<PAGE>
As filed with the Securities and Exchange Commission on May 14, 1999
Registration No. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
PANOLAM INDUSTRIES INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
--------------
<TABLE>
<S> <C> <C>
Delaware 6719 52-2064053
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
GUARANTORS OF SENIOR SUBORDINATED NOTES REGISTERED HEREBY:
PANOLAM GROUP, INC.
Delaware 6719 94-3244860
PII SECOND, INC.
Delaware 6719 52-2064042
PANOLAM INDUSTRIES, INC.
Delaware 2493 92-3244858
PIONEER PLASTICS CORPORATION
Delaware 2493 36-4029837
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
20 Progress Drive
Shelton, Connecticut 06484
Telephone: (203) 925-1556
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
--------------
Robert J. Muller, Jr.
President and Chief Executive Officer
Panolam Industries International, Inc.
20 Progress Drive
Shelton, Connecticut 06484
Telephone: (203) 925-1556
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Michael J. Kennedy
Michael S. Dorf
Brobeck, Phleger & Harrison LLP
One Market, Spear Street Tower
San Francisco, CA 94105
Telephone: (415) 442-0900
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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>
(Continued from previous page)
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Proposed
Title of each class of Amount maximum maximum Amount of
securities to be to be offering price aggregate registration
registered registered per unit offering price fee
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<S> <C> <C> <C> <C>
11 1/2% Senior
Subordinated Notes due
2009................. $135,000,000 100%(1) $135,000,000(1) $37,530
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Guarantees of the 11
1/2% Senior
Subordinated Notes due
2009................. $135,000,000 None(2) None(2) None(2)
</TABLE>
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(1) Pursuant to Rule 457(f)(2) of the Securities Act of 1933, as amended, the
registration fee has been estimated based on the book value of the
securities to be received in exchange for the securities to be issued
hereunder in the exchange offer described herein.
(2) Pursuant to Rule 459(n) no separate registration fee is payable in respect
of the guarantees.
<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.
We will receive no proceeds from the exchange of these notes.
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We are the market leader in designing, manufacturing and distributing
artificial decorative overlay panels in the U.S. and Canada. Our products are
used in a wide variety of residential and commercial indoor surfacing
applications, including counter tops, cabinetry, furniture, store fixtures and
displays, and other specialty applications.
Panolam Industries International, Inc.
20 Progress Drive
Shelton, CT 06484
(203) 925-1556
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 certain We do not intend to list the
transfer restrictions and exchange notes on any securities
registration rights relating to the exchange or over the counter
old notes. market.
. The exchange notes will bear Terms of the Exchange Offer:
interest at a fixed annual rate of
11 1/2%. Interest on the exchange . We will exchange all old notes that
notes will be paid every six months are validly tendered and not
on February 15 and August 15, withdrawn prior to the expiration
beginning August 15, 1999. of the exchange offer.
. The exchange notes will be . We will not receive any proceeds
guaranteed by all of our existing from the exchange offer.
and future domestic subsidiaries
and certain of our direct and . We will issue the exchange notes
indirect parent companies. promptly after the expiration of
the exchange offer.
. The exchange notes will mature on . You may withdraw tenders of old
February 15, 2009. notes at any time prior to the
expiration of the exchange offer.
. The exchange notes are senior . We believe that the exchange of old
subordinated unsecured general notes will not be a taxable event
obligations, ranking junior to our for federal income tax purposes,
senior debt and the senior debt of but you should see "Certain Federal
the guarantors, including any Income Tax Consequences" on page
borrowings and guarantees under our for more information.
senior secured credit facilities.
. We may redeem the exchange notes at
any time on or after February 15,
2004. See page 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 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
On the cover page and in this prospectus, unless the context otherwise
requires:
. "Issuer" refers to Panolam Industries International, Inc.
. "Panolam" refers to Panolam Group, Inc., which is an indirect parent
of the Issuer, and if the context requires, relates to Issuer, Panolam
Group, Inc. and Panolam U.S. prior to the acquisition of Pioneer.
. "Holdings" refers to Panolam Industries Holdings, Inc. Holdings is a
holding company which is not engaged in any business other than holding
the capital stock of Panolam Group, Inc.
. "Panolam U.S." refers to Panolam Industries Inc., an operating
subsidiary of the Issuer.
. "Pioneer" refers to Pioneer Plastics Corporation, a recently acquired
operating subsidiary of the Issuer.
