registering Stockholder and each managing
underwriter at least one signed copy of the Registration
Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated
therein by reference and all exhibits (including those
incorporated by reference);
(vii) deliver to such Registering Stockholders and the underwriters,
if any, as many copies of the Prospectus (including each
preliminary prospectus) and any amendment or supplement
thereto as such persons or entities may reasonably request;
(viii) prior to any public offering of Common Stock, register or
qualify or cooperate with the Registering Stockholders, the
underwriters, if any, and their respective counsel in
connection with the registration or qualification of such
Common Stock for offer and sale under the securities or blue
sky laws or such jurisdictions within the United States as any
Registering Stockholder or underwriter reasonably requests in
writing and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of
the Common Stock covered by the applicable Registration
Statement; provided that the Company will not be required to
qualify generally to do business in any jurisdiction where it
is not then so qualified or to take any action which would
subject it to general service of process or taxation in any
such jurisdiction where it is not then so subject;
(ix) cooperate with the Registering Stockholders and the managing
underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing shares of Common Stock
to be sold pursuant to
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<PAGE>
such Registration Statement and not bearing any restrictive
legends, and enable such shares of Common Stock to be in such
denominations and registered in such names as the managing
underwriters may request at least two business days prior to
any sale of Common Stock to the underwriters;
(x) if any fact contemplated by paragraph (iii)(E) above shall
exist, prepare a supplement or post-effective amendment to the
applicable Registration Statement or the related Prospectus or
any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to
the purchasers of the Common Stock being sold thereunder, such
Prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the
statements therein not misleading;
(xi) cause all Common Stock covered by the Registration Statement
to be listed on each securities exchange on which similar
securities issued by the Company are then listed;
(xii) provide a CUSIP number for all shares of Common Stock included
in such Registration Statement, not later than the effective
date of the applicable Registration Statement;
(xiii) enter into such agreements (including an underwriting
agreement in form reasonably satisfactory to the Company) and
take all such other reasonable actions in connection therewith
in order to expedite or facilitate the disposition of such
Common Stock;
(xiv) make available for inspection by a representative of the
Registering Stockholders, any underwriter participating in any
disposition pursuant to a Registration Statement, and any
attorney or accountant retained by such Registering
Stockholders or underwriter, all financial and other records,
any pertinent corporate documents and properties of the
Company reasonably requested by such representative,
underwriter, attorney or accountant in connection with such
Registration Statement; provided, that any records,
information or documents that are designated by the Company in
writing as confidential shall be kept confidential by such
persons or entities unless disclosure of such records,
information or documents is required by court or
administrative order; and
(xv) otherwise use his or its reasonable best efforts to comply
with all applicable rules and regulations of the SEC and
relevant state blue sky commissions, and make generally
available to the Registering Stockholders earning statements
satisfying the provisions of Section 11(a) of the Securities
Act no later than forty-five (45) days after the end of any
12-month period (or ninety (90) days, if such period is a
fiscal year) commencing at the end of any fiscal quarter in
which Common Stock of
14
<PAGE>
such Registering Stockholder is sold to underwriters in an
underwritten offering, or, if not sold to underwriters in such
an offering, beginning with the first month of the Company's
first fiscal quarter commencing after the effective date of a
Registration Statement, which statements shall cover said 12-
month periods.
(e) Conditions to Stockholder Rights: Indemnification by
----------------------------------------------------
Stockholder. It shall be a condition of each Registering Stockholder's
-----------
rights hereunder to have Common Stock owned by it registered that:
(i) such Registering Stockholder shall cooperate with the Company
in all reasonable respects by supplying information and
executing documents relating to such Registering Stockholder
or the securities of the Company owned by such Registering
Stockholder in connection with such registration;
(ii) such Registering Stockholder shall enter into such
undertakings and take such other action relating to the
conduct of the proposed offering which the Company or the
underwriters may reasonably request as being necessary to
ensure compliance with federal and state securities laws and
the rules or other requirements of the NASD or otherwise to
effectuate the offering; and
(iii) such Registering Stockholder shall execute and deliver an
agreement to indemnify and hold harmless the Company and each
underwriter (as defined in the Securities Act), and each
person or entity, if any, who controls such underwriter within
the meaning of the Securities Act, against such losses,
claims, damages or liabilities (including reimbursement for
legal and other expenses) to which such underwriter or
controlling person or entity may become subject under the
Securities Act or otherwise, in such manner as is customary
for registrations of the type then proposed and, in any event,
at least equivalent in scope to indemnities given by the
Company in connection with such registration, but only with
respect to information furnished in writing by such
Registering Stockholder specifically for use in the
Registration Statement or Prospectus in connection with such
registration and with respect to such Registering
Stockholder's failure to deliver Prospectuses as required
under the Securities Act (so long as the Company has delivered
copies of the Prospectus to such Registering Stockholder).
(f) Indemnification by Company. In the event of any
--------------------------
registration under the Securities Act of any Common Stock of
Registering Stockholders pursuant to this Section 56, the Company
shall execute and deliver an agreement to indemnify and hold harmless
each Registering Stockholder disposing of such Common Stock and any
underwriter in connection with such disposition against such losses,
claims, damages or liabilities (including reimbursement for legal and
other expenses) to which such Registering Stockholder may become
subject under
15
<PAGE>
the Securities Act or otherwise, in such manner as is customary in
underwriting agreements for registrations of the type then proposed.
(g) Rule 144. The Company covenants that it will file the
--------
reports required to be filed by it under the Securities Act and the
Securities Exchange Act of 1934, as amended, and the rules and
regulations adopted by the SEC thereunder so that the conditions of
Rule 144(c) are satisfied. Upon the request of any Registering
Stockholder, the Company will deliver to such Registering
Stockholder a written statement as to whether it has complied with
such requirements.
(h) Priority. Without the consent of the holders of at least a
--------
majority of the Stockholder Shares, the Company shall not grant PAC
or any PAC Affiliate registration rights with respect to any Common
Stock held by PAC or such PAC Affiliate as of the date hereof or
hereafter acquired by any of them that are prior in right to the
registration rights granted to the Stockholders hereunder. Subject
to the foregoing and notwithstanding any other provision of this
Section 5, the Company may without the consent of the Parties, grant
registration rights senior to the rights of the Parties pursuant to
this Section 5.
SECTION 6. PREEMPTIVE RIGHTS.
(a) The Company hereby grants to each Holder the option and
right to purchase (a "Preemptive Right"), pursuant to the terms and
conditions of this Section 6, such Holder's pro rata share of any
Common Stock, or options, warrants, subscriptions, rights or other
securities convertible into or exchangeable for shares of Common
Stock ("Common Stock Equivalent Securities"), which the Company may
from time to time propose to sell for cash to a PAC Affiliate prior
to the Company's initial public offering; provided, however, that
notwithstanding the foregoing, no Holder shall have any Preemptive
Right to purchase such Holder's pro rata share of (i) Common Stock
issued upon the exercise of stock options granted to and held by the
employees, directors or consultants of the Company, or (ii) Common
Stock issued to leasing entities or financial institutions in
connection commercial leasing or borrowing transactions.
(b) In the event that the Company proposes to undertake an
issuance of Common Stock or Common Stock Equivalent Securities to a
PAC Affiliate prior to its initial public offering, the Company
shall give the Stockholders written notice (the "Preemptive Right
Notice") of the Company's intention to sell Common Stock or Common
Stock Equivalent Securities for cash, the proposed price therefor,
the identity of the proposed purchaser thereof, and the principal
terms and conditions upon which the Company proposes to issue and
sell such Common Stock or Common Stock Equivalent Securities. Each
Stockholder shall have thirty (30) calendar days from the delivery
date of any such Preemptive Right Notice to agree to purchase an
amount of Common Stock or Common Stock Equivalent Securities (as the
case may be) up to such Stockholder's Preemptive Right pro rata
share (calculated prior to the proposed issuance) for the
16
<PAGE>
purchase price, and upon the terms and conditions specified in, the
Preemptive Right Notice, by delivery of written notice thereof to
the Company, which notice shall state therein the amount of Common
Stock or Common Stock Equivalent Securities to be so purchased in
connection therewith.
(c) In the event that any Stockholder shall fail to purchase
all of such Stockholder's Preemptive Right pro rata share of any
Common Stock or Common Stock Equivalent Securities proposed to be
sold by the Company pursuant to the Preemptive Right provided for in
this Section 6, the Company shall have 180 calendar days after the
last date on which such Stockholder's Preemptive Right lapsed to
sell the Common Stock or Common Stock Equivalent Securities in
respect of which such Stockholder's Preemptive Right was not
exercised, at or above the purchase price, and upon terms not more
favorable to the purchasers of such Common Stock or Common Stock
Equivalent Securities, than the terms specified in the initial
Preemptive Right Notice delivered in connection with such sale. In
the event that the Company shall not have sold the Common Stock or
Common Stock Equivalent Securities proposed to be sold as described
in a Preemptive Right Notice within such 180-day period, the Company
shall not thereafter issue or sell any Common Stock or Common Stock
Equivalent Securities to a PAC Party without first offering such
Common Stock or Common Stock Equivalent Securities (as the case may
be) to the Stockholders pursuant to the Preemptive Right provided in
this Section 6.
SECTION 7. MISCELLANEOUS.
(a) Financial Information. If 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
"reporting requirements"), the Company shall deliver to Genstar and
StarGen, on the date that it is required to file such documents with
the Securities and Exchange Commission (the "Commission"), annual
and quarterly reports as filed with the Commission, which reports
include the consolidated financial information of the Company and
its subsidiaries. If neither the Company nor any direct or indirect
Parent of the Company is subject to the reporting requirements, the
Company shall deliver to Genstar and StarGen, on the date that it
would have been (if it were subject to such reporting requirements)
required to file such documents with the Commission annual and
quarterly financial statements and a management's discussion and
analysis ("MD&A") substantially equivalent to the annual and
quarterly financial statements and MD&A with respect to the Company
and its subsidiaries that would have been included in reports filed
with the Commission if the Company (or any direct or indirect Parent
of the Company) were subject to the reporting requirements.
17
<PAGE>
(b) Legends. Each certificate representing the Restricted
-------
Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR
THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR TRANSFERRED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
AND SAID LAWS OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
THEREOF."
"THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER AND CERTAIN OTHER AGREEMENTS SET FORTH IN A
STOCKHOLDERS AGREEMENT BETWEEN THE ISSUER AND THE INITIAL HOLDER
HEREOF DATED AS OF NOVEMBER 24,1999. A COPY OF SUCH AGREEMENT SHALL
BE FURNISHED WITHOUT CHARGE BY THE ISSUER TO THE HOLDER HEREOF UPON
WRITTEN REQUEST."
(c) Successors, Assigns and Transferees. This Agreement
-----------------------------------
shall be binding upon and inure to the benefit of the Parties hereto
and their respective legal representatives, heirs, legatees,
successors, and assigns and any other transferee of the Restricted
Shares and shall also apply to any Restricted Shares acquired by
Stockholders, Stockholder Affiliates or a PAC Affiliate after the
date hereof. In the event that PAC transfers all or any portion of
its shares to any PAC Affiliate, such PAC Affiliate shall execute a
signature page to this Agreement as provided in Section 7(k) hereof
and agree to be bound by the terms hereof and shall become a "Party"
for all purposes hereunder.
(d) Specific Performance, Etc. The Company, each PAC
-------------------------
Affiliate and each Stockholder, in addition to being entitled to
exercise all rights provided herein or granted by law, including
recovery of damages, shall be entitled to specific performance of
each other Parties' obligations under this Agreement. The Company,
PAC and each Stockholder agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by
any of them of the provisions of this Agreement and each hereby
agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate.
(e) Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York.
(f) Interpretation. The headings of the Sections contained
--------------
in this Agreement are solely for the purpose of reference, are not
part of the agreement of the Parties and shall not affect the
meaning or interpretation of this Agreement.
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<PAGE>
(g) Notices. All notices and other communications provided
-------
for or permitted hereunder shall be in writing and shall be deemed
to have been duly given and received when delivered by overnight
courier or hand delivery, when sent by telecopy, or five days after
mailing if sent by registered or certified mail (return receipt
requested) postage prepaid, to the Parties at the following
addresses (or at such other address for any Party as shall be
specified by like notices, provided that notices of a change of
address shall be effective only upon receipt thereof).
If to the Company, at:
Panolam Industries Holdings, Inc.
20 Progress Drive
Shelton, Connecticut 06484
Attention: Robert J. Muller, Jr.
Facsimile: (203) 925-0050
with copies to:
PAC, at the address given below and
Latham & Watkins
505 Montgomery Street
Suite 1900
San Francisco, California 94111
Attention: Scott R. Haber, Esq.
Facsimile: (415) 395-8095
If to PAC, at:
Panolam Acquisition Company, L.L.C.
c/o The Carlyle Group, L.L.C.
1001 Pennsylvania Avenue, NW
Suite 220
Washington, D.C. 20004
Attention: Jerome Powell
Facsimile: (202) 347-1818
with copies to:
Gibson, Dunn & Crutcher LLP
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Attention: Howard D. Adler, Esq.
Facsimile: (202) 467-0539
If to Genstar or Stargen at:.
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<PAGE>
Genstar Capital Partners II, L.P.
555 California Street, Suite 4850
San Francisco, CA 94104
Attention: Jean-Pierre Conte
Facsimile: (415) 834-2385
With copies to:
Latham & Watkins
505 Montgomery Street, Suite 1900
San Francisco, CA 94111
Attention: Scott R. Haber, Esq.
Michael S. Ringler, Esq.
Facsimile: (415) 395-8095
(h) Recapitalization, Exchange, Etc. Affecting the Company's
--------------------------------------------------------
Stock. The provisions of this Agreement shall apply, to the full
-----
extent set forth herein, with respect to any and all shares of
capital stock of the Company or any successor or assign of the
Company (whether by merger, consolidation, sale of assets, or
otherwise) that may be issued in respect of, in exchange for, or in
substitution of, the Restricted Shares and shall be appropriately
adjusted for any stock dividends, splits, reverse splits,
combinations, recapitalizations, and the like occurring after the
date hereof. This Agreement shall also apply to any shares of Common
Stock acquired by the Stockholders at any time hereafter, whether as
a result of exercising Vested Options or otherwise without any
further action by such Stockholder.
(i) Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed to be an original
and all of which together shall be deemed to constitute one and the
same agreement.
(j) Severability. In the event that any one or more of the
------------
provisions contained herein or the application thereof in any
circumstances, is 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 contained herein shall not be in any way impaired thereby
to the extent consistent with the intent of the parties as reflected
by this Agreement.
(k) Amendment. This Agreement may be amended only by written
---------
agreement executed by Holders of a majority of the PAC Shares and
holders of at least a majority of the Stockholder Shares (a
"Stockholder Majority"). At any time hereafter, Permitted
Transferees may be made parties hereto by executing a signature page
in the form attached as Exhibit A hereto, which signature page shall
be countersigned by the Company and shall be attached to this
Agreement and become a part hereof without any further action of any
other party hereto.
20
<PAGE>
(l) Effectiveness. This Agreement shall be effective from
-------------
and after the Closing (as defined in the Stock Purchase Agreement).
In the event that the Stock Purchase Agreement is terminated prior
to the consummation of the transactions contemplated thereby, this
Agreement shall immediately terminate and be of no further force and
effect.
(m) Determination of Fair Market Value. The "fair market
---------------- -----------------
value" of any securities for any purpose hereunder shall be
determined by the Company and the Stockholder as follows:
(i) if such security is listed on one or more national
securities exchanges (within the meaning of the Securities
Exchange Act of 1934, as amended), the fair market value
shall be the average closing price of such security for the
most recent twenty (20) trading days on the principal
exchange on which such security is then trading;
(ii) if such security is not traded on a national securities
exchange but is quoted on NASDAQ or a successor quotation
system, the fair market value shall be the average last
sales price for the most recent twenty (20) trading days as
reported by NASDAQ or such successor quotation system; or
(iii) if such security is not publicly traded on a national
securities exchange and is not quoted on NASDAQ or a
successor quotation system, the fair market value shall be
agreed upon by the Stockholder and the Company; provided
that if the Stockholder and the Company cannot agree on the
fair market value within twenty (20) business days of the
date for which fair market value is to be determined, the
Stockholder and the Company shall jointly retain an
independent appraiser or other consultant with experience
valuing securities of issuers in the Company's industry, who
shall determine the fair market value of such securities
(without any minority discount being attributed to the
securities to be purchased) (the "Independent Appraiser").
In the event that the Stockholder and the Company cannot
agree on an Independent Appraiser within thirty (30)
business days of the date for which fair market value is to
be determined, the Company and the Stockholder shall each
retain an independent accounting firm of national
reputation, which shall jointly designate and retain the
Independent Appraiser. The Stockholder and the Company agree
to use their reasonable best efforts to cooperate with the
Independent Appraiser, and provide such information (subject
to customary confidentiality protections, if requested)
reasonably required for the Independent Appraiser to
determine the fair market value of such securities. Each of
the Company and the Stockholder shall bear one-half of the
cost of the Independent Appraiser (including the costs of
appointment).
21
<PAGE>
(n) Entire Agreement. This writing constitutes the entire
----------------
agreement of the Parties with respect to the subject matter hereof.
22
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement on the
date first written above.
PANOLAM ACQUISITION COMPANY, L.L.C.
By:___________________________________
Jerome Powell
Chairman
PANOLAM INDUSTRIES HOLDINGS, INC.
By:___________________________________
Robert J. Muller
President
GENSTAR CAPITAL PARTNERS II, L.P.
By:______________________________________
STARGEN II LLC
By:______________________________________
23
<PAGE>
EXHIBIT A
PERMITTED TRANSFEREE SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned Permitted Transferee hereby
accepts the terms and conditions of this Agreement and agrees to be bound
thereby as a Party thereto, effective as of ____________________.
_____________________________________
as Permitted Transferee
By:___________________________________
Name:
Title:
PANOLAM INDUSTRIES HOLDINGS, INC.
By:___________________________________
Name:
Title:
<PAGE>
EXHIBIT 10.23
MANAGEMENT AGREEMENT
This Management Agreement (the "Agreement") is made as of the 24th day of
November, 1999, by and between Panolam Industries International, Inc., a
Delaware corporation (the "Company"), and TC Group Management, L.L.C., a
Delaware limited liability company ("Carlyle").
RECITALS:
WHEREAS, Carlyle, by and through its officers, employees, agents,
representatives and affiliates, has expertise in the areas of corporate
management, finance, product strategy, investment, acquisitions and other
matters relating to the business of the Company and its wholly-owned
subsidiaries; and
WHEREAS, the Company desires to avail itself of the expertise of Carlyle in
the aforesaid areas, in which it acknowledges the expertise of Carlyle.
AGREEMENT:
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants and conditions herein set forth, the parties agree as follows:
1. Appointment.
The Company hereby appoints Carlyle to render the advisory and consulting
services described in Section 2 hereof for the term of this Agreement.
2. Services.
Carlyle hereby agrees that during the term of this Agreement it shall
render to the Company, by and through such of Carlyle's officers, employees,
agents, representatives and affiliates as Carlyle, in its sole discretion, shall
designate from time to time, advisory, consulting and other services (the
"Oversight Services") in relation to the day-to-day operations of the Company,
------------------
strategic planning, domestic and international marketing and financial oversight
and including, without limitation, advisory and consulting services in relation
to the selection, retention and supervision of independent auditors, the
selection, retention and supervision of outside legal counsel, the selection,
retention and supervision of investment bankers or other financial advisors or
consultants and the structuring and implementation of employee and executive
compensation and incentive plans.
3. Fees.
In consideration of the performance of the Oversight Services contemplated
by Section 2(a) hereof, the Company and its successors agree to pay to Carlyle
an aggregate per annum fee (the "Fee") equal to One Million Dollars
---
($1,000,000), commencing on the date hereof and continuing until such time as
this Agreement is terminated in accordance with Section 6 or by the mutual
written consent of the parties hereto. An amount equal to the product
<PAGE>
of (i) the fraction, the numerator of which is the number of full or partial
days remaining in calendar year 1999 after the date of this Agreement and the
denominator of which is 365 and (ii) One Million Dollars ($1,000,000), shall be
due and payable on January 1, 2000; thereafter the Fee shall be payable in
arrears in equal, quarterly installments of Two-Hundred Fifty Thousand Dollars
($250,000), with the first such installment due on April 1, 2000. Fee payments
shall be non-refundable.
4. Out-of-Pocket Expenses.
In addition to the compensation payable to Carlyle pursuant to Section 3
hereof, the Company shall reimburse Carlyle for or, at the direction of Carlyle,
pay directly, Carlyle's reasonable Out-of-Pocket Expenses. For the purposes of
this Agreement, the term "Out-of-Pocket Expenses" shall mean all amounts
----------------------
actually paid or incurred by Carlyle in connection with its performance of the
Oversight Services, including, without limitation, reasonable (i) fees and
disbursements (including, without limitation, underwriting, placement or similar
fees) of independent auditors, outside legal counsel, consultants, investment
bankers, financial advisors and other third party professional services
providers, (ii) costs relating to any outside service providers or independent
contractors (such as financial printers, couriers, business publications) and
related services, transportation costs, per diem lodging expenses, telephone
calls, word processing expenses and all expenses not associated with Carlyle's
ordinary operations. The Company shall reimburse Carlyle for all Out-of-Pocket
Expenses promptly upon or as soon as practicable after presentation by Carlyle
to the Company of the statement in connection therewith.
5. Indemnification.
The Company will indemnify and hold harmless Carlyle and its officers,
employees, agents, representatives, members and affiliates (each being an
"Indemnified Party") from and against any and all losses, costs, expenses,
-----------------
claims, damages and liabilities (the "Liabilities") to which such Indemnified
-----------
Party may become subject under any applicable federal or state law, or any claim
made by any third party, or otherwise, to the extent they relate to or arise out
of the performance of the Oversight Services contemplated by this Agreement or
the engagement of Carlyle hereunder. The Company will reimburse any Indemnified
Party for all reasonable costs and expenses (including reasonable attorneys'
fees and expenses) as they are incurred in connection with the investigation of,
preparation for or defense of any pending or threatened claim for which the
Indemnified Party would be entitled to indemnification under the terms of the
previous sentence, or any action or proceeding arising therefrom, whether or not
such Indemnified Party is a party hereto, provided that, subject to the
following sentence, the Company shall be entitled to assume the defense thereof
at its own expense, with counsel satisfactory to such Indemnified Party in its
reasonable judgment. Any Indemnified Party may, at its own expense, retain
separate counsel to participate in such defense, and in any action, claim or
proceeding in which the Company, on the one hand, and an Indemnified Party, on
the other hand, is, or is reasonably likely to become, a party, such Indemnified
Party shall have the right to employ separate counsel at the Company's expense
and to control its own defense of such action, claim or proceeding if, in the
reasonable opinion of counsel to such Indemnified Party, a conflict or potential
conflict exists between the Company, on the one hand, and such Indemnified
Party, on the other hand, that would make such separate representation
advisable. The Company agrees
2
<PAGE>
that it will not, without the prior written consent of the applicable
Indemnified Party, settle, compromise or consent to the entry of any judgment in
any pending or threatened claim, action or proceeding relating to the matters
contemplated hereby (if any Indemnified Party is a party thereto or has been
actually threatened to be made a party thereto) unless such settlement,
compromise or consent includes an unconditional release of the applicable
Indemnified Party and each other Indemnified Party from all liability arising or
that may arise out of such claim, action or proceeding. Provided that the
Company is not in breach of its indemnification obligations hereunder, no
Indemnified Party shall settle or compromise any claim subject to
indemnification hereunder without the consent of the Company. The Company will
not be liable under the foregoing indemnification provision to the extent that
any loss, claim, damage, liability, cost or expense is determined by a court, in
a final judgment from which no further appeal may be taken, to have resulted
solely from the gross negligence or willful misconduct of Carlyle. If an
Indemnified Party is reimbursed hereunder for any expenses, such reimbursement
of expenses shall be refunded to the extent it is finally judicially determined
that the Liabilities in question resulted solely from the gross negligence or
willful misconduct of Carlyle.
6. Termination.
This Agreement shall be in effect on the date hereof and shall continue
until such time as Carlyle and its affiliates collectively control, in the
aggregate, less than 10% of the outstanding shares of voting common stock of the
Company. The provisions of Sections 5, 7 and 8 and otherwise as the context so
requires shall survive the termination of this Agreement.
7. Other Activities.
Nothing herein shall in any way preclude Carlyle or its officers,
employees, agents, representatives, members or affiliates from engaging in any
business activities whatsoever, or from performing services for its or their own
account or for the account of others, including entities or persons that may be
in competition with the business conducted by the Company.
8. Payment Limitations.
Carlyle (i) acknowledges that the Company's ability to make any payment
required to be made under the terms of this Agreement may be limited by the
terms of Section 9.06(iv) of the Credit Agreement dated as of November 24, 1999,
among the Company, Panolam Acquisition Company L.L.C., Panolam Group, Inc., PII
Second, Inc., Panolam Industries International, Inc., Panolam Industries, Ltd.,
the institutions party thereto as Lenders and Bankers Trust Company as
Syndication Agent and Administrative Agent, as the same may be amended,
supplemented or otherwise modified from time to time (the "Credit Agreement"),
----------------
and (ii) agrees that, notwithstanding anything herein to the contrary, any such
payment may be postponed until such payment is permitted under the terms of the
Credit Agreement; provided, however, that nothing in this Section 8 shall
-------- -------
relieve or release the Company of its obligations to make payments to Carlyle
under this Agreement; provided, further, that nothing in this Section 8 shall
-------- -------
constitute a waiver by Carlyle of its right to receive payments from the Company
under this Agreement nor shall Carlyle be deemed to have forgiven or forfeit it
rights to any payment to which it is entitled to receive under this Agreement.
3
<PAGE>
9. General.
(a) No amendment or waiver of any provision of this Agreement, or
consent to any departure by either party from any such provision, shall be
effective unless the same shall be in writing and signed by the parties to this
Agreement, and, in any case, such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
(b) This Agreement and the rights of the parties hereunder may not be
assigned without the prior written consent of the parties hereto; provided,
however, that Carlyle may assign or transfer its duties or interests hereunder
to any affiliate of Carlyle at the sole discretion of Carlyle.
(c) Any and all notices hereunder shall, in the absence of receipted
hand delivery, be deemed duly given when mailed, if the same shall be sent by
registered or certified mail, return receipt requested, and the mailing date
shall be deemed the date from which all time periods pertaining to a date of
notice shall run. Notices shall be addressed to the parties at the following
addresses:
If to Carlyle: TC Group Management, L.L.C.
c/o The Carlyle Group
1001 Pennsylvania Avenue, N.W.
Suite 220 South
Washington, D.C. 20004
Attn: Jerome H. Powell
If to the Company: Panolam Industries International, Inc.
20 Progress Drive
Shelton, CT 06484
Attn: Sara Foster
(d) This Agreement shall constitute the entire agreement between the
parties with respect to the subject matter hereof, and shall supersede all
previous oral and written (and all contemporaneous oral) negotiations,
commitments, agreements and understandings relating hereto.
(e) This Agreement shall be governed by, and enforced in accordance
with, the laws of the State of New York (excluding the choice of law principles
thereof). The parties to this Agreement hereby agree to submit to the non-
exclusive jurisdiction of the federal and state courts located in the State of
New York and sitting in the Borough of Manhattan, the City of New York, in any
action or proceeding arising out of or relating to this Agreement. This
Agreement shall inure to the benefit of, and be binding upon, Carlyle and the
Company (including any present or future subsidiaries of the Company that are
not signatories hereto), and their respective successors and assigns.
(f) This Agreement may be executed in two or more counterparts, and
by different parties on separate counterparts. Each set of counterparts showing
execution by all parties shall be deemed an original and shall constitute one
and the same instrument.
4
<PAGE>
(g) The waiver by any party of any breach of this Agreement shall not
operate as or be construed to be a waiver by such party of any subsequent
breach.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their duly authorized officers or agents as set forth below.
TC GROUP MANAGEMENT, L.L.C.
By: TCG Holdings, L.L.C.
Its: Managing Member
By: ________________________________
Name: Jerome H. Powell
Title: Managing Director
PANOLAM INDUSTRIES INTERNATIONAL, INC.
By: ________________________________
Name: ________________________________
Title: ________________________________
5
<PAGE>
EXHIBIT 10.24
================================================================================
CREDIT AGREEMENT
among
PANOLAM ACQUISITION COMPANY, L.L.C.,
PANOLAM INDUSTRIES HOLDINGS, INC.,
PANOLAM GROUP, INC.,
PII SECOND, INC.,
PANOLAM INDUSTRIES INTERNATIONAL, INC.,
PANOLAM INDUSTRIES LTD.,
VARIOUS LENDING INSTITUTIONS,
DEUTSCHE BANK CANADA,
as Canadian Paying Agent
and
BANKERS TRUST COMPANY,
as Administrative Agent
and Syndication Agent
____________________________________
DEUTSCHE BANK SECURITIES INC.,
as Lead Arranger
and Book Manager
__________________________________
Dated as of November 24, 1999
__________________________________
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
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<S> <C>
SECTION 1. Amount and Terms of Credit.................................................................................. 1
1.01 The Commitments.............................................................................................. 1
1.02 Minimum Amount of Each Borrowing............................................................................. 6
1.03 Notice of Borrowing.......................................................................................... 6
1.04 Disbursement of Funds........................................................................................ 7
1.05 Notes........................................................................................................ 8
1.06 Conversions.................................................................................................. 11
1.07 Pro Rata Borrowings.......................................................................................... 12
1.08 Interest..................................................................................................... 12
1.09 Interest Periods............................................................................................. 14
1.10 Increased Costs, Illegality, etc............................................................................. 15
1.11 Compensation................................................................................................. 17
1.12 Change of Lending Office..................................................................................... 18
1.13 Replacement of Lenders....................................................................................... 18
1.14 Additional Acquisition Loan Commitments...................................................................... 19
1.15 Special Sharing and Conversion Provisions Applicable Upon Occurrence of a Sharing Event...................... 20
1.16 Bankers' Acceptance Provisions............................................................................... 23
1.17 Canadian Paying Agent........................................................................................ 23
SECTION 2. Letters of Credit........................................................................................... 23
2.01 Letters of Credit............................................................................................ 23
2.02 Letter of Credit Requests.................................................................................... 25
2.03 Letter of Credit Participations.............................................................................. 25
2.04 Agreement to Repay Letter of Credit Drawings................................................................. 27
2.05 Increased Costs.............................................................................................. 28
SECTION 3. Commitment Commission; Fees; Reductions of Commitment....................................................... 29
3.01 Fees......................................................................................................... 29
3.02 Voluntary Termination of Unutilized Commitments.............................................................. 30
3.03 Mandatory Reduction of Commitments........................................................................... 30
SECTION 4. Prepayments; Payments; Taxes................................................................................ 32
4.01 Voluntary Prepayments........................................................................................ 32
4.02 Mandatory Repayments......................................................................................... 34
4.03 Method and Place of Payment.................................................................................. 44
4.04 Net Payments; Taxes.......................................................................................... 44
</TABLE>
(i)
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<TABLE>
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SECTION 5. Conditions Precedent to Loans on the Initial Borrowing Date................................................. 46
5.01 Execution of Agreement; Notes................................................................................ 46
5.02 Fees, etc.................................................................................................... 47
5.03 Opinions of Counsel.......................................................................................... 47
5.04 Corporate Documents; Proceedings; etc........................................................................ 47
5.05 Employee Benefit Plans; Shareholders' Agreements; Management Agreements; Debt Agreements;
Recapitalization Documents; Tax Sharing Agreements; Collective Bargaining Agreements...................... 47
5.06 Recapitalization and Financing Transactions.................................................................. 48
5.07 Refinancing.................................................................................................. 49
5.08 Indebtedness................................................................................................. 50
5.09 Subsidiaries Guaranty........................................................................................ 50
5.10 Pledge Agreements............................................................................................ 50
5.11 Security Agreements.......................................................................................... 50
5.12 Mortgages; Title Insurance; Surveys.......................................................................... 51
5.13 Adverse Change, etc.......................................................................................... 52
5.14 Litigation................................................................................................... 53
5.15 Solvency and Indenture Compliance Certificate; Environmental Analyses; Insurance............................. 53
5.16 Financial Statements; Projections; Pro Forma Financial Statements............................................ 54
5.17 Employment Agreement......................................................................................... 54
SECTION 6. Conditions Precedent to All Credit Events on and After the Initial Borrowing Date........................... 54
6.01 No Default; Representations and Warranties................................................................... 54
6.02 Notice of Borrowing; Letter of Credit Request................................................................ 55
6.03 Special Conditions Applicable to Term Loans Incurred On the Change of Control Purchase Borrowing Date,
Acquisition Loans and Certain Revolving Loans............................................................. 55
SECTION 7. Representations, Warranties and Agreements.................................................................. 56
7.01 Corporate Status............................................................................................. 56
7.02 Company Power and Authority.................................................................................. 56
7.03 No Violation................................................................................................. 57
7.04 Governmental Approvals....................................................................................... 57
7.05 Financial Statements; Financial Condition; Undisclosed Liabilities; Projections; etc......................... 57
7.06 Litigation................................................................................................... 58
7.07 True and Complete Disclosure................................................................................. 59
7.08 Use of Proceeds; Margin Regulations.......................................................................... 59
7.09 Tax Returns and Payments..................................................................................... 60
7.10 Compliance with ERISA........................................................................................ 60
7.11 The Security Documents....................................................................................... 61
7.12 Representations and Warranties in Documents.................................................................. 62
</TABLE>
(ii)
<PAGE>
<TABLE>
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<S> <C>
7.13 Properties................................................................................................... 62
7.14 Capitalization............................................................................................... 62
7.15 Subsidiaries................................................................................................. 63
7.16 Compliance with Statutes, etc................................................................................ 63
7.17 Investment Company Act....................................................................................... 63
7.18 Public Utility Holding Company Act........................................................................... 63
7.19 Environmental Matters........................................................................................ 63
7.20 Labor Relations.............................................................................................. 64
7.21 Patents, Licenses, Franchises and Formulas................................................................... 64
7.22 Indebtedness................................................................................................. 65
7.23 Transaction.................................................................................................. 65
7.24 Special Purpose Corporation.................................................................................. 65
7.25 Year 2000.................................................................................................... 65
SECTION 8. Affirmative Covenants....................................................................................... 66
8.01 Information Covenants........................................................................................ 66
8.02 Books, Records and Inspections............................................................................... 69
8.03 Maintenance of Property; Insurance........................................................................... 69
8.04 Corporate Franchises......................................................................................... 69
8.05 Compliance with Statutes, etc................................................................................ 70
8.06 Compliance with Environmental Laws........................................................................... 70
8.07 ERISA........................................................................................................ 70
8.08 End of Fiscal Years; Fiscal Quarters......................................................................... 71
8.09 Performance of Obligations................................................................................... 72
8.10 Payment of Taxes............................................................................................. 72
8.11 Ownership of Subsidiaries.................................................................................... 72
8.12 Additional Security; Further Assurances; Surveys............................................................. 72
8.13 Interest Rate Protection..................................................................................... 74
8.14 Foreign Subsidiaries Security................................................................................ 74
8.15 Permitted Acquisitions and Certain Additional Capital Expenditures........................................... 75
SECTION 9. Negative Covenants.......................................................................................... 76
9.01 Liens........................................................................................................ 76
9.02 Consolidation, Merger, Purchase or Sale of Assets, etc....................................................... 79
9.03 Restricted Payments.......................................................................................... 81
9.04 Indebtedness................................................................................................. 83
9.05 Advances, Investments and Loans.............................................................................. 85
9.06 Transactions with Affiliates................................................................................. 86
9.07 Business..................................................................................................... 87
9.08 Capital Expenditures......................................................................................... 87
9.09 Consolidated Interest Coverage Ratio......................................................................... 88
9.10 Maximum Leverage Ratio....................................................................................... 89
9.11 Limitation on Modifications of Indebtedness; Modifications of Certificate of Incorporation,
By-Laws and Certain Other Agreements; etc................................................................. 91
</TABLE>
(iii)
<PAGE>
<TABLE>
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9.12 Limitation on Certain Restrictions on Subsidiaries........................................................... 92
9.13 Limitation on Issuance of Capital Stock...................................................................... 92
9.14 Limitation on Creation of Subsidiaries....................................................................... 93
SECTION 10. Events of Default.......................................................................................... 93
10.01 Payments.................................................................................................... 93
10.02 Representations, etc........................................................................................ 93
10.03 Covenants................................................................................................... 93
10.04 Default Under Other Agreements.............................................................................. 94
10.05 Bankruptcy, etc............................................................................................. 94
10.06 ERISA....................................................................................................... 94
10.07 Security Documents.......................................................................................... 95
10.08 Guaranty.................................................................................................... 95
10.09 Judgments................................................................................................... 96
10.10 Change of Control........................................................................................... 96
10.11 Subordination............................................................................................... 96
SECTION 11. Definitions and Accounting Terms........................................................................... 96
SECTION 12. The Agents................................................................................................. 132
12.01 Appointment................................................................................................. 132
12.02 Nature of Duties............................................................................................ 133
12.03 Lack of Reliance on the Agents.............................................................................. 133
12.04 Certain Rights of the Agents................................................................................ 133
12.05 Reliance.................................................................................................... 134
12.06 Indemnification............................................................................................. 134
12.07 Each Agent in its Individual Capacity....................................................................... 134
12.08 Holders..................................................................................................... 134
12.09 Resignation by the Agents................................................................................... 135
SECTION 13. Miscellaneous.............................................................................................. 135
13.01 Payment of Expenses, etc.................................................................................... 135
13.02 Right of Setoff............................................................................................. 137
13.03 Notices..................................................................................................... 138
13.04 Benefit of Agreement........................................................................................ 138
13.05 No Waiver; Remedies Cumulative.............................................................................. 140
13.06 Payments Pro Rata........................................................................................... 141
13.07 Calculations; Computations.................................................................................. 141
13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL...................................... 142
13.09 Counterparts................................................................................................ 143
13.10 Effectiveness............................................................................................... 143
13.11 Headings Descriptive........................................................................................ 144
13.12 Amendment or Waiver; etc.................................................................................... 144
</TABLE>
(iv)
<PAGE>
<TABLE>
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13.13 Survival.................................................................................................... 146
13.14 Domicile of Loans........................................................................................... 146
13.15 Limitation on Additional Amounts, etc....................................................................... 146
13.16 Confidentiality............................................................................................. 146
13.17 Register.................................................................................................... 147
13.18 Interest.................................................................................................... 148
13.19 Judgment Currency........................................................................................... 149
13.20 Special Provisions Concerning Oregon Law.................................................................... 150
SECTION 14. Parent Guaranty............................................................................................ 150
14.01 The Parent Guaranty......................................................................................... 150
14.02 Bankruptcy.................................................................................................. 150
14.03 Nature of Liability......................................................................................... 151
14.04 Independent Obligation...................................................................................... 151
14.05 Authorization............................................................................................... 151
14.06 Reliance.................................................................................................... 152
14.07 Subordination............................................................................................... 152
14.08 Waiver...................................................................................................... 153
14.09 Maximum Liability........................................................................................... 154
</TABLE>
(v)
<PAGE>
CREDIT AGREEMENT, dated as of November 24, 1999, among PANOLAM
ACQUISITION COMPANY, L.L.C., a Delaware limited liability company ("Holdings"),
PANOLAM INDUSTRIES HOLDINGS, INC., a Delaware corporation ("PI Holdings"),
PANOLAM GROUP, INC. (f/k/a Panolam Industries International, Inc.), a Delaware
corporation ("PG Holdings"), PII SECOND, INC., a Delaware corporation ("PII
Holdings"), PANOLAM INDUSTRIES INTERNATIONAL, INC. (f/k/a PII Third, Inc.), a
Delaware corporation (the "US Borrower"), PANOLAM INDUSTRIES LTD., an Ontario
corporation (the "Canadian Borrower", with each of the Canadian Borrower and the
US Borrower being referred to herein as a "Borrower" and, collectively, as the
"Borrowers") the Lenders party hereto from time to time and BANKERS TRUST
COMPANY, as Syndication Agent (in such capacity, the "Syndication Agent") and
Administrative Agent (in such capacity, the "Administrative Agent") (all
capitalized terms used herein and defined in Section 11 are used herein as
therein defined).
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, subject to and upon the terms and conditions set forth
herein, the Lenders are willing to make available to the Borrowers the
respective credit facilities provided for herein;
NOW, THEREFORE, IT IS AGREED:
SECTION 1. Amount and Terms of Credit.
--------------------------
1.01 The Commitments. (a) Subject to and upon the terms and
---------------
conditions set forth herein, (i) each Lender with a Tranche A Term Loan
Commitment severally agrees to make, on the Initial Borrowing Date and (ii)
subject to the applicability of the final sentence of Section 1.01(b), each
Lender with a Tranche A Supplemental Commitment severally agrees to make, on the
Change of Control Purchase Borrowing Date, a term loan or term loans (each such
Loan described in clauses (i) and (ii) above, a "Tranche A Term Loan" and,
collectively, the "Tranche A Term Loans") to the US Borrower; which Tranche A
Term Loans (x) shall (A) if made on the Initial Borrowing Date, be made and
initially maintained as a single Borrowing of Base Rate Loans (subject to the
option to convert such Loans pursuant to Section 1.06) and (B) if made on the
Change of Control Purchase Borrowing Date, at the option of the US Borrower, be
borrowed and maintained as Base Rate Loans or Eurodollar Loans, provided that
--------
(I) except as otherwise specifically provided in Section 1.06 or 1.10(b), all
Tranche A Term Loans comprising the same Borrowing shall at all times be of the
same Type and (II) if the Change of Control Purchase Borrowing Date occurs prior
to the earlier of (1) the 65/th/ day after the Initial Borrowing Date and (2)
the Syndication Date, Tranche A Term Loans incurred on such date may only be
incurred as Eurodollar Loans if the respective Interest Period applicable
thereto is either a one-month Interest Period which begins and ends on the same
date as all other one-month Interest Periods applicable to Eurodollar Loans
outstanding on such date or a one-week Interest Period that ends on or before
the last day of any one-month Interest Periods then in effect, (y) shall not
exceed (A) for any Lender, (1) if made on the Initial Borrowing Date, that
amount which equals the Tranche A Term Loan Commitment of such Lender (before
giving effect to any reduction thereto on such date pursuant to Section 3.03(b))
and (2) if made on the Change of Control Purchase Borrowing Date, that amount
which equals the Tranche A Supplemental Commitment of such Lender, in each case
as in effect on the respective Tranche A Term Loan Borrowing Date (before giving
effect to any reduction thereto on such date pursuant to Sections 3.03(b) but
after giving effect to any reductions thereto on or prior to such date pursuant
to Section 3.03(f)(i) and after giving effect to all other reductions thereto
prior to such date pursuant to any other provisions of this Agreement) and (B)
for all Lenders, (1) if made on the Initial Borrowing Date, the Total Tranche A
Term Loan Commitment (before giving effect to any reduction
<PAGE>
thereto on such date pursuant to Section 3.03(b)) and (2) if made on the Change
of Control Purchase Borrowing Date, the lesser of (i) the Total Tranche A
Supplemental Commitment, as in effect on the Change of Control Purchase
Borrowing Date (before giving effect to any reduction thereto on such date
pursuant to Sections 3.03(b) but after giving effect to any reductions thereto
on or prior to such date pursuant to Section 3.03(f)(i) and to all other
reductions thereto prior to such date pursuant to any other provisions of this
Agreement) and (ii) $25,000,000 less the aggregate principal amount of Revolving
Loans and/or Swingline Loans the proceeds of which have been or will be used to
pay (or refinance the payment of) any portion of the Change of Control Purchase
Amount. Once repaid, Tranche A Term Loans incurred hereunder may not be
reborrowed.
(b) Subject to and upon the terms and conditions set forth herein
(including, without limitation, the last sentence of this clause (b)), each
Lender with a Tranche B Term Loan Commitment severally agrees to make, on the
Change of Control Purchase Borrowing Date, a term loan or term loans (each, a
"Tranche B Term Loan" and, collectively, the "Tranche B Term Loans") to the US
Borrower, which Tranche B Term Loans (i) shall, at the option of the US
Borrower, be Base Rate Loans or Eurodollar Loans, provided that (A) except as
--------
otherwise specifically provided in Section 1.06 or 1.10(b), all Tranche B Term
Loans comprising the same Borrowing shall at all times be of the same Type and
(B) if the Change of Control Purchase Borrowing Date occurs prior to the earlier
of (1) the 65/th/ day after the Initial Borrowing Date and (2) the Syndication
Date, Tranche B Term Loans incurred on such date may only be incurred as
Eurodollar Loans if the respective Interest Period applicable thereto is either
a one-month Interest Period which begins and ends on the same date as all other
one-month Interest Periods applicable to Eurodollar Loans outstanding on such
date or a one-week Interest Period that ends on or before the last day of any
one-month Interest Periods then in effect, (ii) shall not exceed (A) for any
Lender that amount which equals the Tranche B Term Loan Commitment of such
Lender as in effect on the Change of Control Purchase Borrowing Date (before
giving effect to any reduction thereto on such date pursuant to Sections 3.03(c)
but after giving effect to any reductions thereto on or prior to such date
pursuant to Section 3.03(f)(i) and after giving effect to all other reductions
thereto prior to such date pursuant to any other provisions of this Agreement)
and (B) for all Lenders, the Total Tranche B Term Loan Commitment as in effect
on such Change of Control Purchase Borrowing Date (before giving effect to any
reduction thereto on such date pursuant to Sections 3.03(c) but after giving
effect to any reductions thereto on or prior to such date pursuant to Section
3.03(f)(i) and to all other reductions thereto prior to such date pursuant to
any other provisions of this Agreement) and (iii) shall only be incurred in such
aggregate amounts as are needed to pay amounts owing by the US Borrower to
holders of the US Borrower Subordinated Notes pursuant to Change of Control
Purchases. Once repaid, Tranche B Term Loans incurred hereunder may not be
reborrowed. Notwithstanding anything to the
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<PAGE>
contrary above in this Section 1.01(b), if the portion (if any) of the Change of
Control Purchase Amount as in effect on the Change of Control Purchase Borrowing
Date which is to be funded (or refinanced) with Loans is less than or equal to
$25,000,000, Tranche B Term Loans shall not be available hereunder and the
amounts required to fund such Change of Control Purchases may, in such case, be
financed with a Borrowing or Borrowings of Tranche A Term Loans and/or Revolving
Loans to the extent permitted by clauses (a) and (c) of this Section 1.01,
respectively.
(c) Subject to and upon the terms and conditions set forth herein,
each Lender with a Revolving Loan Commitment severally agrees, at any time and
from time to time on and after the Initial Borrowing Date and prior to the
Initial Maturity Date, to make a revolving loan or revolving loans (each, a
"Revolving Loan" and, collectively, the "Revolving Loans") to the US Borrower,
which Revolving Loans (i) shall, at the option of the US Borrower, be Base Rate
Loans or Eurodollar Loans, provided that (A) except as otherwise specifically
--------
provided in Section 1.06 or 1.10(b), all Revolving Loans comprising the same
Borrowing shall at all times be of the same Type and (B) prior to the earlier of
(1) the 65/th/ day after the Initial Borrowing Date and (2) the Syndication
Date, Revolving Loans may only be incurred as Eurodollar Loans if the respective
Interest Period applicable thereto is either a one-month Interest Period which
begins and ends on the same date as all other one-month Interest Periods
applicable to Eurodollar Loans outstanding on such date or a one-week Interest
Period that ends on or before the last day of any one-month Interest Periods
then in effect, (ii) may be repaid and reborrowed in accordance with the
provisions hereof, (iii) shall not exceed for any Lender at any time outstanding
that aggregate principal amount which, when added to such Lender's RL Percentage
of the sum of (x) the aggregate amount of all Letter of Credit Outstandings
(exclusive of Unpaid Drawings which are repaid with the proceeds of, and
simultaneously with the incurrence of, the respective incurrence of Revolving
Loans) at such time and (y) the aggregate principal amount of all Swingline
Loans (exclusive of Swingline Loans which are repaid with the proceeds of, and
simultaneously with the incurrence of, the respective incurrence of Revolving
Loans) then outstanding, equals the Revolving Loan Commitment of such Lender at
such time, (iv) shall not exceed for all Lenders at any time outstanding that
aggregate principal amount which, when added to (I) the amount of all Letter of
Credit Outstandings (exclusive of Unpaid Drawings which are repaid with the
proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans) at such time and (II) the aggregate principal
amount of all Swingline Loans (exclusive of Swingline Loans which are repaid
with the proceeds of, and simultaneously with the incurrence of, the respective
incurrence of Revolving Loans) then outstanding, equals the Total Revolving Loan
Commitment at such time and (v) shall not exceed for all Lenders, when added to
the Letter of Credit Outstandings, $3,000,000 in aggregate principal amount on
the Initial Borrowing Date. Notwithstanding anything to the contrary above in
this Section 1.01(c), if the portion (if any) of the Change of Control Purchase
Amount, as in effect on the Change of Control Purchase Borrowing Date, which is
to be funded (or refinanced) with Loans is greater than $25,000,000, Revolving
Loans shall not be available to finance (or refinance) any Change of Control
Purchases except to the extent that the Change of Control Purchase Amount to be
funded (or refinanced) with Loans exceeds the Total Tranche B Term Loan
Commitment on the Change of Control Purchase Borrowing Date (before giving
effect to the making of Tranche B Term Loans on such date).
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<PAGE>
(d) Subject to and upon the terms and conditions set forth herein,
the Swingline Lender in its individual capacity agrees to make at any time and
from time to time after the Initial Borrowing Date and prior to the Swingline
Expiry Date, a revolving loan or revolving loans (each, a "Swingline Loan" and,
collectively, the "Swingline Loans") to the US Borrower, which Swingline Loans
(i) shall be made and maintained as Base Rate Loans, (ii) may be repaid and
reborrowed in accordance with the provisions hereof, (iii) shall not exceed in
aggregate principal amount at any time outstanding, when combined with the
aggregate principal amount of all Revolving Loans then outstanding and the
Letter of Credit Outstandings at such time, an amount equal to the Total
Revolving Loan Commitment at such time (after giving effect to any reductions to
the Total Revolving Loan Commitment on such date), (iv) shall not exceed at any
time outstanding the Maximum Swingline Amount and (v) shall not be extended if
the Swingline Lender receives a written notice from any Agent or the Required
Lenders that has not been rescinded that there is a Default or an Event of
Default in existence hereunder. Notwithstanding anything to the contrary
contained above, the Swingline Lender shall not be required to make any
Swingline Loans at any time when a Lender Default is in existence, unless the
Swingline Lender has entered into arrangements satisfactory to it and the US
Borrower to eliminate the Swingline Lender's risk with respect to the Defaulting
Lender's (or Defaulting Lenders') share of Mandatory Borrowings which would be
required to be made if said Swingline Loans were to be funded with one or more
Borrowings of Revolving Loans pursuant to Section 1.01(e), including by cash
collateralizing such Defaulting Lender's (or Defaulting Lenders') RL Percentage
(or RL Percentages) of such Swingline Loan or Swingline Loans.
(e) On any Business Day, the Swingline Lender may, in its sole
discretion, give notice to the other Lenders that the Swingline Lender's
outstanding Swingline Loans shall be funded with a Borrowing of Revolving Loans
(provided that such notice shall be deemed to have been automatically given upon
--------
the occurrence of a Default or an Event of Default under Section 10.05 or upon
the exercise of any of the remedies provided in the last paragraph of Section
10), in which case a Borrowing of Revolving Loans constituting Base Rate Loans
(each such Borrowing, a "Mandatory Borrowing") shall be made on the immediately
succeeding Business Day by all Lenders with a Revolving Loan Commitment (without
giving effect to any reductions thereto pursuant to the last paragraph of
Section 10) pro rata based on each such Lender's RL Percentage (determined
--- ----
before giving effect to any termination of the Revolving Loan Commitments
pursuant to the last paragraph of Section 10) and the proceeds thereof shall be
applied directly to the Swingline Lender to repay the Swingline Lender for such
outstanding Swingline Loans. Each such Lender hereby irrevocably agrees to make
Revolving Loans upon one Business Day's notice pursuant to each Mandatory
Borrowing in the amount and in the manner specified in the immediately preceding
sentence and on the date specified in writing by the Swingline Lender
notwithstanding (i) the amount of the Mandatory Borrowing may not comply with
the minimum amount for Borrowings otherwise required hereunder, (ii) whether any
conditions specified in Section 6 are then satisfied, (iii) whether a Default or
an Event of Default then exists, (iv) the date of such Mandatory Borrowing and
(v) the amount of the Total Revolving Loan Commitment at such time. In the
event that any Mandatory Borrowing cannot for any reason be made on the date
otherwise required above (including, without limitation, as a result of the
commencement of a proceeding under the Bankruptcy Code with respect to the US
Borrower), then each such Lender hereby agrees that it shall forthwith purchase
(as of the date the Mandatory Borrowing would otherwise have occurred, but
adjusted for any payments
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<PAGE>
received from the US Borrower on or after such date and prior to such purchase)
from the Swingline Lender such participations in the outstanding Swingline Loans
as shall be necessary to cause such Lenders to share in such Swingline Loans
ratably based upon their respective RL Percentages (determined before giving
effect to any termination of the Revolving Loan Commitments pursuant to the last
paragraph of Section 10), provided that (x) all interest payable on the
--------
Swingline Loans shall be for the account of the Swingline Lender until the date
as of which the respective participation is required to be purchased and, to the
extent attributable to the purchased participation, shall be payable to the
participant from and after such date and (y) at the time any purchase of
participations pursuant to this sentence is actually made, the purchasing Lender
shall be required to pay the Swingline Lender interest on the principal amount
of participation purchased for each day from and including the day upon which
the Mandatory Borrowing would otherwise have occurred to but excluding the date
of payment for such participation, at the overnight Federal Funds Rate for the
first three days and at the rate otherwise applicable to Revolving Loans
maintained as Base Rate Loans hereunder for each day thereafter.
(f) Subject to and upon the terms and conditions set forth herein,
each Lender which has assumed an Acquisition Loan Commitment in accordance with
the provisions of Section 1.14 severally agrees, at any time and from time to
time after the Initial Borrowing Date and prior to the Conversion Date, to make
a revolving loan or revolving loans (each, an "Acquisition Revolving Loan" and,
collectively, the "Acquisition Revolving Loans") to the US Borrower, which
Acquisition Revolving Loans (i) shall, at the option of the US Borrower, be Base
Rate Loans or Eurodollar Loans, provided that (A) except as otherwise
--------
specifically provided in Section 1.06 or 1.10(b), all Acquisition Revolving
Loans comprising the same Borrowing shall at all times be of the same Type and
(B) prior to the earlier of (1) the 65th day after the Initial Borrowing Date
and (2) the Syndication Date, Acquisition Revolving Loans may only be incurred
as Eurodollar Loans if the respective Interest Period applicable thereto is
either a one-month Interest Period which begins and ends on the same date as all
other one-month Interest Periods applicable to Eurodollar Loans outstanding on
such date or a one-week Interest Period that ends on or before the last day of
any one-month Interest Periods then in effect, (ii) may be repaid and reborrowed
at any time prior to the Conversion Date in accordance with the provisions
hereof, (iii) shall not exceed for any Lender at any time outstanding that
aggregate principal amount which equals the Acquisition Loan Commitment of such
Lender at such time and (iv) shall not exceed for all Lenders at any time
outstanding that aggregate principal amount which equals the Total Acquisition
Loan Commitment at such time.
(g) Subject to and upon the terms and conditions set forth herein,
the US Borrower and each Lender agree that, at 9:00 A.M. (New York time) on the
Conversion Date, the aggregate principal amount of Acquisition Revolving Loans
owing to each Lender and outstanding at such time shall (unless such Acquisition
Revolving Loans have been declared (or have become) due and payable pursuant to
this Agreement), without any notice or action by any party hereto, automatically
convert to and thereafter constitute term loans (each an "Acquisition Term Loan"
and, collectively, the "Acquisition Term Loans", and together with the
Acquisition Revolving Loans, the "Acquisition Loans") owing to such Lenders
hereunder. The Acquisition Term Loans shall (i) subject to the provisions of
Section 1.02, initially be continued as one or more Borrowings of Base Rate
Loans or Eurodollar Loans in accordance with the designation of such Borrowings
immediately prior to giving effect to such conversion, with any Interest Periods
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<PAGE>
applicable thereto to continue in effect until the expiration thereof, provided
--------
that, except as otherwise specifically provided in Section 1.06 or 1.10(b), all
Acquisition Term Loans comprising the same Borrowing shall at all times be of
the same Type and (ii) not exceed in initial principal amount for any Lender
that amount which equals the aggregate principal amount of Acquisition Revolving
Loans owed to such Lender and outstanding immediately prior to such conversion.
Once repaid, Acquisition Term Loans may not be reborrowed.
(h) Subject to and upon the terms and conditions set forth herein,
each Lender with a Canadian Term Loan Commitment severally agrees to make a term
loan or term loans (each a "Canadian Term Loan" and, collectively, the "Canadian
Term Loans", and, together with the Tranche A Term Loans, Tranche B Term Loans
and Acquisition Term Loans, the "Term Loans") to the Canadian Borrower, which
Canadian Term Loans (i) may only be incurred on the Initial Borrowing Date, (ii)
shall be incurred and initially maintained as a single Borrowing of Canadian
Prime Rate Loans (subject to the option to convert such Canadian Term Loans into
Bankers Acceptance Loans pursuant to Section 1.06) and (iii) shall be made by
each such Lender in that aggregate principal amount which does not exceed the
Canadian Term Loan Commitment of such Lender on the Initial Borrowing Date
(before giving effect to the termination thereof on such date pursuant to
Section 3.03(b)). Once repaid, Canadian Term Loans incurred hereunder may not be
reborrowed.
1.02 Minimum Amount of Each Borrowing. The aggregate principal
--------------------------------
amount of each Borrowing of Tranche A Term Loans and Tranche B Term Loans shall
not in each case be less than $5,000,000. The aggregate principal amount of
each Borrowing of Canadian Term Loans shall not be less than CDN $5,000,000.
The aggregate principal amount of each Borrowing of Revolving Loans shall be not
less than (x) in the case of a Borrowing of Eurodollar Loans, $2,000,000 and (y)
in the case of a Borrowing of Base Rate Loans, $1,000,000, provided that
--------
Mandatory Borrowings shall be made in the amounts required by Section 1.01(e).
The aggregate principal amount of each Borrowing of Swingline Loans shall not be
less than $200,000. The aggregate principal amount of any Borrowing of
Acquisition Revolving Loans shall not be less than (x) in the case of a
Borrowing of Eurodollar Loans, $2,000,000 and (y) in the case of a Borrowing of
Base Rate Loans, $1,000,000. The aggregate principal amount of the initial
Borrowings of Acquisition Term Loans shall be equal to the outstanding principal
amount of Borrowings of Acquisition Revolving Loans at 9:00 A.M. (New York time)
on the Conversion Date; provided that no Borrowing of Acquisition Term Loans
--------
which is less than $2,000,000 may be maintained as Eurodollar Loans. More than
one Borrowing may occur on the same date, but at no time shall there be
outstanding more than twenty Borrowings, in the aggregate, of Eurodollar Loans
and Bankers Acceptances.
1.03 Notice of Borrowing. (a) Whenever either Borrower desires to
-------------------
make a Borrowing hereunder (excluding Borrowings of Swingline Loans and
Mandatory Borrowings), it shall give the Administrative Agent at its Notice
Office at least one Business Day's prior written notice (or telephonic notice
promptly confirmed in writing) of each Base Rate Loan (or, in the case of a
Borrowing of Canadian Term Loans, Canadian Prime Rate Loans) and at least three
Business Days' prior written notice (or telephonic notice promptly confirmed in
writing) of each Eurodollar Loan to be made hereunder, provided that any such
--------
notice shall be deemed to have been given on a certain day only if given before
11:00 A.M. (New York time), in the case of a
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<PAGE>
Borrowing of Eurodollar Loans, and 12:00 Noon (New York time) in the case of a
Borrowing of Base Rate Loans or Canadian Prime Rate Loans, on such day. Each
such written notice or written confirmation of telephonic notice (each a "Notice
of Borrowing"), except as otherwise expressly provided in Section 1.10, shall be
irrevocable and shall be given by the respective Borrower in the form of Exhibit
A, appropriately completed to specify the aggregate principal amount of the
Loans to be made pursuant to such Borrowing, the date of such Borrowing (which
shall be a Business Day), whether the Loans being made pursuant to such
Borrowing shall constitute Tranche A Term Loans, Canadian Term Loans, Tranche B
Term Loans, Revolving Loans or Acquisition Revolving Loans, whether the Loans
being made pursuant to such Borrowing are to be initially maintained as Base
Rate Loans (or, in the case of a Borrowing of Canadian Term Loans, Canadian
Prime Rate Loans) or Eurodollar Loans and, if Eurodollar Loans, the initial
Interest Period to be applicable thereto and, in the event the US Borrower
intends to use proceeds of such Borrowing to fund Change of Control Purchases,
the Change of Control Purchase Amount as of the Change of Control Purchase
Determination Date. In the event either Borrower desires to give notice of more
than one Borrowing on a single day, such form may be appropriately amended to
reflect such additional Borrowing(s). The Administrative Agent shall promptly
give each Lender which is required to make Loans of the Tranche specified in the
respective Notice of Borrowing, notice of such proposed Borrowing, of such
Lender's proportionate share thereof and of the other matters required by the
immediately preceding sentence to be specified in the Notice of Borrowing.
(b)(i) Whenever the US Borrower desires to make a Borrowing of
Swingline Loans hereunder, it shall give the Swingline Lender not later than
1:00 P.M. (New York time) on the date that a Swingline Loan is to be made,
written notice or telephonic notice promptly confirmed in writing of each
Swingline Loan to be made hereunder. Each such notice shall be irrevocable and
specify in each case (A) the date of Borrowing (which shall be a Business Day)
and (B) the aggregate principal amount of the Swingline Loans to be made
pursuant to such Borrowing.
(ii) Mandatory Borrowings shall be made upon the notice specified in
Section 1.01(e), with the US Borrower irrevocably agreeing, by the incurrence of
any Swingline Loan, to the making of the Mandatory Borrowings as set forth in
Section 1.01(e).
(c) Without in any way limiting the obligation of the Borrowers to
confirm in writing any telephonic notice of any Borrowing of Loans, the
Administrative Agent or the Swingline Lender, as the case may be, may act
without liability upon the basis of telephonic notice of such Borrowing,
believed by the Administrative Agent or the Swingline Lender, as the case may
be, in good faith to be from the Chief Executive Officer, Director of Finance
(or other officer who from time to time serves as chief financial officer of the
respective Borrower) or the Treasurer or Assistant Treasurer (each such officer
an "Authorized Officer") of the respective Borrower (or any other officer of the
US Borrower or the Canadian Borrower, as the case may be, designated in writing
to the Administrative Agent and the Swingline Lender by an Authorized Officer to
give such notices under this Agreement) prior to receipt of written
confirmation. In each such case, the Borrowers hereby waive the right to
dispute the Administrative Agent's and the Swingline Lender's record of the
terms of such telephonic notice of such Borrowing of Loans.
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<PAGE>
1.04 Disbursement of Funds. Except as otherwise specifically
---------------------
provided in the immediately succeeding sentence, no later than 12:00 Noon (New
York time) on the date specified in each Notice of Borrowing (or (x) in the case
of Swingline Loans, not later than 3:00 P.M. (New York time) on the date
specified pursuant to Section 1.03(b)(i) or (y) in the case of Mandatory
Borrowings, not later than 12:00 Noon (New York time) on the date specified in
Section 1.01(e)), each Lender with a Commitment of the respective Tranche will
make available its pro rata portion of each such Borrowing requested to be made
--- ----
on such date (or in the case of Swingline Loans, the Swingline Lender shall make
available the full amount thereof). All such amounts shall be made available in
Dollars (or, in the case of Canadian Term Loans, Canadian Dollars) and in
immediately available funds at the Payment Office of the Administrative Agent,
and the Administrative Agent will make available to the US Borrower or the
Canadian Borrower, as the case may be, at the Payment Office the aggregate of
the amounts so made available by the Lenders (for Loans other than Swingline
Loans, prior to 1:00 P.M. (New York time) on such day, to the extent of funds
actually received by the Administrative Agent prior to 12:00 Noon (New York
time) on such day). Unless the Administrative Agent (or, in the case of
Canadian Term Loans, the Canadian Paying Agent's) shall have been notified by
any Lender prior to the date of Borrowing that such Lender does not intend to
make available to the Administrative Agent (or, in the case of Canadian Term
Loans, the Canadian Paying Agent) such Lender's portion of any Borrowing to be
made on such date, the Administrative Agent (or, in the case of Canadian Term
Loans, the Canadian Paying Agent) may assume that such Lender has made such
amount available to the Administrative Agent (or, in the case of Canadian Term
Loans, the Canadian Paying Agent) on such date of Borrowing and the
Administrative Agent (or, in the case of Canadian Term Loans, the Canadian
Paying Agent) may, in reliance upon such assumption, make available to the US
Borrower or the Canadian Borrower, as the case may be, a corresponding amount.
If such corresponding amount is not in fact made available to the Administrative
Agent (or, in the case of Canadian Term Loans, the Canadian Paying Agent) by
such Lender, the Administrative Agent (or, in the case of Canadian Term Loans,
the Canadian Paying Agent) shall be entitled to recover such corresponding
amount on demand from such Lender. If such Lender does not pay such
corresponding amount forthwith upon the Administrative Agent's (or, in the case
of Canadian Term Loans, the Canadian Paying Agent) demand therefor, the
Administrative Agent (or, in the case of Canadian Term Loans, the Canadian
Paying Agent) shall promptly notify the US Borrower or the Canadian Borrower, as
the case may be, and such Borrower shall immediately pay such corresponding
amount to the Administrative Agent (or, in the case of Canadian Term Loans, the
Canadian Paying Agent). The Administrative Agent (or, in the case of Canadian
Term Loans, the Canadian Paying Agent) shall also be entitled to recover on
demand from such Lender or such Borrower, as the case may be, interest on such
corresponding amount in respect of each day from the date such corresponding
amount was made available by the Administrative Agent (or, in the case of
Canadian Term Loans, the Canadian Paying Agent) to such Borrower until the date
such corresponding amount is recovered by the Administrative Agent (or, in the
case of Canadian Term Loans, the Canadian Paying Agent), at a rate per annum
equal to (i) if recovered from such Lender, at the overnight Federal Funds Rate
(or in the case of Canadian Term Loans, the cost to the Administrative Agent or
the Canadian Paying Agent of acquiring overnight funds in Canadian Dollars) and
(ii) if recovered from either Borrower, the rate of interest applicable to the
respective Borrowing, as determined pursuant to Section 1.08. Nothing in this
Section 1.04 shall be deemed to relieve any Lender from its obligation to make
Loans hereunder or to prejudice any
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<PAGE>
rights which the Borrowers may have against any Lender as a result of any
failure by such Lender to make Loans hereunder.
1.05 Notes. (a) Each Borrower's obligations to pay the principal
-----
of, and interest on, the Loans made to it by each Lender shall be evidenced (i)
if Tranche A Term Loans made on the Initial Borrowing Date, by a promissory note
duly executed and delivered by the US Borrower substantially in the form of
Exhibit B-1A with blanks appropriately completed in conformity herewith (each, a
"Tranche A Term Note" and, collectively, the "Tranche A Term Notes"), (ii) if
Tranche A Term Loans made on the Change of Control Purchase Borrowing Date, by a
promissory note duly executed and delivered by the US Borrower substantially in
the form of Exhibit B-1B with blanks appropriately completed in conformity
herewith (each a "Tranche A Supplemental Note" and, collectively, the Tranche A
Supplemental Notes"), (iii) if Tranche B Term Loans, by a promissory note duly
executed and delivered by the US Borrower substantially in the form of Exhibit
B-2 with blanks appropriately completed in conformity herewith (each, a "Tranche
B Term Note" and, collectively, the "Tranche B Term Notes"), (iv) if Revolving
Loans, by a promissory note duly executed and delivered by the US Borrower
substantially in the form of Exhibit B-3, with blanks appropriately completed in
conformity herewith (each, a "Revolving Note" and, collectively, the "Revolving
Notes"), (v) if Swingline Loans, by a promissory note duly executed and
delivered by the US Borrower substantially in the form of Exhibit B-4, with
blanks appropriately completed in conformity herewith (the "Swingline Note"),
(vi) if Acquisition Loans, by a promissory note duly executed and delivered by
the US Borrower substantially in the form of Exhibit B-5, with blanks
appropriately completed in conformity herewith (each an "Acquisition Note" and,
collectively, the "Acquisition Notes") and (vii) if Canadian Term Loans, by a
promissory note duly executed and delivered by the Canadian Borrower
substantially in the form of Exhibit B-6, with blanks appropriately completed in
conformity herewith (each a "Canadian Term Note" and, collectively, the
"Canadian Term Notes").
(b) (x) The Tranche A Term Note issued to each Lender shall (i) be
executed by the US Borrower, (ii) be payable to the order of such Lender and be
dated the Initial Borrowing Date (or if issued thereafter, the date of
issuance), (iii) be in a stated principal amount equal to the Tranche A Term
Loan Commitment of such Lender on the Initial Borrowing Date before giving
effect to any reductions thereto on such date (or, if issued after the Initial
Borrowing Date, be in a stated principal amount equal to the outstanding
principal amount of Tranche A Term Loans of such Lender) and be payable in the
principal amount of Tranche A Term Loans evidenced thereby, (iv) mature on the
Initial Maturity Date, (v) bear interest as provided in the appropriate clause
of Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the
case may be, evidenced thereby, (vi) be subject to voluntary prepayment as
provided in Section 4.01 and mandatory repayment as provided in Section 4.02 and
(vii) be entitled to the benefits of this Agreement and the other Credit
Documents and (y) the Tranche A Supplemental Note issued to each Lender shall
(i) be executed by the US Borrower, (ii) be payable to the order of such Lender
and be dated the Initial Borrowing Date (or if issued thereafter, the date of
issuance), (iii) be in a stated principal amount equal to the Tranche A
Supplemental Commitment of such Lender on the date of issuance (or, if issued
after the Change of Control Purchase Borrowing Date, be in a stated principal
amount equal to the outstanding principal amount of Tranche A Term Loans of such
Lender made on the Change of Control Purchase Borrowing Date) and be
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payable in the principal amount of Tranche A Term Loans evidenced thereby, (iv)
mature on the Initial Maturity Date, (v) bear interest as provided in the
appropriate clause of Section 1.08 in respect of the Base Rate Loans and
Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to
voluntary prepayment as provided in Section 4.01 and mandatory repayment as
provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement
and the other Credit Documents.
(c) The Tranche B Term Note issued to each Lender shall (i) be
executed by the US Borrower, (ii) be payable to the order of such Lender and be
dated the Initial Borrowing Date (or if issued thereafter, the date of
issuance), (iii) be in a stated principal amount equal to the Tranche B Term
Loan Commitment of such Lender on the date of issuance (or, if issued after the
Change of Control Purchase Borrowing Date, be in a stated principal amount equal
to the outstanding principal amount of Tranche B Term Loans of such Lender at
such time) and be payable in the principal amount of Tranche B Term Loans
evidenced thereby, (iv) mature on the Tranche B Term Loan Maturity Date, (v)
bear interest as provided in the appropriate clause of Section 1.08 in respect
of the Base Rate Loans and Eurodollar Loans, as the case may be, evidenced
thereby, (vi) be subject to voluntary prepayment as provided in Section 4.01 and
mandatory repayment as provided in Section 4.02 and (vii) be entitled to the
benefits of this Agreement and the other Credit Documents.
(d) The Revolving Note issued to each Lender shall (i) be executed by
the US Borrower, (ii) be payable to the order of such Lender and be dated the
Initial Borrowing Date (or if issued thereafter, the date of issuance), (iii) be
in a stated principal amount equal to the Revolving Loan Commitment of such
Lender (or, if issued after the termination thereof, be in a stated principal
amount equal to the outstanding Revolving Loans of such Lender at such time) and
be payable in the principal amount of the outstanding Revolving Loans evidenced
thereby from time to time, (iv) mature on the Initial Maturity Date, (v) bear
interest as provided in the appropriate clause of Section 1.08 in respect of the
Base Rate Loans and Eurodollar Loans, as the case may be, evidenced thereby,
(vi) be subject to voluntary prepayment as provided in Section 4.01 and
mandatory repayment as provided in Section 4.02 and (vii) be entitled to the
benefits of this Agreement and the other Credit Documents.
(e) The Swingline Note issued to the Swingline Lender shall (i) be
executed by the US Borrower, (ii) be payable to the order of the Swingline
Lender and be dated the Initial Borrowing Date, (iii) be in a stated principal
amount equal to the Maximum Swingline Amount and be payable in the principal
amount of the outstanding Swingline Loans evidenced thereby from time to time,
(iv) mature on the Swingline Expiry Date, (v) bear interest as provided in the
appropriate clause of Section 1.08 in respect of the Base Rate Loans evidenced
thereby, (vi) be subject to voluntary prepayment as provided in Section 4.01 and
mandatory repayment as provided in Section 4.02 and (vii) be entitled to the
benefits of this Agreement and the other Credit Documents.
(f) The Acquisition Note issued to each Lender that has an
Acquisition Loan Commitment or outstanding Acquisition Term Loan shall (i) be
executed by the US Borrower, (ii) be payable to the order of such Lender and be
dated the date of the issuance thereof, (iii) be in a stated principal amount
equal to the Acquisition Loan Commitment of such Lender (or, if
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issued after the termination thereof, be in a stated principal amount equal to
the outstanding Acquisition Loans of such Lender at such time) and be payable in
the outstanding principal amount of Acquisition Loans evidenced thereby, (iv)
mature on the Initial Maturity Date, (v) bear interest as provided in the
appropriate clause of Section 1.08 in respect of the Base Rate Loans and
Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to
voluntary prepayment as provided in Section 4.01, and mandatory repayment as
provided in Section 4.02 and (vii) be entitled to the benefits of this Agreement
and the other Credit Documents.
(g) The Canadian Term Note issued to each Lender shall (i) be
executed by the Canadian Borrower, (ii) be payable to the order of such Lender
and be dated the Initial Borrowing Date (or if issued thereafter, the date of
issuance), (iii) be in a stated principal amount equal to the Canadian Term Loan
Commitment of such Lender on the Initial Borrowing Date before giving effect to
any reductions thereto on such date (or, if issued after the Initial Borrowing
Date, be in a stated principal amount equal to the outstanding principal amount
and/or Face Amount of Canadian Term Loans of such Lender) and be payable in the
principal amount and/or Face Amount, as applicable, of Canadian Term Loans
evidenced thereby, (iv) mature on the Initial Maturity Date, (v) provide for
interest on outstanding Canadian Prime Rate Loans as provided in the appropriate
clause of Section 1.08 in respect of the Canadian Prime Rate Loans evidenced
thereby, (vi) be subject to voluntary prepayment as provided in Section 4.01 and
mandatory repayment as provided in Section 4.02 and (vii) be entitled to the
benefits of this Agreement and the other Credit Documents.
(h) Each Lender will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will prior to any
transfer of any of its Notes endorse on the reverse side thereof the outstanding
principal amount of Loans evidenced thereby. Failure to make any such notation
or any error in any such notation or endorsement shall not affect the respective
Borrower's obligations in respect of such Loans.
1.06 Conversions. (a) The US Borrower shall have the option to
-----------
convert, on any Business Day, all or a portion of the Loans made to such
Borrower equal to at least (x) in the case of a conversion of Term Loans,
$5,000,000 and (y) in the case of a conversion of Revolving Loans or Acquisition
Revolving Loans, $2,000,000 (or $1,000,000 in the case of a conversion into Base
Rate Loans), of the outstanding principal amount of Loans made pursuant to one
or more Borrowings (so long as of the same Tranche) of one or more Types of
Loans into a Borrowing (of the same Tranche) of another Type of Loan, provided
--------
that (i) if for any reason any Eurodollar Loans are converted into Base Rate
Loans on a day which is not the last day of an Interest Period applicable to the
Loans being converted, the US Borrower shall pay all amounts owing in connection
therewith as required by Section 1.11, (ii) no partial conversion of Eurodollar
Loans shall reduce the outstanding principal amount of such Eurodollar Loans
made pursuant to a single Borrowing to less than (x) in the case of Term Loans,
$5,000,000 and (y) in the case of Revolving Loans or Acquisition Revolving
Loans, $2,000,000, (iii) unless the Required Lenders otherwise specifically
agree in writing, Base Rate Loans may only be converted into Eurodollar Loans if
no Default or Event of Default is in existence on the date of the conversion,
(iv) no conversion pursuant to this Section 1.06 shall result in a greater
number of Borrowings of Eurodollar Loans and Bankers' Acceptances than is
permitted under Section 1.02, (v) prior to the 65/th/ day after the Initial
Borrowing Date, conversions of Base Rate Loans
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into Eurodollar Loans shall be subject to the additional requirements imposed
pursuant to following clause (b) and (vi) Swingline Loans may not be converted
pursuant to this Section 1.06. Each such conversion shall be effected by the US
Borrower giving the Administrative Agent at its Notice Office prior to 11:00
A.M. (New York time) at least (x) in the case of a conversion to Eurodollar
Loans, three Business Days' prior notice and (y) in the case of a conversion to
Base Rate Loans, one Business Day's prior notice (each a "Notice of Conversion")
specifying the Loans to be so converted, the Borrowing(s) pursuant to which such
Loans were made and, if to be converted into Eurodollar Loans, the Interest
Period to be initially applicable thereto. The Administrative Agent shall give
each Lender prompt notice of any such proposed conversion affecting any of its
Loans.
(b) Unless the Syndication Date has occurred, until the 65/th/ day
after the Initial Borrowing Date, Base Rate Loans may only be converted into
Eurodollar Loans with either an Interest Period of one-month that begins and
ends on the same date as all other one-month Interest Periods applicable to
Eurodollar Loans outstanding on such date or an Interest Period of one week that
ends on or before the last day of any one-month Interest Periods then in effect.
(c) Bankers' Acceptance Loans may be converted into Canadian Prime
Rate Loans and, so long as no Default or Event of Default then exists and is
continuing, Canadian Prime Rate Loans may be converted into Bankers' Acceptance
Loans in each case in accordance with the provisions of Schedule III; provided
--------
that, unless the Syndication Date has occurred, until the 65/th/ day after the
Initial Borrowing Date, Canadian Prime Rate Loans may only be converted into
Bankers' Acceptance Loans with either a term of 30 days that ends on the same
date as all other one-month Interest Periods and 30-day terms, as the case may
be, applicable to Bankers' Acceptance Loans and Eurodollar Loans outstanding on
such date or a term of seven days that ends on or before the last day of any 30-
day terms applicable to Bankers Acceptance Loans then outstanding. Each such
conversion or any continuation of Bankers' Acceptance Loans shall be effected by
the Canadian Borrower giving the Canadian Paying Agent at its Payment Office,
prior to 10:00 a.m. (New York time) at least three Business Days prior to the
requested Drawing Date, a notice completed in a manner and in form and substance
reasonably satisfactory to the Canadian Paying Agent specifying among other
things (i) the aggregate amount of the Canadian Prime Rate Loans to be converted
or Bankers' Acceptance Loans to be replaced, as the case may be, (ii) the
Drawing Date, the term of maturity and the aggregate face amount of Drafts to be
created and accepted; and (iii) such other certificates and information as the
Canadian Paying Agent may reasonably request. Upon receipt of any such request
for conversion to, or continuation of, any Bankers' Acceptance Loans, the
Canadian Paying Agent shall promptly notify each Canadian Lender and the
Administrative Agent of its receipt thereof.
(d) Mandatory conversions of Bankers' Acceptance Loans into Canadian
Prime Rate Loans shall be made in the circumstances, and to the extent, provided
in clause (i) of Schedule III.
1.07 Pro Rata Borrowings. All Borrowings of Tranche A Term Loans
-------------------
(other than Tranche A Term Loans incurred on the Change of Control Purchase
Borrowing Date (if any)), Tranche B Term Loans, Revolving Loans, Acquisition
Revolving Loans and Canadian Term Loans under this Agreement shall be incurred
from the Lenders pro rata on the basis of their
--- ----
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Tranche A Term Loan Commitments, Tranche B Term Loan Commitments, Revolving Loan
Commitments, Acquisition Loan Commitments or Canadian Term Loan Commitments, as
the case may be. Tranche A Term Loans incurred on the Change of Control Purchase
Borrowing Date (if any) shall be incurred from the Lenders pro rata on the basis
--- ----
of their Tranche A Supplemental Commitments. It is understood that no Lender
shall be responsible for any default by any other Lender of its obligation to
make Loans hereunder and that each Lender shall be obligated to make the Loans
provided to be made by it hereunder, regardless of the failure of any other
Lender to make its Loans hereunder.
1.08 Interest. (a) The US Borrower agrees to pay interest in
--------
respect of the unpaid principal amount of each Base Rate Loan made to such
Borrower from the date the proceeds thereof are made available to such Borrower
until the earlier of (i) the maturity (whether by acceleration or otherwise) of
such Base Rate Loan and (ii) the conversion of such Base Rate Loan to a
Eurodollar Loan pursuant to Section 1.06, at a rate per annum which shall be
equal to the sum of the Applicable Margin plus the Base Rate in effect from time
to time.
(b) The US Borrower agrees to pay interest in respect of the unpaid
principal amount of each Eurodollar Loan made to such Borrower from and
including the date the proceeds thereof are made available to such Borrower to
but excluding the earlier of (i) the maturity (whether by acceleration or
otherwise) of such Eurodollar Loan and (ii) the conversion of such Eurodollar
Loan to a Base Rate Loan pursuant to Section 1.06 or 1.09, as applicable, at a
rate per annum which shall, during each Interest Period applicable thereto, be
equal to the sum of the Applicable Margin plus the Eurodollar Rate for such
Interest Period.
(c) The Canadian Borrower hereby agrees to pay interest in respect of
the unpaid principal amount of each Canadian Prime Rate Loan from and including
the date the proceeds thereof are made available to the Canadian Borrower (which
shall, in the case of a conversion pursuant to clause (i) of Schedule III, be
deemed to be the date upon which a maturing Bankers' Acceptance is converted
into a Canadian Prime Rate Loan pursuant to said clause (i), with the proceeds
thereof to be equal to the full Face Amount of the maturing Bankers'
Acceptances), to but excluding the earlier of (i) the maturity thereof (whether
by acceleration, or otherwise) and (ii) the conversion of such Canadian Prime
Rate Loan to a Bankers' Acceptance Loan pursuant to Section 1.06 and Schedule
III, at a rate per annum which shall be equal to the sum of the Applicable
--- -----
Margin for Canadian Prime Rate Loans plus the Canadian Prime Rate, each as in
effect from time to time.
(d) With respect to Bankers' Acceptance Loans, Acceptance Fees shall
be payable at the time of the execution and acceptance of each Bankers'
Acceptance as provided in clause (g) of Schedule III. Until the maturity of the
respective Bankers' Acceptances, interest shall not otherwise be payable with
respect thereto.
(e) To the extent permitted by law, overdue principal and interest in
respect of each Loan and any other overdue amount payable hereunder shall, in
each case, bear interest at a rate per annum equal to the greater of (x) 2% per
annum in excess of the rate otherwise applicable to Base Rate Loans of the
respective Tranche of Loans from time to time and (y) the
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<PAGE>
rate which is 2% in excess of the rate then borne by such Loans, in each case
with such interest to be payable on demand.
(f) Accrued (and theretofore unpaid) interest shall be payable (i) in
respect of each Base Rate Loan, quarterly in arrears on each Quarterly Payment
Date, (ii) in respect of each Eurodollar Loan, on the last day of each Interest
Period applicable thereto and, in the case of an Interest Period in excess of
three months, on each date occurring at three month intervals after the first
day of such Interest Period and (iii) in respect of each Loan, on any repayment
or prepayment (on the amount repaid or prepaid), at maturity (whether by
acceleration or otherwise) and, after such maturity, on demand.
(g) Upon each Interest Determination Date, the Administrative Agent
shall determine the Eurodollar Rate for each Interest Period applicable to
Eurodollar Loans and shall promptly notify the respective Borrower and the
Lenders thereof. Each such determination shall, absent manifest error, be final
and conclusive and binding on all parties hereto.
1.09 Interest Periods. At the time it gives any Notice of Borrowing
----------------
or Notice of Conversion in respect of the making of, or conversion into, any
Eurodollar Loan (in the case of the initial Interest Period applicable thereto)
or on the third Business Day prior to the expiration of an Interest Period
applicable to such Eurodollar Loan (in the case of any subsequent Interest
Period), the respective Borrower shall have the right to elect, by giving the
Administrative Agent notice thereof, the interest period (each an "Interest
Period") applicable to such Eurodollar Loan, which Interest Period shall, at the
option of such Borrower and subject to the provisions of Sections 1.01 and
1.06(b), be a one, two, three, six or nine-month period (or, if initiated prior
to the earlier to occur of the 65/th/ day following the Initial Borrowing Date
and the Syndication Date, a one-week period), provided that:
--------
(i) all Eurodollar Loans comprising a Borrowing shall at all times
have the same Interest Period;
(ii) the initial Interest Period for any Eurodollar Loan shall
commence on the date of Borrowing of such Eurodollar Loan (including the
date of any conversion thereto from a Loan of a different Type) and each
Interest Period occurring thereafter in respect of such Eurodollar Loan
shall commence on the day on which the next preceding Interest Period
applicable thereto expires;
(iii) if any Interest Period relating to a Eurodollar Loan begins on
a day for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period, such Interest Period shall end on
the last Business Day of such calendar month;
(iv) if any Interest Period would otherwise expire on a day which
is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided, however, that if any Interest Period for
-------- -------
a Eurodollar Loan would otherwise expire on a day which is not a Business
Day but is a day of the month after which no further Business Day occurs in
such month, such Interest Period shall expire on the next preceding
Business Day;
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<PAGE>
(v) unless the Required Lenders otherwise specifically agree in
writing, no Interest Period may be selected at any time when a Default or
Event of Default is then in existence;
(vi) no Interest Period in respect of any Borrowing of any Tranche
of Loans shall be selected which extends beyond the respective Maturity
Date for such Tranche of Loans;
(vii) no Interest Period in respect of any Borrowing of Tranche A
Term Loans, Tranche B Term Loans, Acquisition Term Loans or Canadian Term
Loans, as the case may be, shall be selected which extends beyond any date
upon which a mandatory repayment of such Tranche of Term Loans will be
required to be made under Section 4.02(b), (c), (d) or (e), as the case may
be, if the aggregate principal amount of Tranche A Term Loans, Tranche B
Term Loans, Acquisition Term Loans or Canadian Term Loans, as the case may
be, which have Interest Periods which will expire after such date will be
in excess of the aggregate principal amount of Tranche A Term Loans,
Tranche B Term Loans, Acquisition Term Loans or Canadian Term Loans, as the
case may be, then outstanding less the aggregate amount of such required
prepayment; and
(viii) no one-week Interest Periods shall be available after the
earlier to occur of the 65/th/ day after the Initial Borrowing Date and the
Syndication Date, and no nine-month Interest Periods shall be available to
the Borrowers unless both (x) the Administrative Agent consents thereto
(such consent not to be unreasonably withheld) and (y) such Interest Period
is available to each Lender (as determined by each Lender) with a Loan of
the respective Tranche.
If upon the expiration of any Interest Period applicable to a
Borrowing of Eurodollar Loans, the respective Borrower has failed to elect, or
is not permitted to elect, a new Interest Period to be applicable to such
Eurodollar Loans as provided above, such Borrower shall be deemed to have
elected to convert such Eurodollar Loans into Base Rate Loans effective as of
the expiration date of such current Interest Period.
1.10 Increased Costs, Illegality, etc. (a) In the event that any
---------------------------------
Lender shall have determined (which determination shall, absent manifest error,
be final and conclusive and binding upon all parties hereto but, with respect to
clause (i) below, may be made only by the Administrative Agent):
(i) on any Interest Determination Date that, by reason of any
changes arising after the date of this Agreement affecting the interbank
Eurodollar market, adequate and fair means do not exist for ascertaining
the applicable interest rate on the basis provided for in the definition of
Eurodollar Rate; or
(ii) at any time, that such Lender shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to
any Eurodollar Loan because of (x) any change since the date of this
Agreement in any applicable law or governmental (including for this purpose
any regulatory body with jurisdiction over such Lender) rule, regulation,
order, guideline or request (whether or not having the force of law) or in
the
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<PAGE>
interpretation or administration thereof and including the introduction
of any new law or governmental rule, regulation, order, guideline or
request, such as, for example, but not limited to: (A) a change in the
basis of taxation of payment to any Lender of the principal of or interest
on such Eurodollar Loan or any other amounts payable hereunder (except for
changes in the rate of tax on, or determined by reference to, the net
income or profits of such Lender, or any franchise tax based on the net
income or profits of such Lender, in either case pursuant to the laws of
the United States of America, the jurisdiction in which it is organized or
in which its principal office or applicable lending office is located or
any subdivision thereof or therein), but without duplication of any amounts
payable in respect of Taxes pursuant to Section 4.04(a), or (B) a change in
official reserve requirements, but, in all events, excluding reserves
required under Regulation D to the extent included in the computation of
the Eurodollar Rate and/or (y) other circumstances since the date of this
Agreement affecting such Lender or the interbank Eurodollar market or the
position of such Lender in such market; or
(iii) at any time, that the making or continuance of any
Eurodollar Loan has been made (x) unlawful by any law or governmental rule,
regulation or order, (y) impossible by compliance by any Lender in good
faith with any governmental request (whether or not having force of law) or
(z) impracticable as a result of a contingency occurring after the date of
this Agreement which materially and adversely affects the interbank
Eurodollar market;
then, and in any such event, such Lender (or the Administrative Agent, in the
case of clause (i) above) shall promptly give notice (by telephone confirmed in
writing) to the Borrowers and, except in the case of clause (i) above, to the
Administrative Agent of such determination (which notice the Administrative
Agent shall promptly transmit to each of the other Lenders). Thereafter (x) in
the case of clause (i) above, Eurodollar Loans shall no longer be available
until such time as the Administrative Agent notifies the Borrowers and the
Lenders that the circumstances giving rise to such notice by the Administrative
Agent no longer exist, and any Notice of Borrowing or Notice of Conversion given
by either Borrower with respect to Eurodollar Loans which have not yet been
incurred (including by way of conversion) shall be deemed rescinded by such
Borrower or, at such Borrower's option and upon notice to the Administrative
Agent, converted into a Borrowing of Base Rate Loans of the respective Tranche,
(y) in the case of clause (ii) above, each Borrower agrees subject to the
provisions of Section 13.15 (to the extent applicable), to pay to such Lender,
upon written demand therefor, such additional amounts (in the form of an
increased rate of, or a different method of calculating, interest or otherwise
as such Lender in its reasonable discretion shall determine) as shall be
required to compensate such Lender for such increased costs or reductions in
amounts received or receivable hereunder (a written notice as to the additional
amounts owed to such Lender, showing in reasonable detail the basis for and the
calculation thereof, submitted to the respective Borrower by such Lender in good
faith shall, absent manifest error, be final and conclusive and binding on all
the parties hereto) and (z) in the case of clause (iii) above, the respective
Borrower shall take one of the actions specified in Section 1.10(b) as promptly
as possible and, in any event, within the time period required by law. Each of
the Administrative Agent and each Lender agrees that if it gives notice to the
Borrowers of any of the events described in clause (i), (ii) or (iii) above, it
shall promptly notify the Borrowers and, in the case of any such Lender, the
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Administrative Agent, if such event ceases to exist. If any such event
described in clause (iii) above ceases to exist as to a Lender, the obligations
of such Lender to make Eurodollar Loans and to convert Base Rate Loans into
Eurodollar Loans on the terms and conditions contained herein shall be
reinstated.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the respective Borrower
may (and in the case of a Eurodollar Loan affected by the circumstances
described in Section 1.10(a)(iii) shall) either (x) if the affected Eurodollar
Loan is then being made initially or pursuant to a conversion, cancel the
affected Borrowings or convert such Eurodollar Loan to a Base Rate Loan by
giving the Administrative Agent telephonic notice (confirmed in writing) on the
same date that such Borrower is notified by the affected Lender or the
Administrative Agent pursuant to Section 1.10(a)(ii) or (iii) or (y) if the
affected Eurodollar Loan is then outstanding, upon at least one Business Day's
written notice to the Administrative Agent, require the affected Lender to
convert such Eurodollar Loan into a Base Rate Loan, provided that, if more than
--------
one Lender is affected at any time, then all affected Lenders must be treated
the same pursuant to this Section 1.10(b).
(c) If at any time after the date of this Agreement any Lender
determines that the introduction of or any change in any applicable law or
governmental (including for this purpose any regulatory body with jurisdiction
over such Lender) rule, regulation, order, guideline, directive or request
(whether or not having the force of law) concerning capital adequacy, or any
change in interpretation or administration thereof by any governmental
authority, central bank or comparable agency, in each case introduced or changed
after the date hereof, will have the effect of increasing the amount of capital
required or expected to be maintained by such Lender or any corporation
controlling such Lender based on the existence of such Lender's Commitments
hereunder or its obligations hereunder, then each Borrower agrees, subject to
the provisions of Section 13.15 (to the extent applicable), to pay to such
Lender, upon its written demand therefor, such additional amounts as shall be
required to compensate such Lender or such other corporation for the increased
cost to such Lender or such other corporation or the reduction in the rate of
return to such Lender or such other corporation as a result of such increase of
capital in respect of the Commitments of such Borrower. In determining such
additional amounts, each Lender will act reasonably and in good faith and will
use averaging and attribution methods which are reasonable, provided that such
--------
Lender's reasonable good faith determination of compensation owing under this
Section 1.10(c) shall, absent manifest error, be final and conclusive and
binding on all the parties hereto. Each Lender, upon determining that any
additional amounts will be payable pursuant to this Section 1.10(c), will give
prompt written notice thereof to the respective Borrower, which notice shall
show in reasonable detail the basis for and calculation of such additional
amounts.
1.11 Compensation. Each Borrower agrees, subject to the provisions
------------
of Section 13.15 (to the extent applicable), to compensate each Lender, upon its
written request (which request shall set forth in reasonable detail the basis
for requesting and the calculation of such compensation), for all reasonable
losses, expenses and liabilities (including, without limitation, any loss,
expense or liability incurred by reason of the liquidation or reemployment of
deposits or other funds required by such Lender to fund its Eurodollar Loans but
excluding any loss of anticipated profit) which such Lender may sustain: (i) if
for any reason (other than a default by
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<PAGE>
such Lender or the Administrative Agent) a Borrowing of, or conversion from or
into, Eurodollar Loans does not occur on a date specified therefor in a Notice
of Borrowing or Notice of Conversion (whether or not withdrawn by the respective
Borrower or deemed withdrawn pursuant to Section 1.10(a)) or a Loan is not
continued as a Eurodollar Loan after an election of a new Interest Period as
provided in Section 1.09; (ii) if any repayment (including any repayment made
pursuant to Sections 1.13, 4.01, 4.02 or 13.12(b), as a result of an
acceleration of the Loans pursuant to Section 10 or as a result of a replacement
of a Lender pursuant to Section 1.13) or conversion of any of its Eurodollar
Loans occurs on a date which is not the last day of an Interest Period with
respect thereto; (iii) if any repayment (including any repayment made pursuant
to Section 4.02) of any Bankers' Acceptance Loan occurs on a date which is not
the maturity date of the respective Bankers' Acceptance; (iv) if any prepayment
of any of its Eurodollar Loans or Bankers' Acceptance Loans is not made on any
date specified in a notice of prepayment given by the respective Borrower; or
(v) as a consequence of (x) any other default by the respective Borrower to
repay any Eurodollar Loans or Bankers' Acceptance Loans when required by the
terms of this Agreement or any Note held by such Lender or (y) any election made
pursuant to Section 1.10(b).
1.12 Change of Lending Office. Each Lender agrees that on the
------------------------
occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or
(iii), Section 1.10(c), Section 2.05 or Section 4.04 with respect to such
Lender, it will, if requested by the Borrowers, use reasonable efforts (subject
to overall policy considerations of such Lender) to designate another lending
office for any Commitments, Loans or Letters of Credit affected by such event,
provided that such designation is made on such terms that such Lender and its
- --------
lending office suffer no economic, legal or regulatory disadvantage, with the
object of avoiding the consequence of the event giving rise to the operation of
such Section. Nothing in this Section 1.12 shall affect or postpone any of the
respective obligations of the Borrowers or the right of any Lender provided in
Sections 1.10, 2.05 and 4.04.
1.13 Replacement of Lenders. (x) If any Lender becomes a Defaulting
----------------------
Lender or otherwise defaults in its obligations to make Loans or fund Unpaid
Drawings, (y) upon the occurrence of any event giving rise to the operation of
Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 2.05 or Section 4.04 with
respect to any Lender which results in such Lender charging to the US Borrower
or the Canadian Borrower, as the case may be, increased costs in excess of those
being generally charged by the other Lenders, or (z) as provided in Section
13.12(b) in the case of certain refusals by a Lender to consent to certain
proposed changes, waivers, discharges or terminations with respect to this
Agreement which have been approved by the Required Lenders, the respective
Borrower shall have the right, if no Default or Event of Default will exist
immediately after giving effect to the respective replacement, to either replace
such Lender (the "Replaced Lender") with one or more other Eligible Transferees,
none of whom shall constitute a Defaulting Lender at the time of such
replacement (collectively, the "Replacement Lender") and each of whom shall be
required to be reasonably acceptable to the Administrative Agent or, at the
option of the respective Borrower, to replace only (a) the Revolving Loan
Commitment (and outstandings pursuant thereto) of the Replaced Lender with an
identical Revolving Loan Commitment (and outstandings pursuant thereto) provided
by the Replacement Lender, (b) the Acquisition Loan Commitment (and outstandings
pursuant thereto) of the Replaced Lender with an identical Acquisition Loan
Commitment (and outstandings pursuant thereto) provided by the
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Replacement Lender or (c) in the case of a replacement as provided in Section
13.12(b) where the consent of the respective Lender is required with respect to
less than all Tranches of its Loans or Commitments, the Commitments (and
outstandings pursuant thereto) and/or outstanding Term Loans of such Lender in
respect of each Tranche where the consent of such Lender would otherwise be
individually required, with identical Commitments and/or Loans of the respective
Tranche provided by the Replacement Lender, provided that (i) at the time of any
--------
replacement pursuant to this Section 1.13, the Replaced Lender and Replacement
Lender shall enter into one or more Assignment and Assumption Agreements
pursuant to Section 13.04(b) (and with all fees payable pursuant to said Section
13.04(b) to be paid by the Replacement Lender) pursuant to which the Replacement
Lender shall acquire all of the Commitments and outstanding Loans (or, in the
case of the replacement of only (a) the Revolving Loan Commitment, the Revolving
Loan Commitment and outstanding Revolving Loans, (b) the Acquisition Loan
Commitment, the Acquisition Loan Commitment and outstanding Acquisition
Revolving Loans or (c) the outstanding Term Loans of one or more Tranches, the
outstanding Commitment and/or Term Loans of the respective Tranche or Tranches)
of, and in each case (except for the replacement of only the outstanding
Acquisition Loan Commitments, Acquisition Revolving Loans and/or Term Loans (and
Commitments with respect thereto (if any)) of one or more Tranches of the
respective Lender) participations in Letters of Credit by, the Replaced Lender
and, in connection therewith, shall pay to (x) the Replaced Lender in respect
thereof an amount equal to the sum (without duplication) of (A) an amount equal
to the principal and/or Face Amount, as applicable, of, and all accrued interest
on, all outstanding Loans (or, in the case of the replacement of only (I) the
Revolving Loan Commitment, the outstanding Revolving Loans, (II) the Acquisition
Loan Commitment, the outstanding Acquisition Revolving Loans or (III) the Term
Loans of one or more Tranches, the outstanding Term Loans of such Tranche or
Tranches) of the Replaced Lender, (B) except in the case of the replacement of
only the outstanding Acquisition Loan Commitments, Acquisition Revolving Loans
and/or Term Loans of one or more Tranches (and Commitments with respect thereto
(if any)) of a Replaced Lender, an amount equal to all Unpaid Drawings that have
been funded by (and not reimbursed to) such Replaced Lender, together with all
then unpaid interest with respect thereto at such time and (C) an amount equal
to all accrued, but theretofore unpaid, Fees owing to the Replaced Lender (but
only with respect to the relevant Tranche, in the case of the replacement of
less than all Tranches of Loans then held by the respective Replaced Lender)
pursuant to Section 3.01 and (y) except in the case of the replacement of only
the outstanding Acquisition Loan Commitments, Acquisition Revolving Loans and/or
Term Loans of one or more Tranches (and Commitments with respect thereto (if
any)) of a Replaced Lender, the respective Issuing Bank an amount equal to such
Replaced Lender's Percentage of any Unpaid Drawing (which at such time remains
an Unpaid Drawing) to the extent such amount was not theretofore funded by such
Replaced Lender, and (ii) all obligations of the respective Borrower owing to
the Replaced Lender (other than those (a) specifically described in clause (i)
above in respect of which the assignment purchase price has been, or is
concurrently being, paid or (b) relating to any Tranche of Loans and/or
Commitments of the respective Replaced Lender which will remain outstanding
after giving effect to the respective replacement) shall be paid in full to such
Replaced Lender concurrently with such replacement. Upon the execution of the
respective Assignment and Assumption Agreements, the payment of amounts referred
to in clauses (i) and (ii) above and, if so requested by the Replacement Lender,
delivery to the Replacement Lender of the appropriate Note or Notes executed by
the respective Borrower, the Replacement Lender shall become a Lender hereunder
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and, unless the respective Replaced Lender continues to have outstanding Term
Loans, a Revolving Loan Commitment or an Acquisition Loan Commitment hereunder,
the Replaced Lender shall cease to constitute a Lender hereunder, except with
respect to indemnification provisions under this Agreement (including, without
limitation, Sections 1.10, 1.11, 2.05, 4.04, 13.01 and 13.06), which shall
survive as to such Replaced Lender.
1.14 Additional Acquisition Loan Commitments. At any time and from
---------------------------------------
time to time after the Initial Borrowing Date and prior to the Business Day
immediately preceding the Conversion Date, the US Borrower may request one or
more Lenders or other lending institutions, which would constitute Eligible
Transferees and are otherwise reasonably acceptable to the Agents, to provide an
additional Acquisition Loan Commitment and to make Acquisition Loans to the US
Borrower as provided in Section 1.01(f) and, in the sole discretion of each such
Lender or other institution, any such Lender or other institution may agree to
so commit; provided that (i) no Default or Event of Default then exists or would
--------
result from such increase, (ii) the increase in the Total Acquisition Loan
Commitment pursuant to any such request shall be in an aggregate amount of at
least $25,000,000 and (iii) after giving effect to any such increase, the Total
Acquisition Loan Commitment shall not exceed $50,000,000 less the amount of any
permanent reductions to the Total Acquisition Loan Commitment theretofore
incurred pursuant to Sections 3.02, 3.03, 4.02 or 10. The US Borrower and each
such Lender or other lending institution (each, an "Assuming Lender") which
agrees to commit to assume such an Acquisition Loan Commitment and to make such
Acquisition Loans shall execute and deliver to the Administrative Agent an
Acquisition Commitment Assumption Agreement substantially in the form of Exhibit
L (with the increase in, or in the case of a new Assuming Lender, assumption of,
such Lender's Acquisition Loan Commitment to be effective upon delivery of such
fully executed Acquisition Commitment Assumption Agreement to the Administrative
Agent). The Administrative Agent shall promptly notify each Lender of the
occurrence of each Acquisition Commitment Assumption Date. On each Acquisition
Commitment Assumption Date, (x) Schedule I shall be deemed modified to reflect
the revised Acquisition Loan Commitments of such Lenders, and (y) the US
Borrower shall pay to each such Assuming Lender and each Agent such up front
fees (if any) as may have been agreed between the US Borrower and such Assuming
Lender and/or such Agent. Notwithstanding anything to the contrary contained in
this Agreement, on each Acquisition Commitment Assumption Date the Assuming
Lender shall make available its AL Percentage (or, if the respective Assuming
Lender already had an AL Percentage, a percentage equal to the increase in its
AL Percentage as a result of its execution of the respective Acquisition
Commitment Assumption Agreement) of all outstanding Borrowings of Acquisition
Loans, which amounts will be applied by the Administrative Agent to repay the
outstanding Acquisition Loans of each AL Lender (immediately before giving
effect to the respective Acquisition Commitment Assumption Agreement) pro rata
--- ----
based on their respective AL Percentages (immediately before giving effect to
the adjustments thereto as a result of the new Acquisition Commitment Assumption
Agreement). In such case, the US Borrower shall be deemed to have (x) repaid
each outstanding Borrowing of Acquisition Loans in the amounts so applied in
accordance with the immediately preceding sentence and (y) reborrowed such
amounts from the Assuming Lender. The US Borrower agrees to pay all amounts
owing pursuant to Section 1.11 with respect to any such deemed repayments of
outstanding Eurodollar Loans.
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1.15 Special Sharing and Conversion Provisions Applicable Upon
---------------------------------------------------------
Occurrence of a Sharing Event. (a) On the date of the occurrence of a Sharing
- -----------------------------
Event, automatically (and without the taking of any action) (x) all then
outstanding Canadian Term Loans maintained in Canadian Dollars shall be
automatically converted into Canadian Term Loans maintained in Dollars (in an
amount equal to the Dollar Equivalent of the aggregate principal amount and/or
BA Accreted Amount, as applicable, of the Canadian Term Loans on the date such
Sharing Event first occurred, which Canadian Term Loans (i) shall continue to be
owed by the Canadian Borrower and (ii) shall at all times thereafter be deemed
to be Base Rate Loans with an interest rate equal to that applicable to Tranche
A Term Loans and (y) all principal, accrued and unpaid interest and other
amounts (including, without limitation, the BA Accreted Amount of outstanding
Bankers' Acceptance Loans) owing with respect to such Canadian Term Loans shall
thereafter be payable in Dollars, taking the Dollar Equivalent as of the date of
occurrence of the Sharing Event of such principal, accrued and unpaid interest
and other amounts. The occurrence of any conversion of Canadian Term Loans as
provided above in this Section 1.15(a) shall, to the extent applicable,
constitute a prepayment of such Canadian Term Loans before the maturity of any
Bankers' Acceptance relating thereto for purposes of Schedule III.
(b) Upon the occurrence of a Sharing Event, each Lender shall (and
hereby unconditionally and irrevocably agrees to) purchase and sell (in each
case in Dollars) undivided participating interests in the Loans (for all
purposes of this Section 1.15, treating as Revolving Loans any participations
purchased by or from the Swingline Lender as a result of one or more Mandatory
Borrowings) outstanding to, and any Unpaid Drawings owing by, the Borrowers in
such amounts so that each Lender shall have a share of each of the outstanding
Loans and Unpaid Drawings then owing by the Borrowers equal to its Aggregate
Percentage thereof. Upon any such occurrence the Administrative Agent shall
notify each Lender and shall specify the amount of Dollars required from such
Lender in order to effect the purchases and sales by the various Lenders of
participating interests in the amounts required above (together with accrued
interest with respect to the period for the last interest payment date through
the date of the Sharing Event plus any additional amounts payable by the
----
respective Borrowers pursuant to Section 4.04 in respect of such accrued but
unpaid interest), provided that, upon the occurrence of a Sharing Event, each
--------
Lender shall be deemed to have purchased, automatically and without notice or
request, such participating interests (and, as a result thereof, shall be
entitled to receive from, or shall owe to, the other Lenders the respective
amounts owing as a result of the purchases and sales of participations
contemplated herein). Promptly upon receipt of such request, each Lender shall
deliver to the Administrative Agent (in immediately available funds in Dollars)
the net amounts as specified by the Administrative Agent. The Administrative
Agent shall promptly deliver the amounts so received to the various Lenders in
such amounts as are needed to effect the purchases and sales of participations
as provided above. Promptly following receipt thereof, each Lender which has
sold participations in any of its Loans or Unpaid Drawings (through the
Administrative Agent) will deliver to each Lender (through the Administrative
Agent) which has so purchased a participating interest, a participation
certificate dated the date of receipt of such funds and in such amount. It is
understood that the amount of funds delivered by each Lender shall be calculated
on a net basis, giving effect to both the sales and purchases of participations
by the various Lenders as required above.
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(c) Upon and after the occurrence of a Sharing Event (i) no further
Credit Events shall occur, (ii) all amounts from time to time accruing with
respect to, and all amounts from time to time payable on account of, any Loans
(including, without limitation, any interest and other amounts which were
accrued but unpaid on the date of such purchase) shall be payable in Dollars as
if each such Loan had originally been made in Dollars and shall be distributed
by the relevant Lenders (or their Affiliates) to the Administrative Agent for
the account of the Lenders which made such Loans or are participating therein
and (iii) the Commitments (if any) of all the Lenders shall be automatically
terminated. Notwithstanding anything to the contrary contained above, the
failure of any Lender to purchase its participating interest as required above
in any extensions of credit upon the occurrence of a Sharing Event shall not
relieve any other Lender of its obligation hereunder to purchase its
participating interests in a timely manner, but no Lender shall be responsible
for the failure of any other Lender to purchase the participating interest to be
purchased by such other Lender.
(d) If any amount required to be paid by any Lender pursuant to
Section 1.15(b) is not paid to the Administrative Agent on the date upon which
such Lender receives notice from the Administrative Agent of the amount of its
participations required to be purchased pursuant to said Section 1.15(b), such
Lender shall also pay to the Administrative Agent on demand an amount equal to
the product of (i) the amount so required to be paid by such Lender for the
purchase of its participations, multiplied by (ii) (x) the daily average Federal
Funds Rate, during the period from and including the date of request for payment
to the date on which such payment is immediately available to the Administrative
Agent multiplied by (y) a fraction the numerator of which is the number of days
that elapsed during such period and the denominator of which is 360. If any
such amount required to be paid by any Lender pursuant to Section 1.15(b) is not
in fact made available to the Administrative Agent within two Business Days
following the date upon which such Lender receives notice from the
Administrative Agent as to the amount of participations required to be purchased
by it, the Administrative Agent shall be entitled to recover from such Lender on
demand, such amount with interest thereon calculated from such request date at
the rate per annum applicable to Revolving Loans maintained as Base Rate Loans
--- -----
hereunder. A certificate of the Administrative Agent submitted to any Lender
with respect to any amounts payable under this Section 1.15 shall be conclusive
in the absence of manifest error. Amounts payable by any Lender pursuant to
this Section 1.15 shall be paid to the Administrative Agent for the account of
the relevant Lenders, provided that, if the Administrative Agent (in its sole
--------
discretion) has elected to fund on behalf of any Lender the amounts owing to any
other Lenders, then such amounts shall be paid to the Administrative Agent for
its own account.
(e) Whenever, at any time after the effectiveness of the
participations described in this Section 1.15, the various Lenders receive any
payment on account of any Loans subject to such participation, such Lenders will
distribute to the Administrative Agent, for the account of the various Lenders
participating therein, such participating Lenders' interests in such amounts
(appropriately adjusted, in the case of interest payments, to reflect the period
of time during which such participations were outstanding) in like funds as
received, provided, however, that in the event that such payment received by any
-------- -------
Lender is required to be returned, the Lenders who received previous
distributions in respect of their participating interests therein will return to
the respective Lender any portion thereof previously so distributed to them (in
like funds) as is required to be returned by the respective Lender.
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<PAGE>
(f) Each Lender's obligation to purchase participating interests
pursuant to this Section 1.15 shall be absolute and unconditional and shall not
be affected by any circumstance including, without limitation, (i) any setoff,
counterclaim, recoupment, defense or other right which such Lender may have
against any other Lender, the Parent Guarantors, the Borrowers or any other
Person for any reason whatsoever, (ii) the occurrence or continuance of an Event
of Default, (iii) any adverse change in the condition (financial or otherwise)
of Holdings, the Borrowers (or either of them), any of their respective
Subsidiaries or any other Person, (iv) any breach of this Agreement by any
Parent Guarantor, either Borrower or any Lender or any other Person, or (v) any
other circumstance, happening or event whatsoever, whether or not similar to any
of the foregoing.
(g) Notwithstanding anything to the contrary contained elsewhere in
this Agreement, upon any purchase of participations as required above, each
Lender which has purchased such participations shall be entitled to receive from
the Borrowers, on a joint and several basis, any increased costs and indemnities
(including, without limitation, pursuant to Sections 1.10, 1.11, 2.06 and 4.04)
directly from the Borrower to the same extent as if it were the direct Lender as
opposed to a participant therein, which increased costs shall be calculated
without regard to Section 1.13, Section 13.04(a) or the penultimate sentence of
Section 13.04(b). The Borrowers acknowledge and agree that, upon the occurrence
of a Sharing Event and after giving effect to the requirements of this Section
1.15, increased Taxes may be owing by it pursuant to Section 4.04, which Taxes
shall be paid (to the extent provided in Section 4.04) by the Borrowers, without
any claim that the increased Taxes are not payable because same resulted from
the participations effected as otherwise required by this Section 1.15.
1.16 Bankers' Acceptance Provisions. The parties hereto agree that
------------------------------
the provisions of Schedule III shall apply to all Bankers' Acceptances and
Bankers' Acceptance Loans created hereunder, and that the provisions of Schedule
III shall be deemed incorporated by reference into this Agreement as if such
provisions were set forth in their entirety herein.
1.17 Canadian Paying Agent. Notwithstanding anything to the contrary
---------------------
contained elsewhere in this Agreement, it is acknowledged and agreed that,
unless and until otherwise directed by the Administrative Agent or the Required
Lenders, Deutsche Bank Canada shall act as Canadian Paying Agent (in such
capacity, the "Canadian Paying Agent") with respect to all Bankers' Acceptances
and Bankers' Acceptance Loans, and all Canadian Prime Rate Loans incurred under
this Agreement. Unless and until otherwise directed by the Administrative Agent
or the Required Lenders, the Canadian Paying Agent shall receive all payments,
and make all disbursements, with respect to Canadian Term Loans at or from its
Payment Office. In connection therewith, the Canadian Paying Agent shall
perform such duties as would otherwise be performed by the Administrative Agent
in connection therewith and shall be entitled to the protections afforded
pursuant to Section 12. It is understood and agreed that the Canadian Paying
Agent may resign at any time from its duties hereunder upon ten (10) Business
Days' prior written notice to the Administrative Agent and the Borrowers, at
which time the duties of the Canadian Paying Agent shall be performed by the
Administrative Agent (or an affiliate thereof designated by the Administrative
Agent). At all times when the Canadian Paying Agent is not the Administrative
Agent, the Canadian Paying Agent (as opposed to the Administrative Agent)
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shall take all actions otherwise required to be taken by the Administrative
Agent pursuant to Schedule III.
SECTION 2. Letters of Credit.
-----------------
2.01 Letters of Credit. (a) Subject to and upon the terms and
-----------------
conditions set forth herein, the US Borrower may request that any Issuing Bank
issue, at any time and from time to time on and after the Initial Borrowing Date
and prior to the tenth day before the Initial Maturity Date (or the thirtieth
day before the Initial Maturity Date in the case of Trade Letters of Credit),
(x) for the account of the US Borrower and for the benefit of any holder (or any
trustee, agent or other similar representative for any such holders) of L/C
Supportable Indebtedness of the US Borrower or any of its Subsidiaries (such
party to be, upon request of the US Borrower, named as the account party with
respect to any such Letter of Credit, provided that the US Borrower hereby
--------
agrees that it shall be the primary obligor with respect to all such Letters of
Credit regardless of the name of the account party set forth on the face
thereof, and that all such amounts shall be Obligations of the US Borrower
hereunder and under the other Credit Documents), an irrevocable sight standby
letter of credit, in a form customarily used by such Issuing Bank or in such
other form as has been approved by such Issuing Bank (each such standby letter
of credit, a "Standby Letter of Credit") in support of such L/C Supportable
Indebtedness and (y) for the account of the US Borrower and for the benefit of
sellers of goods or materials to the US Borrower or any of its Subsidiaries, an
irrevocable sight trade letter of credit in a form customarily used by such
Issuing Bank or in such other form as has been approved by such Issuing Bank
(each such trade letter of credit, a "Trade Letter of Credit", and each such
Trade Letter of Credit and each Standby Letter of Credit, a "Letter of Credit")
in support of commercial transactions of the US Borrower and its Subsidiaries
(such party to be, upon request of the US Borrower, the account party with
respect to any such Letter of Credit; provided that the US Borrower hereby
--------
agrees that its shall be the primary obligor with respect to all such Letters of
Credit regardless of the name of the account party set forth on the face
thereof, and that all such amounts shall be Obligations of the US Borrower
hereunder and under the other Credit Documents).
(b) Subject to and upon the terms and conditions set forth herein,
each Issuing Bank hereby agrees that it will, at any time and from time to time
on or after the Initial Borrowing Date and prior to the tenth day prior to the
Initial Maturity Date, following its receipt of the respective Letter of Credit
Request, issue for the account of the US Borrower one or more Letters of Credit
(x) in the case of Standby Letters of Credit, in support of such L/C Supportable
Indebtedness of the US Borrower or any of its Subsidiaries and (y) in the case
of Trade Letters of Credit, in support of sellers of goods or materials as
referenced in Section 2.01(a). Notwithstanding the foregoing, the respective
Issuing Bank shall not be under any obligation to issue any Letter of Credit if
at the time of such issuance:
(i) any order, judgment or decree of any governmental authority or
arbitrator shall purport by its terms to enjoin or restrain such Issuing
Bank from issuing such Letter of Credit or any requirement of law
applicable to such Issuing Bank or any request or directive (whether or not
having the force of law) from any governmental authority with jurisdiction
over such Issuing Bank shall prohibit, or request that such Issuing Bank
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refrain from, the issuance of letters of credit generally or such Letter of
Credit in particular or shall impose upon such Issuing Bank with respect to
such Letter of Credit any restriction or reserve or capital requirement
(for which such Issuing Bank is not otherwise compensated) not in effect on
the date hereof, or any unreimbursed loss, cost or expense which was not
applicable, in effect or known to such Issuing Bank as of the date hereof
and which such Issuing Bank in good faith deems material to it;
(ii) such Issuing Bank shall have received notice from any Lender
prior to the issuance of such Letter of Credit of the type described in the
penultimate sentence of Section 2.02(b); or
(iii) a Lender Default exists, unless the Issuing Bank has entered
into arrangements satisfactory to it and the US Borrower to eliminate the
Issuing Bank's risk with respect to the participation in Letters of Credit
of any defaulting Lender(s), including by cash collateralizing any such
Defaulting Lender's (or Defaulting Lenders') RL Percentage (or RL
Percentages) of the Letter of Credit Outstandings.
(c) Letters of Credit shall only be issued in Dollars.
(d) Notwithstanding the foregoing, (i) no Letter of Credit shall be
issued the Stated Amount of which, when added to the Letter of Credit
Outstandings (exclusive of Unpaid Drawings which are repaid on the date of, and
prior to the issuance of, the respective Letter of Credit) at such time would
exceed either (x) $5,000,000 or (y) when added to the aggregate principal amount
of all Revolving Loans and Swingline Loans then outstanding, an amount equal to
the Total Revolving Loan Commitment at such time and (ii) each Letter of Credit
shall by its terms terminate on or before the earlier of (x) in the case of
Standby Letters of Credit, (A) the date which occurs 12 months after the date of
the issuance thereof (although any Standby Letter of Credit may be extendable
for successive periods of up to 12 months, but not beyond the tenth Business Day
prior to the Initial Maturity Date, on terms acceptable to the Issuing Bank
thereof) and (B) the tenth day prior to the Initial Maturity Date and (y) in the
case of Trade Letters of Credit, (A) the date which occurs six months after the
date of issuance thereof and (B) the thirtieth day prior to the Initial Maturity
Date.
2.02 Letter of Credit Requests. (a) Whenever the US Borrower
-------------------------
desires that a Letter of Credit be issued, the US Borrower shall give the
Administrative Agent and the respective Issuing Bank at least five Business
Days' (or such shorter period as is acceptable to the respective Issuing Bank)
written notice thereof. Each notice shall be in the form of Exhibit C (each a
"Letter of Credit Request").
(b) The making of each Letter of Credit Request shall be deemed to be
a representation and warranty by the US Borrower that such Letter of Credit may
be issued in accordance with, and will not violate the requirements of, Section
2.01(d). Unless the respective Issuing Bank has received notice from any Lender
before it issues a Letter of Credit that one or more of the conditions specified
in Section 5 or Section 6, as applicable, are not then satisfied, or that the
issuance of such Letter of Credit would violate Section 2.01(d), then such
Issuing Bank shall issue the requested Letter of Credit in accordance with such
Issuing Bank's usual and customary practices. Promptly after the issuance of or
amendment to a Standby Letter of Credit,
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the Issuing Bank shall notify the Administrative Agent and the US Borrower, in
writing, of such issuance or amendment and such notice shall be accompanied by a
copy of such issuance or amendment. Promptly after receipt of such notice, the
Administrative Agent shall so notify the Lenders. In the event that the Issuing
Bank is other than the Administrative Agent, such Issuing Bank shall send by
facsimile transmission to the Administrative Agent, promptly on the first
Business Day of each week, the daily maximum amount available to be drawn for
Trade Letters of Credit issued during the previous week. The Administrative
Agent shall deliver to each Participant, upon each calendar month end and upon
each Letter of Credit Fee payment, a report setting forth for such period the
daily maximum amount available to be drawn under Trade Letters of Credit issued
by all Issuing Banks during such period.
2.03 Letter of Credit Participations. (a) Immediately upon the
-------------------------------
issuance by any Issuing Bank of any Letter of Credit, such Issuing Bank shall be
deemed to have sold and transferred to each Lender with a Revolving Loan
Commitment, other than such Issuing Bank (each such Lender, in its capacity
under this Section 2.03, a "Participant"), and each such Participant shall be
deemed irrevocably and unconditionally to have purchased and received from such
Issuing Bank, without recourse or warranty, an undivided interest and
participation, to the extent of such Participant's RL Percentage, in such Letter
of Credit, each drawing made thereunder and the obligations of the US Borrower
under this Agreement with respect thereto, and any security therefor or guaranty
pertaining thereto. Upon any change in the Revolving Loan Commitments or RL
Percentages of the Lenders pursuant to Sections 1.13, 13.04 or 13.12, it is
hereby agreed that, with respect to all outstanding Letters of Credit and Unpaid
Drawings, there shall be an automatic adjustment to the participations pursuant
to this Section 2.03 to reflect the new RL Percentages of the assignor and
assignee Lender or of all Lenders with Revolving Loan Commitments, as the case
may be.
(b) In determining whether to pay under any Letter of Credit, such
Issuing Bank shall have no obligation relative to the other Lenders other than
to confirm that any documents required to be delivered under such Letter of
Credit appear to have been delivered and that they appear to substantially
comply on their face with the requirements of such Letter of Credit. Any action
taken or omitted to be taken by any Issuing Bank under or in connection with any
Letter of Credit if taken or omitted in the absence of gross negligence or
willful misconduct, as determined by a court of competent jurisdiction, shall
not create for such Issuing Bank any resulting liability to any Lender.
(c) In the event that any Issuing Bank makes any payment under any
Letter of Credit and the US Borrower shall not have reimbursed such amount in
full to such Issuing Bank pursuant to Section 2.04(a), such Issuing Bank shall
promptly notify the Administrative Agent, which shall promptly notify each
Participant, of such failure, and each Participant shall promptly and
unconditionally pay to such Issuing Bank the amount of such Participant's RL
Percentage of such unreimbursed payment in Dollars and in same day funds. If
the Administrative Agent so notifies, prior to 11:00 A.M. (New York time) on any
Business Day, any Participant required to fund a payment under a Letter of
Credit, such Participant shall make available to such Issuing Bank in Dollars
such Participant's RL Percentage of the amount of such payment on such Business
Day (or, if notice is given after 11:00 A.M. (New York time) on any Business
Day, on the next Business Day) in same day funds. If and to the extent such
Participant shall not have so
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made its RL Percentage of the amount of such payment available to such Issuing
Bank, such Participant agrees to pay to such Issuing Bank, forthwith on demand
such amount, together with interest thereon, for each day from such date until
the date such amount is paid to such Issuing Bank at the overnight Federal Funds
Rate. The failure of any Participant to make available to such Issuing Bank its
RL Percentage of any payment under any Letter of Credit shall not relieve any
other Participant of its obligation hereunder to make available to such Issuing
Bank its RL Percentage of any payment on the date required, as specified above,
but no Participant shall be responsible for the failure of any other Participant
to make available to such Issuing Bank such other Participant's RL Percentage of
any such payment.
(d) Whenever any Issuing Bank receives a payment of a reimbursement
obligation as to which it has received any payments from the Participants
pursuant to clause (c) above, such Issuing Bank shall forward such payment to
the Administrative Agent, which in turn shall distribute to each Participant
which has paid its RL Percentage thereof, in Dollars and in same day funds, an
amount equal to such Participant's share (based upon the aggregate amount funded
by such Participant to the aggregate amount funded by all Participants and
retained by the Issuing Bank) of the principal amount of such reimbursement
obligation and interest thereon accruing after the purchase of the respective
participations.
(e) Upon the request of any Participant, each Issuing Bank shall
furnish to such Participant copies of any Letter of Credit issued by it and such
other documentation as may reasonably be requested by such Participant.
(f) The obligations of the Participants to make payments to each
Issuing Bank with respect to Letters of Credit issued by it shall be irrevocable
and not subject to any qualification or exception whatsoever and shall be made
in accordance with the terms and conditions of this Agreement under all
circumstances, including, without limitation, any of the following
circumstances:
(i) any lack of validity or enforceability of this Agreement or
any of the other Credit Documents;
(ii) the existence of any claim, setoff, defense or other right
which the US Borrower or any of its Subsidiaries may have at any time
against a beneficiary named in a Letter of Credit, any transferee of any
Letter of Credit (or any Person for whom any such transferee may be
acting), the Administrative Agent, any Issuing Bank, any Participant, or
any other Person, whether in connection with this Agreement, any Letter of
Credit, the transactions contemplated herein or any unrelated transactions
(including any underlying transaction between the US Borrower or any
Subsidiary of the US Borrower and the beneficiary named in any such Letter
of Credit);
(iii) any draft, certificate or any other document presented under
any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Credit
Documents; or
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<PAGE>
(v) the occurrence of any Default or Event of Default.
2.04 Agreement to Repay Letter of Credit Drawings. (a) The US
--------------------------------------------
Borrower hereby agrees to reimburse the respective Issuing Bank, by making
payment to the Administrative Agent, in Dollars and in immediately available
funds at the Payment Office, for any payment or disbursement made by it under
any Letter of Credit (each such amount, so paid until reimbursed, an "Unpaid
Drawing"), no later than one Business Day after the Administrative Agent
notifies the US Borrower of such payment or disbursement (if such notice is
delivered to the US Borrower prior to 10:00 A.M. (New York time) on any Business
Day, or if otherwise, on the next succeeding Business Day), with interest on the
amount so paid or disbursed by such Issuing Bank, to the extent not reimbursed
prior to 12:00 Noon (New York time) on the date of such payment or disbursement,
from and including the date paid or disbursed to but excluding the date such
Issuing Bank was reimbursed by the US Borrower therefor at a rate per annum
which shall be the Base Rate in effect from time to time plus the Applicable
Margin for Revolving Loans maintained as Base Rate Loans, provided, however,
-------- -------
that to the extent such amounts are not reimbursed prior to 12:00 Noon (New York
time) on the first Business Day following notice to the US Borrower by the
Administrative Agent of such payment or disbursement, interest shall thereafter
accrue on the amounts so paid or disbursed by such Issuing Bank (and until
reimbursed by the US Borrower) at a rate per annum which shall be the Base Rate
in effect from time to time plus the Applicable Margin for Revolving Loans
maintained as Base Rate Loans plus 2%, in each such case, with interest to be
payable on demand; provided further, that it is understood and agreed, however,
----------------
that the notice referred to above in this clause (a) and in the immediately
preceding proviso shall not be required to be given if a Default or an Event of
Default under Section 10.05 shall have occurred and be continuing (in which case
the Unpaid Drawings shall be due and payable immediately without presentment,
demand, protest or notice of any kind (all of which are hereby waived by each
Credit Party) and shall bear interest at the rate provided in the foregoing
proviso on and after the first Business Day following the respective Drawing).
The respective Issuing Bank shall give the US Borrower prompt notice of each
Drawing under any Letter of Credit, provided that the failure to give any such
--------
notice shall in no way affect, impair or diminish the US Borrower's obligations
hereunder, subject to the first sentence of this Section 2.04.
(b) The obligations of the US Borrower under this Section 2.04 to
reimburse the respective Issuing Bank with respect to drawings on Letters of
Credit (each, a "Drawing") (including, in each case, interest thereon) shall be
absolute and unconditional under any and all circumstances and irrespective of
any setoff, counterclaim or defense to payment which the US Borrower may have or
have had against any Lender (including in its capacity as issuer of the Letter
of Credit or as Participant), or any nonapplication or misapplication by the
beneficiary of the proceeds of such Drawing, the respective Issuing Bank's only
obligation to the US Borrower being to confirm that any documents required to be
delivered under such Letter of Credit appear to have been delivered and that
they appear to substantially comply on their face with the requirements of such
Letter of Credit. Any other action taken or omitted to be taken by any Issuing
Bank under or in connection with any Letter of Credit if taken or omitted in the
absence of gross negligence or willful misconduct (as determined by a court of
competent jurisdiction), shall not create for such Issuing Bank any resulting
liability to the US Borrower, Holdings or any other Subsidiary of Holdings.
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<PAGE>
2.05 Increased Costs. If at any time after the date of this
---------------
Agreement, the introduction of or any change in any applicable law, rule,
regulation, order, guideline or request or in the interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by any Issuing Bank or
any Participant with any request or directive by any such authority (whether or
not having the force of law), shall either (i) impose, modify or make applicable
any reserve, deposit, capital adequacy or similar requirement against letters of
credit issued by any Issuing Bank or participated in by any Participant, or (ii)
impose on any Issuing Bank or any Participant any other conditions relating,
directly or indirectly, to this Agreement or any Letter of Credit; and the
result of any of the foregoing is to increase the cost to any Issuing Bank or
any Participant of issuing, maintaining or participating in any Letter of
Credit, or reduce the amount of any sum received or receivable by any Issuing
Bank or any Participant hereunder or reduce the rate of return on its capital
with respect to Letters of Credit (except for changes in the rate of tax on, or
determined by reference to, the net income or profits of such Issuing Bank or
such Participant, or any franchise tax based on the net income or profits of
such Lender or Participant, in either case pursuant to the laws of the
jurisdiction in which it is organized or in which its principal office or
applicable lending office is located or any subdivision thereof or therein), but
without duplication of any amounts payable in respect of Taxes pursuant to
Section 4.04(a), then, upon demand to the US Borrower by such Issuing Bank or
any Participant (a copy of which demand shall be sent by such Issuing Bank or
such Participant to the Administrative Agent) and subject to the provisions of
Section 13.15 (to the extent applicable), the US Borrower agrees to pay to such
Issuing Bank or such Participant such additional amount or amounts as will
compensate such Lender for such increased cost or reduction in the amount
receivable or reduction on the rate of return on its capital. Any Issuing Bank
or any Participant, upon determining that any additional amounts will be payable
pursuant to this Section 2.05, will give prompt written notice thereof to the US
Borrower, which notice shall include a certificate submitted to the US Borrower
by such Issuing Bank or such Participant (a copy of which certificate shall be
sent by such Issuing Bank or such Participant to the Administrative Agent),
setting forth in reasonable detail the basis for and the calculation of such
additional amount or amounts necessary to compensate such Issuing Bank or such
Participant. The certificate required to be delivered pursuant to this Section
2.05 shall, if delivered in good faith and absent manifest error, be final and
conclusive and binding on the US Borrower.
SECTION 3. Commitment Commission; Fees; Reductions of Commitment.
-----------------------------------------------------
3.01 Fees. (a) The US Borrower agrees to pay to the Administrative
----
Agent for distribution to each Non-Defaulting Lender with a Revolving Loan
Commitment, Tranche B Term Loan Commitment and/or an Acquisition Loan Commitment
a commitment commission (the "Commitment Commission") for the period (i) from
the Effective Date to and including the Initial Maturity Date in the case of
Revolving Loan Commitments, (ii) from the Effective Date to and including the
Term Loan Commitment Expiry Date in the case of Tranche A Supplemental
Commitments and Tranche B Term Loan Commitments and (iii) from the applicable
Acquisition Commitment Assumption Date to the Conversion Date in the case of
Acquisition Loan Commitments (or such earlier date as the Total Revolving Loan
Commitment, Total Tranche B Term Loan Commitment and/or Total Acquisition Loan
Commitment, as applicable, shall have been terminated), computed at a rate per
annum for each day equal to the then applicable
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<PAGE>
Commitment Fee Percentage on the daily average Unutilized Revolving Loan
Commitment, Tranche A Supplemental Commitment, Tranche B Term Loan Commitment
and Unutilized Acquisition Loan Commitment of such Non-Defaulting Lender.
Accrued Commitment Commission shall be due and payable quarterly in arrears on
each Quarterly Payment Date and on the Conversion Date (with respect to
Acquisition Loan Commitments), Initial Maturity Date (with respect to Revolving
Loan Commitments), Change of Control Purchase Borrowing Date (with respect to
Tranche A Supplemental Commitments and Tranche B Term Loan Commitments) and any
earlier date upon which the Total Commitment is terminated.
(b) The US Borrower agrees to pay to the Administrative Agent for
distribution to each Non-Defaulting Lender with a Revolving Loan Commitment
(based on their respective RL Percentages) a fee in respect of each Letter of
Credit issued hereunder (the "Letter of Credit Fee"), for the period from and
including the date of issuance of such Letter of Credit to and including the
termination of such Letter of Credit, computed at a rate per annum equal to the
Applicable Margin for Revolving Loans maintained as Eurodollar Loans as in
effect from time to time of the daily Stated Amount of such Letter of Credit.
Accrued Letter of Credit Fees shall be due and payable quarterly in arrears on
each Quarterly Payment Date and upon the first day on or after the termination
of the Total Revolving Loan Commitment upon which no Letters of Credit remain
outstanding.
(c) The US Borrower agrees to pay to each Issuing Bank, for its own
account, a facing fee in respect of each Letter of Credit issued by such Issuing
Bank hereunder (the "Facing Fee") for the period from and including the date of
issuance of such Letter of Credit to and including the termination of such
Letter of Credit, computed at a rate equal to 1/4 of 1% per annum of the daily
Stated Amount of such Letter of Credit; provided that in no event shall the
--------
annual Facing Fee with respect to any Letter of Credit be less than $500, it
being agreed that, on the date of issuance of any Letter of Credit and on each
anniversary thereof prior to the termination of such Letter of Credit, $500 will
be paid toward the next year's Facing Fees for such Letter of Credit, which
amount shall be credited in direct order to the Facing Fees which would
otherwise be payable with respect to such Letter of Credit in the succeeding
annual period. Accrued but unpaid Facing Fees shall be due and payable
quarterly in arrears on each Quarterly Payment Date and on the date upon which
the Total Revolving Loan Commitment has been terminated and such Letter of
Credit has been terminated in accordance with its terms.
(d) The US Borrower agrees to pay, upon honor of each drawing under,
issuance of, or amendment to, any Letter of Credit, such amount as shall at the
time of such event be the administrative charge which the respective Issuing
Bank is generally imposing in connection with such occurrence with respect to
letters of credit.
(e) The Borrowers agree to pay to each of the Agents, for its own
account, such other fees as have been agreed to in writing by the Borrowers and
the Agents.
3.02 Voluntary Termination of Unutilized Commitments. (a) Upon at
-----------------------------------------------
least three Business Days' prior notice to the Administrative Agent at its
Notice Office (which notice the Administrative Agent shall promptly transmit to
each of the Lenders), the US Borrower shall have the right, at any time or from
time to time, without premium or penalty, to terminate (i) the
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<PAGE>
Total Unutilized Revolving Loan Commitment, in whole or in part, in integral
multiples of $1,000,000 in the case of partial reductions to the Total Revolving
Loan Commitment and (ii) the Total Unutilized Acquisition Loan Commitment, in
whole or in part, in integral multiples of $1,000,000 in the case of partial
reductions to the Total Acquisition Loan Commitment; provided that each such
--------
reduction shall apply proportionately to permanently reduce the Revolving Loan
Commitment or the Acquisition Loan Commitment, as applicable, of each Lender
with such a Commitment.
(b) In the event of certain refusals by a Lender as provided in
Section 13.12(b) to consent to certain proposed changes, waivers, discharges or
terminations with respect to this Agreement which have been approved by the
Required Lenders, the US Borrower may, subject to the requirements of said
Section 13.12(b) and upon five Business Days' written notice to the
Administrative Agent at its Notice Office (which notice the Administrative Agent
shall promptly transmit to each of the Lenders), terminate all of the Revolving
Loan Commitment and/or Acquisition Loan Commitment of such Lender so long as all
Loans, together with accrued and unpaid interest, fees and all other amounts,
owing to such Lender (other than amounts owing in respect of any Tranche of
Loans maintained by such Lender, if such Loans are not being repaid pursuant to
Section 13.12(b)) are repaid concurrently with the effectiveness of such
termination (at which time Schedule I shall be deemed modified to reflect such
changed amounts), and at such time, unless the respective Lender continues to
have outstanding Loans hereunder, such Lender shall no longer constitute a
"Lender" for purposes of this Agreement, except with respect to indemnification
provisions under this Agreement (including, without limitation, Sections 1.10,
1.11, 2.05, 4.04, 13.01 and 13.06), which shall survive as to such repaid
Lender.
3.03 Mandatory Reduction of Commitments. (a) The Total Commitment
----------------------------------
(and the Tranche A Term Loan Commitment, the Tranche A Supplemental Commitment,
the Tranche B Term Loan Commitment, the Revolving Loan Commitment, the
Acquisition Loan Commitment (if any) and the Canadian Term Loan Commitment of
each Lender) shall terminate in its entirety on November 24, 1999 unless the
Initial Borrowing Date shall have occurred on or prior to such date.
(b) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, (i) the Total Tranche A Term Loan Commitment and
the Total Canadian Term Loan Commitment (and the Tranche A Term Loan Commitment
and the Canadian Term Loan Commitment of each Lender) shall terminate in their
entirety on the Initial Borrowing Date (after giving effect to the making of the
Tranche A Term Loans and the Canadian Term Loans on such date) and (ii) the
Total Tranche A Supplemental Commitment (and the Tranche A Supplemental
Commitment of each Lender) shall terminate in its entirety on the Term Loan
Commitment Expiry Date (after giving effect to the making of any Tranche A Term
Loans on such date).
(c) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, the Total Tranche B Term Loan Commitment (and the
Tranche B Term Loan Commitment of each Lender) shall terminate in its entirety
on the Term Loan Commitment Expiry Date (after giving effect to the making of
Tranche B Term Loans on such date).
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<PAGE>
(d) In addition to any other mandatory commitment reductions pursuant
to this Section 3.03, the Total Revolving Loan Commitment (and the Revolving
Loan Commitment of each Lender) shall terminate in its entirety on the Initial
Maturity Date.
(e) In addition to any other mandatory commitment reductions pursuant
to this Section 3.03, the Total Acquisition Loan Commitment (and the Acquisition
Loan Commitment of each Lender) shall terminate in its entirety at 9:00 A.M.
(New York time) on the Conversion Date.
(f) (i) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, on each date after the Initial Borrowing Date
upon which a mandatory prepayment of Term Loans pursuant to Section 4.02(f),
(g), (h), (i) or (j) is required (and exceeds in amount the aggregate principal
amount of Term Loans then outstanding) or would be required if Term Loans were
then outstanding, an amount equal to the amount, if any, by which the amount
required to be applied pursuant to said Sections (determined as if an unlimited
amount of Term Loans were actually outstanding) exceeds the aggregate principal
amount of Term Loans then outstanding shall be applied first to permanently
reduce the Total Acquisition Loan Commitment, second, to the extent in excess
thereof, to permanently reduce the Total Revolving Loan Commitment and third, to
the extent in excess thereof, to permanently reduce both the Total Tranche B
Term Loan Commitment and the Total Tranche A Supplemental Commitment in each
case in an amount equal to such excess; provided that, to the extent any amount
--------
is applied to reduce the Total Tranche B Term Loan Commitment and the Total
Tranche A Supplemental Commitment prior to the Term Loan Commitment Expiry Date,
the US Borrower shall be required to deposit cash in the amount of such excess
in a cash collateral account to be held as collateral security for the
Obligations of the Borrowers pursuant to a cash collateral agreement in form and
substance satisfactory to the Administrative Agent and the US Borrower.
(ii) In addition to any other mandatory commitment reductions
pursuant to this Section 3.03, on each date after the Initial Borrowing Date
upon which a mandatory prepayment of Term Loans is required and one or more
Lenders holding outstanding Tranche B Term Loans have waived their right to
receive all or a portion of such prepayment in respect of such Tranche B Term
Loans pursuant to Section 4.02(n), the Total Acquisition Loan Commitment (if
any) and, to the extent in excess thereof, the Total Revolving Loan Commitment
shall be permanently reduced by the amount, if any, by which the aggregate
amount so waived exceeds the aggregate outstanding principal amount of Tranche A
Term Loans, Acquisition Term Loans (if any) and Canadian Term Loans.
(g) Each reduction to the Total Tranche A Term Loan Commitment, the
Total Tranche A Supplemental Commitment, the Total Tranche B Term Loan
Commitment, the Total Revolving Loan Commitment, the Total Acquisition Loan
Commitment and the Total Canadian Term Loan Commitment pursuant to this Section
3.03 shall be applied proportionately to reduce the Tranche A Term Loan
Commitment, the Tranche A Supplemental Commitment, the Tranche B Term Loan
Commitment, the Revolving Loan Commitment, the Acquisition Loan Commitment and
the Canadian Term Loan Commitment, as the case may be, of each Lender with such
a Commitment.
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<PAGE>
SECTION 4. Prepayments; Payments; Taxes.
----------------------------
4.01 Voluntary Prepayments. (a) Each Borrower shall have the right
---------------------
to prepay the Loans pursuant to this Section 4.01(a), without premium or
penalty, in whole or in part at any time and from time to time on the following
terms and conditions: (i) the respective Borrower shall give the Administrative
Agent prior to 1:00 P.M. (New York time) at its Notice Office (x) at least one
Business Day's prior written notice (or telephonic notice promptly confirmed in
writing) of its intent to prepay Base Rate Loans or Canadian Prime Rate Loans
(or same day notice in the case of Swingline Loans provided such notice is given
prior to 12:00 Noon (New York time)) and (y) at least three Business Days' prior
written notice (or telephonic notice promptly confirmed in writing) of its
intent to prepay Eurodollar Loans, whether Tranche A Term Loans, Tranche B Term
Loans, Canadian Term Loans, Revolving Loans, Acquisition Loans or Swingline
Loans shall be prepaid, the amount of such prepayment and the Types of Loans to
be prepaid and, in the case of Eurodollar Loans, the specific Borrowing or
Borrowings to be prepaid, which notice the Administrative Agent shall promptly
transmit to each of the Lenders; (ii) each prepayment shall be in an aggregate
principal amount of at least $1,000,000 (or $100,000 in the case of Swingline
Loans or CDN $1,000,000 in the case of Canadian Term Loans) or such lesser
amount of a Borrowing which is outstanding, provided that if any partial
--------
prepayment of Eurodollar Loans made pursuant to any Borrowing shall reduce the
outstanding Eurodollar Loans made pursuant to such Borrowing to an amount less
than (1) in the case of Term Loans, $5,000,000 and (2) in the case of Revolving
Loans or Acquisition Revolving Loans, $2,000,000, then such Borrowing may not be
continued as a Borrowing of Eurodollar Loans and any election of an Interest
Period with respect thereto given by the Borrower shall have no force or effect;
(iii) at the time of any prepayment of Eurodollar Loans pursuant to this Section
4.01(a) on any day other than the last day of an Interest Period applicable
thereto, the respective Borrower shall pay any amounts required pursuant to
Section 1.11; (iv) each voluntary prepayment of Term Loans by the US Borrower
pursuant to this Section 4.01(a) shall be applied to the Tranche A Term Loans,
the Acquisition Term Loans (if any) and, subject to the provisions of Section
4.02(n), the Tranche B Term Loans on a pro rata basis (based upon the then
--- ----
outstanding principal amount of Tranche A Term Loans, Acquisition Term Loans and
Tranche B Term Loans) and each voluntary prepayment of Canadian Term Loans by
the Canadian Borrower pursuant to this Section 4.01(a) shall be applied to the
Canadian Term Loans; (v) each prepayment pursuant to this Section 4.01(a) in
respect of any Loans made pursuant to a Borrowing shall be applied pro rata
--- ----
among the Loans comprising such Borrowing; provided that at the US Borrower's
--------
election in connection with any prepayment of Revolving Loans or Acquisition
Revolving Loans pursuant to this Section 4.01(a), such prepayment shall not be
applied to any Revolving Loan or Acquisition Revolving Loans of a Defaulting
Lender and (vi) any voluntary prepayment of Bankers Acceptance Loans shall occur
only on the maturity date for the relevant Bankers' Acceptance. Notwithstanding
the foregoing provisions of this Section 4.01(a), neither Borrower ("Borrower 1"
for purposes of this sentence) shall be permitted to voluntarily prepay any
Tranche of Term Loans unless the other Borrower ("Borrower 2" for purposes of
this sentence) shall, contemporaneously therewith, voluntarily prepay (in
accordance with the foregoing provisions of this Section 4.01(a)) Term Loans
made to Borrower 2 in an aggregate principal amount equal to the aggregate
principal amount of voluntary prepayments being made by Borrower 1 multiplied by
a fraction the numerator of which is the aggregate outstanding principal amount
of Term Loans of Borrower 2 and the denominator of which is the
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<PAGE>
aggregate outstanding principal amount of Term Loans of Borrower 1 (before
giving effect to the voluntary prepayment to be made by Borrower 1). Each
prepayment of principal of any Tranche of Term Loans pursuant to this Section
4.01(a) shall be applied first to reduce the two immediately ensuing Scheduled
Repayments of the respective Tranche of Term Loans in direct order and second,
to the extent in excess thereof, to reduce the other then remaining Scheduled
Repayments of such Tranche of Term Loans pro rata based upon the then remaining
--- ----
principal amounts of the Scheduled Repayments of such Tranche, in each case
after giving effect to all prior reductions or increases thereto.
(b) In the event of certain refusals by a Lender as provided in
Section 13.12(b) to consent to certain proposed changes, waivers, discharges or
terminations with respect to this Agreement which have been approved by the
Required Lenders, each Borrower may, upon 5 Business Days' written notice to the
Administrative Agent at its Notice Office (which notice the Administrative Agent
shall promptly transmit to each of the Lenders) repay all Loans, together with
accrued and unpaid interest, Fees, and other amounts (including any amounts
payable under Section 1.11) owing to such Lender by such Borrower (or owing to
such Lender with respect to each Tranche which gave rise to the need to obtain
such Lender's individual consent) in accordance with said Section 13.12(b) so
long as (A) in the case of the repayment of Revolving Loans and/or Acquisition
Revolving Loans of any Lender pursuant to this Section 4.01(b), the Revolving
Loan Commitment and/or Acquisition Loan Commitment, as the case may be, of such
Lender is terminated concurrently with such repayment pursuant to Section
3.02(b) (at which time Schedule I shall be deemed modified to reflect the
changed Revolving Loan Commitments and/or Acquisition Loan Commitments, as the
case may be) and (B) the consents required by Section 13.12(b) in connection
with the repayment pursuant to this Section 4.01(b) have been obtained. Any
repayment of any Tranche of Term Loans pursuant to this Section 4.01(b) shall
only apply to reduce the then remaining Scheduled Repayments of such Tranche to
the extent the Term Loans so repaid are not replaced pursuant to Section
13.12(b), and with any such reductions to reduce the then remaining Scheduled
Repayments of the respective Tranche pro rata based upon the then remaining
--- ----
principal amounts of the Scheduled Repayments of the respective Tranche after
giving effect to all prior reductions or increases thereto unless otherwise
specifically agreed to by the Required Lenders.
4.02 Mandatory Repayments. (a) On any day on which the sum of the
--------------------
aggregate outstanding principal amount of the Revolving Loans, Swingline Loans
and the Letter of Credit Outstandings exceeds the Total Revolving Loan
Commitment as then in effect, the US Borrower shall repay on such day principal
of Swingline Loans and, after the Swingline Loans have been repaid in full,
Revolving Loans in an amount equal to such excess. If, after giving effect to
the repayment of all outstanding Swingline Loans and Revolving Loans, the
aggregate amount of the Letter of Credit Outstandings exceeds the Total
Revolving Loan Commitment as then in effect, the US Borrower shall deliver to
the Administrative Agent at the Payment Office on such day an amount of cash or
Cash Equivalents equal to the amount of such excess (up to a maximum amount
equal to the Letter of Credit Outstandings at such time), such cash or Cash
Equivalents to be held as security for all obligations of the US Borrower
hereunder in a cash collateral account to be established by the Administrative
Agent.
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<PAGE>
(b) In addition to any other mandatory repayments pursuant to this
Section 4.02, on each date set forth below, the US Borrower shall be required to
repay that principal amount of Tranche A Term Loans, to the extent then
outstanding, as is set forth opposite such date (each such repayment, as the
same may be reduced as provided in Sections 4.01 and 4.02(k) and increased
pursuant to the last sentence of this Section 4.02(b), a "Tranche A Scheduled
Repayment," and each such date, a "Tranche A Scheduled Repayment Date"):
<TABLE>
<CAPTION>
Tranche A
Scheduled Repayment Date Amount
------------------------ ------
<S> <C>
The Quarterly Payment Date $ 500,000
occurring in March 2000
The Quarterly Payment Date $1,500,000
occurring in June 2000
The Quarterly Payment Date $1,000,000
occurring in September 2000
The Quarterly Payment Date $2,000,000
occurring in December 2000
The Quarterly Payment Date $ 750,000
occurring in March 2001
The Quarterly Payment Date $2,250,000
occurring in June 2001
The Quarterly Payment Date $1,500,000
occurring in September 2001
The Quarterly Payment Date $3,000,000
occurring in December 2001
The Quarterly Payment Date $1,000,000
occurring in March 2002
The Quarterly Payment Date $3,000,000
occurring in June 2002
The Quarterly Payment Date $2,000,000
occurring in September 2002
The Quarterly Payment Date $4,000,000
occurring in December 2002
The Quarterly Payment Date $1,250,000
occurring in March 2003
The Quarterly Payment Date $3,750,000
occurring in June 2003
The Quarterly Payment Date $2,500,000
occurring in September 2003
The Quarterly Payment Date $5,000,000
occurring in December 2003
The Quarterly Payment Date $1,500,000
occurring in March 2004
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Tranche A
Scheduled Repayment Date Amount
------------------------ ------
<S> <C>
The Quarterly Payment Date $4,500,000
occurring in June 2004
The Quarterly Payment Date occurring $3,000,000
in September 2004
The Initial Maturity Date $6,000,000
</TABLE>
Notwithstanding the foregoing provisions of this Section 4.02(b), if any Tranche
A Term Loans are borrowed on the Change of Control Purchase Borrowing Date, the
amount of each Tranche A Scheduled Repayment occurring on or after the Change of
Control Purchase Borrowing Date shall be increased pro rata, based upon the then
--- ----
remaining principal amounts of such Tranche A Scheduled Repayments (after giving
effect to all prior reductions thereto), in an aggregate amount equal to the
aggregate amount of Tranche A Term Loans borrowed on the Change of Control
Purchase Borrowing Date.