. "Company," "our," "we," "ours," "ourselves" and "us" refers
collectively to Panolam, Issuer and Panolam U.S. They also include
Pioneer if the context is on or after the closing of the Pioneer
acquisition, February 18, 1999.
The following summary contains basic information about this exchange offer.
We encourage you to read this entire document and the documents we have
referred you to for a more complete understanding of this exchange offer.
Our Business
We are the market leader in the design, manufacture and distribution of
artificial decorative overlay panels in the U.S. and Canada. Our products are
used to surface a variety of items, including cabinets, furniture, store
fixtures, counter tops and floors. Our product lines are generally broken down
into two categories. Decorative thermally fused melamine products ("TFMs") make
up the majority of our panels. High pressure laminates ("HPLs") account for the
bulk of our remaining product lines. We also produce some 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 surfacing applications, including cabinets, furniture, and store
fixtures and displays. We believe we are the leading producer of TFMs in the
U.S. and Canada, with sales of approximately 300 million square feet of double
sided TFM panels in 1997. We have approximately a 20% 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 achieved a leading 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. See "Business--
General."
On February 18, 1999, Panolam acquired all the outstanding equity securities
of Pioneer Plastics Corporation from Rugby USA, Inc. Pioneer primarily designs,
manufactures and distributes HPLs used in residential and commercial indoor
surfacing applications, including countertops and cabinetry, furniture,
fixtures, and flooring. We acquired Pioneer in order to:
. expand product lines,
. offer "one stop shopping" to customers,
. increase sales to OEMs,
<PAGE>
. strengthen our distribution network,
. vertically integrate production processes, and
. realize certain anticipated operational efficiencies.
See "Business--What makes us competitive," "Business--What are the key
elements of our business strategy" and "The Transactions--The Pioneer
Acquisition."
Pioneer operates the other broad component of our business--the design,
manufacture and distribution of HPLs. Our HPL products are used for residential
and commercial indoor surfacing, including countertops and cabinetry,
furniture, store fixtures, and flooring. These applications require greater
surface wear and impact resistance than TFMs provide. Pioneer recently
introduced Pionite Solid Surface into its Pionite product line. This 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 used:
. in powder paint, adhesives and melamine resins for TFM and HPL
production,
. to custom treated and chemically prepared decorative overlay papers for
the TFM industry, and
. for a variety of other industrial laminate products such as aircraft
cargo liners and bowling lane flooring.
See "Business--General."
Our TFM and HPL product lines allow us to be one of two vertically integrated
manufacturers of those products in the U.S. and Canada. We estimate we have the
broadest line of decorative overlay products offered in the U.S. and Canada.
This broad product range provides us with the opportunity to increase sales by
offering customers "one stop shopping." Further, we consider ourselves the
second largest producer and distributor of TFMs and HPLs in the U.S. and
Canada, with combined TFM and HPL sales of approximately 500 million square
feet of double sided TFMs and single sided HPLs in 1997, after giving pro forma
effect to the Pioneer acquisition.
The Transactions
On February 18, 1999, the Issuer acquired all of the outstanding equity
securities of Pioneer from Rugby USA, Inc., a subsidiary of Rugby Group plc.
The total consideration paid for Pioneer was $159.1 million, including $10
million attributable to a noncompetition agreement between Panolam and Rugby
Group. The Pioneer acquisition was funded in part from the proceeds of the old
offering of Series A Notes. In addition, we will be required to make certain
post-closing payments to Rugby USA of up to an aggregate maximum of $15.0
million contingent upon us having achieved an EBITDA target of $60.0 million in
1999. Additional payments will be made if we reach subsequent annual targets.
The target will increase each year through 2003. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." We also entered into a number of ancillary agreements
providing for distribution arrangements with Rugby Building Products, Inc., a
subsidiary of Rugby Group, and noncompetition agreements with Rugby Group. We
have also entered into noncompetition agreements with certain of Pioneer's
former key employees. See "The Transactions--The Pioneer Acquisition."
2
<PAGE>
Concurrently with the Pioneer acquisition, we closed a series of transactions
that refinanced all of our indebtedness under our former credit facilities with
General Electric Capital Corporation. The funds remaining from the refinancing
will be used for working capital requirements, permitted acquisitions, capital
expenditures and general corporate purposes. The refinancing consisted of:
. the old offering of Series A Notes,
. the repayment of approximately $72.8 million of outstanding indebtedness
under the General Electric credit facilities,
. the entry by us into new credit facilities with an aggregate of $35.0
million of revolving credit facilities and $105.0 million of term loan
facilities and
. a $5.0 million aggregate equity investment in Holdings by its
stockholders, the proceeds of which were contributed to the capital of
the Issuer. See "The Transactions--The Refinancing," "Description of
Certain Indebtedness--New Credit Facilities" and "Certain Transactions--
Share Purchase."