(c) In addition to any other mandatory repayments pursuant to this
Section 4.02, on each date set forth below, the US Borrower shall be required to
repay that percentage as is set forth opposite such date multiplied by the
aggregate principal amount of Tranche B Term Loans (the "Tranche B Reference
Amount") outstanding on the Term Loan Commitment Expiry Date (each such
repayment, as the same may be reduced as provided in Sections 4.01 and 4.02(k),
a "Tranche B Scheduled Repayment", and each such date, a "Tranche B Scheduled
Repayment Date"):
<TABLE>
<CAPTION>
Percentage of
-------------
Tranche B Tranche B
---------
Scheduled Repayment Date Reference Amount
------------------------ ----------------
<S> <C>
The Quarterly Payment Date occurring in March 2000 0.25%
The Quarterly Payment Date occurring in June 2000 0.25%
The Quarterly Payment Date occurring in September 2000 0.25%
The Quarterly Payment Date occurring in December 2000 0.25%
The Quarterly Payment Date occurring in March 2001 0.25%
The Quarterly Payment Date occurring in June 2001 0.25%
The Quarterly Payment Date occurring in September 2001 0.25%
The Quarterly Payment Date occurring in December 2001 0.25%
The Quarterly Payment Date occurring in March 2002 0.25%
The Quarterly Payment Date occurring in June 2002 0.25%
The Quarterly Payment Date occurring in September 2002 0.25%
The Quarterly Payment Date occurring in December 2002 0.25%
The Quarterly Payment Date occurring in March 2003 0.25%
The Quarterly Payment Date occurring in June 2003 0.25%
The Quarterly Payment Date occurring in September 2003 0.25%
The Quarterly Payment Date occurring in December 2003 0.25%
The Quarterly Payment Date occurring in March 2004 0.25%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Percentage of
-------------
Tranche B Tranche B
---------
Scheduled Repayment Date Reference Amount
------------------------ ----------------
<S> <C>
The Quarterly Payment Date occurring in June 2004 0.25%
The Quarterly Payment Date occurring in September 2004 0.25%
The Quarterly Payment Date occurring in December 2004 0.25%
The Quarterly Payment Date occurring in March 2005 4.75%
The Quarterly Payment Date occurring in June 2005 14.25%
The Quarterly Payment Date occurring in September 2005 9.50%
The Quarterly Payment Date occurring in December 2005 19.00%
The Quarterly Payment Date occurring in March 2006 4.75%
The Quarterly Payment Date occurring in June 2006 14.25%
The Quarterly Payment Date occurring in September 2006 9.50%
The Tranche B Term Loan Maturity Date 19.00%
</TABLE>
(d) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.02, on each date set forth below, the US
Borrower shall be required to repay that percentage as is set forth opposite
such date multiplied by the aggregate principal amount of Acquisition Loans
(such amount, the "Year 3 Reference Amount") outstanding on the Conversion Date
(each such repayment, as the same may be reduced as provided in Sections 4.01
and 4.02(k) an "Acquisition Loan Scheduled Repayment," and each such date, an
"Acquisition Loan Scheduled Repayment Date"):
<TABLE>
<CAPTION>
Percentage of Year 3
Acquisition Loan Scheduled Repayment Date Reference Amount
----------------------------------------- ----------------
<S> <C>
The Quarterly Payment Date occurring in March 2003 10.0%
The Quarterly Payment Date occurring in June 2003 10.0%
The Quarterly Payment Date occurring in September 2003 10.0%
The Quarterly Payment Date occurring in December 2003 10.0%
The Quarterly Payment Date occurring in March 2004 15.0%
The Quarterly Payment Date occurring in June 2004 15.0%
The Quarterly Payment Date occurring in September 2004 15.0%
The Initial Maturity Date 15.0%
</TABLE>
(e) In addition to any other mandatory repayments pursuant to this
Section 4.02, on each date set forth below, the Canadian Borrower shall be
required to repay that principal amount and/or Face Amount, as applicable, of
Canadian Term Loans, to the extent then outstanding, as is set forth opposite
such date (each such repayment, as the same may be reduced as provided in
Sections 4.01 and 4.02(k), a "Canadian Term Loan Scheduled Repayment," and each
such date, a "Canadian Term Loan Scheduled Repayment Date"):
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<PAGE>
<TABLE>
<CAPTION>
Canadian Term Loan
Scheduled Repayment Date Amount
------------------------ ------
<S> <C>
The Quarterly Payment Date $ 734,350
occurring in March 2000
The Quarterly Payment Date $2,203,050
occurring in June 2000
The Quarterly Payment Date $1,468,700
occurring in September 2000
The Quarterly Payment Date $2,937,400
occurring in December 2000
The Quarterly Payment Date $1,101,525
occurring in March 2001
The Quarterly Payment Date $3,304,575
occurring in June 2001
The Quarterly Payment Date $2,203,050
occurring in September 2001
The Quarterly Payment Date $4,406,100
occurring in December 2001
The Quarterly Payment Date $1,468,700
occurring in March 2002
The Quarterly Payment Date $4,406,100
occurring in June 2002
The Quarterly Payment Date $2,937,400
occurring in September 2002
The Quarterly Payment Date $5,874,800
occurring in December 2002
The Quarterly Payment Date $1,835,875
occurring in March 2003
The Quarterly Payment Date $5,507,625
occurring in June 2003
The Quarterly Payment Date $3,671,750
occurring in September 2003
The Quarterly Payment Date $7,343,500
occurring in December 2003
The Quarterly Payment Date $2,203,050
occurring in March 2004
The Quarterly Payment Date $6,609,150
occurring in June 2004
The Quarterly Payment Date occurring in $4,406,100
September 2004
The Initial Maturity Date $8,812,200
</TABLE>
(f) In addition to any other mandatory repayments pursuant to this
Section 4.02, on each date after the Initial Borrowing Date upon which PI
Holdings or any of its Subsidiaries receives any proceeds from any sale or
issuance of its equity (other than (i) proceeds received on
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<PAGE>
or prior to the Initial Borrowing Date as required by Section 5.06(b) and (e),
(ii) proceeds received from the issuance of shares of PI Holdings Common Stock
(or options to purchase shares of PI Holdings Common Stock) to directors,
officers or employees of PI Holdings or any of its Subsidiaries, to any of the
Carlyle Entities or to any directors, officers or employees of any of the
Carlyle Entities, (iii) proceeds received pursuant to the Stock Purchase and
Redemption Agreement, (iv) proceeds received by any Subsidiary of PI Holdings
from the issuance of shares of common stock of such Subsidiary to PI Holdings or
any of its Subsidiaries and (v) proceeds received from the issuance of shares of
PI Holdings Common Stock to the extent applied to pay cash consideration in
respect of Permitted Acquisition pursuant to Section 8.15(b) or to make Capital
Expenditures pursuant to Section 9.08(c)), an amount equal to 100% (or, if the
Leverage Ratio on the date of receipt of such proceeds is less than 2.75:1.00,
50%) of the cash proceeds of the respective sale or issuance (net of
underwriting discounts and commissions and other direct costs associated
therewith, including, without limitation, legal fees and expenses) shall be
applied as a mandatory repayment of principal and Face Amount, as applicable, of
outstanding Term Loans in accordance with the requirements of Sections 4.02(k)
and (l).
(g) In addition to any other mandatory repayments pursuant to this
Section 4.02, on each date after the Initial Borrowing Date upon which PI
Holdings or any of its Subsidiaries receives any proceeds from any incurrence by
PI Holdings or any of its Subsidiaries of Indebtedness for borrowed money (other
than Indebtedness for borrowed money permitted to be incurred pursuant to
Section 9.04 as such Section is in effect on the Effective Date), an amount
equal to 100% of the cash proceeds (net of underwriting discounts and
commissions and other costs associated therewith including, without limitation,
legal fees and expenses) of the respective incurrence of Indebtedness shall be
applied as a mandatory repayment of principal and Face Amount, as applicable, of
outstanding Term Loans in accordance with the requirements of Sections 4.02(k)
and (l).
(h) In addition to any other mandatory repayments pursuant to this
Section 4.02, on each date after the Initial Borrowing Date upon which PI
Holdings or any of its Subsidiaries receives proceeds from any Asset Sale
(excluding (i) sales or transfers of inventory in the ordinary course of
business, (ii) sales or transfers of assets in accordance with Sections 9.02(vi)
and (viii) as originally in effect and (iii) the first $500,000 in aggregate Net
Sale Proceeds received in any fiscal year of Holdings from sales or transfers of
other assets occurring during any fiscal year of PI Holdings beginning on or
after January 1, 2000), an amount equal to 100% of the Net Sale Proceeds
therefrom shall be applied as a mandatory repayment of principal and Face
Amount, as applicable, of outstanding Term Loans in accordance with the
requirements of Sections 4.02(k) and (l); provided that so long as no Default or
--------
Event of Default then exists, up to $2,000,000 in the aggregate in any fiscal
year of PI Holdings of Net Sale Proceeds of Asset Sales effected in accordance
with Section 9.02(xi) shall not be required to be so applied on the date of the
receipt thereof to the extent that PI Holdings has delivered a certificate to
the Administrative Agent on or prior to such date stating that such Net Sale
Proceeds shall be used to effect Permitted Acquisitions, to purchase replacement
equipment and/or make additional Capital Expenditures, in each case in
accordance with the requirements of Section 8.15(c), within one year following
such date; provided further, that if all or any portion of such Net Sale
----------------
Proceeds not required to be applied pursuant to the preceding proviso are not so
utilized within one year after the date of the receipt of such Net Sale
Proceeds, then such remaining portion not so
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<PAGE>
utilized shall be applied on the date which is one year after the date of
receipt of such Net Sale Proceeds in accordance with the requirements of this
Section 4.02(h) (without regard to this, or the immediately preceding, proviso).
Notwithstanding anything to the contrary contained above in this clause (h), if
upon the consummation of any Permitted Acquisition, the US Borrower delivers to
the Administrative Agent a schedule of excess property to be acquired pursuant
to such Permitted Acquisition and an officer's certificate signed by an
Authorized Officer of PI Holdings certifying that such property is intended to
be sold by the US Borrower or its Subsidiaries within 120 days of the
consummation of such Permitted Acquisition, then so long as no Default or Event
of Default exists at the time of receipt thereof, the US Borrower may apply the
proceeds of such asset sale actually received within such 120-day period to the
prepayment of Revolving Loans and/or Acquisition Revolving Loans then
outstanding without effecting any corresponding reduction in the respective
Commitments with respect thereto; provided that, to the extent such asset sale
--------
is not consummated (and the proceeds thereof not received) within such 120-day
period, such Net Sale Proceeds shall be subject to the foregoing provisions of
this Section 4.02(h) without giving effect to this sentence.
(i) In addition to any other mandatory repayments pursuant to this
Section 4.02, on each Excess Cash Payment Date, the Borrowers shall be required
to apply an amount equal to the Applicable Excess Cash Flow Percentage of the
Excess Cash Flow for the relevant Excess Cash Payment Period as a mandatory
repayment of principal and Face Amount, as applicable, of outstanding Term Loans
in accordance with the requirements of Sections 4.02(k) and (l).
(j) In addition to any other mandatory repayments pursuant to this
Section 4.02, within 10 days following each date after the Initial Borrowing
Date on which PI Holdings or any of its Subsidiaries receives any proceeds from
any Recovery Event, an amount equal to 100% of the proceeds of such Recovery
Event (net of reasonable costs including, without limitation, legal costs and
expenses, and taxes incurred in connection with such Recovery Event) shall be
applied as a mandatory repayment of principal and Face Amount, as applicable, of
outstanding Term Loans in accordance with the requirements of Sections 4.02(k)
and (l), provided that (x) so long as no Default or Event of Default then exists
--------
and such proceeds do not exceed $5,000,000, such proceeds shall not be required
to be so applied on such date to the extent that PI Holdings has delivered a
certificate to the Administrative Agent on or prior to such date stating that
such proceeds shall be used or shall be committed to be used to replace or
restore any properties or assets in respect of which such proceeds were paid
within one year following the date of such Recovery Event (which certificate
shall set forth the estimates of the proceeds to be so expended) and (y) so long
as no Default or Event of Default then exists and to the extent that (i) the
amount of such proceeds exceeds $5,000,000, (ii) the amount of such proceeds,
together with other cash available to the US Borrower and its Subsidiaries and
permitted to be spent by them on Capital Expenditures during the relevant period
pursuant to Section 9.08 (without regard to Section 9.08(c)(i) in the case of
such other cash), equals 100% of the cost of replacement or restoration of the
properties or assets in respect of which such proceeds were paid as determined
by PI Holdings in good faith, (iii) PI Holdings has delivered to the
Administrative Agent a certificate on or prior to the date the application would
otherwise be required pursuant to this Section 4.02(j) in the form described in
clause (x) above and also certifying its determination as required by preceding
clause (ii), and (iv) PI Holdings has delivered to the Administrative Agent such
evidence as the Administrative Agent may reasonably request in form and
substance
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<PAGE>
reasonably satisfactory to the Administrative Agent establishing that PI
Holdings and its Subsidiaries reasonably expect to have sufficient resources
available to them from time to time, including, without limitation, cash,
revenues and insurance proceeds, such that PI Holdings and its Subsidiaries can
reasonably be expected to satisfy all of their respective obligations and
expenses (including, without limitation, all debt service requirements,
including pursuant to this Agreement) without any unreasonable delay or
extension thereof, for the period from the date of the respective casualty,
condemnation or other event giving rise to the Recovery Event and continuing
through the completion of the replacement or restoration of respective
properties or assets, then the entire amount of the proceeds of such Recovery
Event and not just the portion in excess of $5,000,000 shall be deposited with
the Administrative Agent pursuant to a cash collateral arrangement reasonably
satisfactory to the Administrative Agent and PI Holdings, whereby such proceeds
shall be disbursed to PI Holdings or its order from time to time as needed to
pay actual costs incurred by PI Holdings and its Subsidiaries in connection with
the replacement or restoration of the respective properties or assets (pursuant
to such reasonable certification requirements as may be established by the
Administrative Agent), provided further, that at any time while an Event of
----------------
Default has occurred and is continuing (other than an Event of Default existing
solely under Section 10.03 as a result of the violation of any or all of
Sections 9.09 through 9.10, inclusive, but in each case only if, and to the
extent, that the violation of said covenant has occurred as a result of the
underlying event giving rise to the Recovery Event), the Required Lenders may
direct the Administrative Agent (in which case the Administrative Agent shall,
and is hereby authorized by PI Holdings and the Borrowers to, follow said
directions) to apply any or all proceeds then on deposit in such collateral
account to the repayment of Obligations hereunder in the same manner as proceeds
would be applied pursuant to the Security Agreement, and provided further, that
----------------
if all or any portion of such proceeds not required to be applied to the
repayment of Term Loans pursuant to the second preceding proviso (whether
pursuant to clause (x) or (y) thereof) are either (A) not so used or committed
to be so used within one year after the date of the respective Recovery Event or
(B) if committed to be used within one year after the date of receipt of such
Net Sale Proceeds and not so used within three years after the date of the
respective Recovery Event then, in either such case, such remaining portion not
used or committed to be used in the case of preceding clause (A) and not used in
the case of preceding clause (B) shall be applied on the date which is the first
anniversary of the date of the respective Recovery Event in the case of clause
(A) above or the date occurring three years after the date of the respective
Recovery Event in the case of clause (B) above as a mandatory repayment of
principal of outstanding Term Loans in accordance with the requirements of
Sections 4.02(k) and (l).
(k) Each amount required to be applied to Term Loans pursuant to
Sections 4.02(f), (g), (h), (i) and (j) shall (i) be paid by each Borrower in an
amount equal to the total amount so required to be applied multiplied by a
fraction, expressed as a percentage, the numerator of which is the aggregate
outstanding principal amount of Term Loans made to such Borrower and the
denominator of which is the aggregate outstanding principal amount of all Term
Loans then outstanding and (ii) shall be applied, if paid by the US Borrower,
pro rata to A Term Loans, B Term Loans and Acquisition Term Loans then
- --- ----
outstanding (subject to the provisions of Section 4.02(n) with respect to the
Tranche B Term Loans, it being understood that any amount of a Waivable
Mandatory Prepayment required to be applied to repay Canadian Term Loans
pursuant to Section 4.02(n) shall be paid by the Canadian Borrower) based upon
the
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<PAGE>
then remaining principal amounts of such respective Tranches (with each such
Tranche of Term Loans then outstanding to be allocated that percentage of the
amount to be applied as is equal to a fraction (expressed as a percentage) the
numerator of which is the then outstanding principal amount of such Tranche of
Term Loans and the denominator of which is equal to the then outstanding
principal amount of all such Term Loans) and, if paid by the Canadian Borrower,
to Canadian Term Loans then outstanding. The amount of each principal repayment
of Term Loans made as required by Sections 4.02(f), (g), (h), (i) and (j) after
giving effect to adjustments pursuant to Section 4.02(n), shall be applied to
reduce the then remaining Scheduled Repayments of the respective Tranche pro
---
rata based upon the then remaining principal amounts of the Scheduled Repayments
- ----
of the respective Tranche after giving effect to all prior reductions and/or
increases thereto.
(l) With respect to each repayment of Loans required by this Section
4.02, the respective Borrower may designate the Types of Loans of the respective
Tranche which are to be repaid and, in the case of Eurodollar Loans, the
specific Borrowing or Borrowings of the respective Tranche pursuant to which
made, provided that: (i) repayments of Eurodollar Loans pursuant to this
--------
Section 4.02 may only be made on the last day of an Interest Period applicable
thereto unless all Eurodollar Loans of the respective Tranche with Interest
Periods ending on such date of required repayment have been paid in full; (ii)
if any repayment of Eurodollar Loans made pursuant to a single Borrowing shall
reduce the outstanding Eurodollar Loans made pursuant to such Borrowing to an
amount less than (x) in the case of Term Loans, $5,000,000 and (y) in the case
of Revolving Loans or Acquisition Revolving Loans, $2,000,000, such Borrowing
shall be converted at the end of the then current Interest Period into a
Borrowing of Base Rate Loans; (iii) each repayment of any Loans comprising a
Borrowing shall be applied pro rata among such Loans; (iv) repayments of
--- ----
Canadian Term Loans pursuant to this Section 4.02 shall be first applied to
outstanding Canadian Prime Rate Loans and second against the obligation to pay
the Face Amount of Bankers' Acceptance Loans in accordance with the following
clauses (v) and (vi); (v) repayments of Bankers' Acceptance Loans pursuant to
this Section 4.02 may only be made on the maturity date of the relevant Bankers'
Acceptance and prior to such time all such proceeds shall be deposited with the
Canadian Paying Agent and held as cash collateral for the obligations of the
Canadian Borrower to the Lenders (rounded up to the nearest integral of CDN
$100,000) in respect of an equivalent Face Amount of outstanding Bankers'
Acceptances accepted by the Lenders; (vi) the proceeds held as cash collateral
will be paid by the Canadian Paying Agent to and applied by the Lenders, in
satisfaction of the obligations of the Canadian Borrower to the Lenders in
respect of such Bankers' Acceptance to be repaid, on the maturity date thereof;
and (vii) such cash collateral shall be held pursuant to a cash collateral
agreement to be entered into in form and substance reasonably satisfactory to
the Agents and shall provide for investments satisfactory to the Agents and the
Canadian Borrower. In the absence of a designation by the respective Borrower
as described in the preceding sentence, the Administrative Agent shall, subject
to the above, make such designation in its sole discretion with a view, but no
obligation, to minimize breakage costs owing under Section 1.11 or Schedule III.
Notwithstanding the foregoing provisions of this Section 4.02, if at any time
the mandatory prepayment of Loans pursuant to this Section 4.02 would result,
after giving effect to the procedures set forth above, in the US Borrower and/or
the Canadian Borrower incurring breakage costs under Section 1.11 as a result of
Eurodollar Loans being prepaid other than on the last day of an Interest Period
applicable thereto (the "Affected Eurodollar Loans"), then such
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<PAGE>
Borrower may in its sole discretion initially deposit a portion (up to 100%) of
the amounts that otherwise would have been paid in respect of the Affected
Eurodollar Loans with the Administrative Agent (which deposit must be equal in
amount to the amount of the Affected Eurodollar Loans not immediately prepaid)
to be held as security for the obligations of such Borrower hereunder pursuant
to a cash collateral agreement to be entered into in form and substance
reasonably satisfactory to the Agents and shall provide for investments
satisfactory to the Agents and such Borrower, with such cash collateral to be
directly applied upon the first occurrence (or occurrences) thereafter of the
last day of an Interest Period applicable to the relevant Loans that are
Eurodollar Loans (or such earlier date or dates as shall be requested by such
Borrower), to repay an aggregate principal amount of such Loans equal to the
Affected Eurodollar Loan(s) not initially prepaid pursuant to this sentence.
Notwithstanding anything to the contrary contained in this Section 4.02(l), all
amounts deposited as cash collateral pursuant to this Section 4.02(l) shall be
held for the sole benefit of the Lenders whose Loans would otherwise have been
immediately prepaid with the amounts deposited and upon the taking of any action
by the Administrative Agent or the Lenders pursuant to the remedial provisions
of Section 10, any amounts held as cash collateral pursuant to this Section
4.02(l) shall, subject to the requirements of applicable law, be immediately
applied to the Loans.
(m) Notwithstanding anything to the contrary contained elsewhere in
this Agreement, all then outstanding Loans shall be repaid in full on the
respective Maturity Date applicable to such Loans.
(n) Notwithstanding anything to the contrary contained in Section
4.01(a) or above in this Section 4.02, with respect to any mandatory repayments
of Tranche B Term Loans (excluding Tranche B Scheduled Repayments) otherwise
required above pursuant to this Section 4.02, and with respect to that portion
of any voluntary repayment of Term Loans pursuant to Section 4.01(a) which, in
accordance with the provisions of clause (iv) thereof is required to be applied
to Tranche B Term Loans, if on or prior to the date the respective mandatory
repayment is otherwise required to be made pursuant to this Section 4.02 or on
or prior to the date of the respective voluntary repayment pursuant to Section
4.01(a), the US Borrower has given the Administrative Agent written notification
that the US Borrower has elected to give each Lender with a Tranche B Term Loan
the right to waive such Lender's rights to receive such repayment (the "Waivable
Mandatory Repayment"), the Administrative Agent shall notify such Lenders of
such receipt and the amount of the repayment to be applied to each such Lender's
Tranche B Term Loans. In the event any such Lender with a Tranche B Term Loan
desires to waive such Lender's right to receive any such Waivable Mandatory
Repayment in whole or in part, such Lender shall so advise the Administrative
Agent no later than 5:00 P.M. (New York time) five Business Days after the date
of such notice from the Administrative Agent which notice shall also include the
amount the Lender desires to receive. If the Lender does not reply to the
Administrative Agent within such five Business Day period, it will be deemed
acceptance of the total payment. If the Lender does not specify an amount it
wishes to receive, it will be deemed acceptance of 100% of the total payment.
In the event that any such Lender waives such Lender's right to any such
Waivable Mandatory Repayment, the Administrative Agent shall, subject to the
provisions of Section 4.02(k)(ii), apply 100% of the amount so waived by such
Lenders to (x) prepay the Tranche A Term Loans, Acquisition Term Loans (if any)
and Canadian Term Loans (i) in the case of a repayment pursuant to Section
4.01(a), pro rata (based upon the
--- ----
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<PAGE>
then outstanding principal amount of Tranche A Term Loans, Acquisition Term
Loans and Canadian Term Loans) in accordance with Section 4.01(a) (exclusive of
clause (iv) thereof) or (ii) in the case of a repayment pursuant to Section
4.02, pro rata (based upon the then outstanding principal amount of Tranche A
--- ----
Term Loans, Acquisition Term Loans and Canadian Term Loans) and otherwise in
accordance with Sections 4.02(k) and (l) and (y) to the extent in excess of the
amount to be applied pursuant to preceding clause (x), as provided in Section
3.03(f)(ii) (as if no Terms Loans were then outstanding). If the US Borrower
elects to give the notice described above in this Section 4.02(n) with respect
to any voluntary or mandatory repayment, the amount of the respective Waivable
Mandatory Repayment shall be deposited with the Administrative Agent on the date
the voluntary repayment is otherwise made pursuant to Section 4.01(a) or the
date the mandatory repayment would otherwise be required pursuant to the
relevant provisions of this Section 4.02, as the case may be (and held by the
Administrative Agent as cash collateral for the Tranche B Term Loans and, but
only to the extent Lenders with Tranche B Term Loans waive their right to
receive their share of the Waivable Mandatory Repayment, for the benefit of the
Tranche A Term Loans, Acquisition Term Loans (if any) and Canadian Term Loans in
a cash collateral account which shall permit the investment thereof in Cash
Equivalents reasonably satisfactory to the Administrative Agent until the
proceeds are applied to the applicable Loans), and the respective repayment
shall not be required to be made until the seventh Business Day occurring after
the date the respective repayment would otherwise have been required to be made.
Notwithstanding anything to the contrary contained above, if one or more Lenders
waives its right to receive all or any part of any Waivable Mandatory Repayment,
but less than all the Lenders holding Tranche B Term Loans waive in full their
right to receive 100% of the total payment otherwise required with respect to
the Tranche B Term Loans, then of the amount actually applied to the repayment
of Tranche B Term Loans of Lenders which have waived in part, but not in full,
their right to receive 100% of such repayment, such amount shall be applied to
each then outstanding Borrowing of Tranche B Term Loans on a pro rata basis (so
--- ----
that each Lender holding Tranche B Term Loans shall, after giving effect to the
application of the respective repayment, maintain the same percentage (as
determined for such Lender, but not the same percentage as the other Lenders
hold and not the same percentage held by such Lender prior to repayment) of each
Borrowing of Tranche B Term Loans which remains outstanding after giving effect
to such application).
(o) Notwithstanding anything to the contrary above in this Section
4.02, to the extent that any issuance of Indebtedness or equity, any asset sale
or any insurance recovery event would not otherwise result in a mandatory
repayment of Loans hereunder (or reduction of the Commitments pursuant to
Section 3.03), but would result in an obligation to repurchase or otherwise
redeem, or offer to purchase or redeem, any portion of the US Borrower
Subordinated Notes, then such issuance or event, as the case may be, shall
require a mandatory prepayment in accordance with the applicable provisions of
this Section 4.02 to the extent of such obligation to repurchase or otherwise
redeem such portion of the US Borrower Subordinated Notes.
4.03 Method and Place of Payment. Except as otherwise specifically
---------------------------
provided herein, all payments under this Agreement or under any Note shall be
made to the Administrative Agent for the account of the Lender or Lenders
entitled thereto not later than 12:00 Noon (New York time) on the date when due
and shall be made in Dollars in immediately available funds at the Payment
Office of the Administrative Agent. All payments owing under Canadian
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<PAGE>
Term Loans, the Canadian Term Notes and Bankers' Acceptances prior to the
occurrence of a Sharing Event shall be made to the Canadian Paying Agent for the
account of the Lender or Lenders entitled thereto not later than 12:00 p.m. (New
York time) on the date when due and shall be made in Canadian Dollars in
immediately available funds at the Payment Office of the Canadian Paying Agent.
Whenever any payment to be made hereunder or under any Note shall be stated to
be due on a day which is not a Business Day, the due date thereof shall be
extended to the next succeeding Business Day and, with respect to payments of
principal, interest shall be payable at the applicable rate during such
extension.
4.04 Net Payments; Taxes. (a) All payments made by any Credit Party
-------------------
hereunder or under any Note will be made without setoff, counterclaim or other
defense. Except as provided in Section 4.04(b), all such payments will be made
free and clear of, and without deduction or withholding for, any present or
future taxes, levies, imposts, duties, fees, assessments or other charges of
whatever nature now or hereafter imposed by any jurisdiction or by any political
subdivision or taxing authority thereof or therein with respect to such payments
(but excluding, except as provided in the second succeeding sentence, any tax
imposed on or measured by the net income or net profits of a Lender pursuant to
the laws of the jurisdiction in which it is organized or the jurisdiction in
which the principal office or applicable lending office of such Lender is
located or any subdivision thereof or therein) and all interest, penalties or
similar liabilities with respect to such non-excluded taxes, levies, imposts,
duties, fees, assessments or other charges (all such non-excluded taxes, levies,
imposts, duties, fees, assessments or other charges being referred to
collectively as "Taxes"). If any Taxes are so levied or imposed, each Borrower
agrees to pay the full amount of such Taxes, and such additional amounts as may
be necessary so that every payment of all amounts due under this Agreement or
under any Note with respect to the Obligations of such Borrower, after
withholding or deduction for or on account of any Taxes, will not be less than
the amount provided for herein or in such Note. If any amounts are payable in
respect of Taxes pursuant to the preceding sentence, the respective Borrower
agrees to reimburse each Lender, upon the written request of such Lender, for
taxes imposed on or measured by the net income or net profits of such Lender
pursuant to the laws of the jurisdiction in which such Lender is organized or in
which the principal office or applicable lending office of such Lender is
located or under the laws of any political subdivision or taxing authority of
any such jurisdiction in which such Lender is organized or in which the
principal office or applicable lending office of such Lender is located and for
any withholding or income or similar taxes as such Lender shall determine are
payable by, or withheld from, such Lender in respect of such amounts so paid to
or on behalf of such Lender pursuant to the preceding sentence and in respect of
any amounts paid to or on behalf of such Lender pursuant to this sentence. Each
Borrower will furnish to the Administrative Agent within 45 days after the date
the payment of any Taxes is due pursuant to applicable law certified copies of
tax receipts evidencing such payment by such Borrower. Each Borrower agrees to
indemnify and hold harmless each Lender, and reimburse such Lender upon its
written request, for the amount of any Taxes so levied or imposed and paid by
such Lender on account of such Borrower.
(b) Each Lender (other than a Lender which has only a Canadian Term
Loan Commitment and/or Canadian Term Loans) that is not a United States person
(as such term is defined in Section 7701(a)(30) of the Code) agrees to deliver
to the US Borrower and the
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Administrative Agent on or prior to the Effective Date, or in the case of a
Lender that is an assignee or transferee of an interest under this Agreement
pursuant to Section 1.13 or 13.04 (unless the respective Lender was already a
Lender hereunder immediately prior to such assignment or transfer), on the date
of such assignment or transfer to such Lender, (i) two accurate and complete
original signed copies of Internal Revenue Service Form W-8ECI or W-8BEN (with
respect to a complete exemption under an income tax treaty) (or successor forms)
certifying to such Lender's entitlement to a complete exemption from United
States withholding tax with respect to payments to be made under this Agreement
and under any Note, or (ii) if the Lender is not a "bank" within the meaning of
Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue
Service Form W-8ECI or W-8BEN (with respect to a complete exemption under an
income tax treaty) pursuant to clause (i) above, (x) a certificate substantially
in the form of Exhibit D (any such certificate, a "Section 4.04(b)(ii)
Certificate") and (y) two accurate and complete original signed copies of
Internal Revenue Service Form W-8BEN (with respect to the portfolio interest
exemption) (or successor form) certifying to such Lender's entitlement to a
complete exemption from United States withholding tax with respect to payments
of interest to be made under this Agreement and under any Note. In addition,
each Lender agrees that from time to time after the Effective Date, when a lapse
in time or change in circumstances renders the previous certification obsolete
or inaccurate in any material respect, it will deliver to the US Borrower and
the Administrative Agent two new accurate and complete original signed copies of
Internal Revenue Service Form W-8ECI, Form W-8BEN (with respect to the benefits
of any income tax treaty), or Form W-8BEN (with respect to the portfolio
interest exemption) and a Section 4.04(b)(ii) Certificate, as the case may be,
and such other forms as may be required in order to confirm or establish the
entitlement of such Lender to a continued exemption from or reduction in United
States withholding tax with respect to payments under this Agreement and any
Note, or it shall immediately notify the US Borrower and the Administrative
Agent of its inability to deliver any such Form or Certificate, in which case
such Lender shall not be required to deliver any such Form or Certificate
pursuant to this Section 4.04(b) until such time as such inability ceases to
exist. Notwithstanding anything to the contrary contained in Section 4.04(a),
but subject to Section 13.04(b) and the immediately succeeding sentence, (x) the
US Borrower shall be entitled, to the extent it is required to do so by law, to
deduct or withhold income or similar taxes imposed by the United States (or any
political subdivision or taxing authority thereof or therein) from interest,
Fees or other amounts payable hereunder for the account of any Lender (other
than a Lender which has only a Canadian Term Loan Commitment and/or Canadian
Term Loans) which is not a United States person (as such term is defined in
Section 7701(a)(30) of the Code) to the extent that such Lender has not provided
to the US Borrower U.S. Internal Revenue Service Forms that establish a complete
exemption from such deduction or withholding and (y) the US Borrower shall not
be obligated pursuant to Section 4.04(a) to gross-up payments to be made to a
Lender in respect of income or similar taxes imposed by the United States if (I)
such Lender has not provided to the US Borrower the Internal Revenue Service
Forms required to be provided to the US Borrower pursuant to this Section
4.04(b) or (II) in the case of a payment, other than interest, to a Lender
described in clause (ii) above, to the extent that such Forms do not establish a
complete exemption from withholding of such taxes. Notwithstanding anything to
the contrary contained in the preceding sentence or elsewhere in this Section
4.04 and except as set forth in Section 13.04(b), the US Borrower agrees to pay
additional amounts and to indemnify each Lender in the manner set forth in
Section 4.04(a) (without regard to the identity of the jurisdiction requiring
the deduction or withholding) in
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<PAGE>
respect of any Taxes deducted or withheld by it as described in the immediately
preceding sentence as a result of any changes after the Effective Date (or, if
later, the date such Lender became party to this Agreement) in any applicable
law, treaty, governmental rule, regulation, guideline or order, or in the
interpretation thereof, relating to the deducting or withholding of such Taxes.
(c) Upon the reasonable request of the US Borrower, any Lender that
is a United States person (as such term is defined in Section 7701(a)(30) of the
Code) shall provide such Borrower with two accurate and complete original signed
copies of an Internal Revenue Service Form W-9, or any successor form that such
Lender is entitled to provide at such time in order to comply with United States
backup withholding tax requirements.
(d) If either Borrower pays any additional amount under this Section
4.04 to a Lender and such Lender determines in its sole discretion that it has
actually received or realized in connection therewith any refund or any
reduction of, or credit against, its Tax liabilities in or with respect to the
taxable year in which the additional amount is paid, such Lender shall pay to
such Borrower an amount that the Lender shall, in its sole discretion, determine
is equal to the net benefit, after tax, which was obtained by the Lender in such
year as a consequence of such refund, reduction or credit. The decision as to
whether a Lender claims any refund or credit or files any amended tax return
shall be in the sole discretion of such Lender. Nothing in this Section 4.04(d)
shall require a Lender to disclose or detail the basis of its calculation of the
amount of any tax benefit or any other amount to the Borrowers or to any other
party or to disclose or provide a copy of any tax return.
SECTION 5. Conditions Precedent to Loans on the Initial Borrowing
------------------------------------------------------
Date. The obligation of each Lender to make Loans, and the obligation of each
- ----
Issuing Bank to issue Letters of Credit, on the Initial Borrowing Date, is
subject at the time of the making of such Loans or the issuance of such Letters
of Credit to the satisfaction of the following conditions:
5.01 Execution of Agreement; Notes. On or prior to the Initial
-----------------------------
Borrowing Date (i) the Effective Date shall have occurred and (ii) there shall
have been delivered to the Administrative Agent for the account of each of the
Lenders the appropriate Tranche A Term Note, Tranche A Supplemental Note,
Tranche B Term Note, Revolving Note and/or Canadian Term Note executed by the US
Borrower or, in the case of the Canadian Term Note, the Canadian Borrower, and
to the Swingline Lender, the Swingline Note executed by the US Borrower; in each
case in the amount, maturity and as otherwise provided herein.
5.02 Fees, etc. On the Initial Borrowing Date, the Borrowers shall
----------
have paid, or caused to be paid, to the Agents and the Lenders all costs, fees
and expenses (including, without limitation, legal fees and expenses) payable to
the respective Agents and the Lenders to the extent then required to be paid by
any Carlyle Entity, Holdings or the Borrowers.
5.03 Opinions of Counsel. On the Initial Borrowing Date, the
-------------------
Administrative Agent shall have received (i) from Gibson, Dunn & Crutcher LLP,
special counsel to Holdings and its Subsidiaries, an opinion addressed to each
of the Agents and the Lenders, dated the Initial Borrowing Date and covering the
matters set forth in Exhibit E and (ii) from local counsel reasonably
satisfactory to the Agents in such jurisdiction as the Agents shall reasonably
request,
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<PAGE>
an opinion addressed to each of the Agents and the Lenders and dated the Initial
Borrowing Date, which opinions shall be in form and substance reasonably
satisfactory to the Agents and shall cover the perfection of the security
interests granted in respect of the portion of the Collateral located in such
respective jurisdiction pursuant to the Security Agreement and the Mortgages and
such other matters incident to the transactions contemplated herein as the
Agents may reasonably request.
5.04 Corporate Documents; Proceedings; etc. (a) On the Initial
--------------------------------------
Borrowing Date, the Administrative Agent shall have received a certificate,
dated the Initial Borrowing Date, signed by an Authorized Officer of each Credit
Party, and attested to by the Secretary or any Assistant Secretary of such
Credit Party, in the form of Exhibit F with appropriate insertions, together
with copies of the Certificate of Incorporation and By-Laws of such Credit Party
and the resolutions of such Credit Party referred to in such certificate, and
the foregoing shall be reasonably acceptable to the Agents.
(b) All corporate and legal proceedings and all material instruments
and agreements in connection with the transactions contemplated by this
Agreement and all organizational documents of Holdings and its Subsidiaries and
the other Documents in each case as the same will exist after giving effect to
the consummation of the Transaction shall be reasonably satisfactory in form
and substance to the Agents, and the Administrative Agent shall have received
all information and copies of all documents and papers, including records of
corporate proceedings, governmental approvals, good standing certificates and
bring-down telegrams or facsimiles, if any, which the Agents may have reasonably
requested in connection therewith, such documents and papers where appropriate
to be certified by proper corporate or governmental authorities.
5.05 Employee Benefit Plans; Shareholders' Agreements; Management
------------------------------------------------------------
Agreements; Debt Agreements; Recapitalization Documents; Tax Sharing Agreements;
- --------------------------------------------------------------------------------
Collective Bargaining Agreements. On the Initial Borrowing Date, there shall
- --------------------------------
have been delivered to the Administrative Agent, true and correct copies,
certified as true and complete by an appropriate officer of Holdings, of (i) all
material written documentation relating to "employee benefit plans" as defined
in Section 3(3) of ERISA (other than Multiemployer Plans), and any other
material plans or arrangements for the benefit of employees of Holdings or any
of its Subsidiaries and any profit sharing plans and deferred compensation plans
of Holdings or any of its Subsidiaries (collectively, the "Employee Benefit
Plans"), (ii) all written agreements entered into by Holdings or any of its
Subsidiaries governing the terms and relative rights of its capital stock and
any written agreements entered into by shareholders relating to any such entity
with respect to its capital stock (collectively, the "Shareholders'
Agreements"), (iii) all written agreements with members of the management of
Holdings or any of its Subsidiaries other than Shareholders' Agreements
(collectively, the "Management Agreements"), (iv) all agreements evidencing or
relating to Indebtedness of Holdings or any of its Subsidiaries which is to
remain outstanding after giving effect to the incurrence of Loans on the Initial
Borrowing Date (collectively, the "Debt Agreements"), (v) all Recapitalization
Documents, (vi) all tax sharing, tax allocation and other similar agreements
entered into by Holdings or any of its Subsidiaries (collectively, the "Tax
Sharing Agreements") and (vii) all collective bargaining agreements applying or
relating to any employee of Holdings or any of its Subsidiaries (collectively,
the
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<PAGE>
"Collective Bargaining Agreements"); all of which Employee Benefit Plans,
Shareholders' Agreements, Management Agreements, Debt Agreements,
Recapitalization Documents, Tax Sharing Agreements and Collective Bargaining
Agreements shall be in form and substance reasonably satisfactory to the Agents
and the Required Lenders and shall be in full force and effect on the Initial
Borrowing Date.
5.06 Recapitalization and Financing Transactions. (a) On or prior
-------------------------------------------
to the Initial Borrowing Date, each of the Recapitalization Documents shall have
been duly authorized, executed and delivered by each of the respective parties
thereto and shall be in full force and effect and shall not have been amended or
modified except for such amendments and modifications, if any, as may be
reasonably satisfactory to the Agents and the Required Lenders. All conditions
precedent to the obligation of Holdings to consummate the Recapitalization as
set forth in the Recapitalization Documents shall have been satisfied, and not
waived except with the consent of the Agents and the Required Lenders, to the
satisfaction of the Agents. The Recapitalization shall have been, or shall be,
consummated contemporaneously herewith in accordance with the Recapitalization
Documents and all applicable law and after giving effect thereto, Holdings shall
have acquired at least 93% (on a fully-diluted basis) of the capital stock of PI
Holdings.
(b) On or prior to the Initial Borrowing Date, Holdings shall have
received cash in the amount of at least $148,000,000 from the Equity Investors
as consideration for the issuance of Holdings Common Stock to the Equity
Investors (the "Common Equity Financing"). The structure and all terms of, and
all documentation for, the Common Equity Financing shall be satisfactory in form
and substance to the Agents. On or prior to the Initial Borrowing Date, Holdings
shall have applied or caused to be applied the total aggregate amount of cash
received by it as described in the second immediately preceding sentence to the
payment of amounts owing in connection with the Recapitalization and the
Refinancing.
(c) On or prior to the Initial Borrowing Date, PI Holdings shall
have issued to the Sellers the Holdings PIK Subordinated Note in aggregate
principal amount not to exceed $19,000,000. All terms and conditions of, and
the documentation for, the Holdings PIK Subordinated Note (including, without
limitation, pay-in-kind provisions, amortization, maturities, redemption
provisions, interest rates, limitation on interest payable, covenants, defaults,
voting provisions, sinking fund provisions, remedies, suspension of remedies
provisions, subordination provisions and other terms) shall be satisfactory to
the Agents, it being understood that, without limiting the foregoing, the
Holdings PIK Subordinated Note (w) may not be secured or guaranteed, (x) may
provide for required mandatory repayments or redemptions only to the extent such
mandatory repayments or redemptions are permitted by the express terms of this
Agreement, (y) shall contain suspension of remedies provisions satisfactory to
the Agents, so that in no event may the Holdings PIK Subordinated Note be
accelerated (or any actions taken to collect payments owing with respect
thereto) so long as this Agreement remains in effect or any obligations
hereunder shall not have been irrevocably paid in full in cash (without giving
effect to any reductions thereto, whether by reason of fraudulent conveyance
considerations or otherwise, except for reductions as a result of repayments
thereof in cash (which have not been required to be returned or disgorged)) and
(z) shall contain subordination provisions satisfactory to the Agents, in any
event providing that the Holdings PIK Subordinated
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<PAGE>
Note shall be subordinated to the prior payment in full in cash of all the
Obligations and all other senior indebtedness (including all obligations
pursuant to any interest rate protection agreements or similar agreements)
(without giving effect to any reductions thereto, whether by reason of
fraudulent conveyance considerations or otherwise, except for reductions as a
result of repayments thereof in cash (which have not been required to be
returned or disgorged)).
(d) On or prior to the Initial Borrowing Date, the Rolling
Shareholders shall have rolled over into PI Holdings equity capital held by them
in PI Holdings with an aggregate value (on the basis of the purchase price paid
by Holdings for shares of capital stock of PI Holdings under the Stock Purchase
and Redemption Agreement) of at least $11,000,000 (the "Equity Rollover"). The
structure and all terms of, and all documentation for, the Equity Rollover shall
be satisfactory in form and substance to the Agents.
(e) On the Initial Borrowing Date, Holdings shall have used all cash
proceeds described in preceding clause (b) to make payments owing in connection
with the Transaction before utilizing any proceeds of Loans for such purpose.
The cash proceeds received on or prior to the Initial Borrowing Date as
described in preceding clause (b), when added to (i) the aggregate principal
amount of Tranche A Term Loans incurred on the Initial Borrowing Date, (ii)
available cash on hand and (iii) up to $3,000,000 in aggregate principal amount
of Revolving Loans, shall be sufficient (together with the issuance of the
Holdings PIK Subordinated Note and giving effect to the Equity Rollover) to
effect the Transaction (other than any Change of Control Purchases which may be
required to be made after the Initial Borrowing Date in connection with the
Change of Control Offer to Purchase) and to pay all fees and expenses in
connection therewith (which fees and expenses shall not in the aggregate exceed
$13,000,000).
5.07 Refinancing. On the Initial Borrowing Date, all Indebtedness
-----------
not permitted to remain outstanding pursuant to Section 9.04 (including, without
limitation, the Existing US Credit Agreement and the Existing Canadian Credit
Agreement, but in any event excluding the US Borrower Subordinated Notes) shall
have been repaid in full and all commitments in respect thereof shall have been
terminated and all Liens and guaranties in connection therewith shall have been
terminated (and all appropriate releases, termination statements or other
instruments of assignment with respect thereto shall have been obtained) to the
reasonable satisfaction of the Agents (collectively, the "Refinancing"). The
Agents shall have received satisfactory evidence (including satisfactory pay-off
letters and UCC-3 Termination Statements or equivalent) that the matters set
forth in the immediately preceding sentence have been satisfied as of the
Initial Borrowing Date. The structure and all terms of, and all documentation
for, the Refinancing shall be satisfactory in form and in substance to the
Agents. All conditions precedent to the consummation of the Refinancing as set
forth in the documentation relating thereto shall have been satisfied, and not
waived except with the consent of the Agents, to the satisfaction of the Agents.
5.08 Indebtedness. After giving effect to the Transaction, PI
------------
Holdings and its Subsidiaries shall have no outstanding preferred stock or
Indebtedness except Indebtedness permitted to remain outstanding pursuant to
Section 9.04. All terms and conditions of such Indebtedness shall be
satisfactory to the Agents and there shall exist with respect to such
Indebtedness no breach, default, event of default, or termination rights as a
result of, or after giving effect to, the consummation of the Transaction
(including all incurrences of Loans here-
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<PAGE>
under), except that the Change of Control Offer to Purchase shall be required to
be made with respect to the US Borrower Subordinated Notes. Without limiting the
foregoing, the Agents shall be satisfied that there is (and will be) no breach
or default under the Indenture (after giving effect to the Change of Control
Offer to Repurchase) and that the Loans will constitute "Senior Debt" for
purposes of the subordination provisions contained therein and in the
documentation governing the outstanding subordinated indebtedness permitted
pursuant to Section 9.04.
5.09 Subsidiaries Guaranty. On the Initial Borrowing Date, each
---------------------
Subsidiary Guarantor shall have duly authorized, executed and delivered a
Subsidiaries Guaranty in the form of Exhibit G (as modified, supplemented or
amended from time to time, the "Subsidiaries Guaranty").
5.10 Pledge Agreements. (a) On the Initial Borrowing Date, each
-----------------
Credit Party (other than the Canadian Credit Parties) shall have duly
authorized, executed and delivered a Pledge Agreement in the form of Exhibit H-1
(as modified, supplemented or amended from time to time, the "US Pledge
Agreement") and shall have delivered to the Collateral Agent, as Pledgee, all
the Pledged Securities then owned by such Credit Party, which Pledged Securities
shall be (x) endorsed in blank in the case of promissory notes constituting
Pledged Securities and (y) accompanied by executed and undated stock powers, in
the case of capital stock constituting US Pledged Securities.
(b) On the Initial Borrowing Date, each Canadian Credit Party shall
have duly authorized, executed and delivered a Pledge Agreement in the form of
Exhibit H-2 (as modified, supplemented or amended from time to time, the
"Canadian Pledge Agreement" and, together with the US Pledge Agreement, the
"Pledge Agreements") and shall have delivered to the Collateral Agent, as
Pledgee, all the Pledged Securities then owned by such Credit Party, which
Pledged Securities shall be (x) endorsed in blank in the case of promissory
notes constituting Pledged Securities and (y) accompanied by executed and
undated stock powers, in the case of capital stock constituting Pledged
Securities.
5.11 Security Agreements. On the Initial Borrowing Date (i) each
-------------------
Credit Party (other than the Canadian Credit Parties) shall have duly
authorized, executed and delivered a Security Agreement in the form of Exhibit
I-1 (as modified, supplemented or amended from time to time, the "US Security
Agreement"), and (ii) each Canadian Credit Party shall have duly authorized,
executed and delivered a Security Agreement in the form of Exhibit I-2 (as
modified, supplemented or amended from time to time, the "Canadian Security
Agreement" and, together with the US Security Agreement, the "Security
Agreements"), covering all of such Credit Party's present and future Security
Agreement Collateral, in each case together with:
(a) proper Financing Statements (Form UCC-1 or foreign equivalent)
fully executed for filing under the UCC or other appropriate filing offices
of each jurisdiction as may be necessary, in the reasonable opinion of the
Collateral Agent, to perfect the security interests purported to be created
by the Security Agreements;
(b) certified copies of Requests for Information or Copies (Form UCC-
11), or equivalent reports, listing all effective financing statements that
name any Credit Party as debtor (or otherwise encumber any Collateral) and
that are filed in the jurisdictions
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<PAGE>
referred to in clause (a) above, together with copies of such other
financing statements that name any Credit Party as debtor (or otherwise
encumber any Collateral) (none of which shall cover the Collateral except
to the extent evidencing Permitted Liens or in respect of which the
Collateral Agent shall have received termination statements (Form UCC-3 or
such other termination statements or financing change statements or
discharges as shall be required by local law) fully executed for filing);
(c) evidence of execution for post-closing filing and recordation of
all other recordings and filings of, or with respect to, the Security
Agreements as may be necessary, in the reasonable opinion of the Collateral
Agent, to perfect the security interests intended to be created by the
Security Agreements; and
(d) evidence that all other actions necessary, in the reasonable
opinion of the Collateral Agent, to perfect and protect the security
interests purported to be created by the Security Agreements have been
taken,
(iii) The Canadian Borrower shall have duly authorized, executed and
delivered assignments of inventories and proceeds to and in favor of each
Canadian Lender entitled thereto creating a first fixed charge on such assets
pursuant to Section 427 of the Bank Act (Canada) and related documentation in
the form of Exhibit I-3 (as modified, supplemented or amended from time to time,
the "Bank Act Security").
5.12 Mortgages; Title Insurance; Surveys. On the Initial Borrowing
-----------------------------------
Date, the Collateral Agent shall have received:
(a) fully executed counterparts of mortgages, debentures or deeds of
trust to secure (i) Obligations of the US Borrower and guarantees thereof
in the case of Real Property owned or leased by Credit Parties other than
Canadian Credit Parties, provided that such Real Property shall also secure
--------
Obligations (and guarantees thereof) of the Canadian Borrower on a
subordinated basis to the security granted above in this clause (a) and
(ii) Obligations (and guarantees thereof) of the Canadian Borrower in the
case of Real Property owned or leased by Canadian Credit Parties; in each
case in form and substance reasonably satisfactory to the Agents (each, a
"Mortgage" and, collectively, the "Mortgages"), which Mortgages shall cover
such of the Real Property owned or leased by the US Borrower or any Wholly-
Owned Subsidiary of the US Borrower and designated on Schedule 5.12 (each,
a "Mortgaged Property" and, collectively, the "Mortgaged Properties"),
together with evidence that counterparts of the Mortgages have been
delivered to the title insurance company insuring the Lien of the Mortgages
for recording in all places to the extent necessary or, in the reasonable
opinion of the Collateral Agent, desirable to effectively create a valid
and enforceable first priority mortgage lien (or, in the case of Mortgaged
Property pledged pursuant to clause (a)(i) of this Section 5.12, a second
priority mortgage lien to the extent provided in the proviso to such clause
(a)(i)) on each Mortgaged Property in favor of the Collateral Agent (or
such other trustee as may be required or desired under local law) for the
benefit of the Secured Creditors entitled to the benefits thereof, subject
only to Permitted Liens;
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<PAGE>
(b) mortgagee title insurance policies on each Mortgaged Property,
issued by Chicago Title Insurance Company, First American Title Insurance
Company or such other title insurers reasonably satisfactory to the
Collateral Agent (the "Mortgage Policies"), in amounts satisfactory to the
Collateral Agent assuring the Collateral Agent that the Mortgages on such
Mortgaged Properties are valid and enforceable first priority mortgage
liens (or, in the case of Mortgaged Property pledged pursuant to clause
(a)(i) of this Section 5.12, a second priority mortgage lien to the extent
provided in the proviso to such clause (a)(i)) on the respective Mortgaged
Properties, free and clear of all defects and encumbrances except Permitted
Encumbrances and such Mortgage Policies shall otherwise be in form and
substance reasonably satisfactory to the Collateral Agent and shall
include, as appropriate, an endorsement for future advances under this
Agreement and the Notes and for any other matter that the Collateral Agent
in its reasonable discretion may reasonably request, shall not include an
exception for mechanics' liens, and shall provide for affirmative insurance
and such reinsurance as the Collateral Agent in its discretion may
reasonably request;
(c) to the extent requested by the Collateral Agent, a survey in form
and substance reasonably satisfactory to the Collateral Agent of each
Mortgaged Property, dated a recent date reasonably acceptable to the
Collateral Agent and certified in a manner reasonably satisfactory to the
Collateral Agent by a licensed professional surveyor reasonably
satisfactory to the Collateral Agent; and
(d) such landlord waivers and/or estoppel certificates with respect
to the Mortgaged Properties, in form and substance reasonably satisfactory
to the Collateral Agent, as the Collateral Agent may have reasonably
requested.
5.13 Adverse Change, etc. (a) On the Initial Borrowing Date,
--------------------
nothing shall have occurred (and the Agents shall have become aware of no facts,
conditions or other information not previously known), which an Agent or the
Required Lenders reasonably believe could have a material adverse effect on the
rights or remedies of any Agent or the Lenders, or on the ability of PI Holdings
or any of its Subsidiaries to perform their respective obligations to the Agents
and the Lenders or which the Agents or the Required Lenders reasonably believe
could have a Material Adverse Effect.
(b) On or prior to the Initial Borrowing Date, all necessary
governmental (domestic and foreign) and third party approvals and/or consents in
connection with the Transaction, the transactions contemplated by the Credit
Documents and otherwise referred to herein or therein shall have been obtained
and remain in effect. All applicable waiting periods shall have expired without
any action being taken by any competent authority which, in the judgment of the
Agents, restrains, prevents or imposes materially adverse conditions upon the
consummation of the Transaction or the transactions contemplated by this
Agreement. Additionally, there shall not exist any judgment, order, injunction
or other restraint issued or filed or a hearing seeking injunctive relief or
other restraint pending or notified prohibiting or imposing any materially
adverse conditions upon the Transaction or the transactions contemplated by this
Agreement.
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<PAGE>
(c) After October 14, 1999 and prior to the completion, as reasonably
determined by the Agents, of the primary syndication, there shall have been no
material disruption of, or material adverse change in, the syndication market
for credit facilities similar in nature to this Agreement and there shall not
have occurred and be continuing during such period a material disruption of or
material adverse change in financial, banking or capital markets that could
materially impair the primary syndication, as determined by the Agents in their
reasonable judgment. The Carlyle Entities and each Credit Party (and their
respective affiliates and subsidiaries) shall have fully cooperated in the
syndication efforts, including, without limitation, by promptly providing the
Agents with all information deemed reasonably necessary by them to successfully
complete the syndication.
5.14 Litigation. On the Initial Borrowing Date, no litigation by any
----------
entity (private or governmental) shall be pending or threatened with respect to
the Transaction or PI Holdings or any of its Subsidiaries or this Agreement or
any documentation executed in connection therewith, or which any Agent or the
Required Lenders shall determine is reasonably likely to have a Material Adverse
Effect or a material adverse effect on the Transaction.
5.15 Solvency and Indenture Compliance Certificate; Environmental
------------------------------------------------------------
Analyses; Insurance. On or before the Initial Borrowing Date, the Borrowers
- -------------------
shall cause to be delivered to the Administrative Agent (i) a solvency and
Indenture compliance certificate in the form of Exhibit J from the chief
financial officer of PI Holdings expressing (x) opinions of value and other
appropriate factual information regarding the solvency of Holdings and its
Subsidiaries on a consolidated basis, after giving effect to the Transaction,
including the incurrence of all indebtedness contemplated herein, to the effect
that PI Holdings and its Subsidiaries taken as a whole is not insolvent and will
not be rendered insolvent by the indebtedness incurred in connection therewith,
and will not be left with unreasonably small capital with which to engage in its
business and will not have incurred debts beyond its ability to pay such debts
as they mature and (y) opinions of PI Holdings to the effect that, as of the
Initial Borrowing Date and after giving effect to the Transaction and the
incurrence of all Indebtedness to be incurred on such date, PI Holdings believes
that all of such Indebtedness, as well as any Borrowing of Term Loans to be
incurred after the Initial Borrowing Date to fund Change of Control Purchases
(and assuming that the Indenture remains in effect after giving effect thereto)
will be permitted by the terms of the Indenture, (ii) all environmental and
hazardous substance reports, analyses and disclosure schedules prepared by
environmental consultants reasonably satisfactory to the Agents with respect to
Holdings and its Subsidiaries, which shall be in form and substance satisfactory
to the Agents and the Required Lenders, and such other information with respect
to environmental matters as may have been reasonably requested by the Agents and
(iii) a summary of all insurance policies in form and substance reasonably
satisfactory to the Agents and evidence of insurance complying with the
requirements of Section 8.03 for the business and properties of PI Holdings and
its Subsidiaries, in scope, form and substance reasonably satisfactory to the
Agents and the Required Lenders and naming the Collateral Agent as an additional
insured for all general liability coverages and/or loss payee with respect to
all casualty coverages and stating that such insurance shall not be canceled or
revised without 30 days prior written notice by the insurer to the Collateral
Agent.
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5.16 Financial Statements; Projections; Pro Forma Financial
------------------------------------------------------
Statements. (a) On or prior to the Initial Borrowing Date, there shall have
- ----------
been delivered to the Agents (i) the audited balance sheets and statements of
operations and cash flows of PG Holdings and its Subsidiaries, reconciled to
include PI Holdings, for (x) the twelve-month period ended December 31, 1997 and
(y) the twelve-month period ended December 31, 1998, and (ii) the unaudited
consolidated balance sheets and statements of operations and cash flows of PI
Holdings for the fiscal quarter ended September 30, 1999 and the nine-month
period ended on such date, and all of the foregoing financial statements shall
be in form and substance reasonably satisfactory to the Agents and the Required
Lenders.
(b) On or prior to the Initial Borrowing Date, there shall have been
delivered to the Agents detailed projected consolidated financial statements of
PI Holdings and its Subsidiaries certified by the President of PI Holdings for
the period from the Initial Borrowing Date and including the fiscal year of
Holdings ended December 31, 2006 (the "Projections"), which Projections (x)
shall reflect the forecasted consolidated financial condition and income and
expenses of PI Holdings and its Subsidiaries after giving affect to the
Transaction and the related financing thereof and the other transactions
contemplated hereby and (y) shall be reasonably satisfactory in form and
substance to the Agents.
(c) On or prior to the Initial Borrowing Date, there shall have been
delivered to the Agents, (i) an unaudited pro forma consolidated balance sheet
--- -----
of PI Holdings and its Subsidiaries as of September 30, 1999 after giving effect
to the Transaction and prepared in accordance with GAAP, which pro forma balance
--- -----
sheet shall be reasonably satisfactory in form and substance to the Agents and
the Required Lenders and (ii) unaudited pro forma income statement of PI
--- -----
Holdings and its Subsidiaries for the twelve-month period ended September 30,
1999 after giving effect to the Transaction, which pro forma income statement
--- -----
shall be in form and substance reasonably satisfactory to the Agents and the
Required Lenders.
5.17 Employment Agreement. On or prior to the Initial Borrowing
--------------------
Date, PI Holdings and Muller shall have entered into an employment agreement,
which employment agreement, and any amendments, modifications or supplements
thereto, shall be satisfactory in form and substance to the Agents.
SECTION 6. Conditions Precedent to All Credit Events on and After the
----------------------------------------------------------
Initial Borrowing Date. The obligation of each Lender to make Loans (including
- ----------------------
Loans made on the Initial Borrowing Date but excluding Mandatory Borrowings made
thereafter, which shall be made as provided in Section 1.01(e)), and the
obligation of each Issuing Bank to issue any Letter of Credit, is subject, at
the time of each such Credit Event (except as hereinafter indicated), to the
satisfaction of the following conditions:
6.01 No Default; Representations and Warranties. At the time of each
------------------------------------------
such Credit Event and also after giving effect thereto (i) there shall exist no
Default or Event of Default and (ii) all representations and warranties
contained herein or in any other Credit Document shall be true and correct in
all material respects with the same effect as though such representations and
warranties had been made on the date of the making of such Credit Event (it
being understood and agreed that any representation or warranty which by its
terms is made as of
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a specified date shall be required to be true and correct in all material
respects only as of such specified date).
6.02 Notice of Borrowing; Letter of Credit Request. (a) Prior to
---------------------------------------------
the making of each Loan (excluding Swingline Loans and Mandatory Borrowings, and
except as otherwise provided in Section 1.10), the Administrative Agent shall
have received the notice required by Section 1.03(a). Prior to the making of
any Swingline Loan, the Swingline Lender shall have received the notice required
by Section 1.03(b)(i).
(b) Prior to the issuance of each Letter of Credit, the
Administrative Agent and the respective Issuing Bank shall have received a
Letter of Credit Request meeting the requirements of Section 2.02.
6.03 Special Conditions Applicable to Term Loans Incurred On the
-----------------------------------------------------------
Change of Control Purchase Borrowing Date, Acquisition Loans and Certain
- ------------------------------------------------------------------------
Revolving Loans. (a) At the time of the making of any Tranche A Term Loans
- ---------------
other than Tranche A Term Loans made on the Initial Borrowing Date, (i) the
Change of Control Purchase Amount Determination Date shall have occurred on or
within five Business Days prior to the date of such Borrowing, (ii) the amount
of the Change of Control Purchase Amount which is to be financed (or refinanced)
with Loans shall not exceed $25,000,000, (iii) the Administrative Agent shall
have received an officer's certificate from PI Holdings or the US Borrower,
executed by the chief financial officer of such Person and certifying that
either (x) such Borrowing of Loans is permitted by the terms of the Indenture
and no default will exist under the Indenture after giving effect thereto or (y)
after giving effect to such Borrowing of Loans and the application of the
proceeds thereof to fund Change of Control Purchases, no US Borrower
Subordinated Notes shall remain outstanding and the Indenture shall be of no
further force or effect and (iv) the respective Tranche A Term Loans shall be
incurred to pay (or refinance the payment of) the Change of Control Purchase
Amount required to be paid (or actually paid) by the US Borrower.
(b) At the time of the making of any Tranche B Term Loans, (i) the
Change of Control Purchase Amount Determination Date shall have occurred on or
within five Business Days prior to the date of such Borrowing, (ii) the amount
of the Change of Control Purchase Amount which is to be financed (or refinanced)
with Loans (and the aggregate amount of Tranche B Term Loans incurred on the
Change of Control Purchase Borrowing Date, which shall in no event exceed the
Change of Control Purchase Amount) shall exceed $25,000,000, (iii) the
Administrative Agent shall have received an officer's certificate from PI
Holdings or the US Borrower, executed by the chief financial officer of such
Person and certifying that either (x) such Borrowing of Loans is permitted by
the terms of the Indenture and no default will exist under the Indenture after
giving effect thereto and setting forth the calculations necessary to establish
compliance with any financial ratios governing such compliance or (y) after
giving effect to such Borrowing of Loans and the application of the proceeds
thereof to fund Change of Control Purchases, no US Borrower Subordinated Notes
shall remain outstanding and the Indenture shall be of no further force or
effect and (iv) the Tranche B Term Loans shall be incurred to pay (or refinance
the payment of) the Change of Control Purchase Amount required to be paid (or
actually paid) by the US Borrower.
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(c) At the time of (i) the making of any Revolving Loan or the
issuance of any Letter of Credit the effect of which would be to cause the
aggregate outstanding principal amount of Revolving Loans and Swingline Loans,
when combined with the Letter of Credit Outstandings at such time, to exceed
$45,000,000 or (ii) the making of any Acquisition Revolving Loan, the
Administrative Agent shall have received an officer's certificate from PI
Holdings or the US Borrower, executed by the chief financial officer of such
Person and certifying that either (x) such Borrowing of Revolving Loans or
Acquisition Revolving Loans, or issuance of such Letter of Credit, is permitted
by the terms of the Indenture and no default will exist under the Indenture
after giving effect thereto or (y) no US Borrower Subordinated Notes shall
remain outstanding and the Indenture is of no further force or effect.
The acceptance of the proceeds or benefits of each Credit Event shall
constitute a representation and warranty by Holdings, PI Holdings, PG Holdings,
PII Holdings and the Borrowers to each of the Agents and each of the Lenders
that all the conditions specified in Section 5 and in this Section 6 and
applicable to such Credit Event exist as of that time (except to the extent that
any of the conditions specified in Section 5 are required to be satisfactory to
or determined by any Lender, the Required Lenders and/or the Agents, or were
previously waived in writing by the Required Lenders). All of the Notes,
certificates, legal opinions and other documents and papers referred to in
Section 5 and in this Section 6, unless otherwise specified, shall be delivered
to the Administrative Agent at the Notice Office for the account of each of the
Lenders and, except for the Notes, in sufficient counterparts for each of the
Lenders and shall be in form and substance reasonably satisfactory to the
Agents.
SECTION 7. Representations, Warranties and Agreements. In order to
------------------------------------------
induce the Lenders to enter into this Agreement and to make the Loans, and issue
(or participate in) the Letters of Credit as provided herein, PI Holdings, PG
Holdings, PII Holdings, the Borrowers and, with respect to the representations,
warranties and agreements contained in Sections 7.12, 7.15 and 7.24, Holdings,
make the following representations, warranties and agreements, in each case
after giving effect to the Transaction as consummated on the Initial Borrowing
Date, all of which shall survive the execution and delivery of this Agreement
and the Notes and the making of the Loans and issuance of the Letters of Credit,
with the occurrence of each Credit Event on or after the Initial Borrowing Date
being deemed to constitute a representation and warranty that the matters
specified in this Section 7 are true and correct in all material respects on and
as of the Initial Borrowing Date and on the date of each such Credit Event (it
being understood and agreed that any representation or warranty which by its
terms is made as of a specified date shall be required to be true and correct in
all material respects only as of such specified date).
7.01 Corporate Status. PI Holdings and each of its Subsidiaries (i)
----------------
is a duly organized and validly existing corporation, limited liability company
or partnership, as the case may be, in good standing under the laws of the
jurisdiction of its incorporation or formation, (ii) has the Company Power and
Authority to own its property and assets and to transact the business in which
it is engaged and presently proposes to engage and (iii) is duly qualified and
is authorized to do business and is in good standing in each jurisdiction where
the conduct of its business requires such qualifications except for failures to
be so qualified which, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
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<PAGE>
7.02 Company Power and Authority. Each Credit Party has the Company
---------------------------
Power and Authority to execute, deliver and perform the terms and provisions of
each of the Documents to which it is party and has taken all necessary action to
authorize the execution, delivery and performance by it of each of such
Documents. Each Credit Party has duly executed and delivered each of the
Documents to which it is party, and each of such Documents constitutes the
legal, valid and binding obligation of such Credit Party enforceable in
accordance with its terms, except to the extent that the enforceability thereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws generally affecting creditors' rights and by equitable
principles (regardless of whether enforcement is sought in equity or at law).
7.03 No Violation. Neither the execution, delivery or performance by
------------
any Credit Party of the Documents to which it is a party, nor compliance by it
with the terms and provisions thereof (in the case of clause (ii) below, after
giving effect to (x) any written consents and waivers which have actually been
obtained and (y) the Change of Control Offer to Purchase), (i) will contravene
any provision of any applicable law, statute, rule or regulation or any
applicable order, writ, injunction or decree of any court or governmental
instrumentality, (ii) will conflict with, give rise to any right of termination,
cancellation or repayment or prepayment under, or result in any breach of any of
the terms, covenants, conditions or provisions of, or constitute a default
under, or result in the creation or imposition of (or the obligation to create
or impose) any Lien (except pursuant to the Security Documents) upon any of the
material properties or assets of PI Holdings or any of its Subsidiaries pursuant
to the terms of any indenture, mortgage, deed of trust, credit agreement or loan
agreement, or any other material agreement, contract or instrument, to which PI
Holdings or any of its Subsidiaries is a party or by which it or any of its
property or assets is bound or to which it may be subject or (iii) will violate
any provision of the Certificate of Incorporation, Certificate of Formation, By-
Laws or Operating Agreement, as the case may be, of PI Holdings or any of its
Subsidiaries; except, with respect to any matter specified in clauses (i) and
(ii) above relating to a Recapitalization Document for any contraventions,
conflicts, breaches, defaults or violations which, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect or
a material adverse effect on the Transaction.
7.04 Governmental Approvals. No order, consent, approval, license,
----------------------
authorization or validation of, or filing, recording or registration with
(except (x) as have been obtained or made and (y) if this representation is
being made at any time prior to the tenth day following the Initial Borrowing
Date, filings or recordations of financing statements, Mortgages and other
documents pursuant to the terms of the Security Documents (all of which filings
and recordations shall be completed within 10 days after the Initial Borrowing
Date or, in the case of additional actions required by Section 8.12, such date
as is provided in said Section 8.12)), or exemption by, any governmental or
public body or authority, or any subdivision thereof, is required to authorize,
or is required in connection with, (i) the execution, delivery and performance
of any Document or (ii) the legality, validity, binding effect or enforceability
of any such Document except, with respect to the Transaction and the
Recapitalization Documents, where the failure to so obtain could not reasonably
be expected to have a Material Adverse Effect or a material adverse effect on
the Transaction.
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7.05 Financial Statements; Financial Condition; Undisclosed
------------------------------------------------------
Liabilities; Projections; etc. (a) The financial statements furnished to the
- ------------------------------
Lenders prior to the Initial Borrowing Date pursuant to Section 5.16(a), present
fairly the financial condition of PI Holdings and its Subsidiaries, as the case
may be, as of the date of such statements (subject to normal year-end
adjustments in the case of such quarterly financial statements). All such
historical financial statements have been prepared in accordance with GAAP,
except (in the case of the unaudited financial statements) for the omission of
footnotes and ordinary end of period adjustments (none of which individually, or
in the aggregate, would be material). The pro forma consolidated financial
--- -----
statements of PI Holdings and its Subsidiaries furnished to the Lenders prior to
the Initial Borrowing Date pursuant to Section 5.16(c) have been prepared in
accordance with GAAP and present fairly the pro forma consolidated financial
--- -----
condition of PI Holdings and its Subsidiaries as of September 30, 1999 as if the
Transaction had occurred on September 30, 1999 (in the case of the pro forma
--- -----
consolidated balance sheet), October 1, 1998 (in the case of the pro forma
--- -----
consolidated statement of income or January 1, 1999 (in the case of the pro
---
forma consolidated statement of cash flows)). After giving effect to the
- -----
Transaction (but for this purpose assuming that the Transaction had occurred
prior to December 31, 1998), since December 31, 1998 there has been no material
adverse change in the business, operations, property, assets, liabilities,
condition (financial or otherwise) or prospects of PI Holdings and its
Subsidiaries taken as a whole.
(b)(i) On and as of the Initial Borrowing Date, on a pro forma basis
--- -----
after giving effect to the Transaction and all other transactions contemplated
by the Documents and to all Indebtedness (including the Loans) being incurred or
assumed, and Liens created by each Credit Party in connection therewith, with
respect to PI Holdings and each Borrower, individually, and each such Person and
its respective Subsidiaries taken as a whole, (x) the sum of the assets, at a
fair valuation, of each such person, individually, and each such Person and its
Subsidiaries taken as a whole will exceed its or their debts; (y) it has not
incurred and does not intend to incur, nor does it believe that it will incur,
debts beyond their ability to pay such debts as such debts mature; and (z) it
will have sufficient capital with which to conduct its business. For purposes
of this Section 7.05(b), "debt" means any liability on a claim and "claim" means
(i) right to payment, whether or not such a right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured or (ii) right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured.
(c) Except as disclosed in the financial statements delivered
pursuant to Section 5.16(a), there were as of the Initial Borrowing Date no
liabilities or obligations with respect to PI Holdings or any of its
Subsidiaries of any nature whatsoever (whether absolute, accrued, contingent or
otherwise and whether or not due) which, either individually or in the
aggregate, would have a Material Adverse Effect. As of the Initial Borrowing
Date, none of the Credit Parties knows of any basis for the assertion against it
of any liability or obligation of any nature that is not disclosed in the
financial statements delivered pursuant to Section 5.16(a) which, either
individually or in the aggregate, would have a Material Adverse Effect.
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(d) The Projections were prepared in good faith on a basis
consistent with the financial statements referred to in Section 5.16(a), and, at
the time of the preparation thereof, were based on good faith estimates and
assumptions believed by management of each of PI Holdings and the Borrowers to
be reasonable.
7.06 Litigation. There are no actions, suits or proceedings pending
----------
or, to the best knowledge of PI Holdings, PG Holdings, PII Holdings, the US
Borrower or the Canadian Borrower, threatened (i) with respect to any Document
or (ii) with respect to matters not covered by Section 7.19, that could
reasonably be expected to have a Material Adverse Effect.
7.07 True and Complete Disclosure. All factual information (taken
----------------------------
as a whole) furnished by or on behalf of PI Holdings, PG Holdings, PII Holdings
, the US Borrower and the Canadian Borrower, in writing to any of the Agents or
any Lender (including, without limitation, all information contained in the
Documents) for purposes of or in connection with this Agreement, the other
Credit Documents or any transaction contemplated herein or therein is, and all
other such factual information (taken as a whole) hereafter furnished by or on
behalf of PI Holdings, PG Holdings, PII Holdings, the US Borrower or the
Canadian Borrower, in writing to any of the Agents or any Lender will be, true
and accurate in all material respects on the date as of which such information
is dated or certified and not incomplete by omitting to state any fact necessary
to make such information not misleading in any material respect at such time in
light of the circumstances under which such information was provided.
7.08 Use of Proceeds; Margin Regulations. (a) All proceeds of the
-----------------------------------
Tranche A Term Loans (i) borrowed on the Initial Borrowing Date shall be used by
the US Borrower (x) to finance in part the Transaction and (y) to pay fees and
expenses related to the Transaction and (ii) borrowed on the Change of Control
Purchase Borrowing Date (if any) shall be used to pay (or to refinance the
payment of) the Change of Control Purchase Amount actually owing (or paid) to
holders of US Borrower Subordinated Notes in connection with the Change of
Control Purchases.
(b) All proceeds of the Tranche B Term Loans (if any) shall be used
by the US Borrower to pay (or to refinance the payment of) the Change of Control
Purchase Amount actually owing (or paid) to holders of US Borrower Subordinated
Notes in connection with the Change of Control Purchases.
(c) All proceeds of all Revolving Loans and all Swingline Loans
shall be used for the US Borrower's and its Subsidiaries' general corporate,
capital expenditures and working capital purposes (including Permitted
Acquisitions); provided that (i) not more than $3,000,000 in aggregate principal
--------
amount of Revolving Loans and Swingline Loans may be used on the Initial
Borrowing Date or thereafter for the purposes described in preceding Section
7.08(a)(i), (ii) not more than $25,000,000 of Revolving Loans and Swingline
Loans may be used to finance Permitted Acquisitions and (iii) the US Borrower
may not use the proceeds (and shall not permit Holdings or any of its other
Subsidiaries to use the proceeds) of any Revolving Loans or Swingline Loans to
pay any portion of the Change of Control Purchase Amount or to refinance any
payment thereof, except that proceeds of Revolving Loans and Swingline Loans may
be used for such purpose described above in this clause (iii) so long as (x)
such Loans are incurred
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on the Change of Control Purchase Borrowing Date, (y) except to the extent of
the applicability of the proviso to following clause (z), the portion of the
Change of Control Purchase Amount which is to be funded (or refinanced) with
Loans does not exceed $25,000,000 and (z) the US Borrower does not incur any
Tranche B Term Loans on the Change of Control Purchase Borrowing Date; provided
--------
that, the US Borrower shall be permitted to apply the proceeds of Revolving
Loans to the payment of any portion of the Change of Control Purchase Amount
which exceeds the Total Tranche B Term Loan Commitment on the Change of Control
Purchase Borrowing Date (before giving effect to the making of Tranche B Term
Loans on such date).
(d) The proceeds of all Acquisition Loans shall be used (i) to
finance the cash consideration to be paid in connection with one or more
Permitted Acquisitions consummated on the date of the borrowing thereof and (ii)
to pay the fees and expenses incurred in connection with such Permitted
Acquisition.