The gross proceeds from the old offering of Series A Notes, the initial
borrowings of $105.0 million under the new credit facilities and the $5.0
million share purchase, were used to: (1) pay $159.1 million in connection with
the Pioneer acquisition, (2) repay all of the outstanding indebtedness under
our General Electric credit facilities and (3) pay the fees and expenses
related to the acquisition and the refinancing. See "Use of Proceeds." The
acquisition of Pioneer and the refinancing are referred to here as the
"Transactions."
The following chart sets forth our corporate structure:
[Corporate Structure Chart]
3
<PAGE>
Ownership and Management
Holdings is our parent company. It was formed in May 1996 by Genstar Capital
Partners II, L.P. ("Genstar Fund II"), an affiliate of Genstar Capital, LLC, to
acquire the Domtar Decorative Panels division of Domtar Inc. The acquisition
consisted of a purchase of U.S. assets and stock--now Panolam U.S.--and
Canadian assets--now Panolam Canada. As of April 15, 1999, Genstar Fund II and
its affiliates collectively owned approximately 95.3% of the Holdings common
stock, with the remaining equity owned by Robert J. Muller, Jr., our president
and chief executive officer.
In January 1998, we hired Mr. Muller as president and chief executive officer
and implemented a new management structure and new manufacturing process
changes. The results of this reorganization included process improvements 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. Through these
changes, we increased gross profit by approximately $3.7 million in 1998 as
compared with 1997. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview." In connection with his
employment, Mr. Muller made an equity investment in Holdings of approximately
$1.0 million. See "Certain Transactions--Stock Purchase by Robert J. Muller,
Jr."
Genstar Capital and its affiliate, Genstar Investment Corporation, are
private-equity investment firms based in San Francisco, California. They
structure leveraged buyouts of North America businesses. Genstar Capital's
investment philosophy is to buy companies with strong fundamentals in
attractive industries in partnership with strong management teams. This
strategy tends to create opportunity to achieve maximum growth and
profitability. Since its founding, Genstar Capital consummated a number of
acquisitions, including the acquisition of NEN Life Science Products, Inc., a
leading manufacturer and distributor of labeling and detection systems for life
science research, Skyway Freight Systems, Inc., a leading provider of expedited
freight, third-party logistics and supply chain management services, and Andros
Incorporated, a leading manufacturer of infrared gas sensors used in medical
and environmental applications. In addition, Genstar Investment Corporation
consummated a number of acquisitions on behalf of Genstar Capital Corporation,
including Prestolite Electric Holding, Inc., a leading manufacturer of truck,
bus and automotive starter motors and alternators and a reporting company under
the Securities Exchange Act of 1934, Wolverine Tube, Inc. (NYSE: WLV), a
leading North American manufacturer of specialty copper tubing, Gentek Building
Products, Inc., a leading manufacturer of vinyl, aluminum and steel siding, and
Seaspan International Ltd., Canada's largest tug and barge company.
4
<PAGE>
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 Donaldson,
Lufkin & Jenrette Securities Corporation and
Credit Suisse First Boston Corporation, as
initial purchasers. The initial purchasers sold
the old notes to "qualified institutional buyers"
as defined in Rule 144A under the Securities Act
of 1933. We have filed the registration statement
of which this prospectus is a part 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 million provided that the old notes
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.
Accordingly, such non-tendered old notes will
continue to be subject to restrictions on
transfer.
Expiration date; withdrawal
of tenders................. This exchange offer will expire on 5:00 p.m., New
York City time, on , 1999, unless we extend
the deadline. Your tender of old notes in
accordance with this exchange offer may be
withdrawn at any time prior to the expiration
date.
Certain conditions to the
exchange offer............. Based on an interpretation by the staff of the
SEC set forth in no-action letters issued to
third parties, we believe that the exchange notes
issued by us pursuant to the exchange offer in
exchange for the old notes may be offered for
resale, resold and otherwise transferred by any
holder thereof (other than any such holder which
is our "affiliate" within the meaning of Rule 405
under the Securities Act of 1933) by you without
compliance with the registration and prospectus
delivery provisions of the Securities Act of
1933, provided that such exchange notes are
acquired in the ordinary course of your business
and that you do not intend to participate and
have no arrangement or understanding with any
person to participate in the distribution of such
exchange notes. Our obligation to accept for
exchange, or to issue the exchange notes in
exchange for any old notes is subject to certain
customary conditions relating to compliance with
applicable law, or applicable interpretation by
the staff of the SEC, or an order of a
governmental agency or court of law. We currently
expect that each of the conditions will be
satisfied and that no waivers will be necessary.