(e) All proceeds of Canadian Term Loans shall be used by the
Canadian Borrower (x) to finance in part the Transaction and (y) to pay fees and
expenses related to the Transaction.
(f) No part of the proceeds of any Loan will be used to purchase or
carry any Margin Stock or to extend credit for the purpose of purchasing or
carrying any Margin Stock. Neither the making of any Loan nor the use of the
proceeds thereof nor the occurrence of any other Credit Event will violate or be
inconsistent with the provisions of Regulation T, U or X of the Board of
Governors of the Federal Reserve System.
7.09 Tax Returns and Payments. Each of PI Holdings and each of its
------------------------
Subsidiaries (the "Taxpayers") has timely filed or caused to be timely filed, on
the due dates thereof (taking into account any extension of time to file granted
to PI Holdings or any of its Subsidiaries), with the appropriate taxing
authority, all Federal, provincial, state and other material returns,
statements, forms and reports for taxes (the "Returns") required to be filed by
or with respect to the income, properties or operations of PI Holdings and/or
any of its Subsidiaries. The Returns accurately reflect in all material
respects all liability for taxes of the Taxpayers for the periods covered
thereby. Each of the Taxpayers has paid all material taxes and assessments
payable by them, other than taxes which are not delinquent, and other than those
contested in good faith and for which adequate reserves have been established in
accordance with generally accepted accounting principles. There is no material
action, suit, proceeding, investigation, audit, or claim now pending or, to the
knowledge of PI Holdings, PG Holdings, PII Holdings, the US Borrower or the
Canadian Borrower threatened by any authority regarding any taxes relating to
any of the Taxpayers. As of the Initial Borrowing Date, none of the Taxpayers
has entered into an agreement or waiver or been requested to enter into an
agreement or waiver extending any statute of limitations relating to the payment
or collection of taxes of any of such Taxpayers, or is aware of any
circumstances that would cause the taxable years or other taxable periods of any
of such Taxpayers not to be subject to the normally applicable statute of
limitations. None of the Taxpayers has provided, with respect to themselves or
property held by them, any consent under Section 341 of the Code. None of the
Taxpayers has incurred, or will incur, any material tax liability in connection
with the Recapitalization and the other transactions contemplated hereby.
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7.10 Compliance with ERISA. (i) Each Plan (and each related trust,
---------------------
insurance contract or fund) is in compliance in all material respects with its
terms and with all applicable laws, including, without limitation, ERISA and the
Code; no Reportable Event has occurred with respect to PI Holdings or any
Subsidiary of PI Holdings or any ERISA Affiliate which could reasonably be
expected to have a Material Adverse Effect; to the knowledge of PI Holdings, PG
Holdings, PII Holdings, the US Borrower and the Canadian Borrower, no
Multiemployer Plan is insolvent or in reorganization; no Plan has an Unfunded
Current Liability which, when combined with all other Unfunded Current
Liabilities under all other Plans, could reasonably be expected to have a
Material Adverse Effect; no Plan which is subject to Section 412 of the Code or
Section 302 of ERISA has an accumulated funding deficiency, within the meaning
of such sections of the Code or ERISA, or has applied for or received a waiver
of an accumulated funding deficiency or an extension of any amortization period,
within the meaning of Section 412 of the Code or Section 303 or 304 of ERISA;
all contributions required to be made with respect to a Plan and each
Multiemployer Plan have been timely made; neither PI Holdings nor any Subsidiary
of PI Holdings nor any ERISA Affiliate has incurred any material liability
(including any indirect, contingent or secondary liability) to or on account of
a Plan or Multiemployer Plan pursuant to Section 409, 502(i), 502(l), 515, 4062,
4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or
4975 of the Code or expects to incur any such material liability under any of
the foregoing sections with respect to any Plan or Multiemployer Plan; no
condition exists which presents a material risk to PI Holdings or any Subsidiary
of PI Holdings or any ERISA Affiliate of incurring a material liability to or on
account of a Plan or Multiemployer Plan pursuant to the foregoing provisions of
ERISA and the Code; no proceedings have been instituted to terminate in a
distress termination or appoint a trustee to administer any Plan which is
subject to Title IV of ERISA; using actuarial assumptions and computation
methods consistent with Part 1 of subtitle E of Title IV of ERISA, the aggregate
liabilities of PI Holdings and its Subsidiaries and its ERISA Affiliates to all
Multiemployer Plans in the event of a complete withdrawal therefrom, as of the
close of the most recent fiscal year of each such Multiemployer Plan ended prior
to the date of the most recent Credit Event, would not be material; no lien
imposed under the Code or ERISA on the assets of PI Holdings or any Subsidiary
of PI Holdings or any ERISA Affiliate exists or is likely to arise on account of
any Plan or Multiemployer Plan; and PI Holdings and its Subsidiaries do not
maintain or contribute to any employee welfare benefit plan (as defined in
Section 3(1) of ERISA) which provides benefits to retired employees or other
former employees (other than as required by Section 601 of ERISA) or any Plan
the obligations with respect to which could reasonably be expected to have a
Material Adverse Effect.
(ii) Each Foreign Pension Plan, if any, has been maintained in
substantial compliance with its terms and with the requirements of any and all
applicable laws, statutes, rules, regulations and orders and has been
maintained, where required, in good standing with applicable regulatory
authorities. All contributions required to be made with respect to a Foreign
Pension Plan, if any, have been timely made. Neither PI Holdings nor any of its
Subsidiaries has incurred any material liability in connection with the
termination of or withdrawal from any Foreign Pension Plan. The present value
of the accrued benefit liabilities (whether or not vested) under each Foreign
Pension Plan, if any, determined as of the end of PI Holdings' most recently
ended fiscal year on the basis of actuarial assumptions, each of which is
reasonable, did not materially
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exceed the current value of the assets of such Foreign Pension Plan allocable to
such benefit liabilities.
7.11 The Security Documents. (a) The provisions of the Security
----------------------
Agreements are effective to create in favor of the Collateral Agent for the
benefit of the Secured Creditors a legal, valid and enforceable security
interest (to the extent a security interest can be created therein under the UCC
or comparable legislation in any foreign jurisdiction) in all right, title and
interest of the Credit Parties in the Security Agreement Collateral described
therein, and the Security Agreements, upon the filing of Form UCC-1 financing
statements or the appropriate equivalent (which filings, if this representation
is being made more than 10 days after the Initial Borrowing Date, have been
made), creates a fully perfected lien on, and security interest in, all right,
title and interest in all of the Security Agreement Collateral described
therein, subject to no other Liens other than Permitted Liens, to the extent a
security interest in such collateral can be perfected by the filing of a
financing statement. The recordation of the Assignment of Security Interest in
U.S. Patents and Trademarks in the form attached to the US Security Agreement in
the United States Patent and Trademark Office together with filings on Form UCC-
1 made pursuant to the US Security Agreement will be effective, under applicable
law, to perfect the security interest granted to the Collateral Agent in the
United States trademarks and patents covered by the US Security Agreement and
the recordation of the Assignment of Security Interest in U.S. Copyrights in the
form attached to the US Security Agreement with the United States Copyright
Office together with filings on Form UCC-1 made pursuant to the US Security
Agreement will be effective under federal law to perfect the security interest
granted to the Collateral Agent in the United States copyrights covered by the
US Security Agreement. The recordation of the assignment of security interest
in Canadian patents, trademarks and copyrights pursuant to the Canadian Security
Agreement with the Canadian Intellectual Property Office together with the
filings made pursuant to the Canadian Security Agreement will be effective,
under applicable law, to perfect the security interest granted to the Collateral
Agent in the Canadian trademarks, patents and copyrights covered by the Canadian
Security Agreement.
(b) The security interests created in favor of the Collateral Agent,
as Pledgee, for the benefit of the Secured Creditors under the Pledge Agreements
constitute perfected security interests in the Pledged Securities described in
the Pledge Agreements, subject to no security interests of any other Person. No
filings or recordings are required in order to perfect (or maintain the
perfection or priority of) the security interests created in the Pledged
Securities under the Pledge Agreements.
(c) The Mortgages, once executed and delivered, create, as security
for the obligations purported to be secured thereby, a valid and enforceable
perfected security interest in and mortgage lien on all of the Mortgaged
Properties in favor of the Collateral Agent (or such other trustee as may be
required or desired under local law) for the benefit of the Secured Creditors,
superior to and prior to the rights of all third persons (except that the
security interest and mortgage lien created in the Mortgaged Properties may be
subject to the Permitted Liens related thereto and the security interests of the
respective Secured Creditors shall be subject to the priority provisions of
Section 5.12(a)) and subject to no other Liens (other than Permitted Liens).
Schedule 5.12 contains a true and complete list of each parcel of Real Property
owned or leased
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by Holdings and its Subsidiaries on the Initial Borrowing Date, and the type of
interest therein held by PI Holdings or such Subsidiary.
7.12 Representations and Warranties in Documents. All
-------------------------------------------
representations and warranties made by Holdings or any of its Subsidiaries as
set forth in the other Documents were true and correct in all material respects
at the time as of which such representations and warranties were made (or deemed
made).
7.13 Properties. PI Holdings and each of its Subsidiaries have good
----------
and marketable title to all properties owned by them, after giving effect to the
Transaction and reflected on the pro forma balance sheet referred to in Section
--- -----
5.16(c) (except as sold or otherwise disposed of since the date of such balance
sheet in the ordinary course of business) free and clear of all Liens, other
than Permitted Liens.
7.14 Capitalization. On the Initial Borrowing Date and after giving
--------------
effect to the Transaction, the authorized capital stock of (i) PI Holdings shall
consist of 150,000 shares of Class A Common Stock, $0.01 par value per share,
129,187.2 of which shares are issued and outstanding and 150,000 shares of Class
B Common Stock, $0.01 par value per share, none of which shares are issued and
outstanding, (ii) PG Holdings shall consist of 1,000 shares of common stock,
$.01 par value per share, all of which shares are issued and outstanding and
(iii) PII Holdings shall consist of 200 shares of common stock, $.01 par value
per share, all of which shares are issued and outstanding, (iv) the US Borrower
shall consist of __ shares of capital stock, $.01 par value, all of which shares
are issued and outstanding and (v) the Canadian Borrower shall consist of an
unlimited number of Class A common shares and an unlimited number of Class B
non-voting shares, of which 100,000 Class A common shares and no Class B non-
voting shares are issued and outstanding. All outstanding shares of common
stock of PI Holdings, PG Holdings, PII Holdings, the US Borrower and the
Canadian Borrower have been duly and validly issued, are fully paid and
nonassessable and are free of preemptive rights. As of the Initial Borrowing
Date, none of PI Holdings, PG Holdings, PII Holdings, the US Borrower or the
Canadian Borrower has outstanding any securities convertible into or
exchangeable for its capital stock or outstanding any rights to subscribe for or
to purchase, or any options for the purchase of, or any agreements providing for
the issuance (contingent or otherwise) of, or any calls, commitments or claims
of any character relating to, its capital stock.
7.15 Subsidiaries. After giving effect to the Transaction, Holdings
------------
will have no Subsidiaries other than PI Holdings, PG Holdings, PII Holdings, the
US Borrower and the US Borrower's Subsidiaries. After giving effect to the
Transaction, the US Borrower and the Canadian Borrower will have no Subsidiaries
or any interest in any joint ventures other than those set forth on Schedule
7.15 (which Schedule 7.15 shall set forth each owner of such equity interests
and the percentage interest owned by each such Person to the extent less than
100%) and new Subsidiaries created in compliance with Section 9.14.
7.16 Compliance with Statutes, etc. PI Holdings and each of its
------------------------------
Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property (other than applicable statutes, regulations, orders and
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restrictions relating to environmental standards and controls which are the
subject of Section 7.19), except such noncompliances as could not reasonably be
expected to have a Material Adverse Effect.
7.17 Investment Company Act. Neither PI Holdings nor any of its
----------------------
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
7.18 Public Utility Holding Company Act. Neither PI Holdings nor any
----------------------------------
of its Subsidiaries is a "holding company", or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
7.19 Environmental Matters. (a) PI Holdings and each of its
---------------------
Subsidiaries has complied with, and on the date of each Credit Event will be in
compliance with, all applicable Environmental Laws and the requirements of any
permits issued under such Environmental Laws, except for such non-compliances as
could not, either individually or in the aggregate, reasonably be expected to
result in a Material Adverse Effect. There are no pending or, to the best
knowledge of PI Holdings, PG Holdings, PII Holdings, the US Borrower and the
Canadian Borrower, past or threatened Environmental Claims against PI Holdings
or any of its Subsidiaries or any Real Property owned or operated by PI Holdings
or any of its Subsidiaries which could reasonably be expected to have a Material
Adverse Effect. There are no facts, circumstances, conditions or occurrences
relating to the business or operations of PI Holdings or any of its
Subsidiaries, or any Real Property at any time owned or operated by PI Holdings
or any of its Subsidiaries that could reasonably be expected (i) to form the
basis of an Environmental Claim against PI Holdings or any of its Subsidiaries
or any such currently owned or operated Real Property, or (ii) to cause any such
currently owned or operated Real Property to be subject to any restrictions on
the ownership, occupancy, use or transferability of such Real Property by PI
Holdings or any of its Subsidiaries under any applicable Environmental Law,
which in the case of both clauses (i) and (ii) above could individually or in
the aggregate reasonably be expected to have a Material Adverse Effect.
(b) Hazardous Materials have not at any time been generated, used,
treated or stored on, or transported to or from, any Real Property owned or
operated by PI Holdings or any of its Subsidiaries where such generation, use,
treatment, storage or transportation could give rise to an Environmental Claim
against PI Holdings or any of its Subsidiaries or has violated or could
reasonably be expected to violate any Environmental Law, which in any case could
individually or in the aggregate reasonably be expected to have a Material
Adverse Effect. Hazardous Materials have not at any time been Released on or
from any Real Property owned or operated by Holdings or any of its Subsidiaries
where such Release could reasonably be expected to give rise to an Environmental
Claim or has violated or could reasonably be expected to violate any applicable
Environmental Law, which in any case could individually or in the aggregate
reasonably be expected to have a Material Adverse Effect.
7.20 Labor Relations. Neither PI Holdings nor any of its
---------------
Subsidiaries is presently engaged in any unfair labor practice and since January
1, 1996 there have been (i) no unfair labor
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practice complaints pending against PI Holdings or any of its Subsidiaries or,
to the knowledge of PI Holdings, PG Holdings, PII Holdings, the US Borrower or
the Canadian Borrower, threatened against any of them, before the National Labor
Relations Board, and no material grievance or arbitration proceeding arising out
of or under any collective bargaining agreement is so pending against PI
Holdings or any of its Subsidiaries or, to the knowledge of PI Holdings, PG
Holdings, PII Holdings, the US Borrower or the Canadian Borrower, threatened
against any of them, (ii) no strikes, labor disputes, slowdowns or stoppages
pending against PI Holdings or any of its Subsidiaries or, to the knowledge of
PI Holdings, PG Holdings, PII Holding, the US Borrower or the Canadian Borrower,
threatened against PI Holdings or any of its Subsidiaries and (iii) to the
knowledge of PI Holdings, PG Holdings, PII Holdings, the US Borrower or the
Canadian Borrower, no union representation proceedings pending with respect to
the employees of PI Holdings or any of its Subsidiaries, except (with respect to
any matter specified in clause (i), (ii) or (iii) above) such as could not
either individually or in the aggregate reasonably be expected to have a
Material Adverse Effect.
7.21 Patents, Licenses, Franchises and Formulas. Each of PI Holdings
------------------------------------------
and each of its Subsidiaries owns all material patents, trademarks, permits,
service marks, trade names, copyrights, licenses, franchises and formulas, or
rights with respect to the foregoing, in each case reasonably necessary for the
present conduct of its business, without any known conflict with the rights of
others which, or the failure to own or obtain which, as the case may be, could
not reasonably be expected to result in a Material Adverse Effect.
7.22 Indebtedness. Schedule 7.22 sets forth a true and complete list
------------
of all Indebtedness (excluding the Obligations) of PI Holdings and its
Subsidiaries as of the Initial Borrowing Date and which is to remain outstanding
after giving effect to the Transaction (the "Existing Indebtedness"), in each
case showing the aggregate principal amount thereof and the name of the
respective obligor and any other entity (to the knowledge of PI Holdings, PG
Holdings, PII Holdings, the US Borrower or the Canadian Borrower, in the case of
guarantees by Persons other than PI Holdings and its Subsidiaries) which
directly or indirectly guaranteed such debt. The subordination provisions
contained in the Holdings PIK Subordinated Notes and the US Borrower
Subordinated Notes are enforceable against PI Holdings and the holders thereof
(in the case of Holdings PIK Subordinated Notes) and the US Borrower and the
holders thereof (in the case of US Borrower Subordinated Notes), and all
Obligations and Guaranteed Obligations are within the definition of "Senior
Debt" included in such subordination provisions.
7.23 Transaction. There does not exist any judgment, order or
-----------
injunction prohibiting or imposing material adverse conditions upon the
Transaction, or the occurrence of any Credit Event or the performance by PI
Holdings, PG Holdings, PII Holdings, the US Borrower or the Canadian Borrower of
their respective obligations under the respective Documents. All actions taken
by PI Holdings, PG Holdings, PII Holdings, the US Borrower and the Canadian
Borrower pursuant to or in furtherance of the Transaction have been taken in all
material respects in compliance with the respective Documents and all applicable
laws.
7.24 Special Purpose Corporation. Holdings was formed for the
---------------------------
purpose of effecting the Recapitalization and, prior to the consummation
thereof, had no material assets or liabilities except in connection with the
Recapitalization. Holdings engages in no direct business
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activities, other than (i) its ownership of the capital stock of PI Holdings and
liabilities incident thereto and (ii) its obligations with respect to this
Agreement. PI Holdings engages in no direct business activities, other than (i)
its ownership of the capital stock of PG Holdings and liabilities incident
thereto (including, without limitation, obligations under the Holdings PIK
Subordinated Notes) and (ii) its obligations with respect to the Credit
Documents to which it is a party. PG Holdings engages in no direct business
activities, other than (i) its ownership of the capital stock of PII Holdings
and liabilities incident thereto, and (ii) its obligations with respect to the
Credit Documents to which it is a party. PII Holdings engages in no direct
business activities, other than (i) its ownership of the capital stock of the US
Borrower and liabilities incident thereto, and (ii) its obligations with respect
to the Credit Documents to which it is a party.
7.25 Year 2000. All Information Systems and Equipment are either
---------
Year 2000 Compliant in all material respects, or any reprogramming, remediation,
or any other corrective action, including the internal testing of all such
Information Systems and Equipment, will be completed in all material respects by
December 31, 1999. Further, to the extent that such reprogramming/remediation
and testing action is required, the cost thereof, as well as the cost of the
reasonably foreseeable consequences of failure to become Year 2000 Compliant, to
Holdings and its Subsidiaries (including, without limitation, reprogramming
errors and the failure of other systems or equipment) will not result in a
Default, an Event of Default or a Material Adverse Effect.
SECTION 8. Affirmative Covenants. PI Holdings, PG Holdings, PII
---------------------
Holdings, the US Borrower and the Canadian Borrower hereby covenant and agree
that on and after the Effective Date and until the Total Commitments and all
Letters of Credit have terminated and the Loans, Notes and Unpaid Drawings,
together with interest, Fees and all other obligations incurred hereunder and
thereunder, are paid in full:
8.01 Information Covenants. PI Holdings and/or the US Borrower will
---------------------
furnish to the Administrative Agent (with sufficient copies for each of the
Lenders) and the Administrative Agent will promptly thereafter furnish to each
Lender:
(a) Monthly Reports. Within 30 days after the end of each fiscal
---------------
month of PI Holdings (or within 45 days in the case of the last fiscal month of
each fiscal year), the consolidated balance sheets of PI Holdings and its
Consolidated Subsidiaries as at the end of such fiscal month and the related
consolidated statements of income and retained earnings and statement of cash
flows for such fiscal month and for the elapsed portion of the fiscal year ended
with the last day of such fiscal month, in each case setting forth comparative
figures for the corresponding fiscal month in the prior fiscal year and the
budgeted figures for such fiscal month as set forth in the respective budget
delivered pursuant to Section 8.01(e).
(b) Quarterly Financial Statements. Within 45 days after the close
------------------------------
of the first three quarterly accounting periods in each fiscal year of PI
Holdings, (i) the consolidated and, with respect to the Canadian Borrower and
its Subsidiaries, consolidating, balance sheet of PI Holdings and its
Consolidated Subsidiaries as at the end of such quarterly accounting period and
the related consolidated and consolidating statements of income and cash flows,
in each case for such quarterly accounting period and for the elapsed portion of
the fiscal year ended with the last
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<PAGE>
day of such quarterly accounting period, in each case, setting forth comparative
figures for the related periods in the prior fiscal year and the budgeted
figures for such quarterly periods as set forth in the respective budget
delivered pursuant to Section 8.01(e), all of which shall be certified by the
chief financial officer of PI Holdings or the US Borrower, subject to normal
year-end audit adjustments and each of which consolidating statements shall be
in form reasonably satisfactory to the Agents and (ii) management's discussion
and analysis of the important operational and financial developments during the
fiscal quarter and year-to-date periods.
(c) Annual Financial Statements. Within 90 days after the close of
---------------------------
each fiscal year of PI Holdings, (i) the consolidated and, with respect to the
Canadian Borrower and its Subsidiaries, consolidating, balance sheet of PI
Holdings and its Consolidated Subsidiaries as at the end of such fiscal year and
the related consolidated and consolidating statements of income and retained
earnings and of cash flows for such fiscal year setting forth comparative
figures for the preceding fiscal year (with such consolidating statements to be
in form reasonably satisfactory to the Agents) and certified (in the case of
such consolidated financial statements) by independent certified public
accountants of recognized national standing reasonably acceptable to the Agents,
together with a report of such accounting firm stating that in the course of its
regular audit of such financial statements, which audit was conducted in
accordance with generally accepted auditing standards, such accounting firm
obtained no knowledge of any Default or Event of Default which has occurred and
is continuing or, if in the opinion of such accounting firm such a Default or
Event of Default has occurred and is continuing, a statement as to the nature
thereof, and (ii) management's discussions and analysis of the important
operational and financial developments during such fiscal year. Notwithstanding
the foregoing provisions of this clause (c), to the extent the Indenture remains
in effect at the time of the initiation of any audit described above in this
clause (c), such audit, may be performed on the consolidated financial
statements of PG Holdings and its Consolidated Subsidiaries, with such audited
financial statements to be reconciled by PI Holdings or the US Borrower to
include PI Holdings; provided that such reconciliation shall be certified by the
--------
chief financial officer of PI Holdings or the US Borrower.
(d) Management Letters. Promptly after the receipt thereof by PI
------------------
Holdings or any of its Subsidiaries, a copy of any "management letter" received
by any such Person from its certified public accountants and management's
responses thereto.
(e) Budgets. No later than 30 days following the first day of each
-------
fiscal year of Holdings, a budget in form reasonably satisfactory to the Agents
(including budgeted statements of income and sources and uses of cash and
balance sheets) prepared by PI Holdings or the US Borrower for (x) each of the
twelve months of such fiscal year prepared in detail and (y) each of the five
years immediately following such fiscal year prepared in summary form, in each
case of PI Holdings and its Subsidiaries, accompanied by a statement of the
chief financial officer of PI Holdings or the US Borrower to the effect that, to
the best of such officer's knowledge, the budget is a reasonable estimate for
the period covered thereby.
(f) Officer's Certificates. At the time of the delivery of the
----------------------
financial statements provided for in Sections 8.01(a), (b) and (c), a
certificate of the Chairman of the Board or an Authorized Officer of PI Holdings
or the US Borrower to the effect that, to the best of such
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officer's knowledge, no Default or Event of Default has occurred and is
continuing or, if any Default or Event of Default has occurred and is
continuing, specifying the nature and extent thereof, which certificate shall,
in the case of any such financial statements delivered in respect of a period
ending on the last day of a fiscal quarter or year of PI Holdings, (x) set forth
the calculations required to establish whether the Borrowers were in compliance
with the provisions of Sections 4.02(h), (i) and (j) (but with respect to
Section 4.02(i) only to the extent delivered with the financial statements
required by Sections 8.01(c)), 9.03, 9.04, 9.05 and 9.08 through 9.10,
inclusive, at the end of such fiscal quarter or year, as the case may be and (y)
if delivered with the financial statements required by Section 8.01(c), set
forth the amount of Excess Cash Flow for the respective Excess Cash Payment
Period.
(g) Notice of Default or Litigation. Promptly, and in any event
-------------------------------
within three Business Days in the case of item (i) below or five Business Days
in the case of item (ii) below after an officer of PI Holdings, PG Holdings, PII
Holdings, the US Borrower or the Canadian Borrower obtains knowledge thereof,
notice of (i) the occurrence of any event which constitutes a Default or an
Event of Default and (ii) any litigation or governmental investigation or
proceeding pending (x) against PI Holdings or any of its Subsidiaries which
could reasonably be expected to have a Material Adverse Effect, (y) with respect
to any Indebtedness of PI Holdings or any of its Subsidiaries in excess of
$500,000 or (z) with respect to any Document.
(h) Other Reports and Filings. Promptly, copies of all financial
-------------------------
information, proxy materials and other information and reports, if any, which PI
Holdings or any of its Subsidiaries shall file with the Securities and Exchange
Commission or any successor thereto (the "SEC") or deliver to holders of its
Indebtedness pursuant to the terms of the documentation governing such
Indebtedness (or any trustee, agent or other representative therefor).
(i) Environmental Matters. Promptly, and in any event within ten
---------------------
Business Days, after an officer of PI Holdings or any of its Subsidiaries
obtains knowledge thereof, notice of one or more of the following environmental
matters, unless such officer reasonably concludes that such environmental
matters, individually or when aggregated with all other such environmental
matters, could not be reasonably be expected to have a Material Adverse Effect;
(i) any pending or threatened Environmental Claim against PI
Holdings or any of its Subsidiaries or any Real Property owned or operated
by PI Holdings or any of its Subsidiaries;
(ii) any condition or occurrence on or arising from any Real
Property owned or operated by PI Holdings or any of its Subsidiaries that
(a) results in noncompliance by PI Holdings or any of its Subsidiaries with
any applicable Environmental Law or (b) could reasonably be expected to
form the basis of a material Environmental Claim against PI Holdings or any
of its Subsidiaries or any such Real Property;
(iii) any condition or occurrence on any Real Property owned or
operated by PI Holdings or any of its Subsidiaries that could reasonably be
expected to cause such Real Property to be subject to any restrictions on
the ownership, occupancy, use or transferability by PI Holdings or any of
its Subsidiaries of such Real Property under any Environmental Law; and
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(iv) the taking of any removal or remedial action in response to the
actual or alleged presence of any Hazardous Material on any Real Property
owned or operated by PI Holdings or any of its Subsidiaries as required by
any Environmental Law or any governmental or other administrative agency;
provided that in any event PI Holdings and/or each Borrower shall deliver
--------
to each Lender all material notices received by such Person or any of its
Subsidiaries from any government or governmental agency under, or pursuant
to, CERCLA.
All such notices shall describe in reasonable detail the nature of the
claim, investigation, condition, occurrence or removal or remedial action and PI
Holdings' or such Subsidiary's response thereto. In addition, PI Holdings
and/or each Borrower will provide the Lenders with copies of all material
communications with any government or governmental agency relating to
Environmental Laws, all material communications with any Person (other than its
attorneys) relating to any Environmental Claim of which notice is required to be
given pursuant to this Section 8.01(i), and such detailed updates concerning the
progress (not subject to attorney-client or attorney work product privileges) of
any such Environmental Claim as may reasonably be requested by the Lenders.
(j) Annual Meetings with Lenders. At the request of any Agent, PI
----------------------------
Holdings shall, within 120 days after the close of each fiscal year of PI
Holdings, hold a meeting, at a time and place selected by PI Holdings and
acceptable to the Agents, with all of the Lenders to review the financial
results of the previous fiscal year and the financial condition of PI Holdings
and its Subsidiaries and the budgets presented for the current fiscal year of PI
Holdings and its Subsidiaries.
(k) Other Information. From time to time, such other information or
-----------------
documents (financial or otherwise) with respect to PI Holdings or its
Subsidiaries as any Agent (whether acting on its own or at the request of any
Lender) may reasonably request in writing.
8.02 Books, Records and Inspections. PI Holdings will, and will
------------------------------
cause each of its Subsidiaries to, keep proper books of record and account in
which full, true and correct entries in conformity with GAAP and all
requirements of law shall be made of all dealings and transactions in relation
to its business and activities. PI Holdings will, and will cause each of its
Subsidiaries to, permit officers and designated representatives of any of the
Agents or any Lender to visit and inspect, during regular business hours and
under guidance of officers of PI Holdings or such Subsidiary, any of the
properties of PI Holdings or such Subsidiary, and to examine the books of
account of PI Holdings or such Subsidiary and discuss the affairs, finances and
accounts of PI Holdings or such Subsidiary with, and be advised as to the same
by, its and their officers and independent accountants, all upon reasonable
advance notice and at such reasonable times and intervals and to such reasonable
extent as such Agent or such Lender may request.
8.03 Maintenance of Property; Insurance. (a) Schedule 8.03 sets
----------------------------------
forth a true and complete listing of all insurance maintained by PI Holdings and
its Subsidiaries as of the Initial Borrowing Date. PI Holdings will, and will
cause each of its Subsidiaries to, (i) keep all property necessary in its
business in good working order and condition (ordinary wear and tear excepted),
(ii) maintain insurance on all its property in at least such amounts and against
at least
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such risks as is consistent and in accordance with industry practice and (iii)
furnish to each Agent, upon written request, full information as to the
insurance carried. In addition to the requirements of the immediately preceding
sentence, unless the Administrative Agent otherwise agrees in writing, PI
Holdings will at all times cause insurance of the types described in Schedule
8.03 to be maintained (with the same scope of coverage as that described in
Schedule 8.03) at levels which are at least as great as the respective amount
described opposite the respective type of insurance on Schedule 8.03 under the
column headed "Amount of Coverage", provided, however, that PI Holdings, and its
-------- -------
Subsidiaries, may discontinue or reduce any insurance to the extent that it is
no longer available at commercially reasonable rates and so long as similarly
situated companies are, in general, reducing or eliminating such insurance in a
manner consistent with the changes being effected by PI Holdings and its
Subsidiaries.
(b) Holdings will, and will cause each of its Subsidiaries to, at
all times cause all property casualty insurance policies (including Mortgage
Policies) to (i) name the Collateral Agent as loss payee or as an additional
insured, (ii) state that such insurance policies shall not be canceled or
materially altered without 30 days' prior written notice thereof by the
respective insurer to the Collateral Agent and (iii) provide that the respective
insurers irrevocably waive any and all rights of subrogation with respect to the
Collateral Agent and the Secured Creditors.
8.04 Corporate Franchises. Holdings will, and will cause each of its
--------------------
Subsidiaries to, do or cause to be done, all things necessary to preserve and
keep in full force and effect its existence and its material rights, franchises,
licenses and patents used in its business; provided, however, that nothing in
-------- -------
this Section 8.04 shall prevent (i) sales of assets, consolidations or mergers
by or involving Holdings or any of its Subsidiaries otherwise permitted by
Section 9.02 or (ii) the withdrawal by Holdings or any of its Subsidiaries of
their qualification as a foreign corporation in any jurisdiction where such
withdrawal could not reasonably be expected to have a Material Adverse Effect.
8.05 Compliance with Statutes, etc. Holdings will, and will cause
------------------------------
each of its Subsidiaries to, comply with all applicable statutes, regulations
and orders of, and all applicable restrictions imposed by, all governmental
bodies, domestic or foreign, in respect of the conduct of its business and the
ownership of its property, except such noncompliances as could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
8.06 Compliance with Environmental Laws. (a) Holdings will comply,
----------------------------------
and will cause each of its Subsidiaries to comply, in all material respects with
all Environmental Laws applicable to the ownership or use of Real Property now
or hereafter owned or operated by Holdings or any of its Subsidiaries, and will
within a reasonable time-period pay or cause to be paid all costs and expenses
incurred in connection with such compliance, and will keep or cause to be kept
all such Real Property free and clear of any Liens imposed pursuant to such
Environmental Laws. Neither Holdings nor any of its Subsidiaries will generate,
use, treat, store, Release or dispose of, or permit the generation, use,
treatment, storage, Release or disposal of Hazardous Materials on any Real
Property now or hereafter owned or operated by Holdings or any of its
Subsidiaries, or transport or permit the transportation of Hazardous Materials
to or from any such Real Property except for Hazardous Materials generated,
used, treated, stored,
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Released or disposed of at any such Real Properties in material compliance with
all applicable Environmental Laws.
(b) At the written request of the Agents or the Required Lenders,
which request shall specify in reasonable detail the basis therefor, at any time
and from time to time, but no more than once per property per calendar year
(unless the Lenders agree to incur the expense of any subsequent report created
during such calendar year with respect to any such property) the US Borrower
will provide, at its sole cost and expense, an environmental site assessment
report concerning any Real Property now or hereafter owned or operated by
Holdings or any of its Subsidiaries, prepared by an environmental consulting
firm approved by the Agents, indicating the presence or absence of Hazardous
Materials and the potential cost of any removal or remedial action in connection
with any Hazardous Materials on such Real Property; provided that such request
--------
may be made only if (i) there has occurred and is continuing an Event of
Default, (ii) the Agents or the Required Lenders reasonably believe that
Holdings, any of its Subsidiaries or any such Real Property is not in material
compliance with Environmental Laws, or (iii) circumstances exist that reasonably
could be expected to form the basis of a material Environmental Claim against
Holdings, any of its Subsidiaries or any such Real Property. If the US Borrower
fails to provide the same within 90 days after such request was made, the Agents
may order the same, and Holdings and each of its Subsidiaries shall grant and
hereby grants to the Administrative Agent and the Lenders and their agents
access to such Real Property and specifically grants the Agents and the Lenders
an irrevocable non-exclusive license, subject to the rights of tenants, to
undertake such an assessment, all at the US Borrower's expense.
8.07 ERISA. As soon as possible and, in any event, within ten (10)
-----
days after Holdings or any Subsidiary of Holdings knows or has reason to know of
the occurrence of any of the following, PI Holdings or the US Borrower will
deliver to each of the Lenders a certificate of the President, Chief Financial
Officer or Treasurer of Holdings or the US Borrower setting forth the full
details as to such occurrence and the action, if any, that Holdings, such
Subsidiary or any ERISA Affiliate is required or proposes to take, together with
any notices required or proposed to be given to or filed with or by Holdings,
the Subsidiary, the ERISA Affiliate, the PBGC, a Plan or Multiemployer Plan
participant or the Plan administrator with respect thereto: that a Reportable
Event has occurred; that an accumulated funding deficiency, within the meaning
of Section 412 of the Code or Section 302 of ERISA, has been incurred or an
application may reasonably be expected to be or has been made for a waiver or
modification of the minimum funding standard (including any required installment
payments) or an extension of any amortization period under Section 412 of the
Code or Section 303 or 304 of ERISA with respect to a Plan or Multiemployer
Plan; that any contribution required to be made with respect to a Plan or
Multiemployer Plan or Foreign Pension Plan has not been timely made; that a Plan
or Multiemployer Plan has been or may reasonably be expected to be terminated,
reorganized, partitioned or declared insolvent under Title IV of ERISA; that a
Plan has an Unfunded Current Liability; that proceedings may reasonably be
expected to be or have been instituted to terminate or appoint a trustee to
administer a Plan which is subject to Title IV of ERISA; that a proceeding has
been instituted pursuant to Section 515 of ERISA to collect a delinquent
contribution to a Plan or Multiemployer Plan; that Holdings, any Subsidiary of
Holdings or any ERISA Affiliate will or may reasonably be expected to incur any
material liability (including any indirect, contingent, or secondary liability)
to or on account of the termination of or withdrawal from a Plan or
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Multiemployer Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of
ERISA or with respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980 of
the Code or Section 409 or 502(i) or 502(l) of ERISA or with respect to a group
health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the
Code) under Section 4980B of the Code; or that Holdings or any Subsidiary of
Holdings reasonably expects to incur any material liability pursuant to any Plan
or Multiemployer Plan or any Foreign Pension Plan in addition to such liability
as of the Initial Borrowing Date; or that Holdings or any Subsidiary of Holdings
reasonably expects to incur any material liability pursuant to any employee
welfare benefit plan (as defined in Section 3(1) of ERISA) that provides
benefits to retired employees or other former employees (other than as required
by Section 601 of ERISA) in addition to such liability as of the Initial
Borrowing Date. Upon the request of any Lender, PI Holdings or the US Borrower
will deliver to such Lender a complete copy of the annual report (if applicable)
(on Internal Revenue Service Form 5500) of each Plan, other than a Multiemployer
Plan (including, to the extent required, the related financial and actuarial
statements and opinions and other supporting statements, certifications,
schedules and information) required to be filed with the Internal Revenue
Service. In addition to any certificates or notices delivered to the Lenders
pursuant to the first sentence hereof, copies of any material notices received
by Holdings, any Subsidiary of Holdings or any ERISA Affiliate with respect to
any Plan or Multiemployer Plan or Foreign Pension Plan shall be delivered to the
Lenders no later than fifteen (15) days after the date such notice has been
received by Holdings, the Subsidiary or the ERISA Affiliate, as applicable.
8.08 End of Fiscal Years; Fiscal Quarters. PI Holdings will cause
------------------------------------
(i) each of its, and each of its Subsidiaries', fiscal years to end on December
31, and (ii) each of its, and each of its Subsidiaries', fiscal quarters in each
fiscal year to end on March 31, June 30, September 30 and December 31.
8.09 Performance of Obligations. PI Holdings will, and will cause
--------------------------
each of its Subsidiaries to, perform all of its obligations under the terms of
each mortgage, indenture, security agreement and other debt instrument by which
it is bound, except such non-performances as could not reasonably be expected to
have a Material Adverse Effect.
8.10 Payment of Taxes. Each Taxpayer will pay and discharge, or
----------------
cause to be paid and discharged, all material taxes, assessments and
governmental charges or levies imposed upon it or upon its income or profits, or
upon any material properties belonging to it, in each case prior to the date on
which penalties attach thereto, and all lawful claims for sums that have become
due and payable which, if unpaid, might become a Lien not otherwise permitted by
Section 9.01; provided that none of the Taxpayers or any of their respective
--------
Subsidiaries shall be required to pay any such tax, assessment, charge, levy or
claim which is being contested in good faith and by proper proceedings if such
Taxpayer has maintained adequate reserves with respect thereto in accordance
with generally accepted accounting principles.
8.11 Ownership of Subsidiaries. (i) PI Holdings will, at all times
-------------------------
directly own 100% of the outstanding capital stock of PG Holdings, (ii) PG
Holdings will at all times directly own 100% of the outstanding capital stock of
PII Holdings, and (iii) PII Holdings will at all times (x) directly own 100% of
the outstanding capital stock of the US Borrower and (y) directly or indirectly
own 100% of the capital stock of the Canadian Borrower. Except as otherwise
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expressly permitted pursuant to Section 9.14 in the case of the creation or
acquisition of new non-Wholly-Owned Subsidiaries after the Initial Borrowing
Date, the US Borrower will directly or indirectly own 100% of the capital stock
of each other Subsidiary of PI Holdings.
8.12 Additional Security; Further Assurances; Surveys. (a) PI
------------------------------------------------
Holdings will, and will cause each of its Wholly-Owned Subsidiaries to, grant to
the Collateral Agent security interests and mortgages (each, an "Additional
Mortgage") in any Real Property acquired or leased by such Person after the
Initial Borrowing Date and having a Fair Market Value in excess of $500,000
(each such Real Property, an "Additional Mortgaged Property"); provided that (x)
--------
no Foreign Subsidiary (other than Canadian Wholly-Owned Subsidiaries) shall be
required to grant or convey any Additional Mortgage pursuant to this Section
8.12(a), and (y) each Additional Mortgage granted or conveyed by a Canadian
Wholly-Owned Subsidiary shall secure only the Obligations of the Canadian
Borrower and all obligations of the Canadian Borrower under Interest Rate
Protection Agreements and Other Hedging Agreements. All such Additional
Mortgages shall be granted pursuant to documentation substantially in the form
of the Mortgages delivered to the Collateral Agent on the Initial Borrowing Date
(taking into account whether or not such Additional Mortgaged Property is owned
by a Canadian Credit Party) or in such other form as is reasonably satisfactory
to the Collateral Agent and shall constitute valid and enforceable perfected
Liens superior to and prior to the rights of all third Persons and subject to no
other Liens except as are permitted by Section 9.01 at the time of perfection
thereof (and subject to the priority provisions set forth in Section 5.12(a)).
The Additional Mortgages or instruments related thereto shall be duly recorded
or filed in such manner and in such places as are required by law to establish,
perfect, preserve and protect the Liens in favor of the Collateral Agent
required to be granted pursuant to the Additional Mortgages and all taxes, fees
and other charges payable in connection therewith shall be paid in full. In
addition to the foregoing provisions of this clause (a), the US Borrower shall
provide to the Administrative Agent within 15 days of the Initial Borrowing
Date, a fully executed original of the Memorandum of Lease (in the form provided
to Gibson, Dunn & Crutcher LLP) relating to the Lease, dated December 30, 1997,
between Gwinnett Industries, Inc. And Pioneer Plastics Corporation, covering
property located at 14420 Lockridge Boulevard, Lockridge Industrial Park,
Covington, Georgia, 30014 and the US Borrower shall use its best efforts to
obtain and deliver to the Administrative Agent fully executed Landlord Lender
Agreements relating to the following leasehold properties:
1. 6300 Atlantic Boulevard, Norcross, GA
2. 14420 Lockridge Boulevard, Covington, GA
3. 1111 All Pro Drive, Elkhart, IN
4. 2855 South Resevoir, Pomona, CA
5. 20 Progress Drive, Shelton, CT
(b) PI Holdings, PG Holdings, PII Holdings and the Borrowers agree to
cause each Wholly-Owned Subsidiary acquired, established or created in
accordance with Section 9.14 to execute and deliver (i) if such Subsidiary is a
Domestic Wholly-Owned Subsidiary of the US Borrower, a counterpart of the
Subsidiaries Guaranty (or another guaranty of all Obligations of the Borrower
and all obligations under Interest Rate Protection Agreements or Other Hedging
Agreements in substantially the form of the Subsidiaries Guaranty) or (ii) if
such Subsidiary is a Canadian Wholly-Owned Subsidiary, a guaranty of the
Obligations of the Canadian Borrower
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and all obligations of the Canadian Borrower under Interest Rate Protection
Agreements and Other Hedging Agreements in form and substance satisfactory to
the Collateral Agent.
(c) The US Borrower agrees to pledge and deliver, or cause to be
pledged and delivered, all of the capital stock of each new Subsidiary acquired,
established or created in accordance with Section 9.14 after the Initial
Borrowing Date to the Collateral Agent for the benefit of the Secured Creditors
pursuant to the applicable Pledge Agreement; provided that, subject to the
--------
requirements of Section 8.14, that portion of the voting stock of any Foreign
Subsidiary in excess of 65% of the total outstanding voting stock of such
Foreign Subsidiary, shall only be pledged in support of Obligations of the
Canadian Borrower and guarantees thereof.
(d) PI Holdings, PG Holdings, PII Holdings and the Borrowers will
cause each Wholly-Owned Subsidiary acquired, established or created in
accordance with Section 9.14 to grant to the Collateral Agent a Lien, subject to
no other Liens of any third Person other than Permitted Liens, on property
(tangible and intangible, but taking into effect the limitations with respect to
Real Property set forth in clause (a) of this Section 8.12) of such Subsidiary
upon terms, and with exceptions similar to those set forth in (x) if such
Subsidiary is a Domestic Wholly-Owned Subsidiary, the Security Documents
executed by the Subsidiary Guarantors and (y) if such Subsidiary is a Canadian
Wholly-Owned Subsidiary, the Security Documents executed by the Canadian
Borrower as appropriate, and reasonably satisfactory in form and substance to
the Agents. PI Holdings, PG Holdings, PII Holdings and the Borrowers will cause
each Wholly-Owned Subsidiary, at its own expense, to execute, acknowledge and
deliver, or cause the execution, acknowledgment and delivery of, and thereafter
register, file or record in any appropriate governmental office, any document or
instrument reasonably deemed by the Collateral Agent to be necessary for the
creation and perfection of the foregoing Liens. PI Holdings, PG Holdings, PII
Holdings and the US Borrower will cause each Subsidiary to take all actions
reasonably requested by the Agents (including, without limitation, the filing of
UCC-1's or the Canadian equivalent) in connection with the granting of such
security interests.
(e) PI Holdings will, and will cause each of its Wholly-Owned
Subsidiaries to, at the expense of the applicable Credit Party, make, execute,
endorse, acknowledge, file and/or deliver to the Collateral Agent from time to
time such vouchers, invoices, schedules, confirmatory assignments, confirmatory
conveyances, financing statements, transfer endorsements, confirmatory powers of
attorney, certificates, real property surveys, reports and other assurances or
confirmatory instruments and take such further steps relating to the Collateral
covered by any of the Security Documents as the Collateral Agent may reasonably
require pursuant to this Section 8.12. Furthermore, PI Holdings, PG Holdings,
PII Holdings and the Borrowers will cause to be delivered to the Collateral
Agent such opinions of counsel, title insurance and other related documents as
may be reasonably requested by the Collateral Agent to assure itself that this
Section 8.12 has been complied with. The security interests required to be
granted pursuant to this Section 8.12 shall be granted pursuant to the
respective Security Documents already executed and delivered by PI Holdings
and/or its Subsidiaries (or other security documentation substantially similar
to such Security Documents or otherwise satisfactory in form and substance to
the Collateral Agent and the Borrowers) and shall constitute valid and
enforceable perfected security interests prior to the rights of all third
Persons and subject to no other Liens except Permitted Liens. The Additional
Security Documents and other
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instruments related thereto shall be duly recorded or filed in such manner and
in such places and at such times as are required by law to establish, perfect,
preserve and protect the Liens, in favor of the Collateral Agent for the benefit
of the respective Secured Creditors, required to be granted pursuant to the
Additional Security Documents and all taxes, fees and other charges payable in
connection therewith shall be paid in full by the Borrowers. Notwithstanding the
foregoing, no Credit Party shall be required to deliver Additional Security
Documents or such supporting documentation for Real Property which does not
exceed the limitations with respect to Real Property set forth in clause (a) of
this Section 8.12.
(f) Each of PI Holdings, PG Holdings, PII Holdings and the Borrowers
agrees that each action required above by Section 8.12(a) or (e) shall be
completed as soon as practicable, but in no event later than (i) in the case of
actions specified in clause (a) of this Section 8.12, 90 days and (ii) in the
case of actions specified in clause (e) of this Section 8.12, 60 days after such
action is requested to be taken by the Collateral Agent. Each of PI Holdings,
PG Holdings, PII Holdings and the Borrowers further agrees that each action
required above by Section 8.12(b), (c), and/or (d) with respect to the creation
or acquisition of a new Subsidiary shall be completed contemporaneously with
(or, in the case of any documents or instruments to be registered, filed or
recorded, within 10 days of) the creation or acquisition of such new Subsidiary.
8.13 Interest Rate Protection. No later than the 90/th/ day after
------------------------
the Initial Borrowing Date, each Borrower will enter into, and for a minimum of
three years thereafter maintain, Interest Rate Protection Agreements, in form
and substance reasonably satisfactory to the Agents, establishing a fixed or
maximum interest rate reasonably acceptable to the Agents for at least 50% of
the aggregate principal amount of Term Loans incurred by such Borrower on the
Initial Borrowing Date.
8.14 Foreign Subsidiaries Security. If following a change in the
-----------------------------
relevant sections of the Code or the regulations, rules, rulings, notices or
other official pronouncements issued or promulgated thereunder, counsel for the
US Borrower reasonably acceptable to the Agents does not within 30 days after a
request from the Agents or the Required Lenders deliver evidence, in form and
substance reasonably satisfactory to the Agents, with respect to any Foreign
Subsidiary which has not already had all of its stock pledged pursuant to the US
Pledge Agreement, that a pledge of 66-2/3% or more of the total combined voting
power of all classes of capital stock of such Foreign Subsidiary entitled to
vote, would cause the undistributed earnings of such Foreign Subsidiary as
determined for Federal income tax purposes to be treated as a deemed dividend to
such Foreign Subsidiary's United States parent for Federal income tax purposes,
then that portion of such Foreign Subsidiary's outstanding capital stock not
theretofore pledged pursuant to the US Pledge Agreement shall be pledged to the
Collateral Agent for the benefit of the Secured Creditors under and pursuant to
the US Pledge Agreement (or another pledge agreement in substantially similar
form, if needed), to the extent that entering into such pledge agreement is
permitted by the laws of the respective foreign jurisdiction and with all
documents delivered pursuant to this Section 8.14 to be in form and substance
reasonably satisfactory to the Agents and the Required Lenders.
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8.15 Permitted Acquisitions and Certain Additional Capital
-----------------------------------------------------
Expenditures. (a) The US Borrower and its Wholly-Owned Subsidiaries may make
- ------------
Permitted Acquisitions, so long as (i) the aggregate consideration paid
(including, without limitation, the value of any noncompete, earn-out and other
deferred payout arrangements, the value of all PI Holdings Common Stock issued
(as determined by the Board of Directors of PI Holdings, a committee thereof or
an officer of PI Holdings appointed by such Board of Directors to establish such
value) and the principal amount of Qualified Debt Securities and Permitted
Acquired Debt) in connection therewith does not exceed $25,000,000 for any
single Permitted Acquisition or $45,000,000 in any fiscal year of the US
Borrower for all such Permitted Acquisitions without in either case taking into
account any additional consideration that is permitted pursuant to Section
8.15(b) or (c). Notwithstanding the foregoing provisions of this Section
8.15(a), (x) to the extent that any excess assets or property acquired pursuant
to a Permitted Acquisition are sold within 120 days of the consummation thereof
in accordance with the last sentence of Section 4.02(h), the annual limitation
specified above in this clause (a) shall be increased for the year in which such
Net Sale Proceeds are received by the amount of such Net Sale Proceeds and (y)
at the option of the US Borrower and with the consent of the Administrative
Agent, at the time of the consummation of any Permitted Acquisition, the US
Borrower may deliver to the Administrative Agent an officer's certificate,
signed by the chief financial officer of the US Borrower and (A) identifying
specified items of equipment acquired pursuant to such Permitted Acquisition
which, in the good faith opinion of management of the US Borrower, are the
functional equivalent of equipment which would otherwise have been acquired by
the US Borrower or any of its Wholly-Owned Subsidiaries pursuant to its capital
expenditure plan and/or budget for such fiscal year or the immediately ensuing
fiscal year of the US Borrower and (B) specifying the portion of the aggregate
purchase price paid in respect of such Permitted Acquisition which in the good
faith opinion of management of the US Borrower is allocable to all such itemized
equipment (which amount shall in no event exceed the fair market value of such
equipment), which amount shall, upon the consent of the Administrative Agent, be
allocated to Capital Expenditures made pursuant to Section 9.08(a) during such
fiscal year in which such acquisition was consummated and shall not constitute
consideration paid in connection with such Permitted Acquisition for purposes of
either the individual or fiscal year dollar limitations set forth above in this
Section 8.15(a) or for purposes of Section 9.08(c)(ii).
(b) The US Borrower and its Domestic Wholly-Owned Subsidiaries may
make additional Permitted Acquisitions and pay additional consideration related
to a Permitted Acquisition with (i) the proceeds of equity contributions from
Permitted Holders and (ii) proceeds of equity issuances to other Equity
Investors in an aggregate amount pursuant to this clause (ii), when combined
with the fair market value of all stock issued pursuant to clause (iii) of the
definition of "Permitted Acquisition" (as determined in accordance with said
definition), not to exceed $25,000,000.
(c) In addition to the Permitted Acquisitions permitted pursuant to
preceding clauses (a) and (b), additional Permitted Acquisitions, additional
purchases of replacement equipment and/or additional Capital Expenditures by the
US Borrower and its Domestic Wholly-Owned Subsidiaries shall be permitted to be
made with proceeds of asset sales not otherwise required to be applied pursuant
to Section 4.02(h) by reason of the proviso to the first sentence thereof.
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(d) Notwithstanding anything to the contrary contained above, the
aggregate principal amount of Permitted Acquired Debt assumed in connection
with any Permitted Acquisition (or which remains as an obligation of the
respective Subsidiary acquired after giving effect thereto) shall be counted as
consideration paid in connection therewith for purposes of determining
compliance with preceding clauses (a) through (c) of this Section 8.15.
8.16 Interest Payments on Holdings PIK Subordinated Notes. Except as
----------------------------------------------------
otherwise expressly permitted pursuant to Section 9.03, PI Holdings will make
all payments of interest owing with respect to the Holdings PIK Subordinated
Notes solely through the issuance of additional Holdings PIK Subordinated Notes,
rather than by making such interest payments in cash. PI Holdings will take all
other actions as may be necessary so that no cash payments (other than those
expressly permitted by Section 9.03) are owing in respect of the Holdings PIK
Subordinated Note at any time prior to the date which is seven and one-half
years after the Initial Borrowing Date; provided that if the Term Loan
--------
Commitment Expiry Date has occurred and no Tranche B Term Loans are outstanding
after giving effect thereto, such cash interest may be payable at any time after
the date which is five and one half years after the Initial Borrowing Date.
SECTION 9. Negative Covenants. PI Holdings, PG Holdings, PII
------------------
Holdings, the US Borrower and the Canadian Borrower (and, with respect to the
covenants made pursuant to Section 9.07, Holdings) covenant and agree that on
and after the Effective Date and until the Total Commitments and all Letters of
Credit have terminated and the Loans, Notes and Unpaid Drawings, together with
interest, Fees and all other Obligations incurred hereunder and thereunder, are
paid in full:
9.01 Liens. PI Holdings will not, and will not permit any of its
-----
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
PI Holdings or any of its Subsidiaries, whether now owned or hereafter acquired,
or sell any such property or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable with recourse to the US Borrower, the Canadian Borrower
or any of their respective Subsidiaries), or assign any right to receive income
or permit the filing of any financing statement under the UCC or any other
similar notice of Lien under any similar recording or notice statute; provided
--------
that the provisions of this Section 9.01 shall not prevent the creation,
incurrence, assumption or existence of the following (Liens described below are
herein referred to as "Permitted Liens"):
(i) inchoate Liens for taxes, assessments or governmental charges or
levies not yet due and payable or Liens for taxes, assessments or
governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves have been established
in accordance with GAAP (or the equivalent thereof in any country in which
a Foreign Subsidiary is doing business, as applicable);
(ii) Liens in respect of property or assets of US Borrower or any of
its Subsidiaries imposed by law, which were incurred in the ordinary course
of business and do not secure Indebtedness for borrowed money, such as
carriers', warehousemen's,
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materialmen's and mechanics' liens and other similar Liens arising in the
ordinary course of business, and (x) which do not in the aggregate
materially detract from the value of the property or assets of the US
Borrower, the US Borrower and its Subsidiaries taken as a whole or the
Canadian Borrower or the Canadian Borrower and its Subsidiaries taken as a
whole, or materially impair the use of any property or assets which are
material to the operation of the business of the US Borrower, the US
Borrower and its Subsidiaries taken as a whole, the Canadian Borrower, the
Canadian Borrower and its Subsidiaries taken as a whole or PI Holdings and
its Subsidiaries taken as a whole or (y) which are being contested in good
faith by appropriate proceedings, which proceedings (or orders entered in
connection with such proceedings) have the effect of preventing the
forfeiture or sale of the property or assets subject to any such Lien;
(iii) Liens in existence on the Initial Borrowing Date which are
listed, and the property subject thereto described, in Schedule 9.01,
without giving effect to any extensions or renewals thereof;
(iv) Permitted Encumbrances;
(v) Liens created pursuant to the Security Documents;
(vi) licenses, leases or subleases granted to other Persons in the
ordinary course of business not materially interfering with the conduct of
the business of PI Holdings and its Subsidiaries taken as a whole or
materially diminishing the aggregate value of the Collateral;
(vii) Liens upon assets of the US Borrower and its Subsidiaries
subject to Capitalized Lease Obligations to the extent permitted by Section
9.04, provided that (x) such Liens only serve to secure the payment of
--------
Indebtedness arising under such Capitalized Lease Obligation and (y) the
Lien encumbering the asset giving rise to the Capitalized Lease Obligation
does not encumber any other asset (other than proceeds thereof) of the US
Borrower or any of its Subsidiaries;
(viii) Liens placed upon assets used in the ordinary course of
business of the US Borrower or any of its Subsidiaries at the time of
acquisition thereof by the US Borrower or any such Subsidiary or within 120
days thereafter to secure Indebtedness incurred to pay all or a portion of
the purchase price thereof, provided that (x) the aggregate outstanding
--------
principal amount of all Indebtedness secured by Liens permitted by this
clause (viii) shall not at any time exceed, when added to the aggregate
outstanding principal amount of Indebtedness outstanding pursuant to
Sections 9.04(v) and 9.04(xiii), $10,000,000 and (y) in all events, the
Lien encumbering the assets so acquired does not encumber any other asset
(other than proceeds thereof) of the US Borrower or any of its
Subsidiaries;
(ix) easements, rights-of-way, restrictions (including zoning
restrictions), encroachments, protrusions and other similar charges or
encumbrances, and minor title deficiencies, in each case whether now or
hereafter in existence, not securing Indebtedness, not materially
interfering with the conduct of the business of the US Borrower, the
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US Borrower and its Subsidiaries taken as a whole, the Canadian Borrower,
the Canadian Borrower and its Subsidiaries taken as a whole or PI Holdings
and its Subsidiaries taken as a whole and not materially diminishing the
aggregate value of the Collateral;
(x) Liens arising from precautionary UCC financing statement filings
regarding operating leases entered into by the US Borrower or any of its
Subsidiaries in the ordinary course of business;
(xi) Liens arising out of the existence of judgments or awards not
constituting an Event of Default under Section 10.09;
(xii) statutory and contractual landlords' liens under leases or
subleases to which the US Borrower or any of its Subsidiaries is a party;
(xiii) Liens (other than any Lien imposed by ERISA) incurred or
deposits made (x) in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security, (y) to secure the performance of tenders, statutory obligations
(other than excise taxes), surety, stay, customs and appeal bonds,
statutory bonds, bids, leases, government contracts, trade contracts,
performance and return of money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money) or (z) arising
by virtue of deposits made in the ordinary course of business and
consistent with past practice to secure liabilities for premiums to
insurance carriers, provided that the aggregate amount of deposits at any
--------
time pursuant to clauses (y) and (z) shall not exceed $3,000,000;
(xiv) any interest or title of a lessor, sublessor, licensee or
licensor under any lease or license agreement permitted by this Agreement;
(xv) Liens in favor of customs and revenue authorities arising as a
matter of law to secure the payment of customs duties in connection with
the importation of goods;
(xvi) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by
the US Borrower or any of its Subsidiaries in the ordinary course of
business in accordance with past practice prior to the Initial Borrowing
Date;
(xvii) Liens on assets of any Subsidiary of the US Borrower acquired
as a result of a Permitted Acquisition and securing only Permitted Acquired
Debt of such Subsidiary, so long as such Liens comply with the requirements
set forth in the definition of Permitted Acquired Debt; and
(xviii) Liens not otherwise permitted by the foregoing clauses (i)
through (xvii) to the extent attaching to properties and assets with an
aggregate fair market value not in excess of, and securing aggregate
liabilities not in excess of, $500,000 at any time outstanding.
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In connection with the granting of Liens described above in this Section 9.01 by
PI Holdings or any of its Subsidiaries, each of the Administrative Agent and the
Collateral Agent shall be authorized to take any actions deemed appropriate by
it in connection therewith (including, without limitation, by executing
appropriate lien releases or lien subordination agreements in favor of the
holder or holders of such Liens, in respect of the item or items of equipment or
other assets (including Real Property) subject to such Liens).
9.02 Consolidation, Merger, Purchase or Sale of Assets, etc. PI
-------------------------------------------------------
Holdings will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, or convey, sell, lease or otherwise dispose of (or agree to do
any of the foregoing at any future time) all or any part of its property or
assets, or enter into any sale-leaseback transactions, or purchase or otherwise
acquire (in one or a series of related transactions) any part of the property or
assets (other than purchases or other acquisitions of inventory, materials,
equipment and intangible assets in the ordinary course of business) of any
Person, except that:
(i) Capital Expenditures by the US Borrower and its Subsidiaries
shall be permitted to the extent permitted by Section 9.08;
(ii) each of the US Borrower and its Subsidiaries may (x) in the
ordinary course of business, sell, lease or otherwise dispose of any assets
which, in the reasonable judgment of such Person, are obsolete, worn out or
otherwise no longer used or useful in the conduct of such Person's business
and (y) sell, lease or otherwise dispose of any other assets, provided that
--------
the aggregate Net Sale Proceeds of all assets subject to sales or other
dispositions pursuant to this clause (ii)(y) shall not exceed $500,000 in
any fiscal year of the US Borrower;
(iii) investments may be made to the extent permitted by Section 9.05;
(iv) each of the US Borrower and its Subsidiaries may lease (as
lessee) real or personal property in the ordinary course of business (so
long as any such lease does not create a Capitalized Lease Obligation
except to the extent permitted by Section 9.04);
(v) each of the US Borrower and its Subsidiaries may make sales or
transfers of inventory in the ordinary course of business;
(vi) each of the US Borrower and its Subsidiaries may sell or
discount, in each case without recourse and in the ordinary course of
business, overdue accounts receivable arising in the ordinary course of
business, but only in connection with the compromise or collection thereof
consistent with customary industry practice (and not as part of any bulk
sale or financing of receivables);
(vii) transfers of condemned property to the respective governmental
authority or agency that has condemned same (whether by deed in lieu of
condemnation or otherwise), and transfers of properties that have been
subject to a casualty to the respective insurer of such property as part of
an insurance settlement, shall be permitted;
-81-
<PAGE>
(viii) licenses or sublicenses by the US Borrower and its Subsidiaries
of software, trademarks and other intellectual property in the ordinary
course of business and which do not materially interfere with the business
of the US Borrower, the US Borrower and its Subsidiaries taken as a whole,
the Canadian Borrower, the Canadian Borrower and its Subsidiaries taken as
a whole or PI Holdings and its Subsidiaries taken as a whole shall be
permitted;
(ix) the Transaction shall be permitted;
(x) the US Borrower or any Domestic Wholly-Owned Subsidiary of the
US Borrower may transfer assets to any Canadian Credit Party so long as the
aggregate fair market value of all such assets transferred after the
Effective Date (as determined in good faith by management of PI Holdings or
the US Borrower) does not exceed $5,000,000 and may transfer assets or
lease to or acquire or lease assets from the US Borrower or any other
Domestic Wholly-Owned Subsidiary of the US Borrower, or any Domestic
Wholly-Owned Subsidiary of the US Borrower may be merged into the US
Borrower (as long as the US Borrower is the surviving corporation of such
merger as a Wholly-Owned Subsidiary of PI Holdings) or any other Domestic
Wholly-Owned Subsidiary of the US Borrower;
(xi) so long as no Default or Event of Default exists at the time of
the respective sale of assets or immediately after giving effect thereto,
sales of assets (which may include interests in Subsidiaries and in joint
ventures, provided that no part of the capital stock of any Subsidiary may
--------
be sold pursuant to this clause (xi) unless all of the capital stock of the
respective Subsidiary owned by PI Holdings and its Subsidiaries is sold
pursuant to such a sale) with a Fair Market Value not to exceed $2,000,000
in the aggregate may be made during any fiscal year of PI Holdings;
provided that (a) the sale price with respect to each such asset sold shall
--------
not be less than the Fair Market Value of such asset and (b) at least 80%
of such sale price shall be paid in cash or in Cash Equivalents (and
treating as cash for this purpose the trade-in or exchange value of any
item of equipment that is being sold to the extent that a new item of
equipment is being purchased as part of such transaction);
(xii) Permitted Acquisitions shall be permitted to be made in
accordance with the requirements of Section 8.15;
(xiii) any Foreign Wholly-Owned Subsidiary of the US Borrower may
transfer assets to the US Borrower or any Domestic Wholly-Owned Subsidiary
of the US Borrower or transfer assets or lease to or acquire assets from
any other Foreign Wholly-Owned Subsidiary of the US Borrower, and any
Canadian Wholly-Owned Subsidiary may amalgamate with or into the Canadian
Borrower (provided that in such event the Canadian Borrower shall be the
--------
surviving corporation of such amalgamation) or any other Canadian Wholly-
Owned Subsidiary; and
(xiv) PI Holdings may liquidate any Subsidiary (other than a Borrower)
so long as it has reasonably determined that neither it, nor any Subsidiary
of PI Holdings into which
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<PAGE>
such Subsidiary is liquidated, will assume any material contingent
liabilities as a result thereof.
To the extent the Required Lenders waive the provisions of this Section 9.02
with respect to the sale of any Collateral, or any Collateral is sold as
permitted by this Section 9.02, such Collateral (unless sold to Holdings or a
Subsidiary of Holdings) shall be sold free and clear of the Liens created by the
Security Documents, and the Administrative Agent and Collateral Agent shall be
authorized to take any actions deemed appropriate by it in order to effect the
foregoing.
9.03 Restricted Payments. PI Holdings will not, and will not permit
-------------------
any of its Subsidiaries to, authorize, declare or pay any Dividends with respect
to PI Holdings or any of its Subsidiaries or make any other Restricted Payment,
except that:
(i) any Subsidiary of the US Borrower may pay Dividends to its
shareholders, in each case so long as the US Borrower or any Subsidiary of
the US Borrower which owns an equity interest in such Subsidiary receives a
percentage of any such Dividend which is at least equal to its percentage
equity interest in the respective Subsidiary paying such Dividend;
(ii) PI Holdings may (x) repurchase PI Holdings Common Stock and/or
options to purchase PI Holdings Common Stock held by, or (y) make payments
pursuant to equity appreciation rights agreements to, directors, executive
officers, members of management or employees of PI Holdings or any of its
Subsidiaries upon the death, disability, retirement or termination of such
director, executive officers, member of management or employee, so long as
(A) no Default or Event of Default then exists or would exist after giving
effect thereto and (B) the aggregate amount of consideration paid by PI
Holdings pursuant to this clause (ii) shall not exceed (1) for all such
directors, officers, managers and employees other than Muller, $250,000 in
any fiscal year of PI Holdings other than fiscal year 1999; (2) for Muller,
$1,000,000 in any fiscal year of PI Holdings other than fiscal year 1999
and (3) $250,000 in the aggregate for all such repurchases during PI
Holdings' fiscal year 1999;
(iii) so long as there shall exist no Default or Event of Default
(both before and after giving effect to the payment thereof), cash
Dividends may be paid to PI Holdings, PG Holdings and/or PII Holdings so
long as the proceeds thereof are promptly used to (x) pay operating
expenses in the ordinary course of business and other similar corporate
overhead costs and expenses, provided that the aggregate amount of cash
Dividends paid pursuant to this clause (w) in any fiscal year of PI
Holdings shall in no event exceed $100,000 (or $50,000 during fiscal year
1999) and (y) pay required fees and expenses in connection with the
Transaction and the registration under applicable laws and regulations of
its equity securities otherwise permitted hereunder;
(iv) cash Dividends may be paid to PI Holdings, PG Holdings and/or
PII Holdings to (i) pay taxes due in the ordinary course of business,
provided that (x) any payments made to PI Holdings, PG Holdings or PII
--------
Holdings for such purpose which are not promptly used to pay taxes shall
promptly be contributed by such Person to the capital of the US Borrower
and (y) any tax refunds received by PI Holdings, PG
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<PAGE>
Holdings, or PII Holdings shall promptly be contributed by such Person to
the capital of the US Borrower and (ii) pay fees and expenses incurred
under the Carlyle Management Agreement and the Genstar Engagement Agreement
to the extent such payments are permitted under Section 9.06(vi) so long as
all such proceeds are promptly (and in any event within five Business Days)
used by PI Holdings to pay such amounts;
(v) the Recapitalization may be effected on the Initial Borrowing
Date and payments may be made in connection therewith in accordance with
terms of the Recapitalization Documents;
(vi) so long as no Default or Event of Default then exists or would
exist immediately after giving effect thereto, Restricted Payments may be
upstreamed from the US Borrower to PI Holdings for the purpose of enabling
PI Holdings to pay the amounts referred to in clause (ii) of this Section
9.03, so long as all proceeds thereof are promptly (and in any event within
five Business Days) used by PI Holdings to pay such amounts;
(vii) so long as no Default or Event of Default exists or would result
therefrom, the US Borrower may (x) repurchase US Borrower Subordinated
Notes pursuant to Change of Control Purchases and (y) make regularly
scheduled interest payments on the US Borrower Subordinated Notes to the
extent required to be made pursuant to the US Borrower Subordinated Note
Documents; provided that nothing in this clause (vii) shall be deemed to
--------
permit the US Borrower to make any voluntary payments of interest or
principal on such US Borrower Subordinated Notes; and
(viii) so long as no Default or Event of Default exists or would
result therefrom, PI Holdings shall be permitted to pay cash interest on
the Holdings PIK Subordinated Note in an aggregate amount not to exceed, in
any fiscal year of PI Holdings, 25% of Excess Cash Flow for the immediately
preceding fiscal year of PI Holdings; provided that, (x) in addition to the
--------
cash interest payments permitted above in this clause (viii), beginning
with the fiscal year of PI Holdings beginning on or about January 1, 2004,
so long as the Leverage Ratio immediately prior to giving effect to such
payment does not exceed 2.25:1.00, PI Holdings shall be permitted to make
cash payments of principal on the Holdings PIK Subordinated Note in an
aggregate amount not to exceed, in any fiscal year of PI Holdings, when
combined with all cash payments of interest made pursuant to this clause
(viii), 25% of the Excess Cash Flow of PI Holdings for the immediately
preceding fiscal year of PI Holdings and (y) notwithstanding the foregoing,
beginning with PI Holdings' fiscal year beginning on or about January 1,
2005, the amounts permitted to be paid pursuant to this clause (viii)
(including, without limitation, clause (x) of this proviso) shall, to the
extent not used in such fiscal year of PI Holdings to make payments
hereunder, be permitted to be carried forward and used to make such
payments in the immediately succeeding fiscal year; provided that the
--------
amount of any carry forwards in subsequent years shall be calculated
without giving effect to amounts carried forward in any prior fiscal year.
9.04 Indebtedness. PI Holdings will not, and will not permit any of
------------
its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness, except:
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<PAGE>
(i) Indebtedness incurred pursuant to this Agreement and the other
Credit Documents;
(ii) Existing Indebtedness shall be permitted to the extent the same
is listed on Schedule 7.22, without giving effect to any refinancings,
extensions or renewals thereof;
(iii) accrued expenses and current trade accounts payable incurred in
the ordinary course;
(iv) the Borrowers may incur Indebtedness under Interest Rate
Protection Agreements which are not speculative in nature and relate to the
Obligations;
(v) Indebtedness evidenced by Capitalized Lease Obligations to the
extent permitted pursuant to Section 9.08, provided that in no event shall
--------
the aggregate principal amount of Capitalized Lease Obligations permitted
by this clause (v), when added to the aggregate outstanding principal
amount of Indebtedness outstanding pursuant to Section 9.04(xiii) or
secured by Liens permitted under Section 9.01(viii), exceed $10,000,000 at
any time outstanding;
(vi) Indebtedness subject to Liens permitted under Sections
9.01(viii), 9.01(xi) and 9.01(xiii) so long as such Indebtedness is only of
the type specifically described in such respective Sections and the
outstanding amount of such Indebtedness does not exceed the respective
amounts permitted by Sections 9.01(viii), 9.01(xi) and 9.01(xiii),
respectively;
(vii) intercompany Indebtedness of the US Borrower and its Wholly-
Owned Subsidiaries, to the extent permitted by Section 9.05(vi);
(viii) in addition to any Indebtedness permitted by preceding clause
(vii), Indebtedness of any Wholly-Owned Subsidiary of the US Borrower to
the US Borrower or another Wholly-Owned Subsidiary of the US Borrower
constituting the purchase price in respect of intercompany transfers of
goods made in the ordinary course of business to the extent not
constituting Indebtedness for borrowed money;
(ix) Indebtedness evidenced by Other Hedging Agreements entered into
pursuant to Section 9.05(v);
(x) Indebtedness of the US Borrower and its Subsidiaries under
performance bonds, letter of credit obligations to provide security for
workers' compensation claims and bank overdrafts, in each case incurred in
the ordinary course of business, provided that any obligations arising in
--------
connection with such bank overdraft Indebtedness is extinguished within
five Business Days;
(xi) Indebtedness incurred by the US Borrower or any of its
Subsidiaries arising from agreements providing for indemnification related
to sales of goods or adjustment of purchase price or similar obligations in
any case incurred in connection with the disposition of any business,
assets or Subsidiary of the US Borrower;
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<PAGE>
(xii) accounts payable to vendors for goods and services obtained in
the ordinary course of business and under customary terms and conditions;
(xiii) Permitted Acquired Debt of Subsidiaries of the US Borrower
assumed as a result of Permitted Acquisitions effected in accordance with
the requirements of Section 8.15, so long as the aggregate principal amount
of Permitted Acquired Debt incurred or assumed after the Initial Borrowing
Date, shall not exceed, when added to the aggregate outstanding principal
amount of Indebtedness outstanding pursuant to Section 9.04(v) or secured
by Liens permitted under Section 9.01(viii), $10,000,000 in the aggregate
at any time outstanding;
(xiv) subordinated unsecured Indebtedness of PI Holdings issued with
respect to obligations permitted under Section 9.03(ii) in an aggregate
amount not to exceed the amounts permitted by Section 9.03(ii) (taking into
account any additional consideration paid in respect of such obligations);
(xv) Indebtedness of PI Holdings pursuant to the Holdings PIK
Subordinated Note in an aggregate principal amount not to exceed (x)
$19,000,000 plus (y) the principal amount of additional like kind notes
issued in payment of accrued interest on the Holdings PIK Subordinated
Note, less the aggregate amount of all repayments of the Holdings PIK
Subordinated Note effected after the Initial Borrowing Date;
(xvi) Indebtedness of the US Borrower pursuant to the US Borrower
Subordinated Notes in an aggregate principal amount not to exceed that
amount outstanding on the Initial Borrowing Date (such amount in any case
not to exceed $135,000,000), less the aggregate amount of all repayments of
principal of such US Borrower Subordinated Notes (including repurchases
thereof pursuant to Change of Control Purchases thereof) effected after the
Initial Borrowing Date;
(xvii) Indebtedness pursuant to one or more issuances of Qualified Debt
Securities owing to the sellers of stock or assets pursuant to any
Permitted Acquisition, and issued as part of the consideration paid in
connection with such Permitted Acquisition, in an aggregate principal
amount at any time outstanding not to exceed $30,000,000; and
(xviii) additional Indebtedness of the US Borrower and its Subsidiaries
not to exceed $500,000 in aggregate principal amount outstanding at any
time.
Notwithstanding the foregoing provisions of this Section 9.04, and for so
long as the Indenture remains outstanding, in no event shall any Borrower
incur or permit to remain outstanding any Indebtedness pursuant to Section
4.8(b)(ii) of the Indenture.
9.05 Advances, Investments and Loans. PI Holdings will not, and will
-------------------------------
not permit any of its Subsidiaries to, directly or indirectly, lend money or
credit or make advances to any Person, or purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, any other Person, or purchase or own a futures contract or
otherwise become liable for the purchase or sale of currency or other
commodities at a future
-86-
<PAGE>
date in the nature of a futures contract, or hold any cash or Cash Equivalents
(all of the foregoing, "Investments"), except that the following shall be
permitted:
(i) the US Borrower and its Subsidiaries may acquire and hold
accounts receivable arising in the ordinary course of business and owing to
any of them;
(ii) (x) the US Borrower and its Subsidiaries may acquire and hold
cash and Cash Equivalents, and (y) PI Holdings, PG Holdings, and PII
Holdings may hold cash or Cash Equivalents which are the proceeds of
Restricted Payments received from the US Borrower pursuant to Section 9.03
for up to five Business Days (with any such cash or Cash Equivalents held
by PI Holdings, PG Holdings, and PII Holdings after the fifth Business Day
following the receipt thereof by PI Holdings, PG Holdings, and PII Holdings
to be immediately contributed by PI Holdings, PG Holdings, and PII Holdings
to the US Borrower);
(iii) the US Borrower and its Subsidiaries may make loans and advances
in the ordinary course of business to their respective employees so long as
the aggregate principal amount of such loans and advances at any time
outstanding pursuant to this clause (iii) (determined without regard to any
write-downs or write-offs of such loans and advances) shall not exceed
$250,000;
(iv) the US Borrower and the Canadian Borrower may enter into
Interest Rate Protection Agreements to the extent permitted in Section
9.04(iv);
(v) the US Borrower and its Subsidiaries may enter into and perform
their obligations under Other Hedging Agreements entered into in the
ordinary course of business so long as any such Other Hedging Agreement is
not speculative in nature;
(vi) any Wholly-Owned Subsidiary of the US Borrower may make
intercompany loans to the US Borrower or any other Domestic Wholly-Owned
Subsidiary of the US Borrower and the US Borrower may make intercompany
loans and advances to and other Investments in any Domestic Wholly-Owned
Subsidiary of the US Borrower, provided that (i) any promissory notes
--------
evidencing such intercompany loans owing to the US Borrower or any Wholly-
Owned Subsidiary of the US Borrower shall be pledged (and delivered to the
Collateral Agent) as Collateral pursuant to the applicable Pledge Agreement
and (ii) any such intercompany loan made by any Foreign Subsidiary of the
US Borrower to the US Borrower or any Domestic Subsidiary of the US
Borrower shall be expressly subordinated to the Obligations of the US
Borrower or any guarantees thereof;
(vii) the US Borrower and its Subsidiaries may sell or transfer assets
to the extent permitted by Section 9.02, and may acquire non-cash
consideration in respect thereof to the extent permitted by Section
9.02(xi);
(viii) the US Borrower may establish Subsidiaries to the extent
permitted by Section 9.14, and may effect Permitted Acquisitions in
accordance with the requirements of Section 8.15;
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<PAGE>
(ix) (x) PI Holdings, PG Holdings, and PII Holdings may make capital
contributions to the US Borrower and (y) PI Holdings may make capital
contributions to PG Holdings and PII Holdings, and PG Holdings may make
capital contributions to PII Holdings; provided that, in each case, the
--------
entire amount thereof is promptly thereafter contributed by PG Holdings or
PII Holdings, as the case may be, to the capital of the US Borrower;
(x) PI Holdings may hold the promissory note from Muller issued on
or before the Initial Borrowing Date in an aggregate principal amount of
$3,500,000, provided that such note shall be pledged to the Collateral
--------
Agent pursuant to the US Pledge Agreement; and
(xi) the US Borrower and its Subsidiaries may make additional
Investments (which may, but are not required to be made, in joint ventures
and/or Subsidiaries which are not Wholly-Owned Subsidiaries) in an
aggregate amount at any time outstanding (calculated without regard to any
write-downs or write-offs thereof) not to exceed $500,000, provided, that
--------
to the extent any Investment pursuant to this clause (xi) is made as an
equity contribution to any Subsidiary of the US Borrower or its
Subsidiaries, the basket provided for by this clause (xi) shall be
replenished by the amount of any Dividends from the Subsidiary receiving
such equity contribution to the Person making such equity contribution.
9.06 Transactions with Affiliates. PI Holdings will not, and will
----------------------------
not permit any of its Subsidiaries to, enter into any transaction or series of
related transactions, whether or not in the ordinary course of business, with
any Affiliate of PI Holdings or any of its Subsidiaries, other than in the
ordinary course of business and on terms and conditions substantially as
favorable to PI Holdings or such Subsidiary as would reasonably be obtained by
PI Holdings or such Subsidiary at that time in a comparable arm's-length
transaction with a Person other than an Affiliate, except that:
(i) Restricted Payments may be paid to the extent provided in
Section 9.03;
(ii) loans may be made and other transactions may be entered into
among the US Borrower and its Subsidiaries to the extent expressly
permitted by Sections 9.02(x), (xiii) and (xiv), 9.04 and 9.05;
(iii) customary fees may be paid to non-officer directors of PI
Holdings;
(iv) PI Holdings and its Subsidiaries may enter into employment
arrangements with respect to the procurement of services of their
respective officers and employees in the ordinary course of business,
including executive compensation arrangements;
(v) the US Borrower and its Subsidiaries' may make Investments
permitted by Section 9.05(x); and
(vi) so long as no Default or Event of Default then exists, or would
exist immediately after giving effect thereto, the US Borrower may pay (x)
fees and reasonable
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<PAGE>
expense reimbursements owing pursuant to the Carlyle Management Agreement,
provided, that in no event shall the aggregate amount of fees paid under
--------
the Carlyle Management Agreement exceed $1,000,000 per annum, (y) fees
owing pursuant to the Genstar Engagement Agreement not to exceed $675,000
in any fiscal year of PI Holdings or $1,610,625 in the aggregate and (z)
transaction fees payable to Carlyle Entities in connection with Permitted
Acquisitions and capital markets transactions permitted to be consummated
under this Agreement; provided that such transaction fees shall not exceed
--------
the amount which, in the good faith estimate of management of PI Holdings
or the US Borrower, would be paid for the services provided to PI Holdings
and its Subsidiaries if such fees were determined on an arms-length basis.
Except as specifically provided in clause (vi) above, no management or
similar fees shall be paid or payable by PI Holdings or any of its Subsidiaries
to any Carlyle Entity or to any other Person that is an Affiliate of PI Holdings
or any of its Subsidiaries other than the US Borrower.
9.07 Business. (a) Holdings, PI Holdings, PG Holdings and PII
--------
Holdings will engage in no business activities and shall have no assets or
liabilities, other than (i) obligations set forth in Section 9.03(iii), (ii) tax
obligations in connection with the operations of Holdings and its Subsidiaries,
(iii) their ownership of the capital stock of PI Holdings, PG Holdings, PII
Holdings and the US Borrower, as the case may be, and liabilities incident
thereto, including their guaranty pursuant to Section 14.01, (iv) in the case of
PI Holdings, liabilities pursuant to the Holdings PIK Subordinated Note to the
extent permitted by Section 9.04(xv) and (v) and obligations permitted by
Section 9.04(xvii) pursuant to Qualified Debt Securities.
(b) The US Borrower will not, and will not permit any of its
Subsidiaries to, engage (directly or indirectly) in any business other than the
Business and reasonable extensions thereof.
9.08 Capital Expenditures. (a) PI Holdings will not, and will not
--------------------
permit any of its Subsidiaries to, make any Capital Expenditures, except that
the US Borrower and its Subsidiaries may make Capital Expenditures so long as
the aggregate amount of such Capital Expenditures made under this Section
9.08(a) does not exceed in the aggregate for any fiscal year of PI Holdings that
amount set forth below opposite such fiscal year, as such amount may be reduced
by amounts allocated to Capital Expenditures in such fiscal year pursuant to
clause (y) of the final sentence of Section 8.15(a):
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
1999 $12,000,000
2000 $21,000,000
2001 $15,000,000
2002 $12,000,000
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Amount
----------- ------
<S> <C>
2003 $12,000,000
2004 $12,000,000
2005 $12,000,000
2006 $12,000,000
</TABLE>
(b) Notwithstanding anything to the contrary contained in clause (a)
above, to the extent that the aggregate amount of Capital Expenditures made by
the US Borrower and its Subsidiaries (excluding those Capital Expenditures made
pursuant to following clause (c)) in any fiscal year of PI Holdings (beginning
with fiscal year 2000) are less than the amount permitted above in clause (a)
for such fiscal year, the amount of such difference, but in no case more than,
in the case of fiscal years 2000 and 2001, 70% and, in the case of each
subsequent fiscal year, 25% of the aggregate amount permitted for such fiscal
year, may be carried forward and used to make Capital Expenditures in the
immediately succeeding fiscal year.
(c) In addition to the Capital Expenditures permitted pursuant to
preceding clauses (a) and (b), the US Borrower and its Subsidiaries may make
additional Capital Expenditures as follows: (i) the reinvestment of proceeds of
Recovery Events that are not required to be applied to prepay Loans pursuant to
Section 4.02(j) and the reinvestment of asset sale proceeds not required to be
applied to prepay Loans pursuant to Section 4.02(h) in replacement assets which
are the functional equivalent of the item so sold or exchanged within 120 days
of such asset sale giving rise to such proceeds, (ii) Permitted Acquisitions and
Capital Expenditures that may be effected in accordance with the requirements of
Section 8.15 and (iii) Capital Expenditures funded by additional cash equity
contributions from the Equity Investors.
9.09 Consolidated Interest Coverage Ratio. PI Holdings will not
------------------------------------
permit the Consolidated Interest Coverage Ratio for any Test Period, in each
case taken as one accounting period, ended on the last day of a fiscal quarter
described below to be less than the amount set forth opposite such fiscal
quarter below:
<TABLE>
<CAPTION>
Fiscal Quarter
--------------
Ended Closest to Ratio
---------------- -----
<S> <C>
December 31, 1999 2.25:1.00
March 31, 2000 2.25:1.00
June 30, 2000 2.25:1.00
September 30, 2000 2.50:1.00
December 31, 2000 2.50:1.00
March 31, 2001 2.50:1.00
June 30, 2001 2.50:1.00
September 30, 2001 2.50:1.00
December 31, 2001 2.75:1.00
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
March 31, 2002 2.75:1.00
June 30, 2002 2.75:1.00
September 30, 2002 3.00:1.00
December 31, 2002 3.00:1.00
March 31, 2003 3.00:1.00
June 30, 2003 3.00:1.00
September 30, 2003 3.00:1.00
December 31, 2003 3.00:1.00
March 31, 2004 3.00:1.00
June 30, 2004 3.00:1.00
September 30, 2004 3.00:1.00
December 31, 2004 3.00:1.00
March 31, 2005 3.00:1.00
June 30, 2005 3.00:1.00
September 30, 2005 3.00:1.00
December 31, 2005 3.00:1.00
March 31, 2006 3.00:1.00
June 30, 2006 3.00:1.00
September 30, 2006 3.00:1.00
</TABLE>
9.10 Maximum Leverage Ratio. PI Holdings will not permit the
----------------------
Leverage Ratio at any time during a period described below to be greater than
the ratio set forth opposite such period below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Fiscal quarter ending closest to
December 31, 1999 4.00:1.00
Fiscal quarter ending closest to
March 31, 2000 4.00:1.00
Fiscal quarter ending closest to
June 30, 2000 4.00:1.00
Fiscal quarter ending closest to
September 30, 2000 4.00:1.00
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Fiscal quarter ending closest to
December 31, 2000 3.75:1.00
Fiscal quarter ending closest to
March 31, 2001 3.75:1.00
Fiscal quarter ending closest to
June 30, 2001 3.75:1.00
Fiscal quarter ending closest to
September 30, 2001 3.50:1.00
Fiscal quarter ending closest to
December 31, 2001 3.50:1.00
Fiscal quarter ending closest to
March 31, 2002 3.25:1.00
Fiscal quarter ending closest to
June 30, 2002 3.25:1.00
Fiscal quarter ending closest to
September 30, 2002 3.00:1.00
Fiscal quarter ending closest to
December 31, 2002 3.00:1.00
Fiscal quarter ending closest to
March 31, 2003 3.00:1.00
Fiscal quarter ending closest to
June 30, 2003 3.00:1.00
Fiscal quarter ending closest to
September 30, 2003 2.75:1.00
Fiscal quarter ending closest to
December 31, 2003 2.75:1.00
Fiscal quarter ending closest to
March 31, 2004 2.75:1.00
Fiscal quarter ending closest to
June 30, 2004 2.75:1.00
Fiscal quarter ending closest to
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
September 30, 2004 2.75:1.00
Fiscal quarter ending closest to
December 31, 2004 2.75:1.00
Fiscal quarter ending closest to
March 31, 2005 2.75:1.00
Fiscal quarter ending closest to
June 30, 2005 2.75:1.00
Fiscal quarter ending closest to
September 30, 2005 2.75:1.00
Fiscal quarter ending closest to
December 31, 2005 2.75:1.00
Fiscal quarter ending closest to
March 31, 2006 2.75:1.00
Fiscal quarter ending closest to
June 30, 2006 2.75:1.00
Fiscal quarter ending closest to
September 30, 2006 2.75:1.00
Fiscal quarter ending closest to
December 31, 2006 2.75:1.00
</TABLE>
9.11 Limitation on Modifications of Indebtedness; Modifications of
-------------------------------------------------------------
Certificate of Incorporation, By-Laws and Certain Other Agreements; etc. PI
- ------------------------------------------------------------------------
Holdings will not, and will not permit any of its Subsidiaries to, (i) amend or
modify, or permit the amendment or modification of, any provision of the
Existing Indebtedness, the Holdings PIK Subordinated Note Documents, the US
Borrower Subordinated Note Documents or the documentation governing any
Qualified Debt Securities, other than any amendments or modifications of the
foregoing which do not in any way adversely affect the interests of the Lenders
and which are otherwise permitted under the other terms of this Agreement, (ii)
amend or modify, or permit the amendment or modification of, any
Recapitalization Document, except for amendments or modifications which are not
in any way adverse to the interests of the Lenders, (iii) amend, modify or
change its Certificate of Incorporation (including, without limitation, by the
filing or modification of any certificate of designation), By-Laws or Operating
Agreement, or any agreement entered into by it with respect to its capital stock
(including any Shareholders' Agreement), or enter into any new agreement with
respect to its capital stock, other than any amendments, modifications or
changes pursuant to this clause (iii) or any such new agreements pursuant to
this clause (iii) which do not in any way adversely affect the interests of the
Lenders, provided that nothing in this clause (iii) shall prevent PI Holdings or
--------
any of its Subsidiaries from amending its Certificate of
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Incorporation or By-laws to permit PI Holdings to issue such capital stock as is
permitted to be issued by Section 9.13 or (iv) make (or give any notice in
respect of) any voluntary or optional payment or prepayment on or redemption or
acquisition for value of, or make any prepayment or redemption as a result of
any asset sale, change of control or similar event of (including, without
limitation, by way of depositing money or securities before due for the purpose
of paying when due) the US Borrower Subordinated Notes, the Holdings PIK
Subordinated Note, any Qualified Debt Securities, any other Existing
Indebtedness or any Indebtedness for borrowed money permitted to be issued after
the Initial Borrowing Date pursuant to Section 9.04.
9.12 Limitation on Certain Restrictions on Subsidiaries. The US
--------------------------------------------------
Borrower will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any such Subsidiary to (a) pay
dividends or make any other distributions on its capital stock or any other
interest or participation in its profits owned by the US Borrower or any
Subsidiary of the US Borrower, or pay any Indebtedness owed to the US Borrower
or a Subsidiary of the US Borrower, (b) make loans or advances to the US
Borrower or any Subsidiary of the US Borrower or (c) transfer any of its
properties or assets to the US Borrower or any Subsidiary of the US Borrower,
except for such encumbrances or restrictions existing under or by reason of (i)
applicable law, (ii) this Agreement and the other Credit Documents, (iii)
customary provisions restricting subletting or assignment of any lease governing
a leasehold interest of the US Borrower or a Subsidiary of the US Borrower, (iv)
customary provisions restricting assignment of any licensing agreement entered
into by the US Borrower or a Subsidiary of the US Borrower in the ordinary
course of business, (v) any holder of a Permitted Lien may restrict the transfer
of the asset or assets subject thereto, (vi) any Indebtedness incurred after the
Initial Borrowing Date in accordance with the provisions of this Agreement may
contain restrictions which are not more restrictive than those contained in this
Agreement, (vii) to the extent any Subsidiary acquired or created after the
Initial Borrowing Date is the obligor with respect to Permitted Acquired Debt
permitted to remain outstanding pursuant to the terms of this Agreement, such
Permitted Acquired Debt may contain restrictions of the type otherwise described
above with respect to such Subsidiary (so long as such restrictions were not
created in contemplation of such Person becoming a Subsidiary or made more
restrictive after the date of the respective acquisition).
9.13 Limitation on Issuance of Capital Stock. (a) PI Holdings will
---------------------------------------
not issue (i) any preferred stock other than Qualified Preferred Stock or (ii)
any redeemable (except at the sole option of PI Holdings) common stock.
(b) PG Holdings, PII Holdings and the Borrowers will not issue, or
permit any of their Subsidiaries to issue, any capital stock (including by way
of sales of treasury stock) or any options or warrants to purchase, or
securities convertible into, capital stock, except (i) for transfers and
replacements of then outstanding shares of capital stock, (ii) for stock splits,
stock dividends and additional issuances which do not decrease the percentage
ownership of PI Holdings or any of its Subsidiaries in any class of the capital
stock of the US Borrower or such Subsidiary, (iii) in the case of Foreign
Subsidiaries of the US Borrower, to qualify directors to the extent required by
applicable law, and (iv) Subsidiaries of the US Borrower formed after the
Initial Borrowing Date pursuant to Section 9.14 may issue capital stock to the
US Borrower or the respective Subsidiary of the US Borrower which owns such
stock in accordance with the
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requirements of Section 8.11. All capital stock issued in accordance with this
Section 9.13(b) shall, to the extent required by the Pledge Agreements, be
delivered to the Collateral Agent and pledged pursuant to the Pledge Agreements.
9.14 Limitation on Creation of Subsidiaries. PI Holdings will not,
--------------------------------------
and will not permit any of its Subsidiaries to, establish, create or acquire any
additional Subsidiaries without the prior written consent of the Required
Lenders; provided that (i) the US Borrower may acquire, pursuant to a Permitted
--------
Acquisition, establish or create one or more Wholly-Owned Subsidiaries of the US
Borrower without such consent and (ii) the Canadian Borrower may acquire,
pursuant to a Permitted Acquisition, establish or create one or more Canadian
Wholly-Owned Subsidiaries without such consent so long as in each case described
above in clauses (i) and (ii) of this Section 9.14 (x) 100% of the capital stock
of any such new Subsidiary (or 65% of the Voting Stock and 100% of the non-
Voting Stock of any Canadian Wholly-Owned Subsidiary acquired by the US Borrower
or any of its Domestic Wholly-Owned Subsidiaries) is upon the creation or
establishment or acquisition of any such new Subsidiary pledged and delivered to
the Collateral Agent for the benefit of the Secured Creditors under the US
Pledge Agreement or the Canadian Pledge Agreement, as applicable and (y) upon
the creation, establishment or acquisition (or thereafter to the extent
permitted by Section 8.12) of any such new Wholly-Owned Subsidiary, such Wholly-
Owned Subsidiary executes the Additional Security Documents and guaranty
required to be executed by it in accordance with Section 8.12. Notwithstanding
anything to the contrary contained above, the US Borrower may acquire or create
one or more Subsidiaries which are not Wholly-Owned Subsidiaries, so long as the
aggregate amount of Investments made therein by the US Borrower and its other
Subsidiaries is permitted by Section 9.05(x).
SECTION 10. Events of Default. Upon the occurrence of any of the
-----------------
following specified events (each an "Event of Default"):
10.01 Payments. The US Borrower or the Canadian Borrower shall (i)
--------
default in the payment when due of any principal or Face Amount, as applicable,
of any Loan or any Note or any Bankers' Acceptance or (ii) default, and such
default shall continue unremedied for three or more Business Days, in the
payment when due of any Unpaid Drawings or interest on any Loan or Note, or any
Fees or any other amounts owing hereunder or thereunder; or
10.02 Representations, etc. Any representation, warranty or
---------------------
statement made by Holdings or any Credit Party herein or in any other Credit
Document or in any certificate delivered pursuant hereto or thereto shall prove
to be untrue in any material respect on the date as of which made or deemed
made; or
10.03 Covenants. Holdings, PI Holdings, PG Holdings, PII Holdings,
---------
the US Borrower or the Canadian Borrower shall (i) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 8.01(g)(i), Section 8.08, the first sentence of Section 8.11, Section
8.15, Section 8.16 or Section 9 or (ii) default in the due performance or
observance by it of any other term, covenant or agreement contained in this
Agreement and such default shall continue unremedied for a period of 30 days
after written
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notice to the US Borrower by the Administrative Agent (whether
acting on its own or at the request of the Required Lenders); or
10.04 Default Under Other Agreements. (i) PI Holdings or any of its
------------------------------
Subsidiaries shall (x) default in any payment of any Indebtedness (other than
the Obligations) beyond the period of grace, if any, provided in the instrument
or agreement under which such Indebtedness was created or (y) default in the
observance or performance of any agreement or condition relating to any
Indebtedness (other than the Obligations) or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such Indebtedness
(or a trustee or agent on behalf of such holder or holders) to cause (determined
without regard to whether any notice is required), any such Indebtedness to
become due prior to its stated maturity, (ii) any Indebtedness (other than the
Obligations) of PI Holdings or any of its Subsidiaries shall be declared to be
due and payable, or required to be prepaid other than by a regularly scheduled
required prepayment, prior to the stated maturity thereof, provided that it
--------
shall not be a Default or an Event of Default under this Section 10.04 unless
the aggregate principal amount of all Indebtedness as described in preceding
clauses (i) and (ii) is at least $2,000,000; or
10.05 etc. PI Holdings or any of its Subsidiaries (excluding
----------------
Insignificant Subsidiaries) shall commence a voluntary case concerning itself
under Title 11 of the United States Code entitled "Bankruptcy," as now or
hereafter in effect, or any successor thereto (the "Bankruptcy Code"); or an
involuntary case is commenced against PI Holdings or any of its Subsidiaries
(excluding Insignificant Subsidiaries) and the petition is not controverted
within 15 days, or is not dismissed within 90 days, after commencement of the
case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or
takes charge of, all or substantially all of the property of PI Holdings or any
of its Subsidiaries (excluding Insignificant Subsidiaries), or PI Holdings or
any of its Subsidiaries (excluding Insignificant Subsidiaries) commences any
other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, winding-up, bankruptcy, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in
effect relating to PI Holdings or any of its Subsidiaries (excluding
Insignificant Subsidiaries), or there is commenced against PI Holdings or any of
its Subsidiaries (excluding Insignificant Subsidiaries) any such proceeding
which remains undismissed for a period of 90 days, or PI Holdings or any of its
Subsidiaries (excluding Insignificant Subsidiaries) is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or PI Holdings or any of its Subsidiaries (excluding
Insignificant Subsidiaries) suffers any appointment of any custodian receiver,
trustee or the like for it or any substantial part of its property to continue
undischarged or unstayed for a period of 90 days; or PI Holdings or any of its
Subsidiaries (excluding Insignificant Subsidiaries) makes a general assignment
for the benefit of creditors; or any corporate action is taken by PI Holdings or
any of its Subsidiaries (excluding Insignificant Subsidiaries) for the purpose
of effecting any of the foregoing; or
10.06 ERISA. (a) Any Plan or Multiemployer Plan shall fail to satisfy
-----
the minimum funding standard required for any plan year or part thereof under
Section 412 of the Code or Section 302 of ERISA or a waiver of such standard or
extension of any amortization
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period is sought or granted under Section 412 of the Code or Section 303 or 304
of ERISA, a Reportable Event shall have occurred, any Plan shall have had or is
likely to have a trustee appointed to administer such Plan, any Plan or
Multiemployer Plan is, shall have been or is likely to be terminated or to be
the subject of termination proceedings under ERISA, any Plan shall have an
Unfunded Current Liability, a contribution required to be made with respect to a
Plan, Multiemployer Plan or a Foreign Pension Plan has not been timely made, PI
Holdings or any Subsidiary of PI Holdings or any ERISA Affiliate has incurred or
is likely to incur any liability to or on account of a Plan or Multiemployer
Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204
or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or on account
of a group health plan (as defined in Section 607(1) of ERISA or Section
4980B(g)(2) of the Code) under Section 4980B of the Code, or PI Holdings or any
Subsidiary of PI Holdings has incurred or is likely to incur liabilities
pursuant to one or more employee welfare benefit plans (as defined in Section
3(1) of ERISA) that provide benefits to retired employees or other former
employees (other than as required by Section 601 of ERISA) or Plans,
Multiemployer Plans or Foreign Pension Plans; (b) there shall result from any
such event or events the imposition of a lien, the granting of a security
interest, or a liability or a material risk of incurring a liability; and (c)
such lien, security interest or liability, individually, and/or in the
aggregate, in the opinion of the Agents, has had, or could reasonably be
expected to have, a Material Adverse Effect; or
10.07 Security Documents. At any time after the execution, delivery
------------------
and in the case of the Mortgages, filing thereof, any of the Security Documents
shall cease to be in full force and effect, or shall cease in any material
respect to give the Collateral Agent for the benefit of the Secured Creditors
the Liens, rights, powers and privileges purported to be created thereby
(including, without limitation, a perfected security interest in, and Lien on,
any material portion of the Collateral), in favor of the Collateral Agent,
superior to and prior to the rights of all third Persons (except as permitted by
Section 9.01), and subject to no other Liens (except as permitted by Section
9.01), or any Credit Party shall default in the due performance or observance of
any term, covenant or agreement on its part to be performed or observed pursuant
to any of the Security Documents and such default shall continue beyond any
grace period specifically applicable thereto pursuant to the terms of such
Security Document; provided that in the case of the Mortgages and intellectual
--------
property assignments, so long as such default does not in any way impair the
Collateral Agent's perfected security interest in and Lien on (including,
without limitation, the first priority status of such Lien) or materially impair
the value of any Real Property or intellectual property which is the subject of
such Mortgage or assignment, the Borrowers shall have 30 days from the date of
any notice of such default from the Administrative Agent or the Required Lenders
to the US Borrower during which to cure such default before such condition
results in an Event of Default pursuant to this Section 10.07; or
10.08 Guaranty. Any Guaranty or any provision thereof shall cease to
--------
be in full force or effect as to the relevant Guarantor (unless such Guarantor
is no longer a Subsidiary or Parent Guarantor by virtue of a liquidation, sale,
merger or consolidation permitted by Section 9.02), or any Guarantor (or any
other Person acting by or on behalf of such Guarantor) shall deny or disaffirm
such Guarantor's obligations under the relevant Guaranty or any such Guarantor
shall default in the due performance or observance of any term, covenant or
agreement on its part to be performed or observed pursuant to its Guaranty,
provided that in the case of Section 13 of
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the Subsidiaries Guaranty, if the default constitutes a failure to perform or
comply with any provision, covenant or agreement contained in Section 8 of this
Agreement (other than Section 8.01(g)(i), Section 8.08, the first sentence of
Section 8.11, or Section 8.15), such default shall not constitute an Event of
Default unless it shall continue unremedied for a period of at least 30 days
after written notice to the US Borrower by the Administrative Agent (whether
acting on its own behalf or at the request of the Required Lenders); or
10.09 Judgments. One or more judgments or decrees shall be entered
---------
against PI Holdings or any of its Subsidiaries involving in the aggregate for PI
Holdings and its Subsidiaries (excluding Insignificant Subsidiaries) a liability
(not paid by (or on behalf of) PI Holdings or any of its Subsidiaries or fully
covered by a reputable and solvent insurance company) and such judgments and
decrees either shall be final and non-appealable or shall not be vacated,
discharged or stayed or bonded pending appeal for any period of 60 consecutive
days, and the aggregate amount of all such judgments and decrees, to the extent
not covered by insurance, exceeds $2,000,000; or
10.10 Change of Control. A Change of Control shall occur; or
-----------------
10.11 Subordination. At any time following the Initial Borrowing
-------------
Date, the Obligations (or any of them) shall cease to constitute "Senior Debt"
under and pursuant to the US Borrower Subordinated Notes, the Holdings PIK
Subordinated Note and/or any Qualified Debt Securities issued pursuant to
Section 9.04(xvii);
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent, upon the written request of
the Required Lenders, shall by written notice to the US Borrower, take any or
all of the following actions, without prejudice to the rights of any Agent, any
Lender or the holder of any Note to enforce its claims against any Credit Party
(provided that, if an Event of Default specified in Section 10.05 shall occur
--------
with respect to either Borrower, the result which would occur upon the giving of
written notice by the Administrative Agent to the US Borrower as specified in
clauses (i) and (ii) below shall occur automatically without the giving of any
such notice): (i) declare the Total Commitments terminated, whereupon all
Commitments of each Lender shall forthwith terminate immediately and any accrued
and unpaid Commitment Commission shall forthwith become due and payable without
any other notice of any kind; (ii) declare the principal and Face Amount, as
applicable, of and any accrued interest in respect of all Loans, Notes and
Bankers' Acceptances and all Obligations owing hereunder and thereunder to be,
whereupon the same shall become, forthwith due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
each Credit Party; (iii) terminate any Letter of Credit, which may be so
terminated in accordance with its terms; (iv) direct the US Borrower to pay (and
the US Borrower agrees that upon receipt of such notice, or upon the occurrence
of an Event of Default specified in Section 10.05 with respect to either
Borrower, it will pay) to the Collateral Agent at the Payment Office such
additional amount of cash, to be held as security by the Collateral Agent, as is
equal to the aggregate Stated Amount of all Letters of Credit then outstanding;
(v) enforce, as Collateral Agent, all of the Liens and security interests
created pursuant to the Security Documents; and (vi) apply any cash collateral
as provided in Section 4.02.
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SECTION 11. Definitions and Accounting Terms.
--------------------------------
11.01 As used in this Agreement, the following terms shall have the
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):
"Acceptance Fee" shall mean, in respect of a Bankers' Acceptance, a
fee calculated on the Face Amount of such Bankers' Acceptance at a rate per
---
annum equal to the Applicable Margin that would be payable with respect to a
- -----
Tranche A Term Loan maintained as a Eurodollar Loan drawn on the Drawing Date of
such Bankers' Acceptance. Acceptance Fees shall be calculated on the basis of
the term to maturity of the Bankers' Acceptance and a year of 365 days.
"Acquisition Commitment Assumption Agreement" shall mean and include
each Acquisition Commitment Assumption Agreement in the form of Exhibit L hereto
executed and delivered in accordance with Section 1.14 hereof.
"Acquisition Commitment Assumption Date" shall mean the date on which
each Acquisition Commitment Assumption Agreement is delivered to the
Administrative Agent pursuant to Section 1.14 of this Agreement.
"Acquisition Loan" shall have the meaning provided in Section 1.01(g).
"Acquisition Loan Commitment" shall mean with respect to each Lender,
the amount (if any) from time to time set forth opposite such Lender's name on
Schedule I hereto directly below the column entitled "Acquisition Loan
Commitment", as the same may be deemed amended pursuant to Section 1.14 on each
Acquisition Commitment Assumption Date, and as the same may be reduced from time
to time pursuant to Sections 3.02, 3.03, 4.02, and/or 10 or (z) adjusted from
time to time as a result of assignments to or from such Lender pursuant to
Section 1.13 or 13.04(b).
"Acquisition Loan Scheduled Repayment" shall have the meaning provided
in Section 4.02(d).
"Acquisition Loan Scheduled Repayment Date" shall have the meaning
provided in Section 4.02(d).
"Acquisition Note" shall have the meaning provided in Section 1.05(a).
"Acquisition Revolving Loan" shall have the meaning provided in
Section 1.01(f).
"Acquisition Term Loan" shall have the meaning provided in Section
1.01(g).
"Additional Charges" shall have the meaning provided in Section
13.18(b).
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"Additional Collateral" shall mean all property (whether real or
personal) in which security interests are granted (or have been purported to be
granted) (and continue to be in effect at the time of determination) pursuant to
Section 8.12.
"Additional Mortgage" shall have the meaning provided in Section
8.12(a).
"Additional Mortgaged Property" shall have the meaning provided in
Section 8.12(a).
"Additional Security Documents" shall mean all mortgages, pledge
agreements, security agreements and other security documents entered into
pursuant to Section 8.12 with respect to Additional Collateral, as each such
document may be modified, supplemented or amended from time to time.
"Adjusted Consolidated Net Income" for any period shall mean
Consolidated Net Income for such period without taking into account any gains or
losses from Asset Sales made during such period to the extent otherwise included
in the calculation of Consolidated Net Income, plus, without duplication, the
sum of (i) the amount of all net non-cash charges (including, without
limitation, depreciation, amortization, deferred tax expense and non-cash
interest expense, but excluding any net non-cash charges reflected in Adjusted
Consolidated Working Capital), (ii) net non-cash losses which were included in
arriving at Consolidated Net Income for such period and (iii) all cash payments
made on the Holdings PIK Subordinated Note during such period, less the sum of
the amount of all net non-cash gains (exclusive of items reflected in Adjusted
Consolidated Working Capital) included in arriving at Consolidated Net Income
for such period.
"Adjusted Consolidated Working Capital" at any time shall mean
Consolidated Current Assets (but excluding therefrom all cash and Cash
Equivalents) less Consolidated Current Liabilities.
"Administrative Agent" shall have the meaning provided in the first
paragraph of this Agreement, and any successor thereto.
"Affected Eurodollar Loan" shall have the meaning provided in Section
4.02.
"Affiliate" shall mean, with respect to any Person, any other Person
(including, for purposes of Section 9.06 only, all directors, officers and
partners of such Person) directly or indirectly controlling, controlled by, or
under direct or indirect common control with, such Person; provided, however,
-------- -------
that for purposes of Section 9.06, an Affiliate of PI Holdings shall include any
Person that directly or indirectly owns more than 10% of any class of the
capital stock of PI Holdings and any officer or director of PI Holdings or any
of its Subsidiaries. A Person shall be deemed to control another Person if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such other Person, whether through
the ownership of voting securities, by contract or otherwise.
"Agents" shall mean, collectively, the Administrative Agent, the
Syndication Agent and, for purposes of Section 12 and 13.01, shall also include
the Collateral Agent.
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<PAGE>
"Aggregate Percentage" of any Lender at any time shall be that
percentage (determined after giving effect to any conversion required by Section
1.15(a)) which is equal to a fraction (expressed as a percentage) the numerator
of which is the sum of the outstanding Term Loans and Commitments of such Lender
at such time and the denominator of which is the sum of all outstanding Term
Loans at such time plus the Total Commitment at such time, provided that if any
--------
such determination is to be made after the Total Commitment (and related
Commitments of the Lenders) has terminated, the determination of such
percentages shall be made immediately before giving effect to such termination.
"Agreement" shall mean this Credit Agreement, as modified,
supplemented, amended, restated, extended, renewed or replaced from time to
time.
"AL Lender" shall mean, at any time, each Lender with an Acquisition
Loan Commitment or outstanding Acquisition Loans.
"AL Percentage" of any Lender at any time shall mean a fraction
(expressed as a percentage) the numerator of which is the aggregate principal
amount of the Acquisition Loan Commitment of such Lender then outstanding and
the denominator of which is the Total Acquisition Loan Commitment then in
effect.
"Applicable Excess Cash Flow Percentage" shall mean, for each Excess
Cash Payment Period ending prior to January 1, 2001, 75%, and for each Excess
Cash Payment Period ending thereafter, the respective percentage set forth in
clause (A) or (B) below if, but only if, as of the last day of the fiscal
quarter of PI Holdings most recently ended as of the Excess Cash Payment Date
applicable to such Excess Cash Payment Period, the applicable conditions set
forth in clause (A) or (B) below, as the case may be, are met:
(A) 75% if, the Leverage Ratio for the applicable Test Period shall be
greater than 2.25:1.00.
(B) 50%, if the Leverage Ratio for the applicable Test Period shall be
less than or equal to 2.25:1.00.
Notwithstanding anything to the contrary contained above in this definition, the
Applicable Excess Cash Flow Percentage shall be 75% at all times during which a
Default or Event of Default exists and is continuing as of the respective Excess
Cash Payment Date.
"Applicable Margin" at any time shall mean a percentage per annum
equal to (i) in the case of Tranche A Term Loans, Revolving Loans, Acquisition
Loans and Canadian Term Loans (A) maintained as Base Rate Loans or Canadian
Prime Rate Loans, the greater of (x) 0% and (y) 1.25% plus the then applicable
Interest Adjustment Factor, and (B) maintained as Eurodollar Loans, the greater
of (x) 0% and (y) 2.25% plus the then applicable Interest Adjustment Factor,
(ii) in the case of Tranche B Term Loans (A) maintained as Base Rate Loans,
1.75% and (B) maintained as Eurodollar Loans, 2.75%, and (iii) in the case of
Swingline Loans (which must be maintained as Base Rate Loans), the greater of
(x) 0% and (y) 1.25% plus the then applicable Interest Adjustment Factor. For
purposes of the immediately preceding sentence, it is understood that, if the
respective Interest Adjustment Factor is a negative percentage, the
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addition of such negative percentage shall result in a decrease to the
Applicable Margin by the relevant percentage specified in the definition of
Interest Adjustment Factor. Notwithstanding anything to the contrary contained
above, on the Change of Control Purchase Borrowing Date, the Applicable Margin
for Tranche B Term Loans as determined above shall be increased by (x) 1/4 of 1%
if the Senior Leverage Amount is less than or equal to $205,000,000 but greater
than $135,000,000 or (y) 1/2 of 1%, if the Senior Leverage Amount is greater
than $205,000,000.
"Asset Sale" shall mean the sale, lease or other disposition by PI
Holdings or any of its Subsidiaries to any Person other than a Borrower or any
Wholly-Owned Subsidiary of the US Borrower of (i) any of the stock or other
equity interests of any of PI Holdings' Subsidiaries, (ii) substantially all of
the assets of any division or line of business of PI Holdings or any of its
Subsidiaries, or (iii) any other assets (whether tangible or intangible) of PI
Holdings or any of its Subsidiaries; provided, however, that Asset Sales shall
-------- -------
not include (x) any sale or discount, in each case without recourse, of accounts
receivable arising in the ordinary course of business, but only in connection
with the compromise or collection thereof, (y) any sale or exchange of specific
items of equipment, so long as the purpose of each such sale or exchange is to
acquire (and results within 120 days of such sale or exchange in the acquisition
of) replacement items of equipment which are the functional equivalent of the
item of equipment so sold or exchanged and (z) the leasing (pursuant to leases
in the ordinary course of business) or licensing of real or personal property,
including intellectual property.
"Assignment and Assumption Agreement" shall mean the Assignment and
Assumption Agreement substantially in the form of Exhibit K (appropriately
completed).
"Assuming Lender" shall have the meaning set forth in Section 1.14.
"Authorized Officer" shall have the meaning provided in Section
1.03(c).
"BA Accreted Amount" shall mean, in respect of any Bankers' Acceptance
purchased by a Lender pursuant to Section 1.06 and Schedule III hereto, on any
date, an amount equal to the sum of BA Discount Proceeds plus the amount of the
----
BA Discount accreted from, and including, the date of purchase of such Bankers'
Acceptance to, but excluding, such date of determination at the Reference
Discount Rate applicable to such Bankers' Acceptance, on the basis of actual
days elapsed in a 365-day year.
"BA Discount" shall mean, in respect of any Bankers' Acceptance
purchased by a Lender pursuant to Section 1.06 and Schedule III hereto, an
amount equal to the difference between the Face Amount of such Bankers'
Acceptance and the BA Discount Proceeds with respect to such Bankers'
Acceptance.
"BA Discount Proceeds" shall mean, in respect of any Bankers'
Acceptance to be purchased by a Lender on any date pursuant to Section 1.06 and
Schedule III hereto, an amount rounded to the nearest whole Canadian cent,
calculated on such day by dividing:
(a) the Face Amount of such Bankers' Acceptance;
by
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(b) the sum of one plus the product of:
----
(i) the Reference Discount Rate (expressed as a decimal)
applicable to such Bankers' Acceptance; and
(ii) a fraction, the numerator of which is the number of days in
the term of maturity of such Bankers' Acceptance and the
denominator of which is 365;
with such product being rounded up or down to the fifth decimal place.
"Bank Act Security" shall have the meaning provided in Section 5.11.
"Bankers' Acceptance" means a Draft accepted by a Lender pursuant to
Section 1.06 and Schedule III hereto.
"Bankers' Acceptance Loans" shall mean the creation and discount of
Bankers' Acceptances as contemplated in Section 1.06 hereof and Schedule III
hereto.
"Bankruptcy Code" shall have the meaning provided in Section 10.05.
"Base Rate" shall mean, for any day, a rate of interest per annum
equal to the higher of (i) the Prime Lending Rate for such day and (ii) the sum
of the Federal Funds Rate for such day plus 1/2 of 1% per annum.
"Base Rate Loan" shall mean (i) each Swingline Loan and (ii) each
other Loan designated or deemed designated as such by the US Borrower at the
time of the incurrence thereof or conversion thereto.
"Borrowers" shall have the meaning provided in the first paragraph of
this Agreement.
"Borrowing" shall mean the borrowing of one Type of Loan of a single
Tranche from all the Lenders (other than any Lender which has not funded its
share of such borrowing in accordance with this Agreement) having Commitments of
the respective Tranche (or from the Swingline Lender in the case of Swingline
Loans) on a given date (or resulting from a conversion or conversions on such
date) having in the case of Eurodollar Loans the same Interest Period, provided
--------
that Base Rate Loans incurred pursuant to Section 1.10(b) shall be considered
part of the related Borrowing of Eurodollar Loans.
"BTCo" shall mean Bankers Trust Company in its individual capacity.
"Business" shall mean the business as conducted by the Borrowers and
their respective Subsidiaries on the Initial Borrowing Date (after giving effect
to the Transaction) and any logical extensions or related ancillary businesses
thereof (including business functions incidental to such business).
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"Business Day" shall mean (i) for all purposes other than as covered
by clauses (ii) and (iii) below, any day excluding Saturday, Sunday and any day
which shall be in the City of New York a legal holiday or a day on which banking
institutions are authorized by law or other governmental actions to close and
(ii) with respect to all notices and determinations in connection with, and
payments of principal and interest on, Eurodollar Loans, any day which is a
Business Day described in clause (i) and which is also a day for trading by and
between banks in U.S. dollar deposits in the interbank Eurodollar market and
(iii) with respect to all notices and determinations in connection with, and
payments of principal and interest on, Canadian Term Loans, any day which is a
Business Day described in clause (i) above and which is also a day which is not
a legal holiday or a day on which banking institutions are authorized or
required by law or other government action to close in Toronto, Ontario and, if
different, in the city where the applicable Payment Office of the Administrative
Agent or Canadian Paying Agent is located in respect of Canadian Term Loans.
"Calculation Period" shall mean the period of four consecutive fiscal
quarters of PI Holdings last ended before the date of the respective Permitted
Acquisition which requires calculations to be made on a Pro Forma Basis.
--- -----
"Canadian Acquisition" shall mean any acquisition made by the Canadian
Borrower or any of its Subsidiaries pursuant to Section 8.15 or the acquisition
by the US Borrower or a Domestic Subsidiary pursuant to Section 8.15 of the
capital stock of a Person which is not a Domestic Subsidiary.
"Canadian Borrower" shall have the meaning provided in the first
paragraph of this Agreement.
"Canadian Credit Party" shall mean each Credit Party which is a
corporation, partnership or other entity formed under the laws of Canada or any
province or territory thereof.
"Canadian Lender" shall mean a person resident in Canada for the
purposes of the Income Tax Act (Canada).
"Canadian Dollar" and the sign "CDN $" shall mean freely transferable
lawful money of Canada.
"Canadian Paying Agent" shall have the meaning provided in Section
1.17.
"Canadian Pledge Agreement" shall have the meaning provided in Section
5.10(b).
"Canadian Prime Rate" shall mean, at any time, the greater of (i) the
per annum rate of interest quoted, published and commonly known as the "prime
- --- -----
rate" of the Canadian Paying Agent which the Canadian Paying Agent establishes
at its main office in Toronto, Ontario as the reference rate of interest in
order to determine interest rates for loans in Canadian Dollars to its Canadian
borrowers, adjusted automatically with each quoted or published change in such
rate, all without the necessity of any notice to the Canadian Borrower or any
other Person, and (ii) the sum of (x) the average of the rates per annum for
--- -----
Canadian Dollar bankers' acceptances
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having a term of 30 days that appears on the Reuters Screen CDOR Page as of
10:00 a.m. (Toronto time) on the date of determination, as reported by the
Canadian Paying Agent (and if such screen is not available, any successor or
similar service as may be selected by the Canadian Paying Agent), and (y) 0.75%.
"Canadian Prime Rate Loans" shall mean any Canadian Term Loan
designated or deemed designated as such by the Canadian Borrower at the time of
the incurrence thereof or conversion thereto.
"Canadian Security Agreement" shall have the meaning provided in
Section 5.11.
"Canadian Term Loan" shall have the meaning provided in Section
1.01(h).
"Canadian Term Loan Commitment" shall mean, for each Lender, the
amount set forth opposite such Lender's name in Schedule I hereto directly below
the column entitled "Canadian Term Loan Commitment", as same may be (x) reduced
from time to time pursuant to Sections 3.03, 4.02 and/or 10 or (y) adjusted from
time to time as a result of assignments to or from such Lender pursuant to
Section 1.13 or 13.04.
"Canadian Term Loan Scheduled Repayment" shall have the meaning
provided in Section 4.02(e).
"Canadian Term Loan Scheduled Repayment Date" shall have the meaning
provided in Section 4.02(e).
"Canadian Term Note" shall have the meaning provided in Section
1.05(a).
"Canadian Wholly-Owned Subsidiary" shall mean any Wholly-Owned
Subsidiary of the Canadian Borrower incorporated or organized in Canada or any
province or territory thereof.
"Capital Expenditures" shall mean, with respect to any Person, all
expenditures by such Person which should be capitalized in accordance with
generally accepted accounting principles, including all such expenditures with
respect to fixed or capital assets (including, without limitation, expenditures
for maintenance and repairs which should be capitalized in accordance with
generally accepted accounting principles) and the amount of Capitalized Lease
Obligations incurred by such Person.
"Capitalized Lease Obligations" of any Person shall mean all rental
obligations which, under GAAP, are or will be required to be capitalized on the
books of such Person, in each case taken at the amount thereof accounted for as
indebtedness in accordance with such principles.
"Carlyle Entities" shall mean TC Group, L.L.C. (which operates under
the tradename "The Carlyle Group"), a Delaware limited liability company, and
any of its Subsidiaries and Affiliates.
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"Carlyle Management Agreement" shall mean the Management Agreement,
dated as of November 24, 1999, between the US Borrower and TC Group Management,
L.L.C., as in effect on the Initial Borrowing Date.
"Cash Equivalents" shall mean, as to any Person, (i) securities issued
or directly and fully guaranteed or insured by the United States or any agency
or instrumentality thereof (provided that the full faith and credit of the
--------
United States is pledged in support thereof) having maturities of not more than
one year from the date of acquisition, (ii) time deposits and certificates of
deposit of any commercial bank having, or which is the principal banking
subsidiary of a bank holding company organized under the laws of the United
States, any State thereof, the District of Columbia or any foreign jurisdiction
having capital, surplus and undivided profits aggregating in excess of
$200,000,000, with maturities of not more than one year from the date of
acquisition by such Person, (iii) repurchase obligations with a term of not more
than 90 days for underlying securities of the types described in clause (i)
above entered into with any bank meeting the qualifications specified in clause
(ii) above, (iv) commercial paper issued by any Person incorporated in the
United States rated at least A-1 or the equivalent thereof by Standard & Poor's
Ratings Services or at least P-1 or the equivalent thereof by Moody's Investors
Service, Inc. and in each case maturing not more than one year after the date of
acquisition by such Person, (v) investments in money market funds substantially
all of whose assets are comprised of securities of the types described in
clauses (i) through (iv) above, (vi) with respect to any Subsidiary of the US
Borrower organized under the laws of Canada or any province thereof, commercial
paper of prime Canadian companies rated R-1 High or the equivalent thereof by
Dominion Bond Rating Service with maturities of less than six months, and
government obligations of Canada with maturities of less than six months and
(vii) demand deposit accounts maintained in the ordinary course of business.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as the same may be amended from time to
time, 42 U.S.C. (S) 9601 et seq.
-- ----
"Change of Control" shall mean (A) PI Holdings shall at any time cease
to own 100% of the capital stock of PG Holdings or (B) PG Holdings shall at any
time cease to own 100% of the capital stock of PII Holdings or (C) PII Holdings
shall at any time cease to own 100% of the capital stock of the US Borrower or
(D) at any time and for any reason whatsoever the US Borrower and/or the
Canadian Borrower shall cease to be a Wholly-Owned Subsidiary (directly or
indirectly) of PII Holdings or (E) prior to a Qualified IPO of PI Holdings'
Common Stock, at any time and for any reason whatsoever, (i) the Permitted
Holders shall not have the right to elect, or shall for any reason not have
elected, a majority of the directors of PI Holdings, or (ii) the Permitted
Holders shall own less than a majority of the outstanding capital stock of PI
Holdings or (F) after a Qualified IPO of PI Holdings Common Stock, the Permitted
Holders shall cease to own at least 30% of the capital stock of PI Holdings or
(G) any "Person" or "Group" (other than the Carlyle Entities) (as such terms are
used in Section 13(d) and 14(d) of the Exchange Act) is or shall become the
"beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange
Act), directly or indirectly, of a greater percentage of the common or any other
class of Voting Stock of PI Holdings than is owned by the Permitted Holders at
such time or (H) directors of PI Holdings nominated by the Carlyle Entities and
the Independent Directors
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shall at any time cease to constitute at least 50% of the total number of
directors of PI Holdings or (I) a "change of control" shall have occurred as
such term (or any analogous term) is defined in the US Borrower Subordinated
Note Documents, the Holdings PIK Subordinated Note Documents or the documents
governing any Qualified Debt Securities.
"Change of Control Offer to Purchase" shall have the meaning provided
the term "Change of Control Offer" in Section 4.15 of the Indenture.
"Change of Control Purchase Amount" shall mean (i) the aggregate
principal amount of US Borrower Subordinated Notes actually tendered in response
to the Change of Control Offer to Purchase on or before the Change of Control
Purchase Determination Date, multiplied by (ii) 1.01.
"Change of Control Purchase Amount Determination Date" shall mean the
last Business Day upon which the Change of Control Offer to Purchase remains
open in accordance with its terms and the terms of the Indenture.
"Change of Control Purchase Borrowing Date" shall mean a Business Day,
occurring on or within five Business Days after the Change of Control Purchase
Amount Determination Date, upon which the US Borrower incurs Term Loans in
accordance with Section 1.01(a) or (b) for the purpose of financing Change of
Control Purchases.
"Change of Control Purchases" shall mean the repurchases by the US
Borrower of US Borrower Subordinated Notes from holders of such notes pursuant
to the Change of Control Offer to Purchase for aggregate consideration not to
exceed, for all such Change of Control Purchases, the Change of Control Purchase
Amount.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and the rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the date of this
Agreement, and to any subsequent provisions of the Code, amendatory thereof,
supplemental thereto or substituted therefor.
"Collateral" shall mean all property (whether real or personal) with
respect to which any security interests have been granted (or purported to be
granted) pursuant to any Security Document, including, without limitation, all
Pledge Agreement Collateral, all Security Agreement Collateral, all Mortgaged
Properties, all cash and Cash Equivalents delivered as collateral pursuant to
Section 4.02 or 10 and all Additional Collateral, if any.
"Collateral Agent" shall mean the Administrative Agent acting as
collateral agent for the Secured Creditors pursuant to the Security Documents,
and any successor thereto.
"Collective Bargaining Agreements" shall have the meaning provided in
Section 5.05.
"Commitment" shall mean any of the commitments of any Lender, i.e.,
----
whether the Tranche A Term Loan Commitment, Tranche A Supplemental Commitment,
Tranche B
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Term Loan Commitment, Revolving Loan Commitment, Acquisition Loan Commitment or
Canadian Term Loan Commitment.
"Commitment Commission" shall have the meaning provided in Section
3.01(a).
"Commitment Fee Percentage" shall mean (i) for any calculation of the
Commitment Commission payable in respect of the period from and including the
Effective Date to the day prior to the first Start Date to occur after the date
which is six months after the Effective Date, and at all times if the Senior
Leverage Amount is greater than $205,000,000, 1/2 of 1% per annum, and (ii)
after any Start Date (commencing with the first Start Date to occur after the
date which is six months after the Effective Date) to and including the
corresponding End Date, the respective percentage per annum set forth in clause
(A) or (B) below if, but only if, as of the Test Date for such Start Date the
condition set forth in clause (A) or (B) below is met:
(A) 1/2 of 1% if, but only if, as of the Test Date for such Start
Date, the Leverage Ratio for the Test Period ended on such Test Date shall
be equal to or greater than (x) if the Senior Leverage Amount is less than
or equal to $135,000,000, 2.25:1.00 and (y) if the Senior Leverage Amount
is greater than $135,000,000 but less than or equal to $205,000,000,
1.75:1:00; or
(B) 3/8 of 1% if, but only if, as of the Test Date for such Start
Date, the Leverage Ratio for the Test Period ended on such Test Date shall
be less than (x) during a period described in clause (A)(x) above,
2.25:1.00 and (y) during a period described in clause (A)(y) above,
1.75:1.00.
Notwithstanding anything to the contrary contained above in this clause (a), the
applicable Commitment Fee Percentage shall be 1/2 of 1% per annum at all times
when (i) a payment Default under Section 10.01 shall exist or any Event of
Default shall exist and/or (ii) financial statements have not been delivered
when required pursuant to Section 8.01(b) or (c), as the case may be; and
"Common Equity Financing" shall have the meaning provided in Section
5.06(b).
"Company Power and Authority" shall mean (i) with respect to any
corporation, corporate power and authority, (ii) with respect to any limited
liability company, limited liability company power and authority and (iii) with
respect to any partnership, partnership power and authority; in each case as
prescribed by the formation and governing documents of such entity (including
any applicable Operating Agreement) and all applicable corporate, limited
liability company or partnership statutes, rules and regulations, as the case
may be.
"Consolidated Current Assets" shall mean, at any time, the
consolidated current assets of PI Holdings and its Consolidated Subsidiaries.
"Consolidated Current Liabilities" shall mean, at any time, the
consolidated current liabilities of PI Holdings and its Consolidated
Subsidiaries at such time, but excluding (i) the current portion of any
Indebtedness under this Agreement and any other long-term Indebtedness which
would otherwise be included therein, (ii) accrued but unpaid interest with
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respect to the Indebtedness described in clause (i), and (iii) the current
portion of Indebtedness constituting Capitalized Lease Obligations.
"Consolidated EBIT" shall mean, for any period, Consolidated Net
Income (without giving effect to any extraordinary gains or losses (including,
without limitation, the write-off of unamortized financing costs), gains or
losses from sales of assets other than inventory sold in the ordinary course of
business or unrealized gains or losses in respect of foreign currency hedging
agreements permitted hereunder) of PI Holdings and its Consolidated
Subsidiaries, plus (in each case to the extent deducted in determining
Consolidated Net Income for such period) (x) interest expense and provision for
taxes based on income, (y) management fees paid pursuant to the Carlyle
Management Agreement and the Genstar Engagement Agreement to the extent
permitted to be paid pursuant to Section 9.06(vi) and (z) fees and expenses
incurred pursuant to the Transaction which were expensed in the fourth fiscal
quarter of 1999 and not capitalized, provided that the aggregate amount of fees
and expenses added back to Consolidated EBIT pursuant to this clause (z) shall
in no event exceed $8,500,000.
"Consolidated EBITDA" shall mean, for any period, Consolidated EBIT,
adjusted by adding thereto (without duplication) the amount of all amortization
and depreciation in each case that were deducted in arriving at Consolidated
EBIT for such period; provided that, with respect to any Asset Sale or any
--------
Permitted Acquisition, Consolidated EBITDA shall take account of the results of
operations of the company or assets so acquired or sold, determined on a Pro
---
Forma Basis, solely to the extent required pursuant to Section 13.07(a).
- -----
"Consolidated Indebtedness" shall mean, as at any date of
determination, the aggregate stated balance sheet amount of all Indebtedness
(including, without limitation, the Loans and any Capitalized Lease Obligations
of PI Holdings and its Subsidiaries on a consolidated basis as determined in
accordance with GAAP but excluding the outstanding principal amount of the
Holdings PIK Subordinated Note (including any accreted interest or additional
like-kind notes issued in lieu of cash interest thereon); provided that the
--------
aggregate amount of all outstanding letters of credit (including all Letters of
Credit) at any time shall be included as a component of Consolidated
Indebtedness, regardless of its treatment under GAAP.
"Consolidated Interest Coverage Ratio" for any period shall mean the
ratio of Consolidated EBITDA to Consolidated Net Interest Expense for such
period.
"Consolidated Net Income" shall mean, for any period, the consolidated
net after tax income of PI Holdings and its Consolidated Subsidiaries determined
in accordance with GAAP; provided that (without duplication of exclusions) (i)
--------
the net income (to the extent positive) of any Person that is not a Subsidiary
of PI Holdings or that is accounted for by the equity method of accounting shall
be included only to the extent of the amount of dividends or distributions paid
in cash to PI Holdings or a Wholly-Owned Subsidiary thereof, (ii) to the extent
Consolidated Net Income reflects amounts attributable to minority interests in
Subsidiaries that are not Wholly-Owned Subsidiaries of PI Holdings, Consolidated
Net Income shall be reduced by the amounts attributable to such minority
interests, (iii) the net income of any Subsidiary of the US Borrower shall be
excluded to the extent that the declaration or payment of dividends and
distributions by that Subsidiary of net income is not at the date of
determination permitted
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without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders, and (iv) the net
income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded.
"Consolidated Net Interest Expense" shall mean, for any period, the
total consolidated interest expense of PI Holdings and its Consolidated
Subsidiaries for such period other than paid-in-kind interest on the Holdings
PIK Subordinated Note and any Qualified Debt Securities to the extent permitted
hereunder to be paid (calculated without regard to any limitations on the
payment thereof) plus, without duplication, that portion of Capitalized Lease
Obligations of PI Holdings and its Consolidated Subsidiaries representing the
interest factor for such period, in each case net of the total consolidated cash
interest income of PI Holdings and its Consolidated Subsidiaries for such
period, but excluding the amortization of any deferred financing costs incurred
in connection with this Agreement which otherwise would have been included in
the calculation thereof.
"Consolidated Subsidiaries" shall mean, as to any Person, all
Subsidiaries of such Person which are consolidated with such Person for
financial reporting purposes in accordance with GAAP.
"Contingent Obligation" shall mean, as to any Person, any obligation
of such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (x) for the
purchase or payment of any such primary obligation or (y) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (iv) otherwise to assure or hold harmless the holder
of such primary obligation against loss in respect thereof; provided, however,
-------- -------
that the term Contingent Obligation shall not include (x) endorsements of
instruments for deposit or collection in the ordinary course of business and (y)
any product warranties extended in the ordinary course of business. The amount
of any Contingent Obligation shall be deemed to be an amount equal to the stated
or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made (or, if less, the maximum amount of such primary
obligation for which such Person may be liable pursuant to the terms of the
instrument evidencing such Contingent Obligation) or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"Conversion Date" shall mean November 24, 2002.
"Credit Documents" shall mean this Agreement and, after the execution
and delivery thereof pursuant to the terms of this Agreement, each Note, each
Bankers Acceptance,
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each Security Document, the Subsidiaries Guaranty and each additional guaranty
executed pursuant to Section 8.12.
"Credit Event" shall mean the making of any Loan or the issuance of
any Letter of Credit.
"Credit Party" shall mean the US Borrower, the Canadian Borrower and
each Guarantor.
"Debt Agreements" shall have the meaning provided in Section 5.05.
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" shall mean any Lender with respect to which a
Lender Default is in effect.
"Determination Date" shall have the meaning provided in the definition
of "Pro Forma Basis."
--- -----
"Dividend" with respect to any Person shall mean that such Person has
declared or paid a dividend or returned any equity capital to its stockholders
or authorized or made any other distribution, payment or delivery of property
(other than common stock of such Person) or cash to its stockholders as such, or
redeemed, retired, purchased or otherwise acquired, directly or indirectly, for
a consideration any shares of any class of its capital stock outstanding on or
after the Effective Date (or any options or warrants issued by such Person with
respect to its capital stock), or set aside any funds for any of the foregoing
purposes, or shall have permitted any of its Subsidiaries to purchase or
otherwise acquire for a consideration any shares of any class of the capital
stock of such Person outstanding on or after the Effective Date (or any options
or warrants issued by such Person with respect to its capital stock). Without
limiting the foregoing, "Dividends" with respect to any Person shall also
include all payments made or required to be made by such Person with respect to
any stock appreciation rights plans, equity incentive or achievement plans or
any similar plans or setting aside of any funds for the foregoing purposes, in
each case except to the extent that the payments described in this sentence are
booked as an expense which reduces Consolidated Net Income.
"Documents" shall mean the Credit Documents, the Recapitalization
Documents, the Holdings PIK Subordinated Note Documents, the US Borrower
Subordinated Note Documents and the Refinancing Documents.
"Dollar Equivalent" of an amount denominated in Canadian Dollars shall
mean, at any time for the determination thereof, the amount of Dollars which
could be purchased with the amount of Canadian Dollars involved in such
computation at the spot exchange rate therefor as quoted by the Administrative
Agent as of 11:00 a.m. (New York time) on the date two Business Days prior to
the date of any determination thereof for purchase on such date.
"Dollars" and the sign "$" shall each mean lawful money of the United
States.
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"Domestic Subsidiary" shall mean each Subsidiary of the US Borrower
incorporated or organized in the United States or any State or territory
thereof.
"Domestic Wholly-Owned Subsidiary" shall mean each Domestic Subsidiary
which is a Wholly-Owned Subsidiary of the US Borrower.
"Draft" shall mean at any time a blank bill of exchange, within the
meaning of the Bills of Exchange Act (Canada), drawn by the Canadian Borrower on
---------------------
a Lender and bearing such distinguishing letters and numbers as such Lender may
determine, but which at such time has not been completed or accepted by such
Lender.
"Drawing" shall have the meaning provided in Section 2.04(b).
"Drawing Date" shall mean any Business Day fixed pursuant to Section
1.06 or Schedule III for the creation and purchase of Bankers' Acceptances by a
Lender pursuant to Schedule III.
"Effective Date" shall have the meaning provided in Section 13.10.
"Eligible Transferee" shall mean and include a commercial bank,
financial institution, fund or other Person which regularly purchases interests
in loans or extensions of credit of the types made pursuant to this Agreement,
any other Person which would constitute a "qualified institutional buyer" within
the meaning of Rule 144A under the Securities Act as in effect on the Effective
Date and, with the respective Borrower's consent (which may not be unreasonably
withheld or delayed), any other "accredited investor" (as defined in Regulation
D of the Securities Act), and with respect to a Canadian Term Loan or Canadian
Term Loan Commitment, such Person shall also constitute a Canadian Lender.
"Employee Benefit Plans" shall have the meaning provided in Section
5.05.
"End Date" shall have the meaning provided in the definition of
Interest Adjustment Factor.
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, notices of noncompliance or violation, investigations or
proceedings relating to any Environmental Law or any permit issued, or any
approval given, under any such Environmental Law (hereafter, "Claims"),
including, without limitation, (a) any and all Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law, and (b)
any and all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief in connection
with alleged injury or threat of injury to health, safety or the environment due
to the presence of Hazardous Materials.
"Environmental Law" shall mean any Federal, state, foreign or local
statute, law, rule, regulation, ordinance, code, binding and enforceable
guideline, binding and enforceable written policy, and rule of common law now or
hereafter in effect and in each case as amended,
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and any binding judicial or administrative interpretation thereof (including any
judicial or administrative order, consent decree or judgment), applicable to
Holdings, the US Borrower, the Canadian Borrower or any of their respective
Subsidiaries, relating to the environment, employee health and safety or
Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal
Water Pollution Control Act, 33 U.S.C. (S) 1251 et seq.; the Toxic Substances
Control Act, 15 U.S.C. (S) 2601 et seq.; the Clean Air Act, 42 U.S.C. (S) 7401
-- ---
et seq.; the Safe Drinking Water Act, 42 U.S.C. (S) 3803 et seq.; the Oil
- -- ---
Pollution Act of 1990, 33 U.S.C. (S) 2701 et seq.; the Emergency Planning and
-- ---
the Community Right-to-Know Act of 1986, 42 U.S.C. (S) 11001 et seq.; the
-- ---
Hazardous Material Transportation Act, 49 U.S.C. (S) 1801 et seq.; the
-- ---
Occupational Safety and Health Act, 29 U.S.C. (S) 651 et seq. (to the extent it
-- ---
regulates occupational exposure to Hazardous Materials); and any state and local
or foreign counterparts or equivalents, in each case as amended from time to
time.
"Equity Investors" shall mean the Carlyle Entities and any other
equity investor reasonably satisfactory to the Administrative Agent.
"Equity Rollover" shall have the meaning provided in Section 5.06(d).
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect at
the date of this Agreement and any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with PI Holdings, the US Borrower, the Canadian
Borrower or any of their Subsidiaries would be deemed to be a "single employer"
(i) within the meaning of Section 414(b) or (c) of the Code, and for the purpose
of Section 302 of ERISA and/or Section 412, 4971 and/or each "applicable
section" under Section 414(t)(2) of the Code, within the meaning of Section
414(b), (c), (m) or (o) of the Code or (ii) as a result of PI Holdings, the US
Borrower, the Canadian Borrower or any of their Subsidiaries being or having
been a general partner of such person.
"Eurodollar Loan" shall mean each Loan (excluding Swingline Loans)
designated as such by the US Borrower at the time of the incurrence thereof or
conversion thereto.
"Eurodollar Rate" shall mean with respect to each Interest Period for
a Eurodollar Loan, (i) the offered quotation to first-class banks in the New
York interbank Eurodollar market by the Administrative Agent for dollar deposits
of amounts in same day funds comparable to the outstanding principal amount of
the Eurodollar Loan of the Administrative Agent for which an interest rate is
then being determined with maturities comparable to the Interest Period to be
applicable to such Eurodollar Loan, determined as of 10:00 A.M. (New York time)
on the date which is two Business Days prior to the commencement of such
Interest Period divided (and rounded upward to the next whole multiple of 1/16
of 1%) by (ii) a percentage equal to 100% minus the then stated maximum rate of
all reserve requirements (including without limitation any marginal, emergency,
supplemental, special or other reserves) applicable to any member bank of
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the Federal Reserve System in respect of Eurocurrency liabilities as defined in
Regulation D (or any successor category of liabilities under Regulation D).
"Event of Default" shall have the meaning provided in Section 10.
"Excess Cash Flow" shall mean, for any period, the remainder of (a)
the sum of (i) Adjusted Consolidated Net Income for such period and (ii) the
decrease, if any, in Adjusted Consolidated Working Capital from the first day to
the last day of such period, minus (b) the sum of (i) the amount of Capital
Expenditures made by the US Borrower and its Subsidiaries on a consolidated
basis during such period pursuant to and in accordance with Sections 9.08(a) and
(b), except to the extent financed with the proceeds of Indebtedness or pursuant
to Capitalized Lease Obligations, (ii) the aggregate amount of permanent
principal payments of Indebtedness for borrowed money of the US Borrower and its
Subsidiaries and the permanent repayment of the principal component of
Capitalized Lease Obligations of the US Borrower and its Subsidiaries during
such period (excluding (1) payments with proceeds of asset sales, (2) payments
with the proceeds of other Indebtedness or equity and (3) payments of Loans or
other Obligations, provided that repayments of Loans shall be deducted in
--------
determining Excess Cash Flow if such repayments were (x) required as a result of
a Scheduled Repayment under Section 4.02(b), (c), (d) or (e) (but not as a
reduction to the amount of Scheduled Repayments pursuant to another provision of
this Agreement) or (y) made as a voluntary prepayment pursuant to Section 4.01
with internally generated funds (but in the case of a voluntary prepayment of
Revolving Loans and Acquisition Revolving Loans, only to the extent accompanied
by a voluntary reduction to the Total Revolving Loan Commitment or Total
Acquisition Loan Commitment, as the case may be), (iii) the portion of the
purchase price of Permitted Acquisitions funded with cash and not constituting
Indebtedness and (iv) the increase, if any, in Adjusted Consolidated Working
Capital from the first day to the last day of such period.
"Excess Cash Payment Date" shall mean the date occurring 95 days after
the last day of each fiscal year of PI Holdings (beginning with PI Holdings'
fiscal year ending closest to December 31, 2000).
"Excess Cash Payment Period" shall mean, with respect to the repayment
required on each Excess Cash Payment Date, the period of four consecutive fiscal
quarters of PI Holdings (taken as one accounting period) ended on the last day
of the fiscal quarter ended closest to the immediately preceding December 31.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Existing Canadian Credit Agreement" shall mean the Credit Agreement,
dated as of February 18, 1999, among the Canadian Borrower, various financial
institutions, Credit Suisse First Boston Canada, as Administrative Agent and
Royal Bank of Canada, as Documentation Agent.
"Existing Indebtedness" shall have the meaning provided in Section
7.22.
"Existing US Credit Agreement" shall mean the Credit Agreement, dated
as of February 18, 1999, among the US Borrower, various financial institutions,
DLJ Capital Funding,
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Inc., as Syndication Agent, Credit Suisse First Boston, as Administrative Agent
and Royal Bank of Canada, as Documentation Agent.
"Face Amount" shall mean, in respect of a Bankers' Acceptance, the
amount payable to the holder thereof on its maturity. The Face Amount of any
Bankers' Acceptance Loan shall be equal to the Face Amounts of the underlying
outstanding Bankers' Acceptances.
"Facing Fee" shall have the meaning provided in Section 3.01(c).
"Fair Market Value" shall mean, with respect to any asset, the price
at which a willing buyer that is not an Affiliate of the seller, and a willing
seller who does not have to sell, would agree to purchase and sell such asset,
as determined in good faith by the Board of Directors or other governing body
or, pursuant to a specific delegation of authority by such board or governing
body, a designated senior executive officer, of the US Borrower or the
Subsidiary of the US Borrower selling such asset.
"Federal Funds Rate" shall mean, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the immediately preceding Business Day)
by the Federal Reserve Bank of New York or, if such rate is not so published for
any day which is a Business Day, the average of the quotations for such day on
such transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to or referred to in
Section 3.01.
"Foreign Pension Plan" shall mean any plan, fund (including, without
limitation, any superannuation fund) or other similar program established or
maintained outside the United States of America by PI Holdings, PG Holdings, PII
Holdings, the US Borrower, the Canadian Borrower or any one or more of their
respective Subsidiaries primarily for the benefit of employees of PI Holdings,
PG Holdings, PII Holdings, the US Borrower, the Canadian Borrower or such
Subsidiaries residing outside the United States of America, which plan, fund or
other similar program provides, or results in, retirement income, a deferral of
income in contemplation of retirement or payments to be made upon termination of
employment, and which plan is not subject to ERISA or the Code.
"Foreign Subsidiary" shall mean each Subsidiary of the US Borrower
that is incorporated under the laws of any jurisdiction other than the United
States of America, any State thereof or Puerto Rico.
"Foreign Wholly-Owned Subsidiary" shall mean each Foreign Subsidiary
which is a Wholly-Owned Subsidiary of the US Borrower.
"GAAP" shall have the meaning provided in Section 13.07(a).
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"Genstar Engagement Agreement" shall mean the Engagement Agreement
between Genstar Capital LLP and the US Borrower, as in effect on the Initial
Borrowing Date.
"Granting Lender" has the meaning specified in Section 13.04(d).
"Guaranteed Creditors" shall mean and include each of the Agents, the
Lenders and each party (other than any Credit Party) to an Interest Rate
Protection Agreement or Other Hedging Agreement to the extent such party
constitutes a Secured Creditor under the Security Documents.
"Guaranteed Obligations" shall mean all obligations of the Borrowers
(or, in the case of the guaranty provided by the US Borrower pursuant to Section
14, all obligations of the Canadian Borrower) (i) to each Agent and each Lender
for the full and prompt payment when due (whether at the stated maturity, by
acceleration or otherwise) of the principal and interest on each Note issued by
the Borrowers to such Lender, and Loans made, and the Face Amount of Bankers
Acceptances accepted under this Agreement and all reimbursement obligations and
Unpaid Drawings with respect to Letters of Credit, together with all the other
obligations and liabilities (including, without limitation, all indemnities,
fees and interest thereon as well as all interest accruing after the filing of a
petition in a bankruptcy or similar proceeding at the rate provided in the
respective documentation, regardless of whether or not such interest is an
allowed claim in such a bankruptcy proceeding) of the Borrowers to such Agent
and such Lender now existing or hereafter incurred under, arising out of or in
connection with this Agreement or any other Credit Document and the due
performance and compliance with all the terms, conditions and agreements
contained in the Credit Documents by the Borrowers and (ii) to each Lender and
each Affiliate of a Lender which enters into an Interest Rate Protection
Agreement or Other Hedging Agreement with either of the Borrowers, which by its
express terms is entitled to the benefit of the Guaranty pursuant to Section 14
with the written consent of such Borrower, the full and prompt payment when due
(whether by acceleration or otherwise) of all obligations of such Borrower owing
under any such Interest Rate Protection Agreement or Other Hedging Agreement,
whether now in existence or hereafter arising, and the due performance and
compliance with all terms, conditions and agreements contained therein.
"Guarantor" shall mean each Parent Guarantor and each Subsidiary
Guarantor.
"Guaranty" shall mean, collectively, the Parent Guaranty, each
Subsidiaries Guaranty and any guaranty of any obligations of the Canadian
Borrower entered into pursuant to Section 8.12(b)(ii).
"Hazardous Materials" shall mean (a) any petroleum or petroleum
products, radioactive materials, friable asbestos, urea formaldehyde foam
insulation, transformers or other equipment that contain dielectric fluid
containing polychlorinated biphenyls, and radon gas; (b) any chemicals,
materials or substances defined as or included in the definition of "hazardous
substances", "hazardous waste", "hazardous materials", "extremely hazardous
substances", "restricted hazardous waste", "toxic substances", "toxic
pollutants", "contaminants", or "pollutants", or words of similar import, under
any applicable Environmental Law; and (c) any other chemical, material or
substance, exposure to which is prohibited, limited or regulated by any
governmental authority under any Environmental Law.
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"Highest Lawful Rate" shall mean, with respect to any indebtedness
owed to any Lender hereunder or under any other Credit Document, the maximum
non-usurious interest rate, if any, that any time or from time to time may be
contracted for, taken, reserved, charged or received by such Lender with respect
to such indebtedness under applicable law.
"Holdings" shall have the meaning provided in the first paragraph of
this Agreement.
"Holdings PIK Subordinated Note" shall mean the Junior Subordinated
PIK Note of PI Holdings, due February 16, 2009, as in effect on the Initial
Borrowing Date and as the same may be amended from time to time in accordance
with the provisions hereof and thereof.
"Holdings PIK Subordinated Note Documents" shall mean the Holdings PIK
Subordinated Note and each other document delivered in connection therewith.
"Indebtedness" shall mean, as to any Person, without duplication, (i)
all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property or
services, (ii) the maximum amount available to be drawn under all letters of
credit issued for the account of such Person and all unpaid drawings in respect
of such letters of credit, (iii) all Indebtedness of the types described in
clause (i), (ii), (iv), (v), (vi) or (vii) of this definition secured by any
Lien on any property owned by such Person, whether or not such Indebtedness has
been assumed by such Person (to the extent of the value of the respective
property), (iv) the aggregate amount required to be capitalized under leases
under which such Person is the lessee, (v) all obligations of such person to pay
a specified purchase price for goods or services, whether or not delivered or
accepted, i.e., take-or-pay and similar obligations, (vi) all Contingent
----
Obligations of such Person, and (vii) all obligations under any Interest Rate
Protection Agreement or Other Hedging Agreement or under any similar type of
agreement.
"Independent Director" shall mean a director who (i) is in fact
independent, (ii) does not have any direct financial interest or any material
indirect financial interest in any Carlyle Entity, or in any Affiliate of any
Carlyle Entity, (iii) is not, and has not been, connected with any Carlyle
Entity or any Affiliate of any Carlyle Entity as an officer, employee, promoter,
underwriter, trustee, partner or person performing similar functions and is not
a member of the immediate family of any such officer or employee and (iv) is
not, and has not been, a director or stockholder of any Carlyle Entity and is
not a member of the immediate family of any such director or stockholder.
"Indenture" shall mean the Indenture dated as of February 18, 1999
among the US Borrower, as Issuer, PG Holdings, Panolam Industries, Inc. and
Plastics Corporation, as Guarantor and State Street Bank and Trust Company, as
Trustee, governing the US Borrower Subordinated Notes, as such Indenture is in
effect on the Initial Borrowing Date and as the same may be amended from time to
time in accordance with the provisions hereof and thereof.