Procedures for tendering
old notes.................. If you wish to participate in the exchange offer,
you must complete, sign and date the letter of
transmittal and send it,
5
<PAGE>
together with your old notes to be exchanged and
any other required documentation to State Street
Bank and Trust Company, as exchange agent, at the
address set forth in the letter of transmittal.
Brokers, dealers, commercial banks, trust
companies and other nominees may tender old notes
which they hold as nominee by book-entry
transfer. Questions regarding the tender of the
old notes or the exchange offer, generally, must
be directed to the exchange agent.
Special procedures for
beneficial owners.......... If you are the beneficial owner of old notes
which are registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee and you wish to tender the old notes in
the exchange offer, you should contact such
registered holder promptly and instruct such
registered holder to tender the old notes on your
behalf. If you wish to tender on your own behalf,
you must, prior to completing and executing the
letter of transmittal and delivering the old
notes, either make appropriate arrangements to
register ownership of the old notes in your own
name or obtain a properly completed bond power
from the registered holder. The transfer of
registered ownership may take considerable time
and it may not be possible to complete prior to
the expiration date.
Guaranteed delivery
procedures................. If you wish to tender your old notes and your old
notes are not immediately available or you cannot
deliver your old notes, the letter of transmittal
or any other documents required by the letter of
transmittal to the exchange agent, or you cannot
complete the procedure for book-entry transfer,
then prior to the expiration date you must tender
your old notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer--Guaranteed delivery procedures."
Acceptance of old notes and
delivery of exchange
notes...................... We will accept for exchange any and all old notes
which are properly tendered in the exchange offer
prior to 5:00 p.m., New York City time, on the
expiration date. The exchange notes issued
pursuant to the exchange offer will be delivered
promptly following the expiration date. See "The
Exchange Offer--Terms of the exchange offer." 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.
Federal income tax
consequences............... The exchange of old notes pursuant to this
exchange offer should not be a taxable event to
you for federal income tax purposes.
6
<PAGE>
Consequences of Not
Exchanging Old Notes....... You may not offer, sell or otherwise transfer the
old notes except:
. in compliance with the registration
requirements of the Securities Act of 1933 and
any other applicable securities laws, or
. pursuant to an exemption therefrom, or
. in a transaction not subject to such securities
laws. Old notes that you do not exchange for
exchange notes in the exchange offer will
continue to bear a legend reflecting such
restrictions on transfer. In addition, upon
consummation of the exchange offer, you will
not be entitled to any rights to have your old
notes registered under the Securities Act of
1933. We do not intend to register under the
Securities Act of 1933 any old notes which
remain outstanding after completion of the
exchange offer (subject to your limited
exceptions, if applicable).
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.
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
certain transfer restrictions and registration rights.
Issuer...................... Panolam Industries International, Inc.
Total amount of notes $135 million in principal amount of 11 1/2%
offered.................... Senior Subordinated Notes due 2009.
Maturity.................... February 15, 2009.
Interest.................... Annual rate: 11 1/2%.
Payment frequency: every six months, in arrears
on February 15 and August 15.
First payment: August 15, 1999.
Optional redemption......... On or after February 15, 2004, we may redeem some
or all of the exchange notes at any time at the
redemption prices listed in the section
"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 equity in
our company at the price listed in the section
"Description of Exchange Notes" under the heading
"Optional Redemption."
7
<PAGE>
Ranking of the exchange
notes...................... The exchange notes will be senior subordinated,
unsecured general obligations of the Issuer,
ranking subordinate in right of payment to all
senior debt of the Issuer, including our new
credit facilities. The exchange notes will rank
equally in right of payment to all existing and
future senior subordinated indebtedness of the
Issuer. The exchange notes will rank senior in
right of payment to all existing and future
subordinated indebtedness of the Issuer, of which
there is none currently outstanding.