"Information Systems and Equipment" shall mean all computer hardware,
firmware and software, as well as other information processing systems, or any
equipment containing embedded microchips, whether directly owned, licensed,
leased, operated or
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otherwise controlled by PI Holdings or any of its Subsidiaries, including
through third-party service providers, and which, in whole or in part, are used,
operated, relied upon, or integral to, PI Holdings or any of its Subsidiaries'
conduct of their business including, without limitation, the administration of
any Employee Benefit Plan.
"Initial Borrowing Date" shall mean the date occurring on or after the
Effective Date on which the initial Borrowing of Term Loans hereunder occurs.
"Initial Maturity Date" shall mean November 24, 2004.
"Insignificant Subsidiaries" shall mean any Subsidiary of the US
Borrower (other than the Canadian Borrower) which has assets of not greater than
$500,000 in the aggregate and which, if aggregated with all other Subsidiaries
of the US Borrower with respect to which an event described under Section 10.05
has occurred and is continuing, would have assets of not greater than $500,000.
"Interest Adjustment Factor" shall mean initially zero and from and
after the first day of any Margin Reduction Period (the "Start Date") to and
including the last day of such Margin Reduction Period (the "End Date"), the
Interest Adjustment Factor shall be the respective percentage per annum set
forth in the applicable clause (A), (B), (C), (D) or (E) below if, but only if,
as of the last day of the most recent fiscal quarter or year of PI Holdings
ended immediately prior to such Start Date (the "Test Date"), the applicable
conditions set forth in the applicable clause (A), (B), (C), (D) or (E) below,
as the case may be, are met:
If the Senior Leverage Amount is less than or equal to $135,000,000:
- -------------------------------------------------------------------
(A) 0.25%, if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
greater than 3.75:1.00; or
(B) 0% if, but only if, as of the Test Date for such Start Date, the
Leverage Ratio for the Test Period ended on such Test Date shall be less
than or equal to 3.75:1.00 but greater than 3.00:1.00; or
(C) -0.25% if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
less than or equal to 3.00:1.00 but greater than 2.25:1.00; or
(D) -0.50% if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
less than or equal to 2.25:1.00 but greater than 1.75:1.00; or
(E) -0.75% if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
less than or equal to 1.75:1.00;
If the Senior Leverage Amount is less than or equal to $205,000,000 but greater
- -------------------------------------------------------------------------------
than $135,000,000:
- -----------------
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(A) 0.50%, if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
greater than 3.75:1.00; or
(B) 0.25% if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
less than or equal to 3.75:1.00 but greater than 3.00:1.00; or
(C) 0% if, but only if, as of the Test Date for such Start Date, the
Leverage Ratio for the Test Period ended on such Test Date shall be less
than or equal to 3.00:1.00 but greater than 2.25:1.00; or
(D) -0.375% if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
less than or equal to 2.25:1.00 but greater than 1.75:1.00; or
(E) -0.625% if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
less than or equal to 1.75:1.00;
If the Senior Leverage Amount is greater than $205,000,000:
- ----------------------------------------------------------
(A) 0.75%, if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
greater than 3.75:1.00; or
(B) 0.50% if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
less than or equal to 3.75:1.00 but greater than 3.00:1.00; or
(C) 0.25% if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
less than or equal to 3.00:1.00 but greater than 2.25:1.00; or
(D) -0.125% if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
less than or equal to 2.25:1.00 but greater than 1.75:1.00; or
(E) -0.50% if, but only if, as of the Test Date for such Start Date,
the Leverage Ratio for the Test Period ended on such Test Date shall be
less than or equal to 1.75:1.00.
Notwithstanding anything to the contrary contained above in this definition, to
the fullest extent permitted by applicable law, the Interest Adjustment Factor
shall be 0% per annum at all times when (i) a payment Default under Section
10.01 shall exist or any Event of Default shall exist and/or (ii) financial
statements have not been delivered when required pursuant to Section 8.01(b) or
(c), as the case may be.
"Interest Determination Date" shall mean, with respect to any
Eurodollar Loan, the second Business Day prior to the commencement of any
Interest Period relating to such Eurodollar Loan.
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"Interest Period" shall have the meaning provided in Section 1.09.
"Interest Rate Protection Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement, interest collar agreement, interest rate
hedging agreement, interest rate floor agreement or other similar agreement or
arrangement.
"Investments" shall have the meaning provided in Section 9.05.
"Issuing Bank" shall mean the Administrative Agent (or any Affiliate
of the Administrative Agent, including Deutsche Bank AG, New York Branch) and
any Lender which at the request of the US Borrower and with the consent of the
Administrative Agent (which shall not be unreasonably withheld) agrees, in such
Lender's sole discretion, to become an Issuing Bank for the purpose of issuing
Letters of Credit pursuant to Section 2. On the Initial Borrowing Date, the
sole Issuing Bank is BTCo.
"L/C Supportable Indebtedness" shall mean (i) obligations of the US
Borrower or its Subsidiaries incurred in the ordinary course of business with
respect to insurance obligations and workers' compensation, surety bonds and
other similar statutory obligations and (ii) such other obligations of the US
Borrower or any of its Subsidiaries as are permitted to exist pursuant to the
terms of this Agreement.
"Leaseholds" of any Person means all the right, title and interest of
such Person as lessee or licensee in, to and under leases or licenses of land,
improvements and/or fixtures.
"Lender" shall mean each financial institution listed on Schedule I,
as well as any Person which becomes a "Lender" hereunder pursuant to 13.04(b).
"Lender Default" shall mean (i) the refusal (which has not been
retracted) of a Lender to make available its portion of any Borrowing (including
any Mandatory Borrowing) or to fund its portion of any unreimbursed payment
under Section 2.03(c) or (ii) a Lender having notified (which notice has not
been rescinded) in writing PI Holdings and the Administrative Agent that it does
not intend to comply with its obligations under Section 1.01(c) or (f) or
Section 2, in the case (except for purposes of Section 1.13) of either clause
(i) or (ii) as a result of any takeover of such Lender by any regulatory
authority or agency.
"Letter of Credit" shall have the meaning provided in Section 2.01(a).
"Letter of Credit Fee" shall have the meaning provided in Section
3.01(b).
"Letter of Credit Outstandings" shall mean, at any time, the sum of
(i) the aggregate Stated Amount of all outstanding Letters of Credit and (ii)
the amount of all Unpaid Drawings.
"Letter of Credit Request" shall have the meaning provided in Section
2.02(a).
"Leverage Ratio" shall mean, at any date of determination, the ratio
of (i) Consolidated Indebtedness on such date to (ii) Consolidated EBITDA for
the Test Period then most recently ended (in each case taken as one accounting
period); provided, however, that for
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purposes of determining the Interest Adjustment Factor and the Commitment Fee
Percentage as of any Test Date, the term "Consolidated Indebtedness" as used in
the foregoing clause (i) of this definition shall be the sum of (I) Consolidated
Indebtedness (other than Revolving Outstandings) on such Test Date plus (II) the
average Revolving Outstandings for the quarterly period ending on such Test
Date. Notwithstanding anything to the contrary contained above, in making
calculations of the Leverage Ratio, Consolidated EBITDA shall, to the extent
specified in the last sentence of Section 13.07(a), be determined on a Pro Forma
--- -----
Basis
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), preference,
priority or other security agreement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the UCC or
any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).
"Loan" shall mean each Tranche A Term Loan, each Tranche B Term Loan,
each Revolving Loan, each Acquisition Loan, each Swingline Loan and each
Canadian Term Loan.
"Majority Lenders" of any Tranche shall mean those Non-Defaulting
Lenders which would constitute the Required Lenders under, and as defined in,
this Agreement if all outstanding Obligations of the other Tranches under this
Agreement were repaid in full and all Commitments with respect thereto were
terminated.
"Management Agreement" shall have the meaning provided in Section
5.05.
"Mandatory Borrowing" shall have the meaning provided in Section
1.01(e).
"Margin Reduction Period" shall mean each period which shall commence
on a date on which the financial statements are delivered pursuant to Section
8.01(b) or (c), as the case may be, and which shall end on the earlier of (i)
the date of actual delivery of the next financial statements pursuant to Section
8.01(b) or (c), as the case may be, and (ii) the latest date on which the next
financial statements are required to be delivered pursuant to Section 8.01(b) or
(c), as the case may be, provided that the first Margin Reduction Period shall
--------
commence on the date of delivery of the financial statements for the quarter
ended June 30, 2000.
"Margin Stock" shall have the meaning provided in Regulation U.
"Material Adverse Effect" shall mean any circumstances, developments,
occurrences, state of facts, or matters which, either individually or in the
aggregate, have had or could have a material adverse effect on the business,
operations, property, assets, nature of assets, liabilities, condition
(financial or otherwise) or prospects of PI Holdings and its Subsidiaries taken
as a whole.
"Maturity Date" shall mean, (i) with respect to Tranche A Term Loans,
Acquisition Loans, Revolving Loans and Canadian Term Loans, the Initial Maturity
Date, (ii) with respect to Tranche B Term Loans, the Tranche B Term Loan
Maturity Date and (iii) with respect to Swingline Loans, the Swingline Expiry
Date.
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"Maximum Swingline Amount" shall mean $5,000,000.
"Mortgage" shall have the meaning provided in Section 5.12 and, after
the execution and delivery thereof, shall include each Additional Mortgage.
"Mortgage Policies" shall have the meaning provided in Section 5.12.
"Mortgaged Property" shall have the meaning provided in Section 5.12
and, after the execution and delivery of any Additional Mortgage, shall include
the respective Additional Mortgaged Property.
"Muller" shall mean Robert J. Muller, Jr.
"Multiemployer Plan" shall mean any multiemployer plan as defined in
Section 4001(a)(3) of ERISA, which is maintained or contributed to by (or to
which there is an obligation to contribute of) PI Holdings or a Subsidiary of PI
Holdings or an ERISA Affiliate, and each such plan for the five-year period
immediately following the latest date on which Holdings, or a Subsidiary of PI
Holdings or an ERISA Affiliate maintained, contributed to or had an obligation
to contribute to such plan.
"Net Sale Proceeds" shall mean for any sale of assets, the gross cash
proceeds (including any cash received by way of deferred payment pursuant to a
promissory note, receivable or otherwise, but only as and when received)
received from any sale of assets, net of (i) reasonable transaction costs
(including, without limitation, any underwriting, brokerage or other customary
selling commissions and reasonable legal, advisory and other fees and expenses,
including title and recording expenses, associated therewith) and (ii) payments
of unassumed liabilities relating to the assets sold at the time of, or within
90 days after, the date of such sale, (iii) the amount of such gross cash
proceeds required to be used to repay any Indebtedness (other than Indebtedness
of the Lenders pursuant to this Agreement) which is secured by the respective
assets which were sold, (iv) the estimated marginal increase in income taxes
which will be payable by PI Holdings' consolidated group with respect to the
fiscal year in which the sale occurs as a result of such sale, and (v) to the
extent such sale is made by non Wholly-Owned Subsidiaries, the amount of such
proceeds attributable to minority interests; and excluding any portion of any
such gross cash proceeds which PI Holdings determines in good faith should be
reserved for post-closing adjustments (to the extent PI Holdings delivers to the
Lenders a certificate signed by its chief financial officer as to such
determination), it being understood and agreed that on the day that all such
post-closing adjustments have been determined, (which shall not be later than
six months following the date of the respective asset sale), the amount (if any)
by which the reserved amount in respect of such sale or disposition exceeds the
actual post-closing adjustments, plus any related reasonable transaction costs,
payable by PI Holdings or any of its Subsidiaries shall constitute Net Sale
Proceeds on such date received by PI Holdings and/or any of its Subsidiaries
from such sale, lease, transfer or other disposition.
"Non-Defaulting Lender" shall mean and include each Lender other than
a Defaulting Lender.
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"Note" shall mean each Tranche A Term Note, each Tranche A
Supplemental Note, each Tranche B Term Note, each Revolving Note, the Swingline
Note, each Acquisition Note and each Canadian Term Note.
"Notice of Borrowing" shall have the meaning provided in Section 1.03.
"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Notice Office" shall mean the office of the Administrative Agent
located at One Bankers Trust Plaza, 130 Liberty Street, New York, New York,
10006, Attention: G. Andrew Keith, or such other office as the Administrative
Agent may hereafter designate in writing as such to the other parties hereto.
"Obligations" shall mean all amounts owing to any of the Agents or any
Lender pursuant to the terms of this Agreement or any other Credit Document.
"Operating Agreement" shall mean with respect to each of PI Holdings
and its Subsidiaries, any partnership agreement, limited liability company
agreement or other similar organizational agreement to which such Person or its
partners or equity holders, as the case may be, is or are party.
"Other Hedging Agreement" shall mean any foreign exchange contracts,
currency swap agreements, commodity agreements or other similar agreements or
arrangements designed to protect against the fluctuations in currency or
commodity values.
"Parent Guarantor" shall have the meaning provided in Section 14.01.
"Parent Guaranty" shall mean the guaranty issued by PI Holdings, PG
Holdings, PII Holdings and, with respect to the Guaranteed Obligations of the
Canadian Borrower, the US Borrower pursuant to Section 14 hereof.
"Participant" shall have the meaning provided in Section 2.03(a).
"Payment Office" shall mean the office of the Administrative Agent
located at One Bankers Trust Plaza, 130 Liberty Street, New York, New York,
10006 or, in the case of payments made to the Canadian Paying Agent, the office
of the Canadian Paying Agent located at 222 Bay Street, Suite 1100, P.O. Box
196, Toronto, Ontario M5K 1H6, or such other office as the Administrative Agent
or the Canadian Paying Agent, as the case may be, may hereafter designate in
writing as such to the other parties hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Acquired Debt" shall mean Indebtedness of any Subsidiary of
the US Borrower acquired pursuant to a Permitted Acquisition, which Indebtedness
existed at the time of the consummation of such Permitted Acquisition and was
not created in contemplation thereof (and the provisions of which were not
altered in any material respect in contemplation thereof), so long as (x) PI
Holdings, the US Borrower and its other Subsidiaries have no liability
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with respect to any such Indebtedness and (y) any Liens securing such
Indebtedness apply only to assets of the Subsidiary so acquired (and so long as
additional assets of such Subsidiary are not granted as security following, or
in contemplation of, the respective permitted acquisition).
"Permitted Acquisition" shall mean the acquisition by the US Borrower
or a Wholly-Owned Subsidiary of the US Borrower of assets constituting part of
or an entire business, division or product line of any Person not already a
Subsidiary of the US Borrower or of 100% of the capital stock of any Person, or
any other acquisition of assets (excluding equity interests in other Persons
except as provided above) related to the Business; provided that (A) the
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consideration paid by the US Borrower or such Wholly-Owned Subsidiary consists
solely of (i) cash, (ii) Qualified Debt Securities permitted to be issued
pursuant to Section 9.04(xvii), (iii) PI Holdings Common Stock issued to sellers
of stock or assets pursuant to such acquisition satisfactory to the
Administrative Agent with an aggregate fair market value (as determined by the
Board of Directors of PI Holdings, a committee thereof or an officer of PI
Holdings appointed by such Board of Directors to establish such value) for all
such acquisitions, when combined with the aggregate amount of proceeds used to
make Permitted Acquisitions pursuant to the proviso to Section 8.15(b), not to
exceed $25,000,000, and/or, (iv) in the case of the acquisition of a Wholly-
Owned Subsidiary, the assumption of Permitted Acquired Debt in accordance with
the requirements of this Agreement; provided that the total consideration paid
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in respect of all Canadian Acquisitions shall not in any event exceed
$15,000,000 (or the Canadian Dollar equivalent thereof) in any fiscal year of
the US Borrower or $25,000,000 (or the Canadian Dollar equivalent thereof) in
the aggregate for all such Canadian Acquisitions, (B) the assets acquired, or
the business of the Person whose stock is acquired, shall fall within the
definition of Business, (C) no Default or Event of Default shall exist at the
time of the consummation of the respective Permitted Acquisition or immediately
after giving effect thereto and PI Holdings shall have demonstrated compliance
with the financial covenants in Sections 9.09 through 9.10, inclusive for the
relevant Calculation Period on a Pro Forma Basis (giving effect to all other
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Asset Sales and Permitted Acquisitions consummated after the first day of such
Calculation Period on a Pro Forma Basis), including by way of delivering to the
--- -----
Administrative Agent the calculations necessary to determine such compliance,
and (D) the US Borrower in good faith determines that the US Borrower and its
Subsidiaries taken as a whole are not likely to assume or become liable for
material increased contingent liabilities as a result of such acquisition.
"Permitted Encumbrance" shall mean, with respect to any Mortgaged
Property, such exceptions to title as are set forth in the title insurance
policy or title commitment delivered with respect thereto, all of which
exceptions must be acceptable to the Agents in their reasonable discretion.
"Permitted Holders" shall mean the Carlyle Entities.
"Permitted Liens" shall have the meaning provided in Section 9.01.
"Person" shall mean any individual, partnership, joint venture,
limited liability corporation, firm, corporation, association, trust or other
enterprise or any government or political subdivision or any agency, department
or instrumentality thereof.
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"PG Holdings" shall have the meaning provided in the first paragraph
of this Agreement.
"PI Holdings" shall have the meaning provided in the first paragraph
of this Agreement.
"PI Holdings Common Stock" shall mean the common stock of PI Holdings.
"PII Holdings" shall have the meaning provided in the first paragraph
of this Agreement.
"Plan" shall mean any pension plan as defined in Section 3(2) of
ERISA, other than a Multiemployer Plan, which is maintained or contributed to by
(or to which there is an obligation to contribute of) Holdings or a Subsidiary
of Holdings or an ERISA Affiliate, and each such plan for the five-year period
immediately following the latest date on which Holdings, or a Subsidiary of
Holdings or an ERISA Affiliate maintained, contributed to or had an obligation
to contribute to such plan.
"Pledge Agreements" shall have the meaning provided in Section
5.10(b).
"Pledge Agreement Collateral" shall mean all "Collateral" as defined
in the Pledge Agreements.
"Pledged Securities" shall mean "Pledged Securities" as defined in the
US Pledge Agreement and the Canadian Pledge Agreement.
"Pledged Stock" shall mean "Pledged Stock" as defined in the US Pledge
Agreement and the Canadian Pledge Agreement.
"Prime Lending Rate" shall mean the rate which BTCo announces from
time to time as its prime lending rate, the Prime Lending Rate to change when
and as such prime lending rate changes. The Prime Lending Rate is a reference
rate and does not necessarily represent the lowest or best rate actually charged
to any customer. BTCo may make commercial loans or other loans at rates of
interest at, above or below the Prime Lending Rate.
"Pro Forma Basis" shall mean, with respect to any Permitted
--- -----
Acquisition or Asset Sale, the calculation of the consolidated results of PI
Holdings and its Subsidiaries otherwise determined in accordance with this
Agreement as if the respective Permitted Acquisition or Asset Sale (and all
Indebtedness incurred to finance such Permitted Acquisition, and all other
Permitted Acquisitions and Asset Sales, effected during the respective
Calculation Period or thereafter and on or prior to the date of determination)
(each such date, a "Determination Date") had been effected on the first day of
the respective Calculation Period; provided that all such calculations shall be
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made on a basis consistent with the requirements of Regulation S-X under the
Securities Act and shall take into account the following assumptions:
(i) interest expense attributable to interest on any Indebtedness
(whether existing or being incurred) bearing a floating interest rate shall
be computed as if the rate
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in effect on the date of computation (taking into account any Interest Rate
Protection Agreement applicable to such Indebtedness if such Interest Rate
Protection Agreement has a remaining term in excess of 12 months) had been
the applicable rate for the entire period; and
(ii) pro forma effect shall be given to all Asset Sales and Permitted
--- -----
Acquisitions (by excluding or including, as the case may be, the historical
financial results for the respective properties) that occur during such
Calculation Period or thereafter and on or prior to the Determination Date
(including any Indebtedness assumed or acquired in connection therewith) as
if they had occurred on the first day of such Calculation Period.
"Projections" shall have the meaning provided in Section 5.16(b).
"Qualified Debt Securities" shall mean unsecured subordinated notes
(subordinate to all Obligations and all amounts owing to any Lender pursuant to
Interest Rate Protection Agreements and Other Hedging Agreements on terms
reasonably satisfactory to the Administrative Agent) so long as the terms of any
such subordinated notes (i) do not provide any collateral security, (ii) do not
provide any guaranty or other support by PI Holdings or any Subsidiaries of PI
Holdings other than the issuer, (iii) do not provide for the payment of any
interest other than capitalized interest or interest paid-in-kind with
additional like kind notes or contain any mandatory put, redemption, repayment,
sinking fund or other similar provision, in each case occurring before the date
which is six months after the Final Maturity Date (or, in the event the Term
Loan Commitment Expiry Date has occurred and no Tranche B Term Loans are
outstanding (after giving effect to any Borrowings of Tranche B Term Loans made
on such date), six months after the Initial Maturity Date), (iv) do not contain
any covenants other than periodic reporting requirements and other covenants
reasonably satisfactory to the Administrative Agent, (v) do not grant the
holders thereof any voting rights except for limited customary voting on
fundamental matters such as mergers, consolidations, sales of all or
substantially all of the assets of the issuer, or liquidations involving the
issuer, and (vi) are otherwise reasonably satisfactory to the Administrative
Agent.
"Qualified IPO" shall mean a bona fide underwritten sale to the public
of PI Holdings Common Stock pursuant to a registration statement (other than on
Form S-8 or any other form relating to securities issuable under any benefit
plan of PI Holdings or any of its Subsidiaries, as the case may be) that is
declared effective by the SEC and such offering results in gross cash proceeds
to PI Holdings and its Subsidiaries (exclusive of underwriter's discounts and
commissions and other expenses) of at least $75,000,000.
"Qualified Preferred Stock" shall mean any preferred stock of PI
Holdings so long as the terms of any such preferred stock (i) do not contain any
mandatory put, redemption, repayment, sinking fund or other similar provision
occurring before December 1, 2007, (ii) do not require the cash payment of
dividends, (iii) do not contain any covenants other than periodic reporting
requirements, (iv) do not grant the holder thereof any voting rights except for
(v) voting rights on fundamental matters such as mergers, consolidations, sales
or all or substantially all of the assets of PI Holdings, or liquidations
involving PI Holdings and (z) other voting rights to the
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extent not greater than or superior to those allocated to PI Holdings common
stock on a per share basis, and (v) are otherwise reasonably satisfactory to the
Administrative Agent.
"Quarterly Payment Date" shall mean the last Business Day of each
March, June, September and December occurring after the Initial Borrowing Date.
"RCRA" shall mean the Resource Conservation and Recovery Act, as the
same may be amended from time to time, 42 U.S.C. (S) 6901 et seq.
-- ----
"Real Property" of any Person shall mean all the right, title and
interest of such Person in and to land, improvements and fixtures, including
Leaseholds.
"Recapitalization" shall mean the Recapitalization of PI Holdings and
its Subsidiaries pursuant to and in accordance with the terms and conditions of
the Recapitalization Documents.
"Recapitalization Documents" shall mean the Stock Purchase and
Redemption Agreement and all other documents entered into or delivered in
connection therewith.
"Recovery Event" shall mean the receipt by PI Holdings or any of its
Subsidiaries of any cash casualty insurance proceeds or condemnation award
payable (i) by reason of theft, loss, physical destruction or damage or any
other similar event with respect to any property or assets of PI Holdings or any
of its Subsidiaries or (ii) under any policy of casualty insurance required to
be maintained under Section 8.03.
"Reference Discount Rate" shall mean, in respect of any Bankers'
Acceptances to be purchased pursuant to Section 1.06 and Schedule III hereto,
the arithmetic average of the discount rates (calculated on an annual basis and
rounded to the nearest one-hundredth of 1%, with five-thousandths of 1% being
rounded up) quoted by each Reference Lender at 10:00 A.M. (Toronto time) as the
discount rate at which such Reference Lender would purchase, on the relevant
Drawing Date, its own bankers' acceptances having an aggregate Face Amount equal
to and with a term to maturity the same as the Bankers' Acceptances to be
acquired by such Lender on such Drawing Date.
"Reference Lenders" means in respect of Bankers' Acceptances,
collectively, Deutsche Bank Canada and The Bank of Nova Scotia; and "Reference
Lender" means any one of them, as the context requires.
"Refinancing" shall have the meaning provided in Section 5.07.
"Refinancing Documents" shall mean each document executed or delivered
pursuant to the Refinancing.
"Register" shall have the meaning provided in Section 13.17.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing reserve requirements.
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"Regulation S-X" shall mean Regulation S-X, promulgated by the SEC, as
such regulation is in effect on the Effective Date.
"Regulation T" shall mean Regulation T of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation X" shall mean Regulation X of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing or migration into the environment.
"Replaced Lender" shall have the meaning provided in Section 1.13.
"Replacement Lender" shall have the meaning provided in Section 1.13.
"Reportable Event" shall mean an event described in Section 4043(c) of
ERISA with respect to a Plan that is subject to Title IV or ERISA other than
those events as to which the 30-day notice period is waived under subsections
.22,.23,.25,.27 or .28 of PBGC Regulation Section 4043.
"Required Lenders" shall mean Non-Defaulting Lenders, the sum of whose
outstanding Term Loans and Term Loan Commitments (determined in the case of
Canadian Term Loans and Canadian Term Loan Commitments according to the Dollar
Equivalent established as of a date determined by the Administrative Agent for
the taking of any action requiring such determination), Revolving Loan
Commitments (or after the termination thereof, outstanding Revolving Loans and
Percentage of Swingline Loans and Letter of Credit Outstandings), and
Acquisition Loan Commitments (or if after the termination thereof (except to the
extent converted to Term Loans) outstanding Acquisition Revolving Loans)
represent an amount greater than 50% of the sum of all outstanding Term Loans
and Term Loan Commitments of Non-Defaulting Lenders, the Total Revolving Loan
Commitment (or after the termination thereof, the sum of the then total
outstanding Revolving Loans of Non-Defaulting Lenders and the aggregate
Percentages of all Non-Defaulting Lenders of the total outstanding Swingline
Loans and Letter of Credit Outstandings at such time), and Acquisition Loan
Commitments (or if after the termination thereof (except to the extent
converted to Term Loans) outstanding Acquisition Revolving Loans) of Non-
Defaulting Lenders.
"Restricted Payment" shall mean (i) the authorization, declaration or
payment of any Dividend with respect to PI Holdings or any of its Subsidiaries,
(ii) the payment by the US Borrower or any of its Subsidiaries of any advance or
loan made by PI Holdings, (iii) the payment by Holdings or any of its
Subsidiaries of any cash or other principal or interest on the Holdings PIK
Subordinated Notes, the US Borrower Subordinated Notes or any Qualified Debt
Securities issued pursuant to Section 9.04(xvii) other than interest paid-in-
kind with additional
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issuances of like notes and (iv) the making of any other payment by the US
Borrower or any of its Subsidiaries to any Parent Guarantor.
"Returns" shall have the meaning provided in Section 7.09.
"Revolving Loan" shall have the meaning provided in Section 1.01(c).
"Revolving Loan Commitment" shall mean, for each Lender, the amount
set forth opposite such Lender's name in Schedule I directly below the column
entitled "Revolving Loan Commitment," as same may be (x) reduced from time to
time pursuant to Sections 3.02, 3.03, 4.02 and/or 10 or (y) adjusted from time
to time as a result of assignments to or from such Lender pursuant to Section
1.13 or 13.04(b).
"Revolving Note" shall have the meaning provided in Section 1.05(a).
"Revolving Outstandings" shall mean, at any time, the sum of (i) the
aggregate principal amount of Revolving Loans and Swingline Loans then
outstanding plus (ii) the aggregate amount of Letter of Credit Outstandings at
such time.
"RL Percentage" of any Lender at any time shall mean a fraction
(expressed as a percentage) the numerator of which is the Revolving Loan
Commitment of such Lender at such time and the denominator of which is the Total
Revolving Loan Commitment at such time, provided that if the Percentage of any
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Lender is to be determined after the Total Revolving Loan Commitment has been
terminated, then the Percentages of the Lenders shall be determined immediately
prior (and without giving effect) to such termination.
"Rolling Shareholders" shall mean the shareholders of PI Holdings
listed on Exhibit 2.3 to the Stock Purchase and Redemption Agreement.
"Scheduled Repayments" shall mean Tranche A Scheduled Repayments,
Tranche B Scheduled Repayments, Acquisition Loan Scheduled Repayments and
Canadian Term Loan Scheduled Repayments.
"SEC" shall have the meaning provided in Section 8.01(h).
"Section 4.04(b)(ii) Certificate" shall have the meaning provided in
Section 4.04(b).
"Secured Creditors" shall have the meaning assigned that term in the
Security Documents (including, without limitation, Lenders party to Interest
Rate Protection Agreements and Other Hedging Agreements to the extent set forth
therein).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Security Agreement Collateral" shall mean all "Collateral" as defined
in the US Security Agreement and the Canadian Security Agreement.
"Security Agreements" shall have the meaning provided in Section 5.11.
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"Security Document" shall mean the Pledge Agreements, the Security
Agreements, the Bank Act Security, each Mortgage and, after the execution and
delivery thereof, each Additional Mortgage and each Additional Security
Document.
"Seller" shall mean Genstar Capital Partners II, L.P., a Delaware
limited liability partnership and Stargen II LLC, a Delaware limited liability
company.
"Senior Leverage Amount" shall mean the aggregate outstanding
principal amount of (i) Term Loans (calculated using the Dollar Equivalent in
the case of Canadian Term Loans) plus (ii) Revolving Loans the proceeds of which
were used to fund Change of Control Purchases (or to refinance any such Change
of Control Purchases), in each case on the Term Loan Commitment Expiry Date
(after giving effect to any Borrowings (if any) made on such date).
"Shareholders' Agreements" shall have the meaning provided in Section
5.05.
"Sharing Event" shall mean (i) the occurrence of any Event of Default
with respect to any Parent Guarantor or either Borrower pursuant to Section
10.05, (ii) the declaration of the termination of any Commitments, or the
acceleration of the maturity of any Loans, in each case pursuant to the last
paragraph of Section 10 or (iii) at the request of either the Majority Lenders
holding Canadian Term Loans or the Required Lenders (calculated as if no
Canadian Term Loans or Canadian Term Loan Commitments were outstanding), the
failure of either Borrower (which continues unremedied for five Business Days)
to pay any principal or Face Amount, as applicable, of, or interest on, any
Loans or Unpaid Drawings on the date when due.
"Significant Subsidiary" shall mean each Subsidiary of the US Borrower
that is a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X
under the Securities Act and the Exchange Act (as such regulation is in effect
on the Initial Borrowing Date).
"Standby Letter of Credit" shall have the meaning provided in Section
2.01(a).
"Start Date" shall have the meaning provided in the definition of
"Interest Adjustment Factor".
"Stated Amount" of each Letter of Credit shall, at any time, mean the
maximum amount available to be drawn thereunder (in each case determined without
regard to whether any conditions to drawing could then be met).
"Stock Purchase and Redemption Agreement" shall mean the Stock
Purchase and Redemption Agreement, dated as of October 14, 1999, among Genstar
Capital Partners II, L.P., Stargen II LLC, Muller, Holdings and PI Holdings, as
the same was in effect on October 14, 1999 and as thereafter amended in
accordance with the terms hereof and thereof.
"Subsidiaries Guaranty" shall have the meaning provided in Section
5.09.
"Subsidiary" shall mean, as to any Person, (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a
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majority of the directors of such corporation (irrespective of whether or not at
the time stock of any class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency) is at the time
owned by such Person and/or one or more Subsidiaries of such Person and (ii) any
partnership, association, joint venture or other entity in which such Person
and/or one or more Subsidiaries of such Person has more than a 50% equity
interest at the time.
"Subsidiary Guarantor" shall mean each direct and indirect Subsidiary
of the US Borrower (other than the Canadian Borrower) on the Initial Borrowing
Date and each Subsidiary which executes a guarantee of the obligations of the US
Borrower after the Initial Borrowing Date pursuant to Section 8.12.
"Supermajority Lenders" of any Tranche shall mean those Non-Defaulting
Lenders which would constitute the Required Lenders under, and as defined in,
this Agreement if (x) all outstanding Obligations of the other Tranches under
this Agreement were repaid in full and all Commitments with respect thereto were
terminated and (y) the percentage "50%" contained therein were changed to "66-
2/3%."
"Swingline Expiry Date" shall mean the date which is two Business Days
prior to the Initial Maturity Date.
"Swingline Lender" shall mean BTCo and its successors and assigns.
"Swingline Loan" shall have the meaning provided in Section 1.01(d).
"Swingline Note" shall have the meaning provided in Section 1.05(a).
"Syndication Agent" shall have the meaning provided in the first
paragraph of this Agreement.
"Syndication Date" shall mean that date upon which the Agents
determine in their sole discretion (and notify the Borrowers) that the primary
syndication (and resultant addition of institutions as Lenders pursuant to
Section 13.04) has been completed.
"Tax Sharing Agreement" shall have the meaning provided in Section
5.05.
"Taxes" shall have the meaning provided in Section 4.04(a).
"Taxpayers" shall have the meaning provided in Section 7.09.
"Term Loan" shall have the meaning provided in Section 1.01(h).
"Term Loan Commitment" shall mean each Tranche A Term Loan Commitment,
each Tranche A Supplemental Commitment, each Tranche B Term Loan Commitment and
each Canadian Term Loan Commitment, with the Term Loan Commitment of any Lender
at any time to equal the sum of its Tranche A Term Loan Commitment, Tranche A
Supplemental Commitment, Tranche B Term Loan Commitment and Canadian Term Loan
Commitment as then in effect.
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"Term Loan Commitment Expiry Date" shall mean the earliest to occur of
(i) the Change of Control Purchase Borrowing Date (after giving effect to any
Term Loans made on such date), (ii) the date which is 5 Business Days after the
Change of Control Purchase Amount Determination Date and (iii) the 60/th/ day
after the Initial Borrowing Date.
"Test Date" shall have the meaning provided in the definition of
"Interest Adjustment Factor".
"Test Period" shall mean the period of four consecutive fiscal
quarters of PI Holdings then last ended (in each case taken as one accounting
period). Notwithstanding the foregoing, or anything to the contrary required
by GAAP, in the case of any Test Period ending prior to December 31, 2000,
calculations of Consolidated EBITDA shall be made for the respective Test Period
in accordance with the following sentence. To the extent the respective Test
Period (i) includes the first fiscal quarter of the fiscal year ended closest to
December 31, 1999, Consolidated EBITDA for such fiscal quarter shall be deemed
to be $14,770,000, (ii) includes the second fiscal quarter of the fiscal year
ended closest to December 31, 1999, Consolidated EBITDA for such fiscal quarter
shall be deemed to be $19,279,000, and (iii) includes the third fiscal quarter
of the fiscal year ended closest to December 31, 1999, Consolidated EBITDA for
such fiscal quarter shall be deemed to be $18,502,000.
"Total Acquisition Loan Commitment" shall mean, at any time, the sum
of the Acquisition Loan Commitments of each of the Lenders.
"Total Canadian Term Loan Commitment" shall mean, at any time, the sum
of the Canadian Term Loan Commitments of each of the Lenders.
"Total Commitments" shall mean, at any time, the sum of the
Commitments of each of the Lenders.
"Total Revolving Loan Commitment" shall mean, at any time, the sum of
the Revolving Loan Commitments of each of the Lenders.
"Total Tranche A Supplemental Commitment" shall mean the sum of the
Tranche A Supplemental Commitments of each Lender.
"Total Tranche A Term Loan Commitment" shall mean, at any time, the
sum of the Tranche A Term Loan Commitments of each of the Lenders.
"Total Tranche B Term Loan Commitment" shall mean, at any time, the
sum of the Tranche B Term Loan Commitments of each of the Lenders.
"Total Unutilized Acquisition Loan Commitment" shall mean, at any
time, an amount equal to the remainder of (x) the then Total Acquisition Loan
Commitment, less (y) the
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sum of the aggregate principal amount of Acquisition Loans then outstanding.
"Total Unutilized Revolving Loan Commitment" shall mean, at any time,
an amount equal to the remainder of (x) the then Total Revolving Loan
Commitment, less (y) the sum of the aggregate principal amount of Revolving
Loans and Swingline Loans outstanding plus the then aggregate amount of Letter
of Credit Outstandings.
"Trade Letter of Credit" shall have the meaning provided in Section
2.01(a).
"Tranche" shall mean the respective facility and commitments utilized
in making Loans hereunder, with there being five separate Tranches, i.e.,
----
Tranche A Term Loans, Tranche B Term Loans, Acquisition Loans, Revolving Loans,
Swingline Loans and Canadian Term Loans.
"Tranche A Scheduled Repayment" shall have the meaning provided in
Section 4.02(b).
"Tranche A Scheduled Repayment Date" shall have the meaning provided
in Section 4.02(b).
"Tranche A Supplemental Commitment" shall mean, for each Lender the
amount set forth opposite such Lender's name on Schedule I hereto directly below
the column entitled "Tranche A Supplemental Commitment", as the same may be (x)
reduced from time to time pursuant to Sections 3.03, 4.02 and/or 10 and (y)
adjusted from time to time as a result of assignments to or from such Lender
pursuant to Section 1.13 or 13.04.
"Tranche A Supplemental Note" shall have the meaning provided in
Section 1.05(a).
"Tranche A Term Loan" shall have the meaning provided in Section
1.01(a).
"Tranche A Term Loan Borrowing Date" shall mean the Initial Borrowing
Date and, if Tranche A Term Loans are borrowed on the Change of Control Purchase
Borrowing Date, the Change of Control Purchase Borrowing Date.
"Tranche A Term Loan Commitment" shall mean, for each Lender, the
amount set forth opposite such Lender's name in Schedule I hereto directly below
the column entitled "Tranche A Term Loan Commitment", as same may be (x) reduced
from time to time pursuant to Sections 3.03, 4.02 and/or 10 and (y) adjusted
from time to time as a result of assignments to or from such Lender pursuant to
Section 1.13 or 13.04.
"Tranche A Term Note" shall have the meaning provided in Section
1.05(a).
"Tranche B Reference Amount" shall have the meaning provided in
Section 4.02(c).
"Tranche B Scheduled Repayment" shall have the meaning provided in
Section 4.02(c).
"Tranche B Scheduled Repayment Date" shall have the meaning provided
in Section 4.02(c).
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"Tranche B Term Loan" shall have the meaning provided in Section
1.01(b).
"Tranche B Term Loan Commitment" shall mean, for each Lender, the
amount set forth opposite such Lender's name in Schedule I directly below the
column entitled "Tranche B Term Loan Commitment", as same may be (x) reduced
from time to time pursuant to Sections 3.03, 4.02 and/or 10 and (y) adjusted
from time to time as a result of assignments to or from such Lender pursuant to
Section 1.13 or 13.04(b).
"Tranche B Term Loan Maturity Date" shall mean November 24, 2006.
"Tranche B Term Note" shall have the meaning provided in Section
1.05(a).
"Transaction" shall mean, collectively, the Recapitalization, the
Refinancing, the Common Equity Financing, the issuance of the Holdings PIK
Subordinated Note and the initial incurrence of Loans hereunder.
"Type" shall mean the type of Loan determined with regard to the
interest option applicable thereto, i.e., whether a Base Rate Loan, a Eurodollar
----
Loan, a Canadian Prime Rate Loan or a Bankers' Acceptance Loan.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated benefits under the
Plan as of the close of its most recent plan year exceeds the fair market value
of the assets allocable thereto, each determined in accordance with Statement of
Financial Accounting Standards No. 87, based upon the actuarial assumptions used
by the Plan's actuary in the most recent annual valuation of the Plan.
"United States" and "U.S." shall each mean the United States of
America.
"Unpaid Drawing" shall have the meaning provided for in Section
2.04(a).
"Unutilized Acquisition Loan Commitment" with respect to any Lender,
at any time, shall mean such Lender's Acquisition Loan Commitment at such time
less the aggregate outstanding principal amount of Acquisition Revolving Loans
of such Lender.
"Unutilized Revolving Loan Commitment" with respect to any Lender, at
any time, shall mean such Lender's Revolving Loan Commitment at such time less
the sum of (i) the aggregate outstanding principal amount of Revolving Loans
made by such Lender and (ii) such Lender's Percentage of the Letter of Credit
Outstandings in respect of Letters of Credit issued under this Agreement.
"US Borrower" shall have the meaning provided in the first paragraph
of this Agreement.
"US Borrower Subordinated Note Documents" shall mean the Indenture,
the US Borrower Subordinated Notes and each other document delivered in
connection therewith.
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"US Borrower Subordinated Notes" shall mean the 11 1/2% Senior
Subordinated Notes of the US Borrower, due 2009, issued pursuant to the US
Borrower Subordinated Note Documents, as in effect on the Initial Borrowing Date
and as the same may be amended from time to time in accordance with the
provisions hereof and thereof.
"US Pledge Agreement" shall have the meaning provided in Section
5.10(a).
"US Security Agreement" shall have the meaning provided in Section
5.11.
"Voting Stock" means any class or classes of capital stock of PI
Holdings pursuant to which the holders thereof have the general voting power
under ordinary circumstances to elect at least a majority of the Board of
Directors of PI Holdings.
"Waivable Mandatory Repayment" shall have the meaning provided in
Section 4.02(n).
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock (other than director's qualifying
shares) is at the time owned by such Person and/or one or more Wholly-Owned
Subsidiaries of such Person and (ii) any partnership, association, joint venture
or other entity in which such Person and/or one or more Wholly-Owned
Subsidiaries of such Person has a 100% equity interest at such time.
"Year 2000 Compliant" shall mean that all Information Systems and
Equipment accurately process date data (including, but not limited to,
calculating, comparing and sequencing), before, during and after the year 2000,
as well as same and multi-century dates, or between the years 1999 and 2000,
taking into account all leap years, including the fact that the year 2000 is a
leap year, and further, that when used in combination with, or interfacing with,
other Information Systems and Equipment, shall accurately accept, release and
exchange date data, and shall in all material respects continue to function in
the same manner as it performs today and shall not otherwise impair the accuracy
or functionality of Information Systems and Equipment.
"Year 3 Reference Amount" shall have the meaning provided in Section
4.02(d).
SECTION 12. The Agents.
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12.01 Appointment. The Lenders hereby designate BTCo as
-----------
Administrative Agent (for purposes of this Section 12, the term "Administrative
Agent" shall include BTCo (and/or any of its affiliates) in its capacity as
Collateral Agent pursuant to the Security Documents) and as Syndication Agent to
act as specified herein and in the other Credit Documents. Each Lender hereby
irrevocably authorizes, and each holder of any Note by the acceptance of such
Note shall be deemed irrevocably to authorize, the Agents to take such action on
its behalf under the provisions of this Agreement, the other Credit Documents
and any other instruments and agreements referred to herein or therein and to
exercise such powers and to perform such duties hereunder and thereunder as are
specifically delegated to or required of the Agents by the terms hereof and
thereof and such other powers as are reasonably incidental thereto. Each of the
Agents may perform any of its duties hereunder by or through its respective
officers, directors, agents, employees or affiliates.
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12.02 Nature of Duties. No Agent shall have any duties or
----------------
responsibilities except those expressly set forth in this Agreement and the
Security Documents. Neither any Agent nor any of their respective officers,
directors, agents, employees or affiliates shall be liable for any action taken
or omitted by it or them hereunder or under any other Credit Document or in
connection herewith or therewith, unless caused by its or their gross negligence
or willful misconduct. The duties of each Agent shall be mechanical and
administrative in nature; no Agent shall have by reason of this Agreement or any
other Credit Document a fiduciary relationship in respect of any Lender or the
holder of any Note; and nothing in this Agreement or any other Credit Document,
expressed or implied, is intended to or shall be so construed as to impose upon
any Agent any obligations in respect of this Agreement or any other Credit
Document except as expressly set forth herein or therein.
12.03 Lack of Reliance on the Agents. Independently and without
------------------------------
reliance upon any Agent, each Lender and the holder of each Note, to the extent
it deems appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of PI Holdings
and its Subsidiaries in connection with the making and the continuance of the
Loans and the taking or not taking of any action in connection herewith and (ii)
its own appraisal of the creditworthiness of PI Holdings and its Subsidiaries
and, except as expressly provided in this Agreement, no Agent shall have any
duty or responsibility, either initially or on a continuing basis, to provide
any Lender or the holder of any Note with any credit or other information with
respect thereto, whether coming into its possession before the making of the
Loans or at any time or times thereafter. No Agent shall be responsible to any
Lender or the holder of any Note for any recitals, statements, information,
representations or warranties herein or in any document, certificate or other
writing delivered in connection herewith or for the execution, effectiveness,
genuineness, validity, enforceability, perfection, collectibility, priority or
sufficiency of this Agreement or any other Credit Document or the financial
condition of Holdings and its Subsidiaries or be required to make any inquiry
concerning either the performance or observance of any of the terms, provisions
or conditions of this Agreement or any other Credit Document, or the financial
condition of PI Holdings and its Subsidiaries or the existence or possible
existence of any Default or Event of Default.
12.04 Certain Rights of the Agents. If any Agent shall request
----------------------------
instructions from the Required Lenders with respect to any act or action
(including failure to act) in connection with this Agreement or any other Credit
Document, such Agent shall be entitled to refrain from such act or taking such
action unless and until such Agent shall have received instructions from the
Required Lenders; and such Agent shall not incur liability to any Person by
reason of so refraining. Without limiting the foregoing, no Lender or the
holder of any Note shall have any right of action whatsoever against any Agent
as a result of such Agent acting or refraining from acting hereunder or under
any other Credit Document in accordance with the instructions of the Required
Lenders.
12.05 Reliance. Each Agent shall be entitled to rely, and shall be
--------
fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cablegram,
radiogram, order or other document or telephone message signed, sent or made by
any Person that such Agent believed to be the proper Person, and, with respect
to
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all legal matters pertaining to this Agreement and any other Credit Document
and its duties hereunder and thereunder, upon advice of counsel selected by such
Agent.
12.06 Indemnification. (a) To the extent any Agent is not
---------------
reimbursed and indemnified by the Borrowers, the Lenders will reimburse and
indemnify such Agent, in proportion to their respective "percentages" as used in
determining the Required Lenders (but in any event calculated as if there were
no Defaulting Lenders), for and against any and all liabilities, obligations,
losses, damages, penalties, claims, actions, judgments, costs, expenses or
disbursements of whatsoever kind or nature which may be imposed on, asserted
against or incurred by such Agent in performing its respective duties hereunder
or under any other Credit Document, in any way relating to or arising out of
this Agreement or any other Credit Document; provided that no Lender shall be
--------
liable for any portion of such liabilities, obligations, losses, damages,
penalties, claims, actions, judgments, suits, costs, expenses or disbursements
resulting from such Agent's gross negligence or willful misconduct.
(b) Any Agent shall be fully justified in failing or refusing to take
any action hereunder and under any other Credit Document (except actions
expressly required to be taken by it hereunder or under the Credit Documents)
unless it shall first be indemnified to its satisfaction by the Lenders pro rata
--- ----
against any and all liability, cost and expense that it may incur by reason of
taking or continuing to take any such action.
12.07 Each Agent in its Individual Capacity. With respect to its
-------------------------------------
obligation to make Loans under this Agreement, each Agent shall have the rights
and powers specified herein for a "Lender" and may exercise the same rights and
powers as though it were not performing the duties specified herein; and the
term "Lenders," "Required Lenders," "holders of Notes" or any similar terms
shall, unless the context clearly otherwise indicates, include each Agent in its
individual capacity. Each Agent may accept deposits from, lend money to, and
generally engage in any kind of banking, trust or other business with any Credit
Party or any Affiliate of any Credit Party as if they were not performing the
duties specified herein, and may accept fees and other consideration from the
Borrowers or any other Credit Party for services in connection with this
Agreement and otherwise without having to account for the same to the Lenders.
12.08 Holders. The Administrative Agent shall deem and treat the
-------
payee of any Note as the owner thereof for all purposes hereof unless and until
a written notice of the assignment, transfer or endorsement thereof, as the case
may be, shall have been filed with the Administrative Agent. Any request,
authority or consent of any Person who, at the time of making such request or
giving such authority or consent, is the holder of any Note shall be conclusive
and binding on any subsequent holder, transferee, assignee or endorsee, as the
case may be, of such Note or of any Note or Notes issued in exchange therefor.
12.09 Resignation by the Agents. (a) The Administrative Agent or
-------------------------
the Collateral Agent may resign from the performance of all its functions and
duties hereunder and/or under the other Credit Documents at any time by giving
15 Business Days' prior written notice to the Borrowers and the Lenders. Such
resignation shall take effect upon the appointment of a successor Administrative
Agent or Collateral Agent, as the case may be, pursuant to clauses (b) and (c)
below or, in the case of the Administrative Agent, as otherwise provided below.
Each
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other Agent may resign from the performance of all of its functions and duties
hereunder and/or under the other Credit Documents at any time after the earlier
of (i) the 30/th/ day after the Initial Borrowing Date and (ii) the Syndication
Date, by giving notice to the Borrowers, the Administrative Agent and the
Lenders. Such resignation shall take effect upon delivery of such notice.
(b) Upon any such notice of resignation by the Administrative Agent
or Collateral Agent, as the case may be, the Required Lenders shall appoint a
successor Administrative Agent or Collateral Agent, as the case may be,
hereunder or thereunder who shall be a commercial bank or trust company
reasonably acceptable to the Borrowers.
(c) If a successor Administrative Agent or Collateral Agent, as the
case may be, shall not have been so appointed within such 15 Business Day
period, the Administrative Agent or Collateral Agent, as the case may be, with
the consent of the Borrowers (which shall not be unreasonably withheld or
delayed), shall then appoint a commercial bank or trust company with capital and
surplus of not less than $500,000,000 as successor Administrative Agent or
Collateral Agent, as the case may be, who shall serve as Administrative Agent or
Collateral Agent, as the case may be, hereunder or thereunder until such time,
if any, as the Required Lenders appoint a successor Administrative Agent or
Collateral Agent, as the case may be, as provided above.
(d) In the case of the Administrative Agent only, if no successor
Administrative Agent has been appointed pursuant to clause (b) or (c) above by
the 25/th/ Business Day after the date such notice of resignation was given by
the Administrative Agent, the Administrative Agent's resignation shall become
effective and the Syndication Agent (if it agrees in its sole discretion without
any obligation to do so), or if there is no Syndication Agent or the Syndication
Agent does not so agree, then the Required Lenders, shall thereafter perform all
the duties of the Administrative Agent hereunder and/or under any other Credit
Document until such time, if any, as the Required Lenders appoint a successor
Administrative Agent as provided above.
(e) Upon a resignation of any Agent pursuant to this Section 12.09,
such Agent shall remain indemnified to the extent provided in this Agreement and
the other Credit Documents and the provisions of this Section 12 shall continue
in effect for the benefit of such Agent for all of its actions and inactions
while serving as such Agent.
SECTION 13. Miscellaneous.
-------------
13.01 Payment of Expenses, etc. The Borrowers agree jointly and
-------------------------
severally that they shall: (i) whether or not the transactions herein
contemplated are consummated, pay all reasonable out-of-pocket costs and
expenses of the Administrative Agent (including, without limitation, the
reasonable fees and disbursements of White & Case LLP and local counsel) in
connection with the preparation, execution and delivery of this Agreement and
the other Credit Documents and the documents and instruments referred to herein
and therein and any amendment, waiver or consent relating hereto or thereto, of
the Administrative Agent in connection with its syndication efforts with respect
to this Agreement and of the Agents in connection with the enforcement of this
Agreement and the other Credit Documents and the documents and instruments
referred to herein and therein (including, without limitation, the reasonable
fees and disbursements of counsel for the Agents); (ii) pay and hold each of the
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Lenders harmless from and against any and all present and future stamp, excise
and other similar taxes with respect to the foregoing matters and save each of
the Lenders harmless from and against any and all liabilities with respect to or
resulting from any delay or omission (other than to the extent attributable to
such Lender) to pay such taxes (other than any tax imposed on or measured by the
net income or profits of a Lender pursuant to the laws of the jurisdiction in
which such Lender is organized or in which the principal office or applicable
lending office of such Lender is located or any subdivision thereof or therein);
and (iii) indemnify the Agents and each Lender, and each of their respective
officers, directors, trustees, employees, representatives and agents from and
hold each of them harmless against any and all liabilities, obligations
(including removal or remedial actions), losses, damages, penalties, claims,
actions, judgments, suits, costs, expenses and disbursements (including
reasonable attorneys' and consultants' fees and disbursements, provided that, so
--------
long as no conflict of interest exists in the good faith judgment of each Agent,
the Agents shall, to the extent practicable, retain and share collective counsel
and consultants in each jurisdiction where such counsel or consultants are
deemed necessary by the Agents) incurred by, imposed on or assessed against any
of them as a result of, or arising out of, or in any way related to, or by
reason of, (a) any investigation, litigation or other proceeding (whether or not
the Agents or any Lender is a party thereto) related to the entering into and/or
performance of this Agreement or any other Credit Document or the use of any
Letter of Credit or the proceeds of any Loans hereunder or the consummation of
any transactions contemplated herein (including, without limitation, the
Transaction), or in any other Credit Document or the exercise or enforcement of
any of their rights or remedies provided herein or in the other Credit
Documents, or (b) the actual or alleged presence of Hazardous Materials in the
air, surface water or groundwater or on the surface or subsurface of any Real
Property at any time owned or operated by PI Holdings or any of its
Subsidiaries, the generation, storage, transportation, handling or disposal of
Hazardous Materials at any location, whether or not owned or operated by PI
Holdings or any of its Subsidiaries, the non-compliance of any Real Property
with foreign, federal, state and local laws, regulations, and ordinances
(including applicable permits thereunder) applicable to any Real Property, or
any Environmental Claim asserted against PI Holdings, any of its Subsidiaries or
any Real Property at any time owned or operated by PI Holdings or any of its
Subsidiaries (but excluding any losses, liabilities, claims, damages or expenses
to the extent incurred by reason of the gross negligence or willful misconduct
of the Person to be indemnified). To the extent that the undertaking to
indemnify, pay or hold harmless the Agents or any Lender set forth in the
preceding sentence may be unenforceable because it is violative of any law or
public policy, the Borrowers shall make the maximum contribution to the payment
and satisfaction of each of the indemnified liabilities which is permissible
under applicable law.
13.02 Right of Setoff. (a) In addition to any rights now or
---------------
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and continuance of an Event
of Default, each Lender is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to Holdings or
the Borrowers or to any other Person, any such notice being hereby expressly
waived, to set off and to appropriate and apply any and all deposits (general or
special) and any other Indebtedness at any time held or owing by such Lender
(including, without limitation, by branches and agencies of such Lender wherever
located) to or for the credit or the account of Holdings, any Borrower or any
Subsidiary Guarantor (but in any event excluding assets held in
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trust for any other Person) against and on account of the Obligations and
liabilities of Holdings, such Borrower or such Subsidiary Guarantor, as
applicable, to such Lender under this Agreement or under any of the other Credit
Documents, including, without limitation, all interests in Obligations purchased
by such Lender pursuant to Section 1.15 or 13.06(b), all participations by any
Lender in any Swingline Loans or Letters of Credit as required pursuant to the
provisions of this Agreement and all other claims of any nature or description
arising out of or connected with this Agreement or any other Credit Document,
irrespective of whether or not such Lender shall have made any demand hereunder
and although said Obligations, liabilities or claims, or any of them, shall be
contingent or unmatured. Each Borrower agrees that any Lender purchasing
participations in one or more Letters of Credit or Swingline Loans as required
by the provisions of this Agreement, or purchasing participations as required by
Section 13.06(b), may, to the fullest extent permitted by law, exercise all
rights (including, without limitation, the right of setoff) with respect to such
participations as fully as if such Lender is a direct creditor of such Borrower
with respect to such participations in the amount thereof.
(b) NOTWITHSTANDING THE FOREGOING SUBSECTION (a), AT ANY TIME THAT THE
LOANS OR ANY OTHER OBLIGATION SHALL BE SECURED BY REAL PROPERTY LOCATED IN
CALIFORNIA, NO LENDER OR THE ADMINISTRATIVE AGENT SHALL EXERCISE A RIGHT OF
SETOFF, LIEN OR COUNTERCLAIM OR TAKE ANY COURT OR ADMINISTRATIVE ACTION OR
INSTITUTE ANY PROCEEDING TO ENFORCE ANY PROVISION OF THIS AGREEMENT OR ANY NOTE
UNLESS IT IS TAKEN WITH THE CONSENT OF THE REQUIRED LENDERS OR, TO THE EXTENT
REQUIRED BY SECTION 13.12 OF THIS AGREEMENT, ALL OF THE LENDERS, OR APPROVED IN
WRITING BY THE ADMINISTRATIVE AGENT, IF SUCH SETOFF OR ACTION OR PROCEEDING
WOULD OR MIGHT (PURSUANT TO CALIFORNIA CODE OF CIVIL PROCEDURE SECTIONS 580a,
580b, 580d AND 726 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE OR SECTION 2924 OF
THE CALIFORNIA CIVIL CODE, IF APPLICABLE, OR OTHERWISE) AFFECT OR IMPAIR THE
VALIDITY, PRIORITY, OR ENFORCEABILITY OF THE LIENS GRANTED TO THE COLLATERAL
AGENT PURSUANT TO THE SECURITY DOCUMENTS OR THE ENFORCEABILITY OF THE NOTES AND
OTHER OBLIGATIONS HEREUNDER, AND ANY ATTEMPTED EXERCISE BY ANY LENDER OR THE
ADMINISTRATIVE AGENT OF ANY SUCH RIGHT WITHOUT OBTAINING SUCH CONSENT OF THE
REQUIRED LENDERS OR THE ADMINISTRATIVE AGENT SHALL BE NULL AND VOID. THIS
SUBSECTION (b) SHALL BE SOLELY FOR THE BENEFIT OF EACH OF THE LENDERS AND THE
ADMINISTRATIVE AGENT HEREUNDER.
13.03 Notices. Except as otherwise expressly provided herein, all
-------
notices and other communications provided for hereunder shall be in writing
(including telex or telecopier communication) and mailed, telexed, telecopied or
delivered: if to Holdings, at Holdings' address specified opposite its signature
below; if to the US Borrower or the Canadian Borrower, at such Borrower's
address specified opposite its signature below; if to any Lender, at its address
specified on Schedule II; and if to the Administrative Agent, at its Notice
Office; or, as to any Credit Party or the Administrative Agent, at such other
address as shall be designated by such party in a written notice to the other
parties hereto and, as to each Lender, at such other address as shall be
designated by such Lender in a written notice to the Borrowers and the
Administrative
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Agent. All such notices and communications shall, when mailed, telexed,
telecopied or sent by overnight courier, be effective when deposited in the
mails or delivered to the overnight courier, prepaid and properly addressed for
delivery on such or the next Business Day, or sent by telex or telecopier,
except that notices and communications to the Administrative Agent shall not be
effective until received by the Administrative Agent.
13.04 Benefit of Agreement. (a) This Agreement shall be binding
--------------------
upon and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto; provided, however, that, Holdings, the US
-------- -------
Borrower and the Canadian Borrower may not assign or transfer any of their
respective rights, obligations or interest hereunder or under any other Credit
Document without the prior written consent of all of the Lenders and, provided
--------
further, that, although any Lender may grant participations in its rights
- -------
hereunder, such Lender shall remain a "Lender" for all purposes hereunder (and
may not otherwise transfer or assign all or any portion of its Commitments
hereunder except as provided in Section 13.04(b)) and the participant shall not
constitute a "Lender" hereunder and, provided further, that no Lender shall
----------------
grant any participation under which the participant shall have rights to approve
any amendment to or waiver of this Agreement or any other Credit Document except
to the extent such amendment or waiver would (i) extend the final scheduled
maturity of any Loan, Note or Letter of Credit (unless such Letter of Credit is
not extended beyond the Initial Maturity Date) in which such participant is
participating, or reduce the rate or extend the time of payment of interest or
Fees thereon (except in connection with a waiver of applicability of any post-
default increase in interest rates) or reduce the principal amount thereof, or
increase the amount of the participant's participation over the amount thereof
then in effect (it being understood that a waiver of any Default or Event of
Default or of a mandatory prepayment or mandatory reduction in the Total
Commitments shall not constitute a change in the terms of such participation,
and that an increase in any Commitment or Loan shall be permitted without the
consent of any participant if the participant's participation is not increased
as a result thereof), (ii) consent to the assignment or transfer by the US
Borrower or the Canadian Borrower of any of their respective rights and
obligations under this Agreement or (iii) release all or substantially all of
the Collateral under all of the Security Documents (except as expressly provided
in the Credit Documents) supporting the Loans hereunder in which such
participant is participating. In the case of any such participation, the
participant shall not have any rights under this Agreement or any of the other
Credit Documents (the participant's rights against such Lender in respect of
such participation to be those set forth in the agreement executed by such
Lender in favor of the participant relating thereto) and all amounts payable by
the Borrowers hereunder shall be determined as if such Lender had not sold such
participation.
(b) Notwithstanding the foregoing, any Lender (or any Lender
together with one or more other Lenders) may (x) assign all or a portion of its
Revolving Loan Commitment (and related outstanding Obligations hereunder),
Acquisition Loan Commitment (and related outstanding Obligations hereunder)
and/or its outstanding Term Loans or, if prior to the Initial Borrowing Date,
Term Loan Commitment to (i) its parent company and/or any affiliate of such
Lender which is at least 50% owned by such Lender or its parent company, (ii) to
one or more Lenders, (iii) in the case of any Lender that is a fund that invests
in bank loans, any other fund that invests in bank loans and is managed or
advised by the same investment advisor of such Lender or by an Affiliate of such
investment advisor or (y) assign all, or if less than all, a portion
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equal to at least $5,000,000 (or, in connection with assignments by the Agents
within 90 days of the Initial Borrowing Date, such lesser amounts as they may
determine) in the aggregate for the assigning Lender or assigning Lenders, of
such Revolving Loan Commitments, Acquisition Loan Commitment and/or outstanding
principal amount of Term Loans (and/or, prior to the expiration thereof, Term
Loan Commitments) hereunder to one or more Eligible Transferees, each of which
assignees shall become a party to this Agreement as a Lender by execution of an
Assignment and Assumption Agreement, provided that, (i) at such time Schedule I
--------
shall be deemed modified to reflect the Commitments (and/or outstanding Term
Loans, as the case may be) of such new Lender and of the existing Lenders, (ii)
new Notes will be issued, at the expense of the Borrower issuing such Notes, to
such new Lender and to the assigning Lender upon the request of such new Lender
or assigning Lender, such new Notes to be in conformity with the requirements of
Section 1.05 (with appropriate modifications) to the extent needed to reflect
the revised Commitments (and/or outstanding Term Loans, as the case may be),
(iii) the consent of the Administrative Agent and each Issuing Lender shall be
required in connection with any assignment of all or any portion of Revolving
Loan Commitments (which consent shall not be unreasonably withheld or delayed),
(iv) in the case of assignments pursuant to clause (y) above, the consent of the
Administrative Agent and, in the case of such assignments of Revolving Loan
Commitments, Tranche B Term Loan Commitments and/or Acquisition Loan
Commitments, and so long as no Default or Event of Default then exists, the
prior written consent of the US Borrower shall be required (which consents shall
not be unreasonably withheld or delayed), (v) the Administrative Agent shall
receive at the time of each such assignment, from the assigning or assignee
Lender, the payment of a non-refundable assignment fee of $3,500, and (vi) in
the case of assignments of Canadian Term Loans or Canadian Term Loan
Commitments, the assignee is a Canadian Lender. To the extent of any assignment
pursuant to this Section 13.04(b), the assigning Lender shall be relieved of its
obligations hereunder with respect to its assigned Commitments. At the time of
each assignment pursuant to this Section 13.04(b) to a Person which is not
already a Lender hereunder and which is not a United States person (as such term
is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes,
the respective assignee Lender shall provide to the US Borrower and the
Administrative Agent the appropriate Internal Revenue Service Forms (and, if
applicable, a Section 4.04(b)(ii) Certificate) described in Section 4.04(b). To
the extent that an assignment of all or any portion of a Lender's Commitments
and related outstanding Obligations pursuant to Section 1.13 or this Section
13.04(b) would, at the time of such assignment, result in increased costs under
Section 1.10, 1.11, 2.05 or 4.04 from those being charged by the respective
assigning Lender prior to such assignment, then the Borrowers shall not be
obligated to pay such increased costs (although the Borrowers shall be obligated
to pay any other increased costs of the type described above resulting from
changes after the date of the respective assignment). In addition, the
Administrative Agent shall use its reasonable efforts to give the Borrowers
notice of any assignment of Term Loans pursuant to clause (y) above in this
Section 13.04(b) at the time that the Administrative Agent first receives
written notice thereof, provided that the Administrative Agent's failure to give
--------
any such notice or any delay in the giving of such notice shall not result in
any liability to the Administrative Agent and shall not otherwise affect the
respective assignment (it being understood that nothing in this sentence shall
be construed to give the Borrowers any right to consent to any such assignment
other than as provided in clause (iv) above).
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(c) Nothing in this Agreement shall prevent or prohibit any Lender
from pledging its Loans and Notes hereunder to a Federal Reserve Bank in support
of borrowings made by such Lender from such Federal Reserve Bank.
(d) Notwithstanding anything to the contrary contained herein, any
Lender (a "Granting Lender") may grant to a special purpose funding vehicle (a
"SPC"), identified as such in writing from time to time by the Granting Lender
to the Administrative Agent and the respective Borrower, the option to provide
to such Borrower all or any part of any Loan that such Granting Lender would
otherwise be obligated to make to such Borrower pursuant to this Agreement;
provided that (i) nothing herein shall constitute a commitment by any SPC to
- -------------
make any Loan, (ii) if an SPC elects not to exercise such option or otherwise
fails to provide all or any part of such Loan, the Granting Lender shall be
obligated to make such Loan pursuant to the terms hereof and (iii) in respect of
a Canadian Term Loans and Canadian Term Loan Commitments, the SPC shall be a
Canadian Lender. The making of a Loan by an SPC hereunder shall reduce the
respective Commitment of the Granting Lender to the same extent (if any), and as
if, such Loan were made by such Granting Lender. Each party hereto hereby
agrees that no SPC shall be liable for any indemnity or similar payment
obligation under this Agreement (all liability for which shall remain with the
Granting Lender). In furtherance of the foregoing, each party hereto hereby
agrees (which agreement shall survive the termination of this Agreement) that,
prior to the date that is one year and one day after the payment in full of all
outstanding commercial paper or other senior indebtedness of any SPC, it will
not institute against, or join any other person in instituting against, such SPC
any bankruptcy, reorganization, arrangement, insolvency or liquidation
proceedings under the laws of the United States or any state thereof. In
addition, notwithstanding anything to the contrary contained in this Section
13.04(d), any SPC may (i) with notice to, but without paying any processing fee
therefor, assign all or a portion of its interests in any Loan to the Granting
Lender or to any financial institutions (consented to by the respective Borrower
and the Administrative Agent) providing liquidity and/or credit support to or
for the account of such SPC to support the funding or maintenance of Loans and
(ii) disclose on a confidential basis any non-public information relating to its
Loans to any rating agency, commercial paper dealer or provider of any surety,
guarantee or credit or liquidity enhancement to such SPC.
13.05 No Waiver; Remedies Cumulative. No failure or delay on the
------------------------------
part of any Agent or any Lender or any holder of any Note in exercising any
right, power or privilege hereunder or under any other Credit Document and no
course of dealing between either Borrower or any other Credit Party and any
Agent or any Lender or the holder of any Note shall operate as a waiver thereof;
nor shall any single or partial exercise of any right, power or privilege
hereunder or under any other Credit Document preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights, powers and remedies herein or in any other
Credit Document expressly provided are cumulative and not exclusive of any
rights, powers or remedies which any Agent or any Lender or the holder of any
Note would otherwise have. No notice to or demand on any Credit Party in any
case shall entitle any Credit Party to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of any Agent
or any Lender or the holder of any Note to any other or further action in any
circumstances without notice or demand.
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13.06 Payments Pro Rata. (a) Except as otherwise provided in this
-----------------
Agreement, the Administrative Agent and the Canadian Paying Agent agree that
promptly after its receipt of each payment from or on behalf of either Borrower
in respect of any Obligations hereunder, it shall distribute such payment to the
Lenders (other than any Lender that has consented in writing to waive its pro
---
rata share of any such payment) pro rata based upon their respective shares, if
- ---- --- ----
any, of the Obligations with respect to which such payment was received.
(b) Each of the Lenders agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or Lender's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise), which is applicable to the payment of the principal of, or interest
on, the Loans, Unpaid Drawings, Bankers' Acceptances, Commitment Commission or
Letter of Credit Fees, of a sum which with respect to the related sum or sums
received by other Lenders is in a greater proportion than the total of such
Obligation then owed and due to such Lender bears to the total of such
Obligation then owed and due to all of the Lenders immediately prior to such
receipt, then such Lender receiving such excess payment shall purchase for cash
without recourse or warranty from the other Lenders an interest in the
Obligations of the respective Credit Party to such Lenders in such amount as
shall result in a proportional participation by all the Lenders in such amount;
provided that if all or any portion of such excess amount is thereafter
- --------
recovered from such Lender, such purchase shall be rescinded and the purchase
price restored to the extent of such recovery, but without interest.
(c) Notwithstanding anything to the contrary contained herein, the
provisions of the preceding Sections 13.06(a) and (b) shall be subject to the
express provisions of this Agreement (x) which require, or permit, differing
payments to be made to Non-Defaulting Lenders as opposed to Defaulting Lenders
and (y) dealing with Waivable Mandatory Repayments.
13.07 Calculations; Computations. (a) The financial statements to
--------------------------
be furnished to the Lenders pursuant hereto shall be made and prepared in
accordance with generally accepted accounting principles in the United States
(or the equivalent thereof in any country in which a Foreign Subsidiary is doing
business, as applicable) consistently applied throughout the periods involved
(except as set forth in the notes thereto or as otherwise disclosed in writing
by the US Borrower to the Lenders); provided that, except as otherwise
--------
specifically provided herein, all computations of (i) Excess Cash Flow, (ii) the
Leverage Ratio for purposes of calculating the Interest Adjustment Factor,
Commitment Fee Percentage and Applicable Excess Cash Flow Percentage and (iii)
all computations determining compliance with Sections 9.08 through 9.10,
inclusive, shall utilize accounting principles and policies in conformity with
those used to prepare the financial statements delivered to the Lenders pursuant
to Section 7.05(a) (with the foregoing generally accepted accounting principles,
subject to the preceding proviso, herein called "GAAP"). Calculations of (i)
Excess Cash Flow, (ii) the Leverage Ratio for purposes of calculating the
Interest Adjustment Factor, Commitment Fee Percentage and Applicable Excess Cash
Flow Percentage and (iii) all computations determining compliance with Sections
9.08 through 9.10, inclusive, shall not be made on a Pro Forma Basis, except
--- -----
that (x) in calculating the Leverage Ratio for purposes of determining the
Interest Adjustment Factor, Commitment Fee Percentages and compliance with
Section 9.10, all determinations of Consolidated EBITDA shall
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be made on a Pro Forma Basis for all Asset Sales and Permitted Acquisitions
--- -----
effected during the relevant Test Period (but not thereafter) and (y) all
calculations determining compliance with the definition of Permitted Acquisition
shall be made on a Pro Forma Basis to the extent provided therein.
--- -----
(b) All computations of interest, Commitment Commission and Fees
hereunder shall be made on the basis of a year of 360 days for the actual number
of days (including the first day but excluding the last day) occurring in the
period for which such interest, Commitment Commission or Fees are payable.
(c) For purposes of the Interest Act (Canada), (i) whenever any
interest or fee under this Agreement or the other Credit Documents is calculated
using a rate based on a year of 360 days or 365 days, as the case may be, the
rate determined pursuant to such calculation, when expressed as an annual rate,
is equivalent to (x) the applicable rate based on a year of 360 days or 365
days, as the case may be, (y) multiplied by the actual number of days in the
calendar year in which the period for which such interest or fee is payable (or
compounded) ends, and (z) divided by 360 or 365, as the case may be; (ii) the
principle of deemed reinvestment of interest does not apply to any interest
calculation under this Agreement or the other Credit Documents; and (iii) the
rates of interest stipulated in this Agreement and the other Credit Documents
are intended to be nominal rates and not effective rates or yields.
13.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF
-----------------------------------------------------------
JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS
- ----------
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL, EXCEPT AS
OTHERWISE PROVIDED IN CERTAIN OF THE MORTGAGES AND OTHER SECURITY DOCUMENTS, BE
CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW
YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
LOCATED WITHIN THE CITY OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF
HOLDINGS, PI HOLDINGS, PG HOLDINGS, PII HOLDINGS, THE US BORROWER AND THE
CANADIAN BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS. EACH OF HOLDINGS, PI HOLDINGS, PG HOLDINGS, PII HOLDINGS, THE US
BORROWER AND THE CANADIAN BORROWER HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM
THAT ANY SUCH COURTS LACK JURISDICTION OVER SUCH CREDIT PARTY, AND AGREES NOT TO
PLEAD OR CLAIM IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
OR ANY OTHER CREDIT DOCUMENT BROUGHT IN ANY OF THE AFORESAID COURTS, THAT ANY
SUCH COURT LACKS JURISDICTION OVER SUCH CREDIT PARTY. EACH OF HOLDINGS, PI
HOLDINGS, PG HOLDINGS, PII HOLDINGS, THE US BORROWER AND THE CANADIAN BORROWER
FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
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AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ANY SUCH CREDIT
PARTY AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH SERVICE TO
BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. EACH OF HOLDINGS, PI HOLDINGS, PG
HOLDINGS, PII HOLDINGS, THE US BORROWER AND THE CANADIAN BORROWER HEREBY
IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER
IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING
COMMENCED HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT THAT SUCH SERVICE OF
PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF THE AGENTS UNDER THIS AGREEMENT, ANY LENDER OR THE HOLDER OF ANY NOTE
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY CREDIT PARTY IN ANY OTHER
JURISDICTION.
(b) HOLDINGS, PI HOLDINGS, PG HOLDINGS, PII HOLDINGS, THE US BORROWER
AND THE CANADIAN BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR
PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE AND HEREBY
FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT
THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM.
(c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
13.09 Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the US Borrower and the
Administrative Agent.
13.10 Effectiveness. This Agreement shall become effective on the
-------------
date (the "Effective Date") on which Holdings, PI Holdings, PG Holdings, PII
Holdings, the US Borrower, the Canadian Borrower and each of the Lenders shall
have signed a counterpart hereof (whether the same or different counterparts)
and shall have delivered the same to the Administrative Agent or, in the case of
the Lenders, shall have given to the Administrative Agent telephonic (confirmed
in writing), written or telex notice (actually received) at such office that
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the same has been signed and mailed to it. The Administrative Agent will give
the Borrowers and each Lender prompt written notice of the occurrence of the
Effective Date.
13.11 Headings Descriptive. The headings of the several sections and
--------------------
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
13.12 Amendment or Waiver; etc. (a) Subject to the provisions of
-------------------------
following clause (c), neither this Agreement nor any other Credit Document nor
any terms hereof or thereof may be changed, waived, discharged or terminated
unless such change, waiver, discharge or termination is in writing signed by the
respective Credit Parties party thereto and the Required Lenders, provided that
--------
no such change, waiver, discharge or termination shall, without the consent of
each Lender (with Obligations being directly affected in the case of following
clause (i)), (i) extend the final scheduled maturity of any Loan or Note or
extend the stated maturity of any Letter of Credit beyond the Initial Maturity
Date, or reduce the rate or extend the time of payment of interest or Fees
thereon, or reduce the principal amount thereof (except to the extent repaid in
cash) (it being understood that any amendment or modification to the financial
definitions in this Agreement or to Section 13.07(a) shall not constitute a
reduction in the rate of interest for purposes of this clause (i)), (ii) release
all or substantially all of the Collateral (except as expressly provided in the
Credit Documents) under all the Security Documents, (iii) release PI Holdings,
PG Holdings, PII Holdings or the US Borrower from the Parent Guarantee or a
Subsidiary Guarantor which is a Significant Subsidiary from the Subsidiaries
Guaranty (except as expressly provided in the Subsidiaries Guaranty), (iv)
amend, modify or waive any provision of this Section 13.12, (v) reduce the
percentage specified in the definition of Required Lenders (it being understood
that, with the consent of the Required Lenders, additional extensions of credit
pursuant to this Agreement may be included in the determination of the Required
Lenders on substantially the same basis as the extensions of Term Loans,
Revolving Loan Commitments and Acquisition Loan Commitments are included on the
Effective Date) or (vi) amend or modify the definition of Supermajority Lenders
(it being understood that, with the consent of the Required Lenders, additional
Obligations and Tranches may be included in the determination of Supermajority
Lenders on substantially the same basis as the Obligations and Tranches are
included on the Effective Date) or (vii) consent to the assignment or transfer
by the US Borrower or the Canadian Borrower of any of their respective rights
and obligations under this Agreement; provided further, that no such change,
----------------
waiver, discharge or termination shall (1) increase the Commitments of any
Lender over the amount thereof then in effect without the consent of such Lender
(it being understood that waivers or modifications of conditions precedent,
covenants, Defaults or Events of Default or of a mandatory reduction in the
Total Commitments shall not constitute an increase of the Commitment of any
Lender, and that an increase in the available portion of any Commitment of any
Lender shall not constitute an increase in the Commitment of such Lender), (2)
without the consent of the Swingline Lender, alter its rights or obligations
with respect to Swingline Loans, (3) without the consent of each Issuing Bank
affected thereby, amend, modify or waive any provision of Section 2 or alter its
rights or obligations with respect to Letters of Credit, (4) without the consent
of each Agent affected thereby, amend, modify or waive any provision of Section
12 as same applies to such Agent or any other provision as same relates to the
rights or obligations of such Agent, (5) without the consent of the Collateral
Agent, amend, modify or waive any provision relating to the rights or
obligations of the Collateral
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Agent, (6) without the consent of the Majority Lenders of each Tranche which is
being allocated a lesser prepayment, repayment or commitment reduction as a
result of the actions described below (or without the consent of the Majority
Lenders of each Tranche in the case of an amendment to the definition of
Majority Lenders), amend the definition of Majority Lenders or waive or alter
the required application of any prepayments or repayments (or commitment
reductions), as between the various Tranches, pursuant to Section 4.01 or 4.02
(excluding Sections 4.02(b), (c), (d) and (e)) (although the Required Lenders
may (A) waive, in whole or in part, any such prepayment, repayment or commitment
reduction pursuant to Section 4.01 or Section 4.02(f), (g), (h), (i) or (j), so
long as the application, as amongst the various Tranches, of any such
prepayment, repayment or commitment reduction which is still required to be made
is not altered and (B) agree to the inclusion of additional extensions of credit
made after the Initial Borrowing Date (and not pursuant to Commitments as in
effect on the Initial Borrowing Date) on substantially the same basis as the
other extensions of credit pursuant to Sections 4.01 and 4.02), (7) without the
consent of the Supermajority Lenders of the respective Tranche, amend, modify or
waive any Tranche A Scheduled Repayment, Tranche B Scheduled Repayment,
Acquisition Loan Scheduled Repayment or Canadian Term Loan Scheduled Repayment
(except that, if additional Loans are made pursuant to a given Tranche, the
Scheduled Repayments of such Tranche may be increased on a proportionate basis
without the consent otherwise required by this clause (7)), (8) if the Scheduled
Repayments of any Tranche of Term Loans are being increased (except for
proportionate increases as described in the parenthetical contained in preceding
clause (7)) or the date of any Scheduled Repayment being shortened or
accelerated, the consent of the Supermajority Lenders of each other Tranche then
outstanding shall be required in connection therewith, (9) without the consent
of the Majority Lenders holding Canadian Term Loans and the Required Lenders
(determined as if all Canadian Term Loans had been repaid in full), amend the
provisions of the Security Documents concerning application of proceeds or
otherwise modify the terms of any Credit Document concerning the relative rights
and priorities of the respective Lenders in the proceeds of any Collateral or
the subordination of any guaranty as among the guaranteed obligations of the
respective Borrowers and (10) without the consent of the Supermajority Lenders
holding Canadian Term Loans and the Supermajority Lenders of all other Tranches
(calculated as if all such Tranches constituted one single Tranche for purposes
of this clause (10)) amend any term contained in Section 1.15 or the operation
thereof (including, without limitation, any amendment to the definition of
"Sharing Event").
(b) If, in connection with any proposed change, waiver, discharge or
termination to any of the provisions of this Agreement as contemplated by
clauses (i) through (vii), inclusive, of the first proviso to Section 13.12(a),
the consent of the Required Lenders is obtained but the consent of one or more
of such other Lenders whose consent is required is not obtained, then the
Borrowers shall have the right, so long as all non-consenting Lenders whose
individual consent is required are treated as described in either clauses (A) or
(B) below, to either (A) replace each such non-consenting Lender or Lenders (or,
at the option of the Borrowers if the respective Lender's consent is required
with respect to less than all Tranches of Loans (or related Commitments), to
replace only the respective Tranche or Tranches of Commitments and/or Loans of
the respective non-consenting Lender which gave rise to the need to obtain such
Lender's individual consent) with one or more Replacement Lenders pursuant to
Section 1.13 so long as at the time of such replacement, each such Replacement
Lender consents to the proposed change, waiver, discharge or termination or (B)
terminate such non-consenting Lender's
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Revolving Loan Commitment and/or Acquisition Loan Commitment (if such Lender's
consent is required as a result of its Revolving Loan Commitment and/or
Acquisition Loan Commitment, as applicable) and/or repay each Tranche of
outstanding Term Loans of such Lender which gave rise to the need to obtain such
Lender's consent, in accordance with Sections 3.02(b) and/or 4.01(b), provided
--------
that, unless the Commitments terminated, and Loans repaid, pursuant to preceding
clause (B) are immediately replaced in full at such time through the addition of
new Lenders or the increase of the Commitments and/or outstanding Loans of
existing Lenders (who in each case must specifically consent thereto), then in
the case of any action pursuant to preceding clause (B) the Required Lenders
(determined both (x) before giving effect to the proposed action and (y) as if
the Loans and Commitments being terminated (and not replaced) were not
outstanding) shall specifically consent thereto, provided further, that in any
-------- -------
event the Borrowers shall not have the right to replace a Lender, terminate its
Revolving Loan Commitment and/or Acquisition Loan Commitment, as applicable, or
repay its Loans solely as a result of the exercise of such Lender's rights (and
the withholding of any required consent by such Lender) pursuant to the second
proviso to Section 13.12(a).
13.13 Survival. All indemnities set forth herein including, without
--------
limitation, in Sections 1.10, 1.11, 2.05, 4.04, 13.01 and 13.06 shall, subject
to Section 13.15 (to the extent applicable), survive the execution, delivery and
termination of this Agreement and the Notes and the making and repayment of the
Loans.
13.14 Domicile of Loans. Each Lender may transfer and carry its
-----------------
Loans at, to or for the account of any office, Subsidiary or Affiliate of such
Lender. Notwithstanding anything to the contrary contained herein, to the
extent that a transfer of Loans pursuant to this Section 13.14 would, at the
time of such transfer, result in increased costs under Section 1.10, 1.11, 2.05
or 4.04 from those being charged by the respective Lender prior to such
transfer, then the Borrowers shall not be obligated to pay such increased costs
(although the Borrowers shall be obligated to pay any other increased costs of
the type described above resulting from changes after the date of the respective
transfer).
13.15 Limitation on Additional Amounts, etc. Notwithstanding
--------------------------------------
anything to the contrary contained in Sections 1.10, 1.11, 2.05 or 4.04, unless
a Lender gives notice to the respective Borrower that it is obligated to pay an
amount under any such Section within one year after the later of (x) the date
the Lender incurs the respective increased costs, Taxes, loss, expense or
liability, reduction in amounts received or receivable or reduction in return on
capital or (y) the date such Lender has actual knowledge of its incurrence of
the respective increased costs, Taxes, loss, expense or liability, reductions in
amounts received or receivable or reduction in return on capital, then such
Lender shall only be entitled to be compensated for such amount by such Borrower
pursuant to said Section 1.10, 1.11, 2.05 or 4.04, as the case may be, to the
extent the costs, Taxes, loss, expense or liability, reduction in amounts
received or receivable or reduction in return on capital are incurred or
suffered on or after the date which occurs one year prior to such Lender giving
notice to such Borrower that it is obligated to pay the respective amounts
pursuant to said Section 1.10, 1.11, 2.05 or 4.04, as the case may be. This
Section 13.15 shall have no applicability to any Section of this Agreement other
than said Sections 1.10, 1.11, 2.05 and 4.04.
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13.16 Confidentiality. (a) Subject to the provisions of clause (b)
---------------
of this Section 13.16, each Lender agrees that it will use its best efforts not
to disclose without the prior consent of PI Holdings or the Borrowers (other
than to its employees, auditors, advisors or counsel, to another Lender or to
the National Association of Insurance Commissioners if the Lender or such
Lender's holding or parent company in its sole discretion determines that any
such party should have access to such information, provided such Persons shall
be subject to the provisions of this Section 13.16 to the same extent as such
Lender) any information with respect to PI Holdings or any of its Subsidiaries
which is now or in the future furnished pursuant to this Agreement or any other
Credit Document and which is designated by PI Holdings or the Borrowers to the
Lenders in writing as confidential, provided that any Lender may disclose any
--------
such information (a) as has become generally available to the public other than
by virtue of a breach of this Section 13.16(a) by the respective Lender, (b) as
may be required or reasonably appropriate in any report, statement or testimony
submitted to any municipal, state or Federal regulatory body having or claiming
to have jurisdiction over such Lender or to the Federal Reserve Board or the
Federal Deposit Insurance Corporation or similar organizations (whether in the
United States or elsewhere) or their successors, (c) as may be required or
reasonably appropriate in respect to any summons or subpoena or in connection
with any litigation, (d) in order to comply with any law, order, regulation or
ruling applicable to such Lender, (e) to the Agents or the Collateral Agent and
(f) to any prospective or actual transferee or participant in connection with
any contemplated transfer or participation of any of the Notes or Commitments or
any interest therein by such Lender, provided that such prospective transferee
--------
agrees to be bound by the confidentiality provisions contained in this Section
13.16.
(b) Each of PI Holdings, PG Holdings, PII Holdings, the US Borrower
and the Canadian Borrower hereby acknowledges and agrees that each Lender may
share with any of its affiliates (which is not a direct competitor of PI
Holdings or any of its Subsidiaries) any information related to PI Holdings or
any of its Subsidiaries (including, without limitation, any nonpublic customer
information regarding the creditworthiness of PI Holdings and its Subsidiaries,
provided such Persons shall be subject to the provisions of this Section 13.16
to the same extent as such Lender).
13.17 Register. The Borrowers hereby designate the Administrative
--------
Agent to serve as the Borrowers' agent, solely for purposes of this Section
13.17, to maintain a register (the "Register") on which it will record the
Commitments from time to time of each of the Lenders, the Loans made by each of
the Lenders and each repayment in respect of the principal amount of the Loans
of each Lender. Failure to make any such recordation, or any error in such
recordation, shall not affect the Borrowers' obligations in respect of such
Loans. With respect to any Lender, the transfer of the Commitments of such
Lender and the rights to the principal of, and interest on, any Loan made
pursuant to such Commitments shall not be effective until such transfer is
recorded on the Register maintained by the Administrative Agent with respect to
ownership of such Commitments and Loans and prior to such recordation all
amounts owing to the transferor with respect to such Commitments and Loans shall
remain owing to the transferor. The registration of assignment or transfer of
all or part of any Commitments and Loans shall be recorded by the Administrative
Agent on the Register only upon the acceptance by the Administrative Agent of a
properly executed and delivered Assignment and Assumption Agreement pursuant to
Section 13.04(b). Coincident with the delivery of such an Assignment
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and Assumption Agreement to the Administrative Agent for acceptance and
registration of assignment or transfer of all or part of a Loan, or as soon
thereafter as practicable, the assigning or transferor Lender shall surrender
the Note evidencing such Loan, and thereupon one or more new Notes in the same
aggregate principal amount shall be issued to the assigning or transferor Lender
and/or the new Lender. The Borrowers jointly and severally agree to indemnify
the Administrative Agent from and against any and all losses, claims, damages
and liabilities of whatsoever nature which may be imposed on, asserted against
or incurred by the Administrative Agent in performing its duties under this
Section 13.17 except to the extent resulting from the gross negligence or
willful misconduct of the Administrative Agent.
13.18 Interest. (a) It is the intention of the parties hereto that
--------
each Lender shall conform strictly to usury laws applicable to it. Accordingly,
the parties hereto stipulate and agree that none of the terms and provisions
contained in the Notes, this Agreement, or any of the other Credit Documents
shall ever be construed to create a contract to pay to any Lender for the use,
forbearance, or detention of money at a rate in excess of the Highest Lawful
Rate applicable to such Lender, and that for purposes hereof, "interest" shall
include the aggregate of all charges or other consideration which constitute
interest under applicable laws and are contracted for, taken, reserved, charged,
or received under any of this Agreement, the Notes, or the other Credit
Documents or otherwise in connection with the transactions contemplated by this
Agreement. Further, if the transactions contemplated hereby would be usurious
as to any Lender under laws applicable to it then, in that event,
notwithstanding anything to the contrary in the Notes, this Agreement or in any
other Credit Document or agreement entered into in connection with or as
security for the Notes, it is agreed as follows: the aggregate of all
consideration which constitutes interest under law applicable to each such
Lender that is contracted for, taken, reserved, charged, or received by such
Lender under the Notes, this Agreement, or under any of the other aforesaid
Credit Documents or agreements or otherwise in connection with the Notes shall
under no circumstances exceed the Highest Lawful Rate applicable to such Lender,
and any excess shall be credited by such Lender on the principal amount of the
Indebtedness of the US Borrower or the Canadian Borrower, as the case may be,
owed to such Lender (or, if the principal amount of such Indebtedness shall have
been paid in full, to the extent such interest has been received by a Lender it
shall be refunded by such Lender to such Borrower). The provisions of this
Section 13.18(a) shall control over all other provisions of this Agreement, the
Notes, and the other Credit Documents which may be in apparent conflict
herewith. The parties further stipulate and agree that, without limitation on
the foregoing, all calculations of the rate or amount of interest contracted
for, taken, reserved, charged or received under any of this Agreement, the
Notes, and the other Credit Documents which are made for the purpose of
determining whether such rate or amount exceed the Highest Lawful Rate shall be
made, to the extent permitted by applicable law, by amortizing, prorating,
allocating, and spreading during the period of the full stated term of the
Indebtedness, and if longer and if permitted by applicable law, until payment in
full, all interest at any time so contracted for, taken, reserved, charged, or
received.
(b) If at any time the effective rate of interest which would
otherwise apply to any Indebtedness evidenced by any Lender's Notes or otherwise
owing pursuant to this Agreement or any other Credit Document would exceed the
Highest Lawful Rate applicable to such Lender (taking into account the interest
provisions of this Agreement, plus all additional
-151-
<PAGE>
charges and consideration which have been contracted for, taken, reserved,
charged, or received under this Agreement, such Lender's Notes and the other
Credit Documents, or any of them, and which additional charges or consideration
(the "Additional Charges") constitute interest with respect to such
Indebtedness), the effective interest rate to apply to such Indebtedness made by
a Lender shall be limited to the Highest Lawful Rate, but (to the maximum extent
permitted under applicable law) any subsequent reductions in the interest rate
applicable to such Indebtedness owed to such Lender shall not reduce the
effective interest rate to apply to such Indebtedness owed to such Lender below
the Highest Lawful Rate applicable to such Lender until the total amount of
interest accrued on such Indebtedness equals the amount of interest which would
have accrued if the interest rate from time to time applicable to such
Indebtedness owed to such Lender had at all times been in effect with respect to
such Indebtedness pursuant to the other provisions of this Agreement and if the
Lenders had collected all Additional Charges called for under this Agreement,
the Notes, and the other Credit Documents. If at maturity or final payment of
such Lender's Notes the total amount of interest accrued on such Lender's Notes
or otherwise owing pursuant to this Agreement or any other Credit Document
(including amounts designated as "interest" plus any Additional Charges which
constitute interest with respect to such Lender's Notes, and taking into account
the limitations of the first sentence of this Section 13.18(b)) is less that the
total amount of interest which would have accrued if the interest rate or
interest rates applicable to the Indebtedness from time to time outstanding
under such Lender's Notes or otherwise owing pursuant to this Agreement or any
other Credit Document had at all times been in effect pursuant to the other
provisions of this Agreement, then the respective Borrower agrees, to the
fullest extent permitted by the laws applicable to such Lender, to pay to such
Lender an amount equal to the difference between (i) the lesser of (1) the
amount of interest which would have accrued if the Highest Lawful Rate had at
all times been in effect (but excluding, for purposes of calculating such amount
of interest, any Additional Charges which constitute interest with respect to
such Lender's Notes), or (2) the amount of interest which would have accrued
(in the absence of this Section 13.18) if the interest rate or interest rates
applicable to the Indebtedness from time to time outstanding under such Lender's
Notes or otherwise pursuant to this Agreement or the other Credit Documents had
at all times been in effect pursuant to the other provisions of this Agreement
(including amounts designated as "interest" plus any Additional Charges which
constitute interest with respect to such Lender's Notes) less (ii) the amount of
interest actually accrued (taking into account the limitations contained in this
Section 13.18) on such Lender's Notes or other obligations pursuant to this
Agreement or the other Credit Documents (including amounts designated as
"interest" plus any Additional Charges which constitute interest with respect to
such Lender's Notes).
13.19 Judgment Currency. (a) If, for the purposes of obtaining
-----------------
judgment in any court, it is necessary to convert a sum due to a Lender in
Dollars or Canadian Dollars (the "Original Currency") into Canadian Dollars or
Dollars (the "Other Currency"), the parties, to the fullest extent that they may
effectively do so, agree that the rate of exchange used shall be that at which,
in accordance with normal banking procedures, such Lender could purchase the
Original Currency with the Other Currency on the Business Day preceding the day
on which final judgment is given or, if permitted by applicable law, on the day
which the judgment is paid or satisfied.
-152-
<PAGE>
(b) The obligations of the Credit Parties in respect of any sum due
in the Original Currency from any of them to any Lender under any of the Credit
Documents shall, notwithstanding any judgment in any Other Currency, be
discharged only to the extent that on the Business Day following receipt by such
Lender of any sum adjudged to be so due in such Other Currency, such Lender may,
in accordance with its normal banking procedures, purchase the Original Currency
with such Other Currency. If the amount of the Original Currency so purchased
is less than the sum originally due to such Lender in the Original Currency, the
Credit Parties agree, as a separate obligation and notwithstanding any such
judgment, to indemnify such Lender against any loss, and if the amount of the
Original Currency so purchased exceeds the sum originally due to such Lender in
the Original Currency, the Lenders agree to remit such excess to such Credit
Party.
13.20 Special Provisions Concerning Oregon Law. UNDER OREGON LAW,
---------------------------------------- -----------------
MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY THE LENDER AFTER OCTOBER 3,
- -----------------------------------------------------------------------------
1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR PERSONAL,
- -----------------------------------------------------------------------------
FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST
- -------------------------------------------------------------------------------
BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY THE LENDER TO BE
- ----------------------------------------------------------------------
ENFORCEABLE.
- -----------
SECTION 14. Parent Guaranty.
---------------
14.01 The Parent Guaranty. In order to induce the Agents and the
-------------------
Lenders to enter into this Agreement and to extend credit hereunder, to induce
Lenders or any of their respective Affiliates to enter into the Interest Rate
Protection Agreements or Other Hedging Agreements, and in recognition of the
direct benefits to be received by PI Holdings, PG Holdings, PII Holdings and the
US Borrower (collectively, the "Parent Guarantors") from the proceeds of the
Loans, the issuance of the Letters of Credit, and the entering into of Interest
Rate Protection Agreements or Other Hedging Agreements, the Parent Guarantors
hereby jointly and severally agree with the Guaranteed Creditors as follows:
each Parent Guarantor hereby jointly and severally, unconditionally and
irrevocably guarantees as primary obligor and not merely as surety the full and
prompt payment when due, whether upon maturity, acceleration or otherwise, of
any and all of the Guaranteed Obligations of the Borrowers (or, in the case of
the US Borrower, the Canadian Borrower) to the Guaranteed Creditors. If any or
all of the Guaranteed Obligations of the Borrowers (or, in the case of the US
Borrower, the Canadian Borrower) to the Guaranteed Creditors becomes due and
payable hereunder, each Parent Guarantor jointly and severally, irrevocably and
unconditionally promises to pay such indebtedness to the Guaranteed Creditors,
or order, on demand, together with any and all expenses which may be incurred by
the Guaranteed Creditors in collecting any of the Guaranteed Obligations. This
Parent Guaranty is a guaranty of payment and not of collection. If claim is
ever made upon any Guaranteed Creditor for repayment or recovery of any amount
or amounts received in payment or on account of any of the Guaranteed
Obligations and any of the aforesaid payees repays all or part of said amount by
reason of (i) any judgment, decree or order of any court or administrative body
having jurisdiction over such payee or any of its property or (ii) any
settlement or compromise of any such claim effected in good faith by such payee
with any such claimant (including the Borrowers), then and in such event each
Parent Guarantor agrees that any such judgment, decree,
-153-
<PAGE>
order, settlement or compromise shall be binding upon each Parent Guarantor,
notwithstanding any revocation of this Parent Guaranty or other instrument
evidencing any liability of the Borrowers, and each Parent Guarantor shall be
and remain liable to the aforesaid payees hereunder for the amount so repaid or
recovered to the same extent as if such amount had never originally been
received by any such payee.
14.02 Bankruptcy. Additionally, each Parent Guarantor jointly and
----------
severally, unconditionally and irrevocably guarantees the payment of any and all
of the Guaranteed Obligations of the Borrowers (or, in the case of the US
Borrower, the Canadian Borrower) to the Guaranteed Creditors whether or not due
or payable by the Borrowers upon the occurrence of an Event of Default under
Section 10.05, and jointly and severally, unconditionally promises to pay such
indebtedness to the Guaranteed Creditors, or order, on demand, in lawful money
of the United States.
14.03 Nature of Liability. The liability of the Parent Guarantors
-------------------
hereunder shall be joint and several and the liability of each Parent Guarantor
hereunder is exclusive and independent of any security for or other guaranty of
the Guaranteed Obligations of the Borrowers whether executed by any other Parent
Guarantor, any other guarantor or by any other party, and the liability of the
Parent Guarantors hereunder shall not be affected or impaired by (a) any
direction as to application of payment by the Borrowers or by any other party,
or (b) any other continuing or other guaranty, undertaking or maximum liability
of a guarantor or of any other party as to the Guaranteed Obligations of the
Borrowers, or (c) any payment on or in reduction of any such other guaranty or
undertaking, or (d) any dissolution, termination or increase, decrease or change
in personnel by the Borrowers, or (e) any payment made to any Guaranteed
Creditor on the Guaranteed Obligations which any such Guaranteed Creditor repays
to the Borrowers pursuant to court order in any bankruptcy, reorganization,
arrangement, moratorium or other debtor relief proceeding, and each Parent
Guarantor waives any right to the deferral or modification of its obligations
hereunder by reason of any such proceeding, or (f) the lack of validity or
enforceability of any Credit Document or any instrument relating thereto.
14.04 Independent Obligation. The obligations of each Parent
----------------------
Guarantor hereunder are independent of the obligations of any other guarantor,
any other party or the Borrowers, and a separate action or actions may be
brought and prosecuted against any Parent Guarantor whether or not action is
brought against any other guarantor, any other party or the Borrowers and
whether or not any other guarantor, any other party or the Borrowers be joined
in any such action or actions. Each Parent Guarantor waives, to the full extent
permitted by law, the benefit of any statute of limitations affecting its
liability hereunder or the enforcement thereof. Any payment by the Borrowers or
other circumstance which operates to toll any statute of limitations as to the
Borrowers shall operate to toll the statute of limitations as to each Parent
Guarantor.
14.05 Authorization. Each Parent Guarantor authorizes the Guaranteed
-------------
Creditors without notice or demand (except as shall be required by applicable
statute and cannot be waived), and without affecting or impairing its liability
hereunder, from time to time to:
-154-
<PAGE>
(a) change the manner, place or terms of payment of, and/or change or
extend the time of payment of, renew, increase, accelerate or alter, any of
the Guaranteed Obligations (including any increase or decrease in the rate
of interest thereon), any security therefor, or any liability incurred
directly or indirectly in respect thereof, and the Parent Guaranty herein
made shall apply to the Guaranteed Obligations as so changed, extended,
renewed or altered;
(b) take and hold security for the payment of the Guaranteed
Obligations and sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, the Guaranteed Obligations or any liabilities (including any of
those hereunder) incurred directly or indirectly in respect thereof or
hereof, and/or any offset there against;
(c) exercise or refrain from exercising any rights against the
Borrowers, any other Credit Party or others or otherwise act or refrain
from acting;
(d) release or substitute any one or more endorsers, guarantors, the
Borrowers or other obligors;
(e) settle or compromise any of the Guaranteed Obligations, any
security therefor or any liability (including any of those hereunder)
incurred directly or indirectly in respect thereof or hereof, and may
subordinate the payment of all or any part thereof to the payment of any
liability (whether due or not) of the Borrowers to their respective
creditors other than the Guaranteed Creditors;
(f) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the Borrowers to the Guaranteed Creditors
regardless of what liability or liabilities of the Parent Guarantors or the
Borrowers remain unpaid;
(g) consent to or waive any breach of, or any act, omission or
default under, this Agreement or any of the instruments or agreements
referred to herein, or otherwise amend, modify or supplement this Agreement
or any of such other instruments or agreements;
(h) take any other action which would, under otherwise applicable
principles of common law, give rise to a legal or equitable discharge of
the Parent Guarantors from their liabilities under this Parent Guaranty;
(i) release any collateral security for the Guaranteed Obligations;
and/or
(j) change its corporate structure.
14.06 Reliance. It is not necessary for any Guaranteed Creditor to
--------
inquire into the capacity or powers of the Borrowers or the officers, directors,
partners or agents acting or purporting to act on their behalf, and any
Guaranteed Obligations made or created in reliance upon the professed exercise
of such powers shall be guaranteed hereunder.
-155-
<PAGE>
14.07 Subordination. (a) Any of the indebtedness of the Borrowers
-------------
now or hereafter owing to any Parent Guarantor is hereby subordinated to the
Guaranteed Obligations of the Borrowers owing to the Guaranteed Creditors; and
if the Administrative Agent so requests at a time when an Event of Default
exists, all such indebtedness of the Borrowers to any Parent Guarantor shall be
collected, enforced and received by such Parent Guarantor for the benefit of the
Guaranteed Creditors and be paid over to the Administrative Agent on behalf of
the Guaranteed Creditors on account of the Guaranteed Obligations of the
Borrowers (or, in the case of the US Borrower, the Canadian Borrower) to the
Guaranteed Creditors, but without affecting or impairing in any manner the
liability of such Parent Guarantor under the other provisions of this Parent
Guaranty. Prior to the transfer by any Parent Guarantor of any note or
negotiable instrument evidencing any of the indebtedness of the Borrowers to
such Parent Guarantor, such Parent Guarantor shall mark such note or negotiable
instrument with a legend that the same is subject to this subordination.
Without limiting the generality of the foregoing, each Parent Guarantor hereby
agrees with the Guaranteed Creditors that it will not exercise any right of
subrogation which it may at any time otherwise have as a result of this Parent
Guaranty (whether contractual, under Section 509 of the Bankruptcy Code or
otherwise) until all Guaranteed Obligations have been irrevocably paid in full
in cash.
(b) Notwithstanding anything to the contrary contained in this
Agreement, the guaranty provided by the US Borrower of the Guaranteed
Obligations of the Canadian Borrower pursuant to this Section 14 is expressly
subordinated in right of payment and collection to the payment in full in cash
of all Guaranteed Obligations of the US Borrower, and prior to such payment in
full of such Guaranteed Obligations of the US Borrower, no action may be brought
by any Lender to enforce its rights hereunder with respect to the US Borrower
and all amounts received from the US Borrower pursuant to its guaranty hereunder
shall be applied by the Administrative Agent or the Collateral Agent, as the
case may be, to the payment of Guaranteed Obligations of the US Borrower until
such Guaranteed Obligations are repaid in full before any such amounts are
applied to repay any Guaranteed Obligations of the Canadian Borrower.
14.08 Waiver. (a) Each Parent Guarantor waives any right (except as
------
shall be required by applicable statute and cannot be waived) to require any
Guaranteed Creditor to (i) proceed against the Borrowers, any other guarantor or
any other party, (ii) proceed against or exhaust any security held from the
Borrowers, any other guarantor or any other party or (iii) pursue any other
remedy in any Guaranteed Creditor's power whatsoever. Each Parent Guarantor
waives any defense based on or arising out of any defense of the Borrowers, any
other guarantor or any other party, other than payment in full of the Guaranteed
Obligations, based on or arising out of the disability of the Borrowers, any
other guarantor or any other party, or the validity, legality or
unenforceability of the Guaranteed Obligations or any part thereof from any
cause, or the cessation from any cause of the liability of the Borrowers other
than payment in full of the Guaranteed Obligations. The Guaranteed Creditors
may, at their election, foreclose on any security held by any Agent, the
Collateral Agent or any other Guaranteed Creditor by one or more judicial or
nonjudicial sales, whether or not every aspect of any such sale is commercially
reasonable (to the extent such sale is permitted by applicable law), or exercise
any other right or remedy the Guaranteed Creditors may have against the
Borrowers or any other party, or any security, without affecting or impairing in
any way the liability of any Parent Guarantor hereunder except to the extent the
Guaranteed Obligations have been paid. Each Parent
-156-
<PAGE>
Guarantor waives any defense arising out of any such election by the Guaranteed
Creditors, even though such election operates to impair or extinguish any right
of reimbursement or subrogation or other right or remedy of such Parent
Guarantor against the Borrowers or any other party or any security.
(b) Each Parent Guarantor waives all presentments, demands for
performance, protests and notices, including, without limitation, notices of
nonperformance, notices of protest, notices of dishonor, notices of acceptance
of this Parent Guaranty, and notices of the existence, creation or incurring of
new or additional Guaranteed Obligations. Each Parent Guarantor assumes all
responsibility for being and keeping itself informed of the Borrowers' financial
condition and assets, and of all other circumstances bearing upon the risk of
nonpayment of the Guaranteed Obligations and the nature, scope and extent of the
risks which such Parent Guarantor assumes and incurs hereunder, and agrees that
neither the Agents nor any Lender shall have any duty to advise any Parent
Guarantor of information known to them regarding such circumstances or risks.
14.09 Maximum Liability. It is the desire and intent of each Parent
-----------------
Guarantor and the Guaranteed Creditors that this Parent Guaranty shall be
enforced against each Parent Guarantor to the fullest extent permissible under
the laws and public policies applied in each jurisdiction in which enforcement
is sought. If, however, and to the extent that, the obligations of any Parent
Guarantor under this Parent Guaranty shall be adjudicated to be invalid or
unenforceable for any reason (including, without limitation, because of any
applicable state or federal law relating to fraudulent conveyances or
transfers), then the amount of the Guaranteed Obligations of such Parent
Guarantor shall be deemed to be reduced and such Parent Guarantor shall pay the
maximum amount of the Guaranteed Obligations which would be permissible under
applicable law.
* * *
-157-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
Address:
c/o Panolam Industries PANOLAM ACQUISITION COMPANY, L.L.C.
International, Inc.
20 Progress Drive
Shelton, CT 06484
Attention: President By:_________________________________
Facsimile: (203) 225-0051 Title: President
PANOLAM INDUSTRIES HOLDINGS, INC.
By:_________________________________
Title: President
PANOLAM GROUP, INC.
By:_________________________________
Title: President
PII SECOND, INC.
By:_________________________________
Title: President
PANOLAM INDUSTRIES
INTERNATIONAL, INC.
By:_________________________________
Title: President
<PAGE>
PANOLAM INDUSTRIES LTD.
By:__________________________________
Title: President
<PAGE>
One Bankers Trust Plaza BANKERS TRUST COMPANY,
130 Liberty Street Individually and as Administrative Agent and
New York, New York 10006 Syndication Agent
Telephone No.: (212) 250-8617
Facsimile No.: (212) 250-7218
Attention: G. Andrew Keith By:____________________________________________
Title: Vice President
<PAGE>
222 Bay Street, Suite 1100, Deutsche Bank Canada,
P.O. Box 196, Individually and as Canadian Paying Agent
Toronto, Ontario M5K 1H6
Telephone No.: (416) 682-8190
Facsimile No.: (416) 682-8444 By:____________________________________________
Attention: Karyn Curran Title:
<PAGE>
SCHEDULE I
----------
COMMITMENTS
-----------
<TABLE>
<CAPTION>
Tranche A Canadian
Tranche A Term Supplemental Tranche B Term Revolving Loan Acquisition Loan Term Loan
Lender Loan Commitment Commitment Loan Commitment Commitment Commitment Commitment
- ------ --------------- ------------ --------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Bankers Trust Company $50,000,000 $25,000,000 $135,000,000 $50,000,000 $0
Deutsche Bank Canada CDN$73,435,000
____________ _____________ ______________ _____________ ____ _____________
TOTALS $50,000,000 $25,000,000 $135,000,000 $50,000,000 $0 CDN$73,435,000/*/
</TABLE>
_______________________
Represents an amount of Canadian Dollars which, on the Initial Borrowing Date,
is equal to $50,000,000.
<PAGE>
SCHEDULE II
LENDER ADDRESSES
----------------
Bankers Trust Company
130 Liberty Street
New York, NY 10006
Attn: G. Andrew Keith
Tel: 212-250-8617
Fax: 212-250-7218
Deutsche Bank Canada
222 Bay Street, Suite 1100
P.O. Box 196,
Toronto, Ontario M5K 1H6
Attn: Karyn Curran
Tel: 416-682-8190
Fax: 416-682-8444
<PAGE>
SCHEDULE 5.12
-------------
SCHEDULE 5.12
-------------
Mortgaged Properties
--------------------
1. 20 Progress Drive, Shelton, CT 06484
Panolam Industries, Inc.
- ------------------------
1. Atlantic Blvd., Norcross, GA 30071
2. Calapooia, Albany, OR 97321
3. University, Tempe, AZ 85281
4. Etiwanda Ave., Rancho Cucamonga, CA
Pioneer Plastics Corporation
- ----------------------------
1. Western Avenue, South Paris, Maine 04281
2. Elder Road, Michiana, Indiana 46544
3. Hotel Road, Auburn, Maine 04210
4. One Pionite Road, P.O. Box 1014, Auburn ME 04211
5. DeSoto Avenue, Morristown, TN 37816
6. All Pro Drive, Elkhart, IN 46514
7. Lochridge Blvd. Covington, GA 30209
8. South Reservoir, Ponoma, CA 91766
Panolam Industries Ltd.
- -----------------------
1. Muskoka Road #3, Hunstville, Ontario, P1H 2H7
<PAGE>
SCHEDULE 7.15
-------------
SCHEDULE 7.15
-------------
Subsidiaries
------------
<TABLE>
<CAPTION>
Name Percentage Owned
- ---- ----------------
<S> <C>
Panolam Industries International, Inc.
- --------------------------------------
Panolam Industries, Inc. 100%
Pioneer Plastics Corporation 100%
Panolam Industries, Ltd. 100%
Panolam Industries, Inc.
- ------------------------
Melamine Decorative Laminates, Inc. 100%
</TABLE>
<PAGE>
Schedule 7.22
Page 2
SCHEDULE 7.22
-------------
Existing Indebtedness
---------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
Debtor Description Principal Amount
Outstanding
- ----------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------------------
Panolam Industries Ltd. Intercompany loan from $3,018,978
Industries International,
Inc.
- ----------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 8.12
-------------
SCHEDULE 8.03
-------------
Insurance
- ---------
Panolam Industries Holdings, Inc. and Subsidiaries
Current Carrier Schedule
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Coverage Carrier Policy Number Value* Expiration Date
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Property HSB Industrial Risk Insurers 31-3-66779 $284,646,464 11/15/00
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign Package St. Paul Guardian CK09002504 $ 2,000,000 11/15/00
- -----------------------------------------------------------------------------------------------------------------------------------
Workers Compensation Fremont Industrial Indemnity JY5313321 - (Panolam) $ 1,000,000 11/15/00
JY5226052 - (Pioneer) $ 1,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
Commercial Umbrella Federal Insurance Company 79217635 $ 25,000,000 11/15/00
- -----------------------------------------------------------------------------------------------------------------------------------
General Liability St. Paul Guardian GL09000164 $ 2,000,000 11/15/00
- -----------------------------------------------------------------------------------------------------------------------------------
Executive Risk Package Federal Insurance Company 81587706 $ 5,000,000 - Crime 11/15/00
$ 2,000,000 - Fiduciary
$ 5,000,000 - Exec. Risk
- ------------------------------------------------------------------------------------------------------------------------------------
Business Auto Coverage St. Paul Guardian CA09000200 $ 1,000,000 11/15/00
- ------------------------------------------------------------------------------------------------------------------------------------
Punitive Damages Chubb Atlantic (00)3310-06-48 $ 25,000,000 11/15/00
- ------------------------------------------------------------------------------------------------------------------------------------
Excess Workers Comp. Employers Reinsurance Corp. 0573568 $ 1,000,000 03/21/00
- ------------------------------------------------------------------------------------------------------------------------------------
Aircraft Liability National Union Fire Ins. Co. AP4792658-05 $ 10,000,000 03/21/00
- ------------------------------------------------------------------------------------------------------------------------------------
Earthquake Pacific Insurance Co. Ltd. ZG0013204 $ 2,000,000 04/23/00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 9.01
-------------
SCHEDULE 9.01
-------------
Existing Liens
--------------
Panolam Industries Holdings, Inc.
---------------------------------
None
Panolam Group, Inc.
-------------------
None
PII Second, Inc.
----------------
None
Panolam Industries International, Inc.
--------------------------------------
None
Panolam Industries Ltd.
-----------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
Jurisdiction Filing Number Filing Secured Party Collateral
Date Description
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ontario 971106 11/06/97 Xerox Canada Ltd. Equipment, other
1437 1715 9355
(Ref. File No.
835773075)
- ------------------------------------------------------------------------------------------------
Ontario 970911 09/11/97 Copelco Capital Inc. Equipment, other
1429 1530 6946
(Ref. File No.
834247476)
- ------------------------------------------------------------------------------------------------
Ontario 970807 08/07/97 GE Capital See attached
1606 6082 0110 Canada Leasing Letter from GE
(Reg. File No. Services Inc. Capital Canada
833289966)
- ------------------------------------------------------------------------------------------------
Ontario 971002 10/02/97 GE Capital See attached
1451 6082 0244 Canada Leasing Letter from GE
(Reg. File No. Services Inc. Capital Canada
834863994)
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule V
Page2
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Jurisdiction Filing Number Filing Secured Party Collateral
Date Description
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ontario 970414 04/14/97 GE Capital See attached
0915 1637 5825, as Canada Leasing Letter from GE
amended by Filing No. Services Inc. Capital Canada
970813 0847 6082 0120
and Filing No. 970815
1702 6082 0159
(Reg. File No.
829878768)
- ---------------------------------------------------------------------------------------------------
11/05/97 GE Capital See attached
Canada Leasing Letter from GE
Services Inc. Capital Canada
- ---------------------------------------------------------------------------------------------------
</TABLE>
Pioneer Plastic Corporation
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Jurisdiction Filing Number Filing Secured Party Collateral
Date Description
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
California 9510160138 4/6/95 Toyota Motor Credit Corp. Toyota forklift
POB 3457 truck
Torrance, California 90510
- ---------------------------------------------------------------------------------------------------
California 9510160460 4/6/95 Toyota Motor Credit Corp. Toyota forklift
POB 3457 truck
Torrance, California 90510
- ---------------------------------------------------------------------------------------------------
Georgia 89-714298 3/29/95 Household Commercial *
Assignment filed Financial Services, Inc.
060-95-00482 2700 Sanders Road Prospect
Heights, IL 60070
- ---------------------------------------------------------------------------------------------------
Georgia 89-714299 3/29/95 Household Commercial *
Assignment filed Financial Services, Inc.
060-95-00483 2700 Sanders Road Prospect
Heights, IL 60070
- ---------------------------------------------------------------------------------------------------
Georgia 89-714297 3/29/95 Household Commercial *
Assignment filed Financial Services, Inc.
060-95-00484 2700 Sanders Road Prospect
Heights, IL 60070
- ---------------------------------------------------------------------------------------------------
Georgia 89-714296 3/29/95 Household Commercial *
Assignment filed Financial Services, Inc.
060-95-00485 2700 Sanders Road Prospect
Heights, IL 60070
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule V
Page 3
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Jurisdiction Filing Number Filing Secured Party Collateral
Date Description
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Georgia 04495003236 4/7/9 Matrix Funding Corporation Equipment
6925 Union Park Center #250
Midvale, UT 84047
- ---------------------------------------------------------------------------------------------------
</TABLE>
Panolam Industries, Inc.
------------------------
None
* These liens shall constitute Permitted Liens until the date which is 60 days
after the Initial Borrowing Date unless otherwise permitted pursuant to
Section 9.01 of the Credit Agreement (without giving effect to clause (iii)
thereof).
<PAGE>
SCHEDULE III
------------
Certain Provisions Relating to Bankers' Acceptances
---------------------------------------------------
This Schedule III sets forth certain terms and conditions relating to
the obligation of the Lenders to convert Canadian Prime Rate Loans made to the
Canadian Borrower pursuant to Section 1.01(h) of the Credit Agreement into
Bankers' Acceptances pursuant to Section 1.06 of the Credit Agreement and to
continue such Bankers' Acceptance Loans. Capitalized terms used herein shall
have the meanings assigned to such terms in the Credit Agreement.
(a) Availability. All notices of conversion or continuation for
------------
Bankers' Acceptances shall be in a minimum aggregate face amount of CDN
$5,000,000 or a multiple of CDN $100,000 in excess thereof, and no Lender shall
be obliged to accept any bill of exchange which:
(i) is drawn on or which matures on a day which is not a Business
Day;
(ii) matures on a day subsequent to the Initial Maturity Date;
(iii) has a term other than approximately 30, 60, 90 or 180 days
(or, prior to the earlier to occur of the 65/th/ day following the Initial
Borrowing Date and the Syndication Date and otherwise in accordance with
Section 1.06 of the Credit Agreement, seven days);
(iv) is denominated in any currency other than Canadian Dollars;
(v) is not in a form satisfactory to such Lender or the
Administrative Agent;
(vi) has a face amount of less than CDN $1,000,000 or is not in an
integral multiple of CDN $100,000; or
(vii) in respect of which the Canadian Borrower has not then paid
the applicable Acceptance Fee.
(b) Grace. The Canadian Borrower hereby renounces, and shall not
-----
claim or request or require any Lender to claim, any days of grace for the
payment of any Bankers' Acceptance.
(c) Bankers' Acceptances in Blank. To facilitate the acceptance by
-----------------------------
the Lenders of Drafts as contemplated by the Credit Agreement and this Schedule
III, the Canadian Borrower shall, as soon as practicable after the Initial
Borrowing Date and from time to time as required, supply each Lender making
Canadian Term Loans with such numbers of Drafts as it may request, each executed
and endorsed in blank by the Canadian Borrower. Each such Lender shall exercise
such care in the custody and safekeeping of such bills as they give to similar
property owned by them. Each Lender is hereby authorized to issue such Bankers'
Acceptances endorsed in blank in such face amounts as may be determined by such
Lender, provided that the aggregate amount thereof is equal to the aggregate
--------
amount of Bankers' Acceptances required to be accepted by such Lender. No
Lender shall be responsible or liable for its failure to accept a Bankers'
<PAGE>
Schedule III
Page 2
Acceptance if the cause of such failure is, in whole or in part, due to the
failure of the Canadian Borrower to provide duly executed and endorsed Drafts to
such Lender on a timely basis, nor shall any Lender be liable for any damage,
loss or other claim arising by reason of any loss or improper use of any such
instrument except loss or improper use arising by reason of the negligence or
wilful misconduct of such Lender, its officers, employees, agents or
representatives. Each Lender shall maintain a record with respect to Bankers'
Acceptances (i) received by it from the Canadian Borrower in blank hereunder,
(ii) voided by it for any reason, (iii) accepted by it hereunder, (iv) purchased
by it hereunder, and (v) cancelled at their respective maturity dates.
(d) Execution of Bankers' Acceptances. Drafts of the Canadian
---------------------------------
Borrower to be accepted as Bankers' Acceptances hereunder shall be duly executed
on behalf of the Canadian Borrower and the Canadian Borrower shall in accordance
with the request of any Lender provide a power of attorney to complete, sign,
endorse and issue Bankers' Acceptances on behalf of the Canadian Borrower in
form and substance satisfactory to such Lender. Notwithstanding that any one or
more of the individuals whose manual or facsimile signature appears on any bill
as a signatory on behalf of the Canadian Borrower may no longer hold office at
the date of such bill or at the date of its acceptance by any Lender hereunder,
or at any time thereafter, any Bankers' Acceptance signed as aforesaid on behalf
of the Canadian Borrower shall be valid and binding upon the Canadian Borrower.
Alternatively, at the request of any Lender, the Canadian Borrower shall deliver
to such Lender a "depository note" which complies with the requirements of the
Depository Bills and Notes Act (Canada), and hereby consents to the deposit of
any Bankers' Acceptance in the form of a depository note in the book-based debt
clearance system maintained by the Canadian Depository of Securities Limited or
other recognized clearing house. In such circumstances, the delivery of
Bankers' Acceptance shall be governed by the clearance procedures established
thereunder.
(e) Issuance of Bankers' Acceptances. Promptly following receipt of
--------------------------------
a notice of conversion or continuation by way of Bankers' Acceptances, the
Administrative Agent (or Canadian Paying Agent) shall so advise the Lenders and
shall advise each Lender of the Face Amount of each Bankers' Acceptance to be
accepted by it and the term thereof. The aggregate Face Amount of Bankers'
Acceptances to be accepted by a Lender shall be determined by the Administrative
Agent (or Canadian Paying Agent) on a pro rata basis by reference to the
--- ----
principal amount of the Canadian Term Loans of the Lenders, except that, if the
Face Amount of the Bankers' Acceptance, that would otherwise be accepted by a
Lender, would not be CDN $100,000 or a multiple thereof, such face amount shall
be increased or reduced by the Administrative Agent (or Canadian Paying Agent)
in its sole discretion to the nearest multiple of CDN $100,000.
Notwithstanding the foregoing, if by reason of any increase or
reduction described in the immediately preceding sentence, any Lender shall have
aggregate Bankers' Acceptances and Canadian Term Loans in excess of its pro rata
--- ----
portion of the total outstanding Bankers' Acceptances and Canadian Term Loans
for all the Lenders (any such Lender being herein called an "Over-Allotted
-------------
Lender"), then at any time following the occurrence and during the continuance
- ------
of an Event of Default, each other Lender with outstanding Canadian Term Loans
<PAGE>
Schedule III
Page 3
agrees, upon request of the Over-Allotted Lender, to promptly purchase from such
Over-Allotted Lender participations in (or, if and to the extent specified by
any such purchasing Lender, direct interests in) the Bankers' Acceptances and
Canadian Term Loans owing to the Over-Allotted Lender (and in interest due
thereon, as the case may be) in such amounts, and to make such other adjustments
from time to time as shall be equitable, to the end that all Lenders with
outstanding Canadian Term Loans shall hold the Bankers' Acceptances and Canadian
Term Loans ratably according to their respective pro rata shares.
--- ----
(f) Purchase of Bankers' Acceptances: Continuations as and
------------------------------------------------------
Conversions into Bankers' Acceptance Loans. Subject to subsection (k) below,
- ------------------------------------------
upon the acceptance of a Bankers' Acceptance by a Lender, such Lender shall
purchase, or arrange the purchase of, each Bankers' Acceptance from the Canadian
Borrower at a price determined by the Reference Discount Rate of such Bankers'
Acceptance and provide to the Administrative Agent (or Canadian Paying Agent) at
the relevant Payment Office the BA Discount Proceeds for the account of the
Canadian Borrower not later than 12:00 Noon (New York time) on the Drawing Date.
The BA Discount Proceeds so received by the Administrative Agent (or Canadian
Paying Agent) from the Lenders shall be retained by the Administrative Agent (or
the Canadian Paying Agent) and applied as follows: (i) to the prepayment of
Canadian Prime Rate Loans (which shall constitute a conversion of the Canadian
Term Loans from Canadian Prime Rate Loans to Bankers' Acceptance Loans) or (ii)
to the payment of Bankers' Acceptances maturing on such date (which shall
constitute a continuation of Bankers' Acceptance Loans to new Bankers'
Acceptance Loans), provided that in the case of any such conversion or
--------
continuation of Loans, the Canadian Borrower shall pay to the Administrative
Agent (or Canadian Paying Agent) for the account of the respective Lenders such
additional amounts, if any, as shall be necessary to effect the prepayment in
full of the respective Canadian Prime Rate Loans being converted, or the
Bankers' Acceptances maturing, on such date.
On any date on which a conversion or continuation described in the
preceding paragraph shall occur, the Administrative Agent (or Canadian Paying
Agent) shall entitled to net all amounts payable on such date by the
Administrative Agent (or Canadian Paying Agent) to a Lender against all amounts
payable on such date by such Lender to the Administrative Agent (or Canadian
Paying Agent). Similarly, on any such date, the Canadian Borrower hereby
authorizes each Lender to net all amounts payable on such date by such Lender to
the Administrative Agent (or Canadian Paying Agent) for the account of the
Canadian Borrower, against all amounts payable on such date by the Canadian
Borrower to such Lender in accordance with the Administrative Agent's (or
Canadian Paying Agent's) calculations.
(g) Acceptance Fees. The Canadian Borrower shall pay to the Canadian
---------------
Paying Agent, in advance, on behalf of each Lender which accepts a Bankers'
Acceptance, an Acceptance Fee in respect of the Face Amount of such Bankers'
Acceptance, which shall be payable on or before the date of acceptance of such
Bankers' Acceptance.
(h) Prepayments. Subject to paragraph (j) of this Schedule III, no
-----------
prepayment of any Bankers' Acceptances shall be made by the Canadian Borrower
prior to the maturity date of such Bankers' Acceptance. Subject to paragraph
(i) of this Schedule III, the Canadian Borrower
<PAGE>
Schedule III
Page 4
shall pay to the Administrative Agent (or Canadian Paying Agent) the full Face
Amount of any Bankers' Acceptances on the maturity date thereof (notwithstanding
that the Lender may be the holder of such Bankers' Acceptance at maturity).
(i) Conversion to Canadian Prime Rate Loans upon Maturity. Unless a
-----------------------------------------------------
Bankers' Acceptance is paid in full at the maturity thereof, or continued as
another Canadian Term Loan by way of Bankers' Acceptances, the obligation of the
Canadian Borrower to any Lender in respect of a maturing Bankers' Acceptance
accepted by such Lender shall be deemed to be converted automatically into a
Canadian Prime Rate Loan in an amount equal to the full Face Amount of the
maturing Bankers' Acceptance. Such Canadian Prime Rate Loan shall be subject to
all of the provisions of the Credit Agreement applicable to a Canadian Prime
Rate Loan, including in particular the obligation to pay interest, from and
after the maturity date of such Bankers' Acceptance.
(j) Default. Upon any acceleration of the Canadian Term Loans
-------
pursuant to Section 10 of the Credit Agreement (whether by action of the
Administrative Agent or the Required Lenders, or automatically by reason of the
occurrence of an Event of Default referred to in Section 10.05 with respect to
either Borrower), the Canadian Borrower shall pay to the Administrative Agent
(or Canadian Paying Agent), in satisfaction of the obligations of the Canadian
Borrower to the Lenders in respect of then-outstanding Bankers' Acceptances, and
there shall become immediately due and payable, an amount equal to:
(i) the aggregate Face Amount of all outstanding Bankers'
Acceptances; and
(ii) all unpaid Acceptance Fees, if any.
(k) Circumstances Making Bankers' Acceptances Unavailable. If the
-----------------------------------------------------
Administrative Agent (or the Canadian Paying Agent) shall have reasonably
determined (which determination shall be conclusive and binding upon all parties
hereto) and notified the Canadian Borrower and each of the Lenders that, by
reason of circumstances arising after the Effective Date and affecting the
Canadian money market (i) there is no market for Bankers' Acceptances or (ii)
the demand for Bankers' Acceptances is insufficient to allow the sale or trading
of the Bankers' Acceptances created and purchased hereunder, then the right of
the Canadian Borrower to request that any Lender accept a Bankers' Acceptance
shall be suspended until the Administrative Agent (or Canadian Paying Agent)
determines that the circumstances giving rise to such suspension no longer exist
and the Administrative Agent (or Canadian Paying Agent) so notifies the Canadian
Borrower.
(l) Indemnification in Respect of Bankers' Acceptances. In addition
--------------------------------------------------
to any liability of the Canadian Borrower to any Lender or the Administrative
Agent or the Canadian Paying Agent under any other provision hereof, the
Canadian Borrower shall indemnify each Lender and the Administrative Agent and
the Canadian Paying Agent and hold each of them harmless against any reasonable
loss or expense incurred by such Lender or the Administrative Agent or the
Canadian Paying Agent as a result of (x) any failure by the Canadian Borrower to
fulfill any of its obligations under the Credit Agreement or Schedule III
including, without limitation, any cost or expense incurred by reason of the
liquidation or re-employment in whole
<PAGE>
Schedule III
Page 5
or in part of deposits or other funds required by any Lender to fund any
Bankers' Acceptance as a result of the failure of the Canadian Borrower to make
any payment, repayment or prepayment on the date required hereunder or specified
by it in any notice given under the Credit Agreement or Schedule III; (y) the
Canadian Borrower's failure to provide for the payment to the Administrative
Agent or the Canadian Paying Agent, for the account of each of the Lenders, of
the full Face Amount of each Bankers' Acceptance on its maturity date; or (z)
the provision of funds for any outstanding Bankers' Acceptance, before the
maturity date of such Bankers' Acceptance.
(m) Bankers' Acceptances purchased by a Lender may be held by it for
its own account until the maturity date thereof or sold by it at any time prior
to that date in any relevant Canadian market in such Lender's sole discretion.
<PAGE>
SCHEDULE I Commitments
SCHEDULE II Lender Addresses
SCHEDULE III Terms Applicable to Bankers' Acceptance Loans
SCHEDULE 5.12 Mortgaged Properties
SCHEDULE 7.15 Subsidiaries
SCHEDULE 7.22 Existing Indebtedness
SCHEDULE 8.03 Insurance
SCHEDULE 9.01 Existing Liens
EXHIBIT A Notice of Borrowing
EXHIBIT B-1A Tranche A Term Note
EXHIBIT B-1B Tranche A Supplemental Note
EXHIBIT B-2 Tranche B Term Note
EXHIBIT B-3 Revolving Note
EXHIBIT B-4 Swingline Note
EXHIBIT B-5 Acquisition Note
EXHIBIT B-6 Canadian Term Note
EXHIBIT C Letter of Credit Request
EXHIBIT D Section 4.04(b)(ii) Certificate
EXHIBIT E Opinion of Counsel to the Credit Parties
EXHIBIT F Officers' Certificate
EXHIBIT G Subsidiaries Guaranty
EXHIBIT H-1 US Pledge Agreement
EXHIBIT H-2 Canadian Pledge Agreement
EXHIBIT I-1 US Security Agreement
EXHIBIT I-2 Canadian Security Agreement
EXHIBIT I-3 Bank Act Security
EXHIBIT J Solvency Certificate
EXHIBIT K Assignment and Assumption Agreement
EXHIBIT L Acquisition Commitment Assumption Agreement
<PAGE>
EXHIBIT 10.25
NON-TRANSFERABLE PAY-IN-KIND
----------------------------
JUNIOR SUBORDINATED PROMISSORY NOTE
-----------------------------------
$18,794,743.00 November 24, 1999
New York, New York
FOR VALUE RECEIVED, the undersigned, PANOLAM INDUSTRIES HOLDINGS INC.,
a Delaware corporation (the "Maker"), promises to pay to GENSTAR CAPITAL
PARTNERS II, L.P., a Delaware limited partnership ("Payee"), at the offices of
Latham & Watkins, 885 3rd Avenue, New York, New York, Attention: Office Manager,
the principal sum of EIGHTEEN MILLION SEVEN HUNDRED NINETY-FOUR THOUSAND SEVEN
HUNDRED FORTY-THREE DOLLARS ($18,794,743.00), or such greater or lesser amount
as may be outstanding hereunder in accordance with the terms hereof, together
with interest on the principal amount hereof that is from time to time
outstanding, from the date of this Junior Subordinated Promissory Note (this
"Note") until such principal sum is paid in full, at a rate per annum equal to
the Applicable Interest Rate (as defined below), in lawful money of the United
States of America.
This Note is one of the class of "Shareholder Notes" referred to, and
as defined in, the Stock Purchase and Redemption Agreement dated as of October
14, 1999 (the "Stock Purchase Agreement") among the Shareholders and the
Purchaser (both as therein defined) and the Maker.
ARTICLE I. - TERMS AND CONDITIONS
---------------------------------
1.01 Accrual and Calculation of Interest.
-------------------------------------
(a) Interest shall accrue on the outstanding principal balance of
this Note at the Applicable Interest Rate in effect from time to time. Interest
shall be computed hereunder based on a 365-day year (or a 366-day year in each
leap year) and the actual number of days (including the first day and excluding
the last day) occurring in the period for which interest is calculated.
(b) As used herein, the "Applicable Interest Rate" shall mean an
interest rate per annum equal to (x)(1) at all times prior to November 24, 2005,
12.00% and (2) on and after November 24, 2005, 14.00%, or (y) at all times after
the redemption or repayment of all of the 11 11 1/2% Senior Subordinated Notes
due 2009 issued by Panolam Industries International, Inc., a Delaware
corporation and directly or indirectly a wholly-owned subsidiary of the Maker
("PII"), pursuant to an Indenture dated as of February 18, 1999 (as such
Indenture may be amended, modified or supplemented from time to time, together
with any document or instrument governing or evidencing any indebtedness
incurred to refinance, in whole or in part, the Notes outstanding under such
Indenture, the "Existing Indenture") under which State Street Bank and Trust
Company is trustee, the rate otherwise applicable pursuant to clause (x) plus
----
2.00% per annum; provided, that if the Maker fails to make any payment in cash
of interest or principal that it is required to make under Section 1.02(b) or
(c) and which it is then permitted to make (and to fund which payment PII is
permitted to make cash distributions in respect of its capital stock)
<PAGE>
under Article III and under the Credit Agreement (as hereinafter defined) and
the Existing Indenture, the "Applicable Interest Rate" shall be the rate
otherwise applicable hereunder plus 2.00% per annum for so long as such default
----
continues.
1.02 Payments of Principal and Interest.
-----------------------------------
(a) Maker shall pay interest accruing under this Note, as follows: On
April 15 in each calendar year (commencing April 15, 2001) occurring prior to
the Maturity Date (as defined below) (each such date being referred to herein as
a "Payment Date"), the Maker shall, subject to Section 1.02(b) and Article III,
pay to the Payee all interest accrued under this Note at the Applicable Interest
Rate during the immediately preceding calendar year (or, in the case of the
Payment Date occurring on April 15, 2001, from the date of this Note through
December 3 1, 2000).
(b) Notwithstanding Section 1.02(a), on any Payment Date, the Maker
shall not be required to pay in cash interest accrued on this Note in the
preceding calendar year (or, in the case of the first Payment Date, from the
date of this Note to the end of the preceding calendar year) (x) to the extent
that such accrued interest (together with such accrued interest on all other
Shareholder Notes then outstanding) exceeds 25% of Excess Cash Flow (as defined
in the Credit Agreement) for such preceding calendar year, or if greater, the
percentage of such Excess Cash Flow that PH is permitted under the Credit
Agreement to distribute, directly or indirectly, to the Maker for the purpose of
paying such interest on the Shareholder Notes, or (y) to the extent that such
accrued interest (together with such accrued interest on all other Shareholder
Notes then outstanding) exceeds the amount of dividends in respect of PH capital
stock that are then permitted to be paid under the Existing Indenture, or (z) if
a Default or Event of Default (both as defined, respectively, in the Credit
Agreement and the Existing Indenture) then exists under the Credit Agreement or
the Existing Indenture. If the Maker is permitted to pay interest hereon in
cash on any Payment Date, and all interest that is due on any Payment Date in
respect of all Shareholder Notes then outstanding exceeds the lesser of the
amounts described in clauses (x) and (y) of the preceding sentence, then the
Maker shall pay in cash accrued interest in respect of all Shareholder Notes
(including this Note) pro rata, on the basis of the respective principal amounts
thereof outstanding on such Payment Date. Any interest hereon that is due on
any Payment Date and is not paid in cash as a result of this Section 1.02(b) or
Article III shall be added, on such Payment Date, to the principal amount hereof
and thereafter shall bear interest in accordance with Section 1.0 1 (a) hereof
and be due and payable on the Maturity Date, unless prepaid prior thereto
pursuant to Section 1.03.
(c) In addition to payment of interest in accordance with Section
1.02(a) and (b) hereof, on each Payment Date occurring on or after the third
anniversary of the date of this Note in respect of which the Leverage Ratio (as
defined in the Credit Agreement) was less than 2.25 on the last day of the
calendar year most recently ended prior to such Payment Date, the Maker shall,
so long as no Default of Event of Default then exists under the Credit Agreement
or the Existing Indenture and subject to Article 111, prepay principal of this
Note in an amount equal to the product of (x) the difference between (i) the
lesser of (A) 25% of Excess Cash Flow for the calendar year most recently ended
prior to such Payment Date (or, if greater, the
2
<PAGE>
percentage of such Excess Cash Flow that PII then is permitted under the Credit
Agreement to distribute to the holder of its capital stock for the purpose of
indirectly funding payment of interest hereon and/or principal hereof), or (B)
the amount of dividends in respect of PII capital stock that are then permitted
to be paid under the Existing Indenture, less (ii) the aggregate amount of
----
interest paid in cash in respect of all Shareholder Notes (including this Note)
on such Payment Date, less (iii) aggregate principal amount of the Shareholder
----
Notes prepaid by the Maker pursuant to Section 1.03(a) prior to such Payment
Date and on or after the next preceding Payment Date, multiplied by (y) a
---------- --
fraction, the numerator of which is the outstanding principal amount of this
Note and the denominator of which is the outstanding principal amount of all of
the Shareholder Notes (including this Note), in each case on such Payment Date.
(d) On the Maturity Date, the entire outstanding principal balance of
this Note, together with all accrued and unpaid interest hereon, shall be due
and payable in full. As used herein, the term "Maturity Date" shall mean
February 16, 2009.
1.03 Prepayment.
----------
(a) The principal indebtedness evidenced by this Note may be prepaid,
in whole or in part, at any time and from time to time, without premium or
penalty.
(b) The Maker shall, subject to Article III hereof and subject to the
prior repayment of all Senior Debt (as hereinafter defined) or the consent of
requisite lenders under the Credit Agreement, prepay the principal of this Note
and pay all unpaid interest accrued hereon, upon the occurrence of a Change of
Control. For purposes hereof, "Change of Control" means (A) the Maker shall at
any time cease to own 100% of the capital stock of Panolam Group (as hereinafter
defined) or (B) Panolam Group shall at any time cease to own 100% of the capital
stock of Panolam Second (as hereinafter defined) or (C) Panolam Second shall at
any time cease to own 100% of the capital stock of PII, or (D) Carlyle (as
hereinafter defined) and its affiliates shall cease to own, directly or
indirectly, at least 30% of the capital stock of the Maker or (E) any "Person"
or "Group" (other than Carlyle and its affiliates) (as such terms are used in
Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange
Act")) is or shall become the "beneficial owner" (as defined in Rules 13(d)-3
and 13(d)-5 under the Exchange Act), directly or indirectly, of a greater
percentage of the common or any other class of voting stock of the Maker than is
owned by Carlyle and its affiliates at such time or (F) directors of the Maker
nominated by Carlyle or its affiliates and the Independent Directors (as defined
in the Credit Agreement) shall at any time cease to constitute at least 50% of
the total number of directors of the Maker.
(c) If this Note is prepaid, in whole or in part, on or before
November 24, 2002, the Maker shall deposit such prepayment in an interest-
bearing escrow account with a depository institution selected by it and
reasonably acceptable to the holders of a majority in aggregate principal amount
of the Shareholder Notes, subject to an escrow agreement that is reasonably
satisfactory to the Maker and such holders, in respect of indemnification claims
made by the Maker or any of its stockholders or other affiliates under the Stock
Purchase Agreement.
3
<PAGE>
ARTICLE II. - COVENANTS; DEFAULTS
---------------------------------
2.01 Affirmative Covenants. For so long as any amount under this Note shall
---------------------
remain unpaid, the Maker will, unless the holders of a majority in aggregate
principal amount of the Shareholder Notes (including this Note) shall otherwise
consent in writing:
(a) Reporting. If the Maker or any direct or indirect parent company
---------
of the Maker is subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act (the "reporting requirements"), the Maker shall deliver to the
Payee, on the date that it is required to file such documents with the
Securities and Exchange Commission (the "Commission"), annual and quarterly
reports as filed with the Commission, which reports include the consolidated
financial information of the Maker and its subsidiaries. If neither the Maker
nor any direct or indirect parent Company of the Maker is subject to the
reporting requirements, the Maker shall deliver to the Payee, on the date that
it would have been (if it were subject to such reporting requirements) required
to file such documents with the Commission annual and quarterly financial
statements and a management's discussion and analysis ("MD&A") substantially
equivalent to the annual and quarterly financial statements and MD&A with
respect to the Maker and its subsidiaries that would have been included in
reports filed with the Commission if the Maker (or any direct or indirect parent
company of the Maker) were subject to the reporting requirements.
(b) Business Operations. Not engage in any business activity that is
-------------------
not related to its direct or indirect ownership of capital stock of Panolam
Group, Inc., a Delaware corporation and directly or indirectly a wholly-owned
subsidiary of the Maker ("Panolam Group"), and its subsidiaries, or permit
Panolam Group or its subsidiaries to engage in any material business activities
other than the manufacture and sale of laminates, composites, related resin
systems, engineered materials, building products and related products and
operations. Subject to Section 2.02(a), nothing herein shall be construed to
prohibit the Maker or any of its subsidiaries from incurring or performing any
of their respective Obligations with respect to any Senior Debt.
(c) Redemption or Repayment of Senior Subordinated Notes. Upon the
----------------------------------------------------
redemption or repayment of all of the 11 1/2% Senior Subordinated Notes due 2009
issued by Panolam Industries International, Inc., the Maker will use its
reasonable best efforts to repay in full this Note, to the extent permitted
under the Credit Agreement.
2.02 Negative Covenants. For so long as any amount under this Note shall
------------------
remain unpaid, the Maker will not, and will not permit Panolam Group or PII
Second, Inc., a Delaware corporation and directly or indirectly a wholly-owned
subsidiary of the Maker ("Panolam Second"), to, without the written consent of
the holders of a majority in aggregate principal amount of the Shareholder Notes
(including this Note):
(a) Debt. Incur or assume, or permit Panolam Group or Panolam Second
----
to incur or assume, any indebtedness which ranks senior in right of payment to,
or is pari passu with, this Note (excluding any guaranties of indebtedness under
the Credit Agreement or other indebtedness that is pari passu therewith);
4
<PAGE>
(b) Dividends, etc. Declare or pay any dividend or make any other
--------------
distribution on or in respect of any capital stock of the Maker or purchase,
redeem or otherwise acquire for value (or permit any of its subsidiaries to do
so) any capital stock of the Maker, now or hereafter outstanding, except that
the Maker may (i) declare and pay any dividend or distribution in capital stock
of the Maker, (ii) purchase, redeem or otherwise acquire any capital stock with
the proceeds received from a substantially concurrent issue of capital stock or
(iii) purchase, redeem or otherwise acquire capital stock of the Maker from
former employees of the Maker or any of its subsidiaries;
(c) Payments to Carlyle. Except for the payment of fees, and
-------------------
reimbursement of expenses, to TC Management Group, L.L.C., a Delaware limited
liability company ("Carlyle"), under or as contemplated by the Management
Agreement (as defined in the Credit Agreement), including, without limitation,
management fees and fees for financial advisory services or investment banking
services in connection with any merger or asset or stock disposition or
acquisition or other similar transaction, make any payment to Carlyle or its
affiliates; or
(d) Pledge of Capital Stock. Pledge the shares of capital stock of
-----------------------
Panolam Group owned by it, or permit Panolam Group or PII Second to pledge the
shares of capital stock of PII Second or PII, respectively, owned by it, to any
person to secure any debt or other obligation, other than as security for any
guaranty of indebtedness under the Credit Agreement or other indebtedness that
is pari passu therewith, or as security for any such indebtedness (it being
understood that the respective Security Agreements (as defined in the Credit
Agreement) providing for security in the shares of capital stock described above
may, as agreed by the parties thereto, provide such priorities of distribution
as may be agreed by the secured parties thereunder).
2.03 Default. It is hereby expressly agreed that (x) if any payment of
-------
principal or interest required under this Note is not made on or within ten (10)
days after the date such payment is due (it being understood and agreed,
however, that no grace period is provided for the payment of principal and
interest due on the Maturity Date), or (y) the Maker fails to perform any of its
obligations hereunder (other than its obligations referred to in clause (x)) and
such failure continues for 30 days after it receives notice from holders of a
majority in aggregate principal amount of Shareholder Notes (including this
Note) then outstanding, then a default shall exist hereunder, and in such event,
but subject to Section 3.04, the indebtedness evidenced hereby, and all unpaid
interest accrued hereon, shall, at the option of Payee and upon five (5)
business days prior written notice to Maker, be declared by the Payee to be
immediately due and payable and may be collected forthwith unless such default
does not continue to exist at the end of such five-day period. In the event this
Note, or any part hereof, is collected by or through an attorney-at-law, Maker
agrees to pay all costs of collection including, but not limited to, reasonable
attorneys' fees and expenses.
5
<PAGE>
ARTICLE III. - SUBORDINATION
----------------------------
3.01 Agreement to Subordinate. The Maker agrees, and the Payee (and each
------------------------
subsequent holder of this Note) by accepting this Note agrees, that the
indebtedness evidenced by this Note is subordinated in right of payment, to the
extent and in the manner provided in this Article III, to the prior payment in
full in cash of all Senior Debt (whether outstanding on the date hereof or
hereafter created, incurred, assumed or guaranteed), and that the subordination
is for the benefit of, and enforceable by, the holders of Senior Debt.
3.02 Liquidation, Dissolution, Bankruptcy. Upon any payment or distribution
------------------------------------
of assets to creditors of the Maker in a liquidation or dissolution of the Maker
or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Maker or its property, or in an assignment for the
benefit of creditors or any marshaling of the Maker's assets and liabilities:
(i) holders of Senior Debt shall be entitled to receive payment in
full in cash of all Obligations (as hereinafter defined) due or to become due in
respect of such Senior Debt (including interest after the commencement of any
such proceeding at the rate specified in the applicable Senior Debt, whether or
not a claim for such interest is allowed in such proceeding) before the Payee
shall be entitled to receive any payment (whether in cash, property, securities
or otherwise) with respect to the Note; and
(ii) until all Obligations with respect to Senior Debt (as provided
in clause (i) above) are paid in full in cash, any payment or distribution of
assets of the Maker of any kind or character, whether in cash, property,
securities or otherwise, to which the Payee would be entitled but for this
Article III shall be made directly to holders of Senior Debt as their interests
may appear, or to their representatives.
To the extent any payment of Senior Debt is declared to be fraudulent
or preferential, set aside or required to be paid to a trustee, receiver or
other similar party under any bankruptcy, insolvency, receivership or similar
law, then if such payment is recovered by, or paid over to, such trustee,
receiver or other similar party, the Senior Debt or part thereof originally
intended to be satisfied shall be deemed to be reinstated and outstanding as if
such payment had not occurred.
3.03 Default on Senior Debt.
-----------------------
(a) The Maker may not make any payment or distribution to the Payee
in respect of obligations with respect to this Note and may not acquire from the
Payee any interest in this Note, for cash, property, securities or otherwise,
until all principal, interest and other Obligations with respect to the Senior
Debt have been paid in full if a default or event of default with respect to
Designated Senior Debt occurs and is continuing or would result from the making
of the respective payment or distribution.
(b) The Maker may and shall resume payments on and distributions in
respect of this Note upon the date upon which all defaults as described in
clause (a) above are cured or
6
<PAGE>
waived in accordance with the instruments governing such Designated Senior Debt,
if this Article III otherwise permits the payment, distribution or acquisition
at the time of such payment or acquisition.
3.04 Acceleration of Note. The indebtedness evidenced by this Note shall
--------------------
not be declared to be due and payable pursuant to Section 2.03 at any time that
there is outstanding any Senior Debt until all of such Senior Debt has been
indefeasibly paid in full. Furthermore, no holder of this Note shall, without
the prior written consent of the holders of a majority of then outstanding
Senior Debt, which consent may be withheld or conditioned by the holders of the
Senior Debt in their sole discretion, commence or join or participate in any
Enforcement Action (as hereinafter defined); provided that the foregoing shall
not prohibit any holder of this Note from bringing action for the sole purpose
of receiving payments on this Note which are required to be paid in accordance
with the provisions of this Note (after giving effect to the limitations
contained in this Note, including without limitation Section 1.02, 1.03 and
Article III hereof). The term "Enforcement Action" shall mean any acceleration
of all or any part of this Note, any foreclosure proceeding, the exercise of any
power of sale, the obtaining of a receiver, the suing on, or otherwise taking
action to enforce the obligation of the Maker to pay any amounts relating to
this Note, the exercising of any lien or rights of set-off or recoupment, the
institution of any proceeding of the type described in Section 3.02 against the
Maker or any of its subsidiaries, or the taking of any other Enforcement Action
against any asset or property of the Maker or its subsidiaries, but shall not
include commencement of an involuntary bankruptcy proceeding.
3.05 Payment Over of Payments on Distributions. In the event that the Payee
-----------------------------------------
receives any payment of any obligations with respect to the Note at a time when
such payment was prohibited by Section 3.02 or 3.03(a), such payment shall be
held by the Payee, in the trust for the benefit of, and shall be paid forthwith
over and delivered, upon written request, to, the holders of Senior Debt as
their interests may appear or their representative under the indenture or other
agreement (if any) pursuant to which Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of all
Obligations with respect to Senior Debt remaining unpaid to the extent necessary
to pay such obligations in full in cash or cash equivalents in accordance with
their terms, after giving effect to any concurrent payment or distribution to or
for the holders of Senior Debt.
3.06 Subrogation. After all Senior Debt is paid in full in cash and until
-----------
this Note is paid in full, the Payee shall be subrogated (equally and ratably
with each other holder of a Shareholder Note and all other indebtedness that is
pari passu with the Shareholder Notes) to the rights of holders of Senior Debt
to receive distributions applicable to Senior Debt to the extent that
distributions otherwise payable to the Payee and other holders of Shareholder
Notes have been applied to the payment of Senior Debt, A distribution made under
this Article III to holders of Senior Debt that otherwise would have been made
to holders of Shareholder Notes is not, as between the Maker and such holders, a
payment by the Maker on the Shareholder Notes.
3.07 Relative Rights. No right of any present or future holder of any
---------------
Senior Debt to enforce subordination as herein provided shall at any time in any
way be prejudiced or impaired by any act or failure to act on the part of the
Maker or by any act or failure to act by any such
7
<PAGE>
holder, or by any noncompliance by the Maker with the terms, provisions and
covenants of this Article III, regardless of any knowledge thereof any such
holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Debt may, at any time and from time to time, without the
consent of or notice to the Payee or the holders of the other Shareholder Notes,
without incurring responsibility to the Payee or the holders of the other
Shareholder Notes and without impairing or releasing the subordination provided
in this Article III or the obligations hereunder of the Payee to the holders of
Senior Debt, even if any right of reimbursement or subrogation or other right or
remedy of the Payee any other holder of a Shareholder Note is affected, impaired
or extinguished thereby, do any one or more of the following:
(i) change the manner, place or terms of payment or charge or
extend the time of payment of, or renew, exchange, amend, increase or alter, the
terms of any Senior Debt, any security or therefor or guaranty thereof or any
liability of any obligor thereon (including any guarantor) to such holder, or
any liability incurred directly or indirectly in respect thereof or otherwise
amend, renew, exchange, extend, modify, increase or supplement the same or any
agreement under which Senior Debt is outstanding;
(ii) sell, exchange, release, surrender, realize upon, enforce or
otherwise deal with in any manner and in any order any property pledged,
mortgaged or otherwise securing Senior Debt or any liability of any obligor
thereon, to such holder, or any liability incurred directly or indirectly in
respect thereof;
(iii) settle or compromise any Senior Debt or any other liability of
any obligor of the Senior Debt to such holder or any security therefor or any
liability incurred directly or indirectly in respect thereof and apply any sums
by whomsoever paid and however realized to any liability (including without
limitation, Senior Debt) in any manner or order;
(iv) fail to take or to record or otherwise perfect, for any reason
or for no reason, any lien or security interest securing Senior Debt by
whomsoever granted, exercise or delay in or refrain from exercising any right or
remedy against any obligor or any guarantor or any other person, elect any
remedy and otherwise deal freely with any obligor and any security for the
Senior Debt or any liability of any obligor to such holder of any liability
incurred directly or indirectly in respect thereof; and
(v) take any other action which may, under applicable law, deprive
the holder of this Note of any right of reimbursement or subrogation (including
without limitations subrogation rights provided in Section 3.06).
3.08 Amendments to Article III. The provisions of this Article III shall
-------------------------
not be amended or modified in any manner adverse to holders of Senior Debt
without the written consent of the holders of all Senior Debt (or by any
specified percentage of holders of Senior Debt required to consent thereto as
expressly set forth in the documentation relating to the specific issuance of
Senior Debt).
8
<PAGE>
3.09 Definitions. For purposes of this Article III:
-----------
"Credit Agreement" means the Credit Agreement dated as of November 24,
----------------
1999, between Maker, Panolam Industries, Inc. (the "Borrower"), the lenders
party thereto from time to time and Bankers Trust Company, as administrative
agent, together with the related documents thereto (including, without
limitation, any guarantee agreements and security documents), in each case as
such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of available borrowings
thereunder or adding subsidiaries of Maker as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent
lender or group of lenders.
"Currency Agreement" means any foreign exchange contract, currency
------------------
swap agreement or other similar agreement or arrangement.
"Designated Senior Debt" means (1) Indebtedness under or in respect of
----------------------
the Credit Agreement and (2) any other Indebtedness constituting Senior Debt
which, at the time of determination, has an aggregate principal amount of at
least $25.0 million and is specifically designated in the instrument evidencing
such Senior Debt as "Designated Senior Debt" by Maker or the Borrower.
"Indebtedness" means with respect to any Person, without duplication:
------------
(1) all indebtedness of such Person for borrowed money;
(2) all indebtedness of such Person evidenced by bonds,
debentures, notes or other similar instruments;
(3) all capitalized lease obligations of such Person;
(4) all obligations of such Person issued or assumed as the
deferred purchase price of property, all conditional sale obligations and
all obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the ordinary
course of business that are note overdue by 90 days or more or are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted);
(5) all obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction;
(6) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (1) through (5) above and clause (7)
below; and
9
<PAGE>
(7) all obligations under Currency Agreements and Interest Swap
Agreements of such Person.
"Interest Swap Obligations" means the obligations of any Person
-------------------------
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall also include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Obligations" shall mean, with respect to any Indebtedness, all
-----------
principal, interest, premium, penalties, fees, indemnities, damages and other
liabilities and obligations payable under the documentation governing, or with
respect to, such Indebtedness (including, without limitation all interest after
the commencement of any bankruptcy, insolvency, receivership or similar
proceeding at the rate provided in the governing documentation, whether or not
such interest is an allowed claim in such proceeding).
"Senior Debt" means the principal of, premium, if any, and interest
-----------
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on, and
all Obligations relating to, any Indebtedness of the Maker, whether outstanding
on the date of the issuance of this Note or thereafter created, incurred or
assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the Notes. Without limiting the generality of the foregoing, "Senior
Debt" shall also include the principal of, premium, if any, interest (including
any interest accruing subsequent to the filing of a petition of bankruptcy at
the rate provided for in the documentation with respect thereto, whether or not
such interest is an allowed claim under applicable law) on, and all other
amounts owing in respect of:
(1) all monetary obligations of every nature of the Maker under,
or with respect to, the Credit Agreement, including without limitation
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities (and guarantees thereof);
(2) all Interest Swap Obligations (and guarantees thereof); and
(3) all obligations (and guarantees thereof) under Currency
Agreements;
in each case whether outstanding on the Issue Date or thereafter
incurred, Notwithstanding the foregoing, "Senior Debt" shall not include:
(1) any Indebtedness of the Maker to any of its subsidiaries;
10
<PAGE>
(2) Indebtedness to, or guaranteed on behalf of, any director,
officer or employee of Maker of any of its subsidiaries (including, without
limitation, amounts owed for compensation);
(3) Indebtedness to trade creditors and other amounts incurred
(not under the Credit Agreement) in connection with obtaining goods,
materials or services;
(4) any liability for taxes owed or owing by the Maker.
(5) Indebtedness which, when incurred and without respect to any
election under Section 1111 (b) of Title 11, United States Code, is without
recourse to the Maker; and
(6) any Indebtedness which is, by its express terms, subordinated
in right of payment to any other Indebtedness of the Maker.
ARTICLE IV. - GENERAL CONDITIONS
--------------------------------
4.01 No Waiver, Amendment. No extension of the time for the payment of this
--------------------
Note or any installment due hereunder, made by agreement with any person now or
hereafter liable for the payment of this Note shall operate to release,
discharge, modify, change or affect the liability of Maker under this Note,
either in whole or in part unless Payee agrees otherwise in writing. This Note
may not be changed orally, but only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification or discharge
is sought.
4.02 Waivers. Presentment for payment, demand and protest are hereby waived
-------
by Maker.
4.03 Limit of Validity. The provisions of this Note are hereby expressly
-----------------
limited so that in no contingency or event whatsoever, whether by reason of
demand or acceleration of the maturity of this Note or otherwise, shall the
amount paid, or agreed to be paid ("Interest") to the Payee for the use,
forbearance or retention of money under this Note exceed the maximum amount
permissible under applicable law. If, from any circumstance whatsoever,
performance or fulfillment of any provision hereof or of any agreement between
the Maker and the Payee shall, at the time performance or fulfillment of such
provision shall be due, exceed the limit for Interest prescribed by law or
otherwise transcend the limit of validity prescribed by applicable law, then
ipso facto the obligation to be performed or fulfilled shall be reduced to such
limit and if, from any circumstance whatsoever, the Payee shall ever receive
anything of value deemed Interest by applicable law in excess of the maximum
lawful amount, an amount equal to any excessive Interest shall be applied to the
reduction of the principal balance owing under this Note (whether or not then
due) or at the option of the Payee be paid over to the Maker, and not to the
payment of Interest. All Interest (including any amounts or payments deemed to
be Interest) paid or agreed to be paid to the Payee shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full period until payment in full of the principal balance of
this Note so that the Interest thereof for such full period will not exceed the
maximum
11
<PAGE>
amount permitted by applicable law. This Section 4.03 will control all
agreements between the Maker and the Payee.
4.04 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
------------------------------------------------
(a) THE MAKER, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY (A)
SUBMITS TO PERSONAL JURISDICTION IN THE STATE OF NEW YORK OVER ANY SUIT, ACTION
OR PROCEEDING BY ANY PERSON ARISING FROM OR RELATING TO THIS NOTE, (B) AGREES
THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT OF COMPETENT JURISDICTION IN THE BOROUGH OF MANHATTAN, NEW YORK COUNTY,
NEW YORK AND (C) SUBMITS TO THE JURISDICTION OF SUCH COURTS. THE MAKER FURTHER
CONSENTS AND AGREES TO SERVICE OF, ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS
IN ANY SUCH SUIT, ACTION OR PROCEEDING BY REGISTERED OR CERTIFIED U.S. MAIL,
POSTAGE PREPAID, TO THE MAKER AT THE PAYMENT ADDRESS DESCRIBED ON THE FIRST PAGE
HEREOF, AND CONSENTS AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY
RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE
VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY
LAW).
(b) THE MAKER AND PAYEE, TO THE FULL EXTENT PERMITTED BY LAW, EACH
HEREBY WAIVES, RELINQUISHES AND FOREVER FORGOES THE RIGHT TO A TRIAL BY JURY IN
ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF THIS NOTE.
4.05 Governing Law. This Note shall be interpreted, construed and enforced
-------------
according to the substantive laws of the State of New York.
4.06 Assignment and Transfer. Neither this Note nor any interest herein
-----------------------
shall be assigned or transferred, in whole or in part, by the Payee, except
that, on and after November 24, 2004, the Payee may distribute all or part of
this Note to the general and limited partners in the Payee, whereupon the Payee
shall deliver this Note to the Maker, duly endorsed or accompanied by
appropriate instruments of transfer, and the Maker shall issue replacement Notes
in the respective names of the transferees in an aggregate principal amount
equal to the principal amount hereof then outstanding.
12
<PAGE>
IN WITNESS WHEREOF, the Maker has executed this Note as of the date
first above written.
PANOLAM INDUSTRIES HOLDINGS INC.
By:__________________________________
Title:
13
<PAGE>
EXHIBIT 10.26
NON-TRANSFERABLE PAY-IN-KIND
----------------------------
JUNIOR SUBORDINATED PROMISSORY NOTE
-----------------------------------
$205,257.00 November 24, 1999
New York, New York
FOR VALUE RECEIVED, the undersigned, PANOLAM INDUSTRIES HOLDINGS INC.,
a Delaware corporation (the "Maker"), promises to pay to STARGEN II, a Delaware
limited liability company ("Payee"), at the offices of Latham & Watkins, 885 3rd
Avenue, New York, New York, Attention: Office Manager, the principal sum TWO
HUNDRED FIVE THOUSAND TWO HUNDRED FIFTY-SEVEN DOLLARS ($205,257.00), or such
greater or lesser amount as may be outstanding hereunder in accordance with the
terms hereof, together with interest on the principal amount hereof that is from
time to time outstanding, from the date of this Junior Subordinated Promissory
Note (this "Note") until such principal sum is paid in full, at a rate per annum
equal to the Applicable Interest Rate (as defined below), in lawful money of the
United States of America.
This Note is one of the class of "Shareholder Notes" referred to, and
as defined in, the Stock Purchase and Redemption Agreement dated as of October
14, 1999 (the "Stock Purchase Agreement") among the Shareholders and the
Purchaser (both as therein defined) and the Maker.
ARTICLE I. - TERMS AND CONDITIONS
---------------------------------
1.01 Accrual and Calculation of Interest.
-----------------------------------
(a) Interest shall accrue on the outstanding principal balance of
this Note at the Applicable Interest Rate in effect from time to time. Interest
shall be computed hereunder based on a 365-day year (or a 366-day year in each
leap year) and the actual number of days (including the first day and excluding
the last day) occurring in the period for which interest is calculated.
(b) As used herein, the "Applicable Interest Rate" shall mean an
interest rate per annum equal to (x)(1) at all times prior to November 24, 2005,
12.00% and (2) on and after November 24, 2005, 14.00%, or (y) at all times after
the redemption or repayment of all of the 11 1/2% Senior Subordinated Notes due
2009 issued by Panolam Industries International, Inc., a Delaware corporation
and directly or indirectly a wholly-owned subsidiary of the Maker ("PII"),
pursuant to an Indenture dated as of February 18, 1999 (as such Indenture may be
amended, modified or supplemented from time to time, together with any document
or instrument governing or evidencing any indebtedness incurred to refinance, in
whole or in part, the Notes outstanding under such Indenture, the "Existing
Indenture") under which State Street Bank and Trust Company is trustee, the rate
otherwise applicable pursuant to clause (x) plus 2.00% per annum; provided, that
if the Maker fails to make any payment in cash of interest or principal that it
is required to make under Section 1.02(b) or (c) and which it is then permitted
to make (and to fund which payment PII is permitted to make cash distributions
in respect of its capital stock) under Article III and under the Credit
Agreement (as hereinafter defined) and the Existing
<PAGE>
Indenture, the "Applicable Interest Rate" shall be the rate otherwise applicable
hereunder plus 2.00% per annum for so long as such default continues.
1.02 Payments of Principal and Interest.
----------------------------------
(a) Maker shall pay interest accruing under this Note, as follows: On
April 15 in each calendar year (commencing April 15, 2001) occurring prior to
the Maturity Date (as defined below) (each such date being referred to herein as
a "Payment Date"), the Maker shall, subject to Section 1.02(b) and Article III,
pay to the Payee all interest accrued under this Note at the Applicable Interest
Rate during the immediately preceding calendar year (or, in the case of the
Payment Date occurring on April 15, 200 1, from the date of this Note through
December 31, 2000).
(b) Notwithstanding Section 1.02(a), on any Payment Date, the Maker
shall not be required to pay in cash interest accrued on this Note in the
preceding calendar year (or, in the case of the first Payment Date, from the
date of this Note to the end of the preceding calendar year) (x) to the extent
that such accrued interest (together with such accrued interest on all other
Shareholder Notes then outstanding) exceeds 25% of Excess Cash Flow (as defined
in the Credit Agreement) for such preceding calendar year, or if greater, the
percentage of such Excess Cash Flow that PII is permitted under the Credit
Agreement to distribute, directly or indirectly, to the Maker for the purpose of
paying such interest on the Shareholder Notes, or (y) to the extent that such
accrued interest (together with such accrued interest on all other Shareholder
Notes then outstanding) exceeds the amount of dividends in respect of PII
capital stock that are then permitted to be paid under the Existing Indenture,
or (z) if a Default or Event of Default (both as defined, respectively, in the
Credit Agreement and the Existing Indenture) then exists under the Credit
Agreement or the Existing Indenture. If the Maker is permitted to pay interest
hereon in cash on any Payment Date, and all interest that is due on any Payment
Date in respect of all Shareholder Notes then outstanding exceeds the lesser of
the amounts described in clauses (x) and (y) of the preceding sentence, then the
Maker shall pay in cash accrued interest in respect of all Shareholder Notes
(including this Note) pro rata, on the basis of the respective principal amounts
thereof outstanding on such Payment Date. Any interest hereon that is due on any
Payment Date and is not paid in cash as a result of this Section 1.02(b) or
Article III shall be added, on such Payment Date, to the principal amount hereof
and thereafter shall bear interest in accordance with Section 1.01 (a) hereof
and be due and payable on the Maturity Date, unless prepaid prior thereto
pursuant to Section 1.03.
(c) In addition to payment of interest in accordance with Section
1.02(a) and (b) hereof, on each Payment Date occurring on or after the third
anniversary of the date of this Note in respect of which the Leverage Ratio (as
defined in the Credit Agreement) was less than 2.25 on the last day of the
calendar year most recently ended prior to such Payment Date, the Maker shall,
so long as no Default or Event of Default then exists under the Credit Agreement
or the Existing Indenture and subject to Article III, prepay principal of this
Note in an amount equal to the product of (x) the difference between (i) the
lesser of (A) 25% of Excess Cash Flow for the calendar year most recently ended
prior to such Payment Date (or, if greater, the percentage of such Excess Cash
Flow that PII then is permitted under the Credit Agreement to distribute to the
2
<PAGE>
holder of its capital stock for the purpose of indirectly funding payment of
interest hereon and/or principal hereof), or (B) the amount of dividends in
respect of PII capital stock that are then permitted to be paid under the
Existing Indenture, less (ii) the aggregate amount of interest paid in cash in
----
respect of all Shareholder Notes (including this Note) on such Payment Date,
less (iii) aggregate principal amount of the Shareholder Notes prepaid by the
- ----
Maker pursuant to Section 1.03(a) prior to such Payment Date and on or after the
next preceding Payment Date, multiplied by (y) a fraction, the numerator of
-------------
which is the outstanding principal amount of this Note and the denominator of
which is the outstanding principal amount of all of the Shareholder Notes
(including this Note), in each case on such Payment Date.
(d) On the Maturity Date, the entire outstanding principal balance of
this Note, together with all accrued and unpaid interest hereon, shall be due
and payable in full. As used herein, the term "Maturity Date" shall mean
February 16, 2009.
1.03 Prepayment.
----------
(a) The principal indebtedness evidenced by this Note may be prepaid,
in whole or in part, at any time and from time to time, without premium or
penalty.
(b) The Maker shall, subject to Article III hereof and subject to the
prior repayment of all Senior Debt (as hereinafter defined) or the consent of
requisite lenders under the Credit Agreement, prepay the principal of this Note
and pay all unpaid interest accrued hereon, upon the occurrence of a Change of
Control. For purposes hereof, "Change of Control" means (A) the Maker shall at
any time cease to own 100% of the capital stock of Panolam Group (as hereinafter
defined) or (B) Panolam Group shall at any time cease to own 100% of the capital
stock of Panolam Second (as hereinafter defined) or (C) Panolam Second shall at
any time cease to own 100% of the capital stock of PII, or (D) Carlyle (as
hereinafter defined) and its affiliates shall cease to own, directly or
indirectly, at least 30% of the capital stock of the Maker or (E) any "Person"
or "Group" (other than Carlyle and its affiliates) (as such terms are used in
Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange
Act")) is or shall become the "beneficial owner" (as defined in Rules 13(d)-3
and 13(d)-5 under the Exchange Act), directly or indirectly, of a greater
percentage of the common or any other class of voting stock of the Maker than is
owned by Carlyle and its affiliates at such time or (F) directors of the Maker
nominated by Carlyle and its affiliates and the Independent Directors (as
defined in the Credit Agreement) shall at any time cease to constitute at least
50% of the total number of directors of the Maker.
(c) If this Note is prepaid, in whole or in part, on or before
November 24, 2002, the Maker shall deposit such prepayment in an interest-
bearing escrow account with a depository institution selected by it and
reasonably acceptable to the holders of a majority in aggregate principal amount
of the Shareholder Notes, subject to an escrow agreement that is reasonably
satisfactory to the Maker and such holders, in respect of indemnification claims
made by the Maker or any of its stockholders or other affiliates under the Stock
Purchase Agreement.
3
<PAGE>
ARTICLE II. - COVENANTS; DEFAULTS
---------------------------------
2.01 Affirmative Covenants. For so long as any amount under this Note shall
---------------------
remain unpaid, the Maker will, unless the holders of a majority in aggregate
principal amount of the Shareholder Notes (including this Note) shall otherwise
consent in writing:
(a) Reporting. If the Maker or any direct or indirect parent company
---------
of the Maker is subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act (the "reporting requirements"), the Maker shall deliver to the
Payee, on the date that it is required to file such documents with the
Securities and Exchange Commission (the "Commission"), annual and quarterly
reports as filed with the Commission, which reports include the consolidated
financial information of the Maker and its subsidiaries. If neither the Maker
nor any direct or indirect parent Company of the Maker is subject to the
reporting requirements, the Maker shall deliver to the Payee, on the date that
it would have been (if it were subject to such reporting requirements) required
to file such documents with the Commission annual and quarterly financial
statements and a management's discussion and analysis ("MD&A") substantially
equivalent to the annual and quarterly financial statements and MD&A with
respect to the Maker and its subsidiaries that would have been included in
reports filed with the Commission if the Maker (or any direct or indirect parent
company of the Maker) were subject to the reporting requirements.
(b) Business Operations. Not engage in any business activity that is
-------------------
not related to its direct or indirect ownership of capital stock of Panolam
Group, Inc., a Delaware corporation and directly or indirectly a wholly-owned
subsidiary of the Maker ("Panolam Group"), and its subsidiaries, or permit
Panolam Group or its subsidiaries to engage in any material business activities
other than the manufacture and sale of laminates, composites, related resin
systems, engineered materials, building products and related products and
operations. Subject to Section 2.02(a), nothing herein shall be construed to
prohibit the Maker or any of its subsidiaries from incurring or performing any
of their respective Obligations with respect to any Senior Debt.
(c) Redemption or Repayment of Senior Subordinated Notes. Upon the
----------------------------------------------------
redemption or repayment of all of the 11 1/2% Senior Subordinated Notes due 2009
issued by Panolam Industries International, Inc., the Maker will use its
reasonable best efforts to repay in full this Note, to the extent permitted
under the Credit Agreement.
2.02 Negative Covenants. For so long as any amount under this Note shall
------------------
remain unpaid, the Maker will not, and will not permit Panolam Group or PII
Second, Inc., a Delaware corporation and directly or indirectly a wholly-owned
subsidiary of the Maker ("Panolam Second"), to, without the written consent of
the holders of a majority in aggregate principal amount of the Shareholder Notes
(including this Note):
(a) Debt. Incur or assume, or permit Panolam Group or Panolam Second
----
to incur or assume, any indebtedness which ranks senior in right of payment to,
or is pari passu with, this Note (excluding any guaranties of indebtedness under
the Credit Agreement or other indebtedness that is pari passu therewith);
4
<PAGE>
(b) Dividends, etc. Declare or pay any dividend or make any other
--------------
distribution on or in respect of any capital stock of the Maker or purchase,
redeem or otherwise acquire for value (or permit any of its subsidiaries to do
so) any capital stock of the Maker, now or hereafter outstanding, except that
the Maker may (i) declare and pay any dividend or distribution in capital stock
of the Maker, (ii) purchase, redeem or otherwise acquire any capital stock with
the proceeds received from a substantially concurrent issue of capital stock or
(iii) purchase, redeem or otherwise acquire capital stock of the Maker from
former employees of the Maker or any of its subsidiaries;
(c) Payments to Carlyle. Except for the payment of fees, and
-------------------
reimbursement of expenses, to TC Management Group, L.L.C., a Delaware limited
liability company ("Carlyle"), under or as contemplated by the Management
Agreement (as defined in the Credit Agreement), including, without limitation,
management fees and fees for financial advisory services or investment banking
services in connection with any merger or asset or stock disposition or
acquisition or other similar transaction, make any payment to Carlyle or its
affiliates; or
(d) Pledge of Capital Stock. Pledge the shares of capital stock of
-----------------------
Panolam Group owned by it, or permit Panolam Group or PII Second to pledge the
shares of capital stock of PII Second or PII, respectively, owned by it, to any
person to secure any debt or other obligation, other than as security for any
guaranty of indebtedness under the Credit Agreement or other indebtedness that
is pari passu therewith, or as security for any such indebtedness (it being
understood that the respective Security Agreements (as defined in the Credit
Agreement) providing for security in the shares of capital stock described above
may, as agreed by the parties thereto, provide such priorities of distribution
as may be agreed by the secured parties thereunder).
2.03 Default. It is hereby expressly agreed that (x) if any payment of
-------
principal or interest required under this Note is not made on or within ten (10)
days after the date such payment is due (it being understood and agreed,
however, that no grace period is provided for the payment of principal and
interest due on the Maturity Date), or (y) the Maker fails to perform any of its
obligations hereunder (other than its obligations referred to in clause (x)) and
such failure continues for 30 days after it receives notice from holders of a
majority in aggregate principal amount of Shareholder Notes (including this
Note) then outstanding, then a default shall exist hereunder, and in such event,
but subject to Section 3.04, the indebtedness evidenced hereby, and all unpaid
interest accrued hereon, shall, at the option of Payee and upon five (5)
business days prior written notice to Maker, be declared by the Payee to be
immediately due and payable and may be collected forthwith unless such default
does not continue to exist at the end of such five-day period. In the event this
Note, or any part hereof, is collected by or through an attorney-at-law, Maker
agrees to pay all costs of collection including, but not limited to, reasonable
attorneys' fees and expenses.
5
<PAGE>
ARTICLE III. - SUBORDINATION
----------------------------
3.01 Agreement to Subordinate. The Maker agrees, and the Payee (and each
------------------------
subsequent holder of this Note) by accepting this Note agrees, that the
indebtedness evidenced by this Note is subordinated in right of payment, to the
extent and in the manner provided in this Article III, to the prior payment in
full in cash of all Senior Debt (whether outstanding on the date hereof or
hereafter created, incurred, assumed or guaranteed), and that the subordination
is for the benefit of, and enforceable by, the holders of Senior Debt.
3.02 Liquidation; Dissolution; Bankruptcy. Upon any payment or distribution
------------------------------------
of assets to creditors of the Maker in a liquidation or dissolution of the Maker
or in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to the Maker or its property, or in an assignment for the
benefit of creditors or any marshaling of the Maker's assets and liabilities:
(i) holders of Senior Debt shall be entitled to receive payment in
full in cash of all Obligations (as hereinafter defined) due or to become due in
respect of such Senior Debt (including interest after the commencement of any
such proceeding at the rate specified in the applicable Senior Debt, whether or
not a claim for such interest is allowed in such proceeding) before the Payee
shall be entitled to receive any payment (whether in cash, property, securities
or otherwise) with respect to the Note; and
(ii) until all Obligations with respect to Senior Debt (as provided
in clause (i) above) are paid in full in cash, any payment or distribution of
assets of the Maker of any kind or character, whether in cash, property,
securities or otherwise, to which the Payee would be entitled but for this
Article III shall be made directly to holders of Senior Debt as their interests
may appear, or to their representatives.
To the extent any payment of Senior Debt is declared to be fraudulent
or preferential, set aside or required to be paid to a trustee, receiver or
other similar party under any bankruptcy, insolvency, receivership or similar
law, then if such payment is recovered by, or paid over to, such trustee,
receiver or other similar party, the Senior Debt or part thereof originally
intended to be satisfied shall be deemed to be reinstated and outstanding as if
such payment had not occurred.
3.03 Default on Senior Debt.
----------------------
(a) The Maker may not make any payment or distribution to the Payee
in respect of obligations with respect to this Note and may not acquire from the
Payee any interest in this Note, for cash, property, securities or otherwise,
until all principal, interest and other Obligations with respect to the Senior
Debt have been paid in full if a default or event of default with respect to
Designated Senior Debt occurs and is continuing or would result from the making
of the respective payment or distribution.
(b) The Maker may and shall resume payments on and distributions in
respect of this Note upon the date upon which all defaults as described in
clause (a) above are cured or
6
<PAGE>
waived in accordance with the instruments governing such Designated Senior Debt,
if this Article III otherwise permits the payment, distribution or acquisition
at the time of such payment or acquisition.
3.04 Acceleration of Note. The indebtedness evidenced by this Note shall
--------------------
not be declared to be due and payable pursuant to Section 2.03 at any time that
there is outstanding any Senior Debt until all of such Senior Debt has been
indefeasibly paid in full. Furthermore, no holder of this Note shall, without
the prior written consent of the holders of a majority of then outstanding
Senior Debt, which consent may be withheld or conditioned by the holders of the
Senior Debt in their sole discretion, commence or join or participate in any
Enforcement Action (as hereinafter defined); provided that the foregoing shall
not prohibit any holder of this Note from bringing action for the sole purpose
of receiving payments on this Note which are required to be paid in accordance
with the provisions of this Note (after giving effect to the limitations
contained in this Note, including without limitation Section 1.02, 1.03 and
Article III hereof). The term "Enforcement Action" shall mean any acceleration
of all or any part of this Note, any foreclosure proceeding, the exercise of any
power of sale, the obtaining of a receiver, the suing on, or otherwise taking
action to enforce the obligation of the Maker to pay any amounts relating to
this Note, the exercising of any lien or rights of set-off or recoupment, the
institution of any proceeding of the type described in Section 3.02 against the
Maker or any of its subsidiaries, or the taking of any other Enforcement Action
against any asset or property of the Maker or its subsidiaries, but shall not
include commencement of an involuntary bankruptcy proceeding.
3.05 Payment Over of Payments on Distributions. In the event that the Payee
-----------------------------------------
receives any payment of any obligations with respect to the Note at a time when
such payment was prohibited by Section 3.02 or 3.03(a), such payment shall be
held by the Payee, in the trust for the benefit of, and shall be paid forthwith
over and delivered, upon written request, to, the holders of Senior Debt as
their interests may appear or their representative under the indenture or other
agreement (if any) pursuant to which Senior Debt may have been issued, as their
respective interests may appear, for application to the payment of all
Obligations with respect to Senior Debt remaining unpaid to the extent necessary
to pay such obligations in full in cash or cash equivalents in accordance with
their terms, after giving effect to any concurrent payment or distribution to or
for the holders of Senior Debt.
3.06 Subrogation. After all Senior Debt is paid in full in cash and until
-----------
this Note is paid in full, the Payee shall be subrogated (equally and ratably
with each other holder of a Shareholder Note and all other indebtedness that is
pari passu with the Shareholder Notes) to the rights of holders of Senior Debt
to receive distributions applicable to Senior Debt to the extent that
distributions otherwise payable to the Payee and other holders of Shareholder
Notes have been applied to the payment of Senior Debt. A distribution made under
this Article III to holders of Senior Debt that otherwise would have been made
to holders of Shareholder Notes is not, as between the Maker and such holders, a
payment by the Maker on the Shareholder Notes.
3.07 Relative Rights. No right of any present or future holder of any
Senior Debt to enforce subordination as herein provided shall at any time in any
way be prejudiced or impaired by any act or failure to act on the part of the
Maker or by any act or failure to act by any such
7
<PAGE>
holder, or by any noncompliance by the Maker with the terms, provisions and
covenants of this Article III, regardless of any knowledge thereof any such
holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Debt may, at any time and from time to time, without the
consent of or notice to the Payee or the holders of the other Shareholder Notes,
without incurring responsibility to the Payee or the holders of the other
Shareholder Notes and without impairing or releasing the subordination provided
in this Article III or the obligations hereunder of the Payee to the holders of
Senior Debt, even if any right of reimbursement or subrogation or other right or
remedy of the Payee any other holder of a Shareholder Note is affected, impaired
or extinguished thereby, do any one or more of the following:
(i) change the manner, place or terms of payment or charge or
extend the time of payment of, or renew, exchange, amend, increase or alter, the
terms of any Senior Debt, any security or therefor or guaranty thereof or any
liability of any obligor thereon (including any guarantor) to such holder, or
any liability incurred directly or indirectly in respect thereof or otherwise
amend, renew, exchange, extend, modify, increase or supplement the same or any
agreement under which Senior Debt is outstanding;
(ii) sell, exchange, release, surrender, realize upon, enforce or
otherwise deal with in any manner and in any order any property pledged,
mortgaged or otherwise securing Senior Debt or any liability of any obligor
thereon, to such holder, or any liability incurred directly or indirectly in
respect thereof;
(iii) settle or compromise any Senior Debt or any other liability of
any obligor of the Senior Debt to such holder or any security therefor or any
liability incurred directly or indirectly in respect thereof and apply any sums
by whomsoever paid and however realized to any liability (including without
limitation, Senior Debt) in any manner or order;
(iv) fail to take or to record or otherwise perfect, for any reason
or for no reason, any lien or security interest securing Senior Debt by
whomsoever granted, exercise or delay in or refrain from exercising any right or
remedy against any obligor or any guarantor or any other person, elect any
remedy and otherwise deal freely with any obligor and any security for the
Senior Debt or any liability of any obligor to such holder of any liability
incurred directly or indirectly in respect thereof, and
(v) take any other action which may, under applicable law, deprive
the holder of this Note of any right of reimbursement or subrogation (including
without limitations subrogation rights provided in Section 3.06).
3.08 Amendments to Article III. The provisions of this Article III shall
-------------------------
not be amended or modified in any manner adverse to holders of Senior Debt
without the written consent of the holders of all Senior Debt (or by any
specified percentage of holders of Senior Debt required to consent thereto as
expressly set forth in the documentation relating to the specific issuance of
Senior Debt).
8
<PAGE>
3.09 Definitions. For purposes of this Article III:
-----------
"Credit Agreement" means the Credit Agreement dated as of November 24,
----------------
1999, between Maker, Panolam Industries, Inc. (the "Borrower"), the lenders
party thereto from time to time and Bankers Trust Company, as administrative
agent, together with the related documents thereto (including, without
limitation, any guarantee agreements and security documents), in each case as
such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of available borrowings
thereunder or adding subsidiaries of Maker as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreement and whether by the same or any other agent
lender or group of lenders.
"Currency Agreement" means any foreign exchange contract, currency
------------------
swap agreement or other similar agreement or arrangement.
"Designated Senior Debt" means (1) Indebtedness under or in respect of
----------------------
the Credit Agreement and (2) any other Indebtedness constituting Senior Debt
which, at the time of determination, has an aggregate principal amount of at
least $25.0 million and is specifically designated in the instrument evidencing
such Senior Debt as "Designated Senior Debt" by Maker or the Borrower.
"Indebtedness" means with respect to any Person, without duplication:
------------
(1) all indebtedness of such Person for borrowed money;
(2) all indebtedness of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(3) all capitalized lease obligations of such Person;
(4) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the ordinary
course of business that are note overdue by 90 days or more or are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted);
(5) all obligations for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction;
(6) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (1) through (5) above and clause (7)
below; and
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(7) all obligations under Currency Agreements and Interest Swap
Agreements of such Person.
"Interest Swap Obligations" means the obligations of any Person
-------------------------
pursuant to any arrangement with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall also include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Obligations" shall mean, with respect to any Indebtedness, all
-----------
principal, interest, premium, penalties, fees, indemnities, damages and other
liabilities and obligations payable under the documentation governing, or with
respect to, such Indebtedness (including, without limitation all interest after
the commencement of any bankruptcy, insolvency, receivership or similar
proceeding at the rate provided in the governing documentation, whether or not
such interest is an allowed claim in such proceeding).
"Senior Debt" means the principal of, premium, if any, and interest
-----------
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on, and
all Obligations relating to, any Indebtedness of the Maker, whether outstanding
on the date of the issuance of this Note or thereafter created, incurred or
assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to the Notes. Without limiting the generality of the foregoing, "Senior
Debt" shall also include the principal of, premium, if any, interest (including
any interest accruing subsequent to the filing of a petition of bankruptcy at
the rate provided for in the documentation with respect thereto, whether or not
such interest is an allowed claim under applicable law) on, and all other
amounts owing in respect of:
(1) all monetary obligations of every nature of the Maker under, or
with respect to, the Credit Agreement, including without limitation
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities (and guarantees thereof);
(2) all Interest Swap Obligations (and guarantees thereof); and
(3) all obligations (and guarantees thereof) under Currency
Agreements;
in each case whether outstanding on the Issue Date or thereafter
incurred. Notwithstanding the foregoing, "Senior Debt" shall not include:
(1) any Indebtedness of the Maker to any of its subsidiaries;
10
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(2) Indebtedness to, or guaranteed on behalf of, any director, officer
or employee of Maker of any of its subsidiaries (including, without
limitation, amounts owed for compensation);
(3) Indebtedness to trade creditors and other amounts incurred (not
under the Credit Agreement) in connection with obtaining goods, materials
or services;
(4) any liability for taxes owed or owing by the Maker;
(5) Indebtedness which, when incurred and without respect to any
election under Section 1111 (b) of Title 11, United States Code, is without
recourse to the Maker; and
(6) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of the Maker.
ARTICLE IV. - GENERAL CONDITIONS
--------------------------------
4.01 No Waiver; Amendment. No extension of the time for the payment of this
--------------------
Note or any installment due hereunder, made by agreement with any person now or
hereafter liable for the payment of this Note shall operate to release,
discharge, modify, change or affect the liability of Maker under this Note,
either in whole or in part unless Payee agrees otherwise in writing. This Note
may not be changed orally, but only by an agreement in writing signed by the
party against whom enforcement of any waiver, change, modification or discharge
is sought.
4.02 Waivers. Presentment for payment, demand and protest are hereby waived
-------
by Maker.
4.03 Limit of Validity. The provisions of this Note are hereby expressly
-----------------
limited so that in no contingency or event whatsoever, whether by reason of
demand or acceleration of the maturity of this Note or otherwise, shall the
amount paid, or agreed to be paid ("Interest") to the Payee for the use,
forbearance or retention of money under this Note exceed the maximum amount
permissible under applicable law. If, from any circumstance whatsoever,
performance or fulfillment of any provision hereof or of any agreement between
the Maker and the Payee shall, at the time performance or fulfillment of such
provision shall be due, exceed the limit for Interest prescribed by law or
otherwise transcend the limit of validity prescribed by applicable law, then
ipso facto the obligation to be performed or fulfilled shall be reduced to such
limit and if, from any circumstance whatsoever, the Payee shall ever receive
anything of value deemed Interest by applicable law in excess of the maximum
lawful amount, an amount equal to any excessive Interest shall be applied to the
reduction of the principal balance owing under this Note (whether or not then
due) or at the option of the Payee be paid over to the Maker, and not to the
payment of Interest. All Interest (including any amounts or payments deemed to
be Interest) paid or agreed to be paid to the Payee shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full period until payment in full of the principal balance of
this Note so that the Interest thereof for such full period will not exceed the
maximum
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<PAGE>
amount permitted by applicable law. This Section 4.03 will control all
agreements between the Maker and the Payee.
4.04 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
-------------------------------------------------
(a) THE MAKER, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY (A)
SUBMITS TO PERSONAL JURISDICTION IN THE STATE OF NEW YORK OVER ANY SUIT, ACTION
OR PROCEEDING BY ANY PERSON ARISING FROM OR RELATING TO THIS NOTE, (B) AGREES
THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT IN ANY STATE OR FEDERAL
COURT OF COMPETENT JURISDICTION IN THE BOROUGH OF MANHATTAN, NEW YORK COUNTY,
NEW YORK AND (C) SUBMITS TO THE JURISDICTION OF SUCH COURTS. THE MAKER FURTHER
CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS
IN ANY SUCH SUIT, ACTION OR PROCEEDING BY REGISTERED OR CERTIFIED U.S. MAIL,
POSTAGE PREPAID, TO THE MAKER AT THE PAYMENT ADDRESS DESCRIBED ON THE FIRST PAGE
HEREOF, AND CONSENTS AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY
RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE
VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY
LAW).
(b) THE MAKER AND PAYEE, TO THE FULL EXTENT PERMITTED BY LAW, EACH
HEREBY WAIVES, RELINQUISHES AND FOREVER FORGOES THE RIGHT TO A TRIAL BY JURY IN
ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF THIS NOTE.
4.05 Governing Law. This Note shall be interpreted, construed and enforced
-------------
according to the substantive laws of the State of New York.
4.06 Assignment and Transfer. Neither this Note nor any interest herein
-----------------------
shall be assigned or transferred, in whole or in part, by the Payee.
IN WITNESS WHEREOF, the Maker has executed this Note as of the date
first above written.
PANOLAM INDUSTRIES HOLDINGS INC.
By:_______________________________
Title:
12
<PAGE>
EXHIBIT 10.27
WARRANT AGREEMENT
among
PANOLAM INDUSTRIES HOLDINGS, INC.,
GENSTAR CAPITAL PARTNERS II, L.P.
and
STARGEN II LLC
Dated as of November 24, 1999
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of November 24, 1999 (as thereafter amended,
supplemented or otherwise modified, this "Agreement"), among Panolam Industries
Holdings, Inc., a corporation organized and existing under the laws of the State
of Delaware (the "Company"), Genstar Capital Partners II, L.P. ("Genstar"), a
Delaware limited partnership, and StarGen II LLC, a Delaware limited liability
company ("Stargen").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, in connection with the Stock Purchase and Redemption Agreement,
dated October 14, 1999, among Genstar, Stargen, Robert J. Muller, Jr. and
Panolam Acquisition Company L.L.C., a limited liability company organized and
existing under the laws of the State of Delaware ("PAC"), and the issuance and
delivery of junior subordinated notes (the "Notes") to Genstar and Stargen by
the Company as payment for the shares of Class A Common Stock, par value $0.01
per share (the "Common Stock"), of the Company redeemed thereunder, the Company
has agreed, if and only if any portion of the principal amount of the Notes
shall remain outstanding on November 24, 2005, to issue and deliver to Genstar
and Stargen warrant certificates (the "Warrant Certificates") evidencing
warrants to purchase shares of Common Stock;
WHEREAS, the Underlying Common Stock (as defined below) will be subject to
the terms and conditions of the Stockholders' Agreement, dated as of November
24, 1999 (as thereafter amended, supplemented or otherwise modified, the
"Stockholders' Agreement"), among the Company, PAC, Genstar and Stargen; and
WHEREAS, the parties hereto desire to enter into this Agreement in order to
set forth their agreement concerning the terms and provisions of the Warrants
(as defined below) and the respective rights and obligations thereunder of the
Company and the registered holders of the Warrants, and such other matter as are
set forth herein;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
and covenants hereinafter set forth 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 hereby agree as follows:
2
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01. CERTAIN DEFINED TERMS. Unless the context otherwise requires,
the following terms, when used in this Agreement, shall have the respective
meanings specified below:
"ADDITIONAL DETERMINATION DATE" shall mean November 24 of each of 2006
through 2009, inclusive, if any amounts are still owing under the Notes on such
dates.
"ADDITIONAL WARRANTS" shall mean warrants of a series designated as such to
purchase shares of Common Stock, representing that number of shares of Common
Stock equal to (x) the aggregate principal amount outstanding under the Notes on
the applicable Additional Determination Date divided by $19.0 million,
multiplied by (y) 2.5% of the number of shares of Common Stock outstanding on
such Additional Determination Date.
"AFFILIATE" shall mean, with respect to any person, any other person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified person.
"AGREEMENT" or "THIS AGREEMENT" shall have the meaning specified in the
preamble to this Agreement.
"BENEFICIAL OWNER" or "BENEFICIALLY OWN" shall have the meaning given such
term in Rule 13d-3 under the Exchange Act.
"BOARD" shall mean the board of directors of the Company.
"BUSINESS DAY" shall mean any day that is not a Saturday, a Sunday or other
day on which banks are required or authorized by law to be closed in New York,
New York.
"COMMISSION" shall mean the Securities and Exchange Commission, and any
successor commission or agency having similar powers.
"COMMON STOCK" shall have the meaning specified in the recitals to this
Agreement.
"COMPANY" shall have the meaning specified in the preamble to this
Agreement.
"CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON CONTROL
WITH") shall mean, with respect to the relationship between or among two or more
persons, the possession, directly or indirectly or as trustee or executor, of
the power to direct or cause the direction of the affairs or management of a
person, whether through the ownership of voting securities, as trustee or
executor, by contract or otherwise, including, without limitation, the
ownership, directly or indirectly, of securities having the power to elect a
majority of the board of directors or similar body governing the affairs of such
person.
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"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"EXERCISE PRICE" shall have the meaning specified in Section 3.01.
"EXPIRATION DATE" shall be five years from the date of issuance of the
applicable Warrant Certificate.
"FAIR MARKET VALUE" shall mean, with respect to any shares of Common Stock
as of any date of determination, (i) if such shares of Common Stock are not
registered under the Exchange Act, the fair value of such shares of Common Stock
(or the Common Stock into or for which such shares of Common Stock are
convertible, exchangeable or exercisable) on a fully diluted basis (A) as
determined reasonably and in good faith in the most recently completed arm's-
length transaction between the Company and an unaffiliated third party in which
such determination is necessary and the closing of which shall have occurred
within the six months preceding such date of determination; or (B) if no such
transaction shall have occurred within such six-month period, as determined
reasonably and in good faith by the Board in accordance with the Valuation
Criteria; or (ii) if such shares of Common Stock are registered under the
Exchange Act, the average of the daily Market Prices of such shares of Common
Stock (or the Common Stock into or for which such Shares are convertible,
exchangeable or exercisable) for the 10 consecutive trading days immediately
preceding such date of determination or, if such shares of Common Stock have
been registered under the Exchange Act for fewer than 10 consecutive trading
days before such date, then the average of the daily Market Prices for all of
the trading days before such date for which daily Market Prices are available;
provided, however, that the Fair Market Value of any shares of Common Stock
convertible, exchangeable or exercisable for Common Stock shall be reduced by
the aggregate value of the consideration, if any, payable upon the conversion,
exchange or exercise of such Shares.
"GENSTAR" shall have the meaning specified in the preamble to this
Agreement.
"HOLDERS" shall mean the registered holders from time to time of the
Warrants and, unless otherwise provided or indicated herein, the registered
holders from time to time of the Underlying Common Stock.
"INDEPENDENT FINANCIAL EXPERT" shall mean a nationally recognized
investment banking firm that does not (and whose directors, officers, employees
and affiliates do not) have a direct or indirect financial interest in the
Company or any of its Affiliates, that has not been and at the time it is called
upon to give independent financial advice to the Company, is not (and none of
whose directors, officers, employees or Affiliates is) a promoter, director or
officer of the Company or any of its Affiliates or an underwriter or placement
agent with respect to any of the securities of the Company or any of its
Affiliates, and that does not provide any advice or opinions to the Company or
any of its Affiliates except as an Independent Financial Expert.
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"MARKET PRICE" shall mean, with respect to any shares of Common Stock
registered under the Exchange Act for any specified trading day, (i) in the case
of shares of Common Stock listed or admitted to trading on any securities
exchange, the closing price, regular way, on such day, or if no sale takes place
on such day, the average of the closing bid and asked prices on such day, (ii)
in the case of shares of Common Stock not then listed or admitted to trading on
any securities exchange, the last reported sale price on such day, or if no sale
takes place on such day, the average of the closing bid and asked prices on such
day, as reported by a reputable quotation source designated by the Company,
(iii) in the case of shares of Common Stock not then listed or admitted to
trading on any securities exchange and as to which no such reported sale price
or bid and asked prices are available, the average of the reported high bid and
low asked prices on such day, as reported by a reputable quotation service, or a
newspaper of general circulation in the Borough of Manhattan, City and State of
New York, customarily published on each business day, designated by the Company,
or if there shall be no bid and asked prices on such day, the average of the
high bid and low asked prices, as so reported, on the most recent day (not more
than 10 days prior to the date in question) for which prices have been so
reported, and (iv) if there are no bid and asked prices reported during the 10
days prior to the specified date, the Fair Market Value of such shares of Common
Stock as determined as if such shares of Common Stock were not registered under
the Exchange Act.
"NOTE" shall have the meaning specified in the recitals to this Agreement.
"PERSON" shall mean any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization or other entity or any
government or political subdivision, agency or instrumentality thereof, as well
as any syndicate or group that would be deemed to be a person under Section
13(d)(3) of the Exchange Act.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"SERIES 1 DETERMINATION DATE" shall mean November 24, 2005.
"SERIES 1 WARRANTS" shall mean warrants designated Series 1 Warrants to
purchase shares of Common Stock, representing, in the aggregate, that number of
shares of Common Stock equal to (x) the aggregate principal amount outstanding
under the Notes on the Series 1 Determination Date divided by $19.0 million,
multiplied by (y) 2.5% of the number of shares of Common Stock outstanding on
the Series 1 Determination Date.
"STOCKHOLDERS' AGREEMENT" shall have the meaning specified in the recitals
to this Agreement.
"SUBSIDIARY" shall mean, with respect to any person, any affiliate of such
person controlled by such person directly, or indirectly through one or more
intermediaries.
"UNDERLYING COMMON STOCK" shall mean the shares of Common Stock issuable or
issued upon the exercise of the Warrants.
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"VALUATION CRITERIA" shall mean one or more valuation methods that the
Independent Financial Expert or the Board, as the case may be, in its best
professional or business judgment, as the case may be, determines to be most
appropriate for use in determining the Fair Market Value of any Shares for which
such determination is required pursuant to this Agreement, without giving effect
to any discount attributable to any lack of liquidity of such Shares or to the
fact that the Company may have no class of equity securities registered under
the Exchange Act.
"WARRANT CERTIFICATES" shall have the meaning specified in the recitals to
this Agreement.
"WARRANTS" shall mean the Series 1 Warrants and the Additional Warrants,
collectively.
ARTICLE II
ORIGINAL ISSUE OF WARRANTS
SECTION 2.01. FORM OF WARRANT CERTIFICATES. The Warrants shall be
evidenced by Warrant Certificates in registered form only and substantially in
the form attached hereto as Exhibit A, shall be dated the date on which signed
---------
by the Company and may have such legends and endorsements typed, stamped,
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation pursuant thereto,
with any rule or regulation of any securities exchange on which the Warrants may
be listed or with the Stockholders' Agreement, or to conform to usage.
SECTION 2.02. EXECUTION AND DELIVERY OF WARRANT CERTIFICATES. Warrant
Certificates evidencing Series 1 Warrants shall be executed by the Company and
delivered on the Series 1 Determination Date to the Holders of Notes on such
date, to each such Holder in the same proportion that the principal amount then
outstanding under the Notes then held by such Holder bears to the aggregate
principal amount then outstanding under all Notes. If any principal amount
remains owing under the Notes on any Additional Determination Date, then Warrant
Certificates evidencing Additional Warrants as applicable on any such Additional
Determination Date shall be executed by the Company and delivered on the
Additional Determination Date to the Holders of Notes on such date, to each such
Holder in the same proportion that the principal amount then outstanding under
the Notes then held by such Holder bears to the aggregate principal amount then
outstanding under all Notes. The Warrant Certificates shall be executed on
behalf of the Company by its Chairman of the Board, Chief Executive Officer,
President or by any of its Vice Presidents, either manually or by facsimile
signature printed thereon. In case any officer of the Company whose manual or
facsimile signature has been placed upon any Warrant Certificate shall have
ceased to be such before such Warrant Certificate is issued, it may be issued
with the same effect as if such officer had not ceased to be such at the date of
issuance.
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ARTICLE III
EXERCISE PRICE; EXERCISE OF WARRANTS GENERALLY
SECTION 3.01. EXERCISE PRICE. Each Warrant Certificate shall entitle the
Holder thereof, subject to the provisions of the Agreement, to purchase one
share of Common Stock for each Warrant represented thereby at an exercise price
(the "EXERCISE PRICE") of $0.01 per share.
SECTION 3.02. EXERCISE OF WARRANTS. Subject to the terms and conditions
set forth herein, (i) the Series 1 Warrants shall be exercisable, on or prior to
the Expiration Date, at any time or from time to time after the Series 1
Determination Date, and (ii) the Additional Warrants shall be exercisable, on or
prior to the Expiration Date, at any time or from time to time after the
applicable Additional Determination Date.
SECTION 3.03. EXPIRATION OF WARRANTS. The Warrants shall terminate and
become void as of the close of business on the applicable Expiration Date.
SECTION 3.04. METHOD OF EXERCISE.
(a) In order to exercise a Warrant or to sell a Warrant to the
Company, the Holder thereof must surrender the Warrant Certificate evidencing
such Warrant to the Company, with one of the forms on the reverse of or attached
to the Warrant Certificate duly executed, and by paying in full to the Company
(i) in cash, or (ii) by certified or official bank check, or (iii) by any
combination of the foregoing, the Exercise Price for each share of Underlying
Common Stock as to which Warrants are then being exercised and any applicable
taxes, other than taxes that the Company is required to pay hereunder. A Holder
may exercise such Holder's Warrant for the full number of shares of Underlying
Common Stock issuable upon exercise thereof or any lesser number of whole shares
of Underlying Common Stock.
(b) Upon surrender of a Warrant Certificate in conformity with the
foregoing provisions and payment by the Holder of the full Exercise Price for
the shares of Underlying Common Stock as to which such Warrants are then being
exercised, the Company shall transfer to the Holder of such Warrant Certificate
appropriate evidence of ownership of any shares of Underlying Common Stock or
other securities or property (including any money) to which the Holder is
entitled, registered or otherwise placed in, or payable to the order of, such
name or names as may be directed in writing by the Holder, and shall deliver
such evidence of ownership and any other securities or property (including any
money) to the person or persons entitled to receive the same, together with an
amount in cash in lieu of any fraction of a share as provided in Section 4.04.
If such Warrant Certificate shall not have been exercised in full, the Company
will issue to such Holder a new Warrant Certificate exercisable for the number
of shares of Underlying Common Stock as to which such Warrant shall not have
been exercised. The Company will cancel all Warrants so surrendered.
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(c) Each person in whose name any certificate representing shares of
Underlying Common Stock is issued shall for all purposes be deemed to have
become the holder of record of such shares of Underlying Common Stock on the
date on which the Warrant Certificate was surrendered to the Company and payment
of the Exercise Price therefor and any applicable taxes was made to the Company,
irrespective of the date of delivery of such certificate representing shares of
Underlying Common Stock.
SECTION 3.05. CANCELLATION OF WARRANTS. The Company shall cancel any
Warrant Certificate delivered to it for exercise, in whole or in part, or
delivered to it for transfer, exchange or substitution, and no Warrant
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall destroy canceled
Warrant Certificates. If the Company shall acquire any of the Warrants, such
acquisition shall not operate as a redemption or termination of the right
represented by such Warrants unless and until the Warrant Certificates
evidencing such Warrants are surrendered to the Company for cancellation.
ARTICLE IV
ADJUSTMENTS
SECTION 4.01. ADJUSTMENTS. The number of shares of Common Stock issuable
upon exercise of each Warrant shall be subject to adjustment from time to time
as follows:
(a) STOCK DIVIDENDS; STOCK SPLITS; REVERSE STOCK SPLITS;
RECLASSIFICATIONS. In the event that the Company shall (i) pay a dividend or
make any other distribution with respect to its Common Stock in shares of its
capital stock, (ii) subdivide its outstanding Common Stock, (iii) combine its
outstanding Common Stock into a smaller number of shares, or (iv) issue any
shares of its capital stock in a reclassification of the Common Stock (including
any such reclassification in connection with a merger, consolidation or other
business combination in which the Company is the continuing corporation) the
number of shares of Common Stock issuable upon exercise of each Warrant
immediately prior to the record date for such dividend or distribution, or the
effective date of such subdivision or combination, shall be adjusted so that the
Holder of each Warrant shall thereafter be entitled to receive the kind and
number of shares of Common Stock or other securities of the Company that such
Holder would have owned or have been entitled to receive after the happening of
any of the events described above, had such Warrant been exercised immediately
prior to the happening of such event or any record date with respect thereto.
An adjustment made pursuant to this Section 4.01(a) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
(b) ISSUANCE OF COMMON STOCK, RIGHTS, OPTIONS OR WARRANTS AT LOWER
VALUES. (i) In the event that the Company shall issue or sell shares of Common
Stock, or rights, options, warrants or convertible or exchangeable securities
containing the right to subscribe for or purchase shares of Common Stock, at a
price per share of Common Stock (determined in the case of such rights, options,
warrants or convertible or
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exchangeable securities, by dividing (x) the total amount receivable by the
Company in consideration of the issuance and sale of such rights, options,
warrants or convertible or exchangeable securities, plus the total
consideration, if any, payable to the Company upon exercise, conversion or
exchange thereof, by (y) the total number of shares of Common Stock covered by
such rights, options, warrants or convertible or exchangeable securities) that
is lower than the then Fair Market Value per share of the Common Stock
immediately prior to such sale or issuance, then the number of shares of Common
Stock thereafter issuable upon the exercise of each Warrant then outstanding
shall equal the Pre-Issuance Value per Warrant divided by the Unadjusted Post-
Issuance Value per Warrant. Such adjustment shall be made successively whenever
any such sale or issuance is made.
(ii) For purposes of this Section 4.01(b), (A) "PRE-ISSUANCE
VALUE" shall mean (1) the total number of shares of Common Stock then issuable
upon exercise of each Warrant, multiplied by (2) the Fair Market Value per share
of Common Stock immediately prior to any issuance or sale described in Section
4.01(b)(i); and (B) "UNADJUSTED POST-ISSUANCE VALUE" shall mean (1) the sum of
(x) the total number of shares of Common Stock outstanding immediately prior to
any issuance or sale described in Section 4.01(b)(i), multiplied by the Fair
Market Value per share of Common Stock immediately prior to such issuance or
sale, plus (y) the total number of additional shares of Common Stock issued or
sold by the Company, multiplied by the price per share for which such additional
shares of Common Stock were issued or sold, divided by (2) the total number of
shares of Common Stock outstanding immediately after such issuance or sale.
(iii) In the event that the Company shall issue and sell shares
of Common Stock or rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Common
Stock for consideration consisting, in whole or in part, of property other than
cash or its equivalent, then in determining the "price per share of Common
Stock" and the "consideration" receivable by or payable to the Company for
purposes of the first sentence of Section 4.01(b)(i), the Board shall determine,
in good faith, the fair value of such property. In the event that the Company
shall issue and sell rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Common
Stock, together with one or more other securities as part of a unit at a price
per unit, then in determining the "price per share of Common Stock" and the
"consideration" receivable by or payable to the Company for purposes of the
first sentence of Section 4.01(b)(i), the Board shall determine, in good faith,
the fair value of the rights, options, warrants or convertible or exchangeable
securities then being sold as part of such unit.
(iv) Any adjustment to the number of shares of Common Stock
issuable upon exercise of all Warrants then outstanding made pursuant to this
Section 4.01(b) shall be allocated among each Warrant then outstanding on a pro
rata basis.
(v) Notwithstanding anything herein to the contrary, the
provisions of this Section 4.01(b) shall not apply to (A) options or other
similar rights issued pursuant to an employee stock option plan or similar plan
providing for options or other similar rights to purchase (or issuances pursuant
to incentive bonus plans) covering in the aggregate not in excess
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of 10% of the fully-diluted shares of Common Stock outstanding from time to
time, or (B) shares issued on the exercise of any such options or rights.
(c) EXPIRATION OF RIGHTS, OPTIONS AND CONVERSION PRIVILEGES. Upon the
expiration of any rights, options, warrants or conversion or exchange privileges
that have previously resulted in an adjustment hereunder, if any thereof shall
not have been exercised, the number of shares of Common Stock issuable upon the
exercise of each Warrant shall, upon such expiration, be readjusted and shall
thereafter, upon any future exercise, be such as they would have been had they
been originally adjusted (or had the original adjustment not been required, as
the case may be) as if (i) the only shares of Common Stock so issued were the
shares of Common Stock, if any, actually issued or sold upon the exercise of
such rights, options, warrants or conversion or exchange rights and (ii) such
shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Company upon such exercise plus the consideration, if
any, actually received by the Company for issuance, sale or grant of all such
rights, options, warrants or conversion or exchange rights whether or not
exercised.
(d) DE MINIMIS ADJUSTMENTS. No adjustment in the number of shares of
Common Stock issuable hereunder shall be required unless such adjustment would
require an increase or decrease of at least one percent in the number of share
of Common Stock purchasable upon an exercise of each Warrant; provided, however,
that any adjustments which by reason of this Section 4.01(d) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations shall be made to the nearest one-tenth of a share.
SECTION 4.02. DETERMINATION OF ADJUSTMENT. Whenever the number of shares
of Common Stock issuable upon the exercise of each Warrant is adjusted as herein
provided, a certificate of a senior officer of the Company setting forth the
number of shares of Common Stock issuable upon the exercise of each Warrant
after such adjustment, setting forth a brief statement of the facts requiring
such adjustment and setting forth the computation by which such adjustment was
made, shall, absent manifest error, be conclusive evidence of such adjustment.
The Company shall be entitled to rely on such certificate and shall exhibit the
same from time to time to any Holder desiring an inspection thereof during
reasonable business hours.
SECTION 4.03. STATEMENT ON WARRANTS. Irrespective of any adjustment in
the number or kind of shares issuable upon the exercise of the Warrants,
Warrants theretofore or thereafter issued may continue to express the same price
and number and kind of shares as are stated in the Warrants initially issuable
pursuant to this Agreement.
SECTION 4.04. FRACTIONAL INTEREST. The Company shall not be required to
issue fractional shares of Common Stock on the exercise of Warrants. If more
than one Warrant shall be presented for exercise in full at the same time by the
same Holder, the number of full shares of Common Stock which shall be issuable
upon such exercise thereof shall be computed on the basis of the aggregate
number of shares of Common Stock acquirable on exercise of the Warrants so
presented. If any fraction of a share of Common Stock would, except for the
provisions of this Section 4.04, be issuable on the exercise of any Warrant (or
specified portion thereof), the Company shall pay an amount in cash calculated
by it to be equal
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to the then Fair Market Value per share of Common Stock multiplied by such
fraction computed to the nearest whole cent.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. WARRANT TRANSFER BOOKS.
(a) The Warrant Certificates shall be issued in registered form only.
The Company shall keep at its executive office a register in which, subject to
such reasonable regulations as it may prescribe, the Company shall provide for
the registration of Warrant Certificates and of transfers or exchanges of
Warrant Certificates as herein provided.
(b) Every Warrant Certificate surrendered for registration of transfer
or exchange shall (if so required by the Company) be duly endorsed, or be
accompanied by a written instrument of transfer in form satisfactory to the
Company, duly executed by the Holder thereof or his attorney duly authorized in
writing.
(c) No service charge shall be made for any registration of transfer
or exchange of Warrant Certificates.
SECTION 5.02. NO STOCK RIGHTS. Prior to the exercise of the Warrants, no
holder of a Warrant Certificate, as such, shall be entitled to vote or be deemed
the holder of Common Stock or any other securities of the Company which may at
any time be issuable on the exercise hereof, nor shall anything contained herein
be construed to confer upon any holder of a Warrant Certificate, as such, the
rights of a stockholder of the Company or the right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action, to exercise any
preemptive right, to receive notice of meetings or other actions affecting
stockholders (except as provided herein), or to receive dividends or
subscription rights or otherwise.
SECTION 5.03. RESTRICTIONS ON TRANSFER. The Holder of any Warrant
Certificate, by acceptance thereof, acknowledges and agrees that the Underlying
Common Stock issuable upon exercise of such Warrants shall be subject to the
terms and conditions of the Stockholders' Agreement in effect from time to time,
including, without limitation, the provisions therein relating to restrictions
on transfer.
SECTION 5.04. NO REGISTRATION OF WARRANTS OR UNDERLYING COMMON STOCK UNDER
SECURITIES LAWS.
(a) Neither the Warrants nor the Underlying Common Stock have been
registered under the Securities Act or any state securities laws.
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(b) The Holder of any Warrant Certificate, by acceptance thereof,
represents that it is acquiring the Warrants to be issued to it for its own
account and not with a view to the distribution thereof, and agrees not to sell,
transfer, pledge or hypothecate any Warrants or any Underlying Common Stock
unless (i) (A) such transfer is made in connection with an effective
registration statement under the Securities Act and any applicable state
securities laws or (B) the Holder thereof has furnished the Company a
satisfactory opinion of counsel for such Holder to the effect that such
transaction is exempt from the registration requirements of the Securities Act,
the rules and regulations in effect thereunder and any applicable state
securities laws, and (ii) such transfer is made in accordance with terms and
conditions set forth in the Stockholders' Agreement relating to restrictions on
transfer to the extent the Warrants or Underlying Common Stock are subject
thereto.
SECTION 5.05. RESERVATION OF COMMON STOCK FOR ISSUANCE ON EXERCISE OF
WARRANTS. The Company shall at all times reserve and keep available, free from
preemptive rights, out of its authorized but unissued Common Stock, solely for
the purpose of issue upon exercise of Warrants as herein provided, such number
of shares of Common Stock as shall then be issuable upon the exercise of all
outstanding Warrants. All shares of Common Stock which shall be so issuable
shall, upon such issue, be duly and validly issued and fully paid and non-
assessable.
SECTION 5.06. PAYMENT OF TAXES. The Company shall pay all taxes and other
governmental charges that may be imposed on the Company or on the Warrants or on
any securities deliverable upon exercise of Warrants with respect thereto. The
Company shall not be required, however, to pay any tax or other charge imposed
in connection with any transfer involved in the issue of any certificate for
shares of Common Stock or other securities underlying the Warrants or payment of
cash to any person other than the Holder of a Warrant Certificate surrendered
upon the exercise or purchase of a Warrant, and in case of such transfer or
payment, the Company shall not be required to issue any stock certificate or pay
any cash until such tax or charge has been paid or it has been established to
the Company's satisfaction that no such tax or other charge is due.
SECTION 5.07. CERTAIN PERSONS TO EXECUTE AGREEMENT. Without in any way
limiting any transfer restrictions contained elsewhere herein or in the
Stockholders' Agreement, no Holder shall sell or otherwise dispose of any
Warrants held by such Holder, unless, prior to the consummation of any such sale
or other disposition, the person to whom such sale or other disposition is
proposed to be made executes and delivers to the Company an agreement, in form
and substance satisfactory to the Company, whereby such prospective transferee
confirms that, with respect to the Warrants that are the subject of such sale or
other disposition, it shall be deemed to be a "Holder" for the purposes of this
Agreement and agrees to be bound by all the terms of this Agreement. Upon the
execution and delivery by such prospective transferee of the agreement referred
to in the next preceding sentence, and subject to all applicable transfer
restrictions, such prospective transferee shall be deemed a "Holder" for the
purposes of this Agreement, and shall have the rights and be subject to the
obligations of a Holder hereunder with respect to the Warrants held by such
prospective transferee.
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SECTION 5.08. PRIOR NOTICE OF CERTAIN EVENTS. In case at any time the
Company proposes to take any action which may result in an adjustment pursuant
to Section 4.01, the Company shall give prior notice thereof. Such notice shall
be given at least three Business Days prior to the earlier of the action in
question and, if applicable, any record date or date on which the Company's
transfer books are closed with respect thereto.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. EXPENSES. Except as otherwise specified in this Agreement,
all costs and expenses, including, without limitation, fees and disbursements of
counsel, financial advisors and accountants, incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses.
SECTION 6.02. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, or by courier service, cable, telecopy, telegram, or registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties hereto at their addresses set forth on the signature pages to this
Agreement (or at such other address for a party hereto as shall be specified in
a notice given in accordance with this Section 6.02).
SECTION 6.03. HEADINGS. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning, construction or interpretation of this Agreement.
SECTION 6.04. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner in
order that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
SECTION 6.05. MUTILATED OR MISSING WARRANT CERTIFICATES. If any Warrant
Certificate is lost, stolen, mutilated or destroyed, the Company in its
discretion may issue, in exchange and substitution for and upon cancellation of
the mutilated Warrant Certificate, or in lieu of and substitution for the
Warrant Certificate lost, stolen or destroyed, upon receipt of a proper
affidavit or other evidence satisfactory to the Company (and surrender of any
mutilated Warrant Certificate) and bond of indemnity in form and amount and with
corporate surety satisfactory to the Company in each instance protecting the
Company, a new Warrant Certificate of like tenor and exercisable for an
equivalent number of shares of Common Stock as the Warrant Certificate so lost,
stolen, mutilated or destroyed. Any such new Warrant
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Certificate shall constitute an original contractual obligation of the Company,
whether or not the allegedly lost, stolen, mutilated or destroyed Warrant
Certificate at any time shall be enforceable by anyone. An applicant for such a
substitute Warrant Certificate also shall comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
All Warrant Certificates shall be held and owned upon the express condition that
the foregoing provisions are exclusive with respect to the replacement of lost,
stolen, mutilated or destroyed Warrant Certificates, and shall preclude any and
all other rights or remedies notwithstanding any law or statute existing or
hereafter enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without their surrender.
SECTION 6.06. ENTIRE AGREEMENT. This Agreement and the documents
referenced to herein constitute the entire agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior agreements and
undertakings, both written and oral, between or among the parties with respect
to the subject matter hereof.
SECTION 6.07. GENSTAR PERMITTED ASSIGNS. Genstar may transfer its rights
and obligations under this Agreement to any Person to whom the Notes are
transferred in accordance with the terms thereof.
SECTION 6.08. NO THIRD PARTY BENEFICIARIES. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto and their
respective successors and permitted assigns. Nothing in this Agreement, whether
express or implied, is intended to or shall confer upon any person other than
the parties hereto and their respective successors and permitted assigns, any
legal or equitable right, benefit or remedy of any nature whatsoever, under or
by reason of this Agreement.
SECTION 6.09. AMENDMENT; WAIVER. This Agreement may not be amended,
modified, supplemented or waived except by an instrument in writing signed by,
or on behalf of, each of the parties hereto or, in the case of a waiver, the
party to be bound thereby.
SECTION 6.10. GOVERNING LAW. IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS OF
EACH PARTY ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS
EXECUTED IN AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO
THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS.
SECTION 6.11. COUNTERPARTS. This Agreement 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 agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date fast above written.
PANOLAM INDUSTRIES HOLDINGS, INC.
By:
Name:
Title:
GENSTAR CAPITAL PARTNERS II, L.P.
By:
Name:
Title:
STARGEN II LLC
By:
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, AND
NO REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE
ISSUER, UNLESS (i) SUCH TRANSFER IS MADE IN CONNECTION WITH AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS
OR (ii) THE COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL
FOR THE HOLDER HEREOF THAT SUCH TRANSFER IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT, THE RULES AND REGISTRATIONS IN EFFECT THEREUNDER AND
ANY APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCKHOLDERS' AGREEMENT,
DATED AS OF NOVEMBER 24, 1999, AS THEREAFTER AMENDED, SUPPLEMENTED OR OTHERWISE
MODIFIED FROM TIME TO TIME, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE ISSUER. NO REGISTRATION OF TRANSFER OF SUCH SECURITIES
WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS AND UNTIL SUCH RESTRICTIONS SHALL
HAVE BEEN COMPLIED WITH.
PANOLAM INDUSTRIES HOLDINGS, INC.
SERIES __ WARRANT CERTIFICATE
Dated as of _________, _____
SERIES ____ WARRANTS TO PURCHASE ____ SHARES OF COMMON STOCK
Certificate No. ___ Certificate for _______ Warrants
PANOLAM INDUSTRIES HOLDINGS, INC., a corporation organized and existing
under the laws of the State of Delaware (the "COMPANY"), hereby certifies that,
for value received, ________________, or its registered assigns, is the
registered holder of the number of Series ____ Warrants set forth above (the
"WARRANTS"). Each Warrant entitles the registered holder thereof (the
"HOLDER"), subject to the provisions contained herein and in the Warrant
Agreement (as defined below), to receive from the Company one share of Class A
Common Stock, par value $0.01 per share, of the Company ("COMMON STOCK"),
subject to adjustment upon the occurrence of certain events as more fully
described in the Warrant Agreement (as
<PAGE>
defined below), at an exercise price of $0.01 per share. This Warrant
Certificate shall terminate and become void as of the close of business on the
earlier of (i) the date on which all amounts outstanding under the Notes (as
defined in the Warrant Agreement) are paid in full, and (ii) _____________,
_______ [five years from the date of issuance] (the "EXPIRATION DATE" ).
This Warrant Certificate is issued under and in accordance with the Warrant
Agreement, dated as of November 24, 1999 (as thereafter amended, modified or
supplemented, the "WARRANT AGREEMENT"), among the Company, Genstar Capital
Partners II, L.P., a Delaware limited partnership ("Genstar") and StarGen II
LLC, a Delaware limited liability company ("Stargen"), and is subject to the
terms and provisions contained in the Warrant Agreement and the stockholders'
agreement, dated as of November 24, 1999 (as thereafter amended, supplemented or
otherwise modified, the "STOCKHOLDERS' AGREEMENT"), among the Company, Genstar,
Stargen and Robert J. Muller, Jr., to all of which terms and provisions the
Holder of this Warrant Certificate consents by acceptance hereof. The Warrant
Agreement and the Stockholders' Agreement are hereby incorporated herein by
reference and made a part hereof. Reference is hereby made to the Warrant
Agreement and the Stockholders' Agreement for a full statement of the respective
rights, limitations of rights, duties and obligations thereunder of the Company
and the Holders of the Warrants.
The number of shares of Common Stock issuable upon the exercise of each
Warrant is subject to adjustment as provided in the Warrant Agreement.
All shares of Common Stock issuable by the Company upon the exercise of
Warrants shall, upon such issue, be duly and validly issued and fully paid and
non-assessable.
In order to exercise a Warrant, the Holder hereof must surrender this
Warrant Certificate at the office of the Company, with the Form of Election to
Purchase attached hereto appropriately completed and duly executed by the Holder
hereof, with signature guaranteed as therein specified, all subject to the terms
and conditions hereof and of the Warrant Agreement.
THIS WARRANT CERTIFICATE, THE WARRANTS EVIDENCED HEREBY AND THE UNDERLYING
COMMON STOCK ISSUABLE UPON EXERCISE OF SUCH WARRANTS ARE SUBJECT TO THE TERMS
AND CONDITIONS OF THE STOCKHOLDERS' AGREEMENT, INCLUDING, WITHOUT LIMITATION,
THE PROVISIONS THEREIN RELATING TO RESTRICTIONS ON TRANSFER.
All terms used in this Warrant Certificate that are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
Copies of the Warrant Agreement are on file at the office of the Company
and may be obtained by writing to the Company at ____________________,
Attention: ___________.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
executed by its officers thereunto duly authorized as of the date first written
above.
PANOLAM INDUSTRIES HOLDINGS, INC.
By: ________________________________
Name:
Title:
By: ________________________________
Name:
Title:
<PAGE>
FORM OF ELECTION TO PURCHASE
(To Be Executed by the Holder if the Holder Desires to Exercise Warrants
Evidenced by the Foregoing Warrant Certificate)
To: Panolam Industries Holdings, Inc.
The undersigned hereby irrevocably elects to exercise the Warrants evidenced by
the foregoing Warrant Certificate for, and to acquire thereunder, one full share
(subject to adjustment) of Common Stock issuable upon exercise of each such
Warrant, all on the terms and conditions specified in the within Warrant
Certificate and the Warrant Agreement therein referred to. The undersigned
hereby surrenders this Warrant Certificate and all right, title and interest
therein to the Company and directs that the shares of Common Stock deliverable
upon the exercise of such Warrants be registered or placed in the name of the
undersigned at the address specified below and delivered thereto.
Address: _________________________________________________
_________________________________________________
_________________________________________________
(Include Zip Code)
Taxpayer Identification or Social Security Number: _______________
Dated: ___________________
Name of Holder: _________________________________________________
(Please Print)
_________________________________________________
(Signature)*
_________________________________________________
(By:)_______________________________________________
(Please Print)
(Name:)__________________________________________
(Title:)_________________________________________
Signature Guaranteed By: ______________________________________________
(Please Print)
_______________________
*The signature must correspond with the name as written upon the face of the
foregoing Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, and must be guaranteed by a financial
institution satisfactory to the Company.
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned Holder of the foregoing Warrant Certificate
hereby sells, assigns and transfers/1/ unto each assignee set forth below
(including the undersigned with respect to any Warrants constituting a part of
the Warrants evidenced by the foregoing Warrant Certificate not being assigned
hereby) all of the rights of the undersigned in and to the number of Warrants
(as defined in and evidenced by the foregoing Warrant Certificate) set forth
opposite the name of such assignee below and in and to the foregoing Warrant
Certificate with respect to said Warrants and the shares of Common Stock
issuable upon exercise of said Warrants:
Name of Assignee: ________________________________________________
(Please Print)
Address: _________________________________________________
_________________________________________________
_________________________________________________
(Include Zip Code)
Number of Warrants: _____________________________________________
and does hereby irrevocably constitute and appoint the Company the undersigned's
attorney to make such transfer on the books of the Company maintained for that
purpose, with full power of substitution in the premises.
If the total of said Warrants shall not be all the Warrants evidenced by the
foregoing Warrant Certificate, the undersigned requests that a new Warrant
Certificate evidencing the Warrants not so assigned be issued in the name of and
delivered evidencing the Warrants not so assigned be issued in the name of and
delivered to the undersigned.
Dated: _______________
_______________________
/1/THE SECURITIES EVIDENCED BY THE FOREGOING WARRANT CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCKHOLDERS' AGREEMENT, A
COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER. NO
REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE
ISSUER UNLESS AND UNTIL SUCH RESTRICTIONS SHALL HAVE BEEN COMPILED WITH.
<PAGE>
Name of Holder: _________________________________________________
(Please Print)
_________________________________________________
(Signature)*
(By:) _________________________________________________
(Please Print)
(Name:)__________________________________________
(Title:)_________________________________________
Signature Guaranteed By: _________________________________________________
(Please Print)
Dated: _______________
Name of Holder: _________________________________________________
(Please Print)
_________________________________________________
(Signature)*
(By:) _______________________________________________
(Please Print)
(Name:)__________________________________________
(Title:)_________________________________________
Signature Guaranteed By: _________________________________________________
(Please Print)
____________________
*The signature must correspond with the name as written upon the face of the
foregoing Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, and must be guaranteed by a financial
institution satisfactory to the Company.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 2 to Registration Statement
on Form S-4 of Panolam Industries International, Inc. of our reports dated
March 12, 1999 relating to the financial statements and financial statement
schedule 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
December 28, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 2 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
December 28, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 2 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
December 28, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 2 to Registration Statement
on Form S-4 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
December 28, 1999