As of December 31, 1998, had the transactions
already taken place and had we already entered
into the engagement agreement with Genstar
Capital, we would have had approximately
$242.3 million of consolidated indebtedness
outstanding. Approximately $105.3 million of this
indebtedness would have been senior or
effectively senior to the exchange notes and the
guarantees. See "Risk Factors--The exchange notes
and guarantees will be junior to some of our
other obligations." The indenture under which the
exchange notes will be issued permits the us to
incur additional indebtedness, including senior
debt, subject to certain limitations. See
"Description of Exchange Notes."
Subsidiary guarantees....... The Issuer's obligations under the exchange notes
will be fully and unconditionally guaranteed by
all of the Issuer's existing and future domestic
subsidiaries. The subsidiary guarantees will be
senior subordinated, unsecured general
obligations of the subsidiary guarantors,
subordinate in right of payment to all existing
and future senior debt of the subsidiary
guarantors, including guarantees by the
subsidiary guarantors under our new credit
facilities. The subsidiary guarantees will rank
equally in right of payment to all existing and
future senior subordinated indebtedness of the
subsidiary guarantors and will rank senior in
right of payment to all existing and future
subordinated indebtedness of the subsidiary
guarantors, of which there is none currently
outstanding.
Parent guarantees........... The Issuer's obligations under the exchange notes
will also be fully and unconditionally guaranteed
by Panolam Group, Inc., and PII Second, Inc.
Panolam Group, Inc. is a holding company that
conducts no business other than holding the
capital stock of PII Second, Inc. PII Second,
Inc. 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 Holdings.
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
of payment to all existing and future
subordinated indebtedness of
8
<PAGE>
the parent guarantors, which consists of
approximately $2.0 million of subordinated
indebtedness owed to Genstar Capital under the
engagement agreement. See "Certain Transactions--
Genstar Transactions."
Sinking Fund................ None.
Mandatory offer to
repurchase................. If we sell certain assets or experience specific
kinds of changes of control, we must offer to
repurchase the new notes at the prices listed in
the section "Description of Exchange Notes."
Basic covenants of the
indenture.................. We will issue the exchange notes under an
indenture with State Street Bank and Trust
Company, as trustee. The indenture will, among
other things, place certain limitations on our
ability, and the ability of some of our
subsidiaries, to:
. borrow money or make certain restricted
payments, change the nature of our
business, pay dividends on stock or
repurchase stock and 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" under the heading "Certain
Covenants."
Our address is 20 Progress Drive, Shelton, Connecticut 06484 and our
telephone number is (203) 925-1556.
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.
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 minus:
. interest expense,
. income tax expense,
. depreciation expense,
. amortization expense, and
. unusual one-time charges incurred in connection with the reorganization
of Panolam related to headcount reductions and the relocation of
Panolam's corporate headquarters to Shelton, Connecticut, in each case
for the applicable period.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for a discussion of these unusual one-time charges. We consider
EBITDA to be a widely accepted financial indicator of a company's ability to
service debt, fund capital expenditures and expand its business. However,
EBITDA is not calculated in the same way by all companies and is neither a
measurement required by, nor represents cash flow from operations as defined
by, generally accepted accounting principles. EBITDA should not be considered
by an investor as an alternative to net income, as an indicator of operating
performance or as an alternative to cash flow as a measure of liquidity. The
calculation of EBITDA for purposes of the financial information presented below
is calculated differently than for purposes of the covenants under our
indenture and our new credit facilities and for any post-closing contingent
payments to Rugby under the stock purchase agreement. See "The Transactions--
The Pioneer Acquisition," "Description of Exchange Notes" and "Description of
Certain Indebtedness--New 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 financial information included
elsewhere in this prospectus and gives effect to:
. the offering of our old notes,
. the initial borrowings under our new credit facilities,
. the acquisition of Pioneer,
. the contribution to capital by Holdings from the proceeds of the share
purchase by its stockholders,
. 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 and the pro forma
balance sheet data give effect to these transactions as if they had occurred on
December 31, 1998. The unaudited pro forma financial information does not
purport to represent what our financial position and results of operations
would have been if these transactions had actually been completed as of the
indicated dates and is not intended to project our financial position or
results of operations for any future period.
<TABLE>
<CAPTION>
For the year ended
December 31, 1998
------------------
(in thousands,
except ratios)
<S> <C>
Statement of Operations Data:
Net sales.................................................. $ 331,765
Cost of goods sold......................................... (250,947)
---------
Gross profit............................................... 80,818
Operating expenses......................................... (39,593)
Unusual charges............................................ (1,829)
---------
Income from operations..................................... 39,396
---------
Net income................................................. $ 8,177
=========
Other Data:
Depreciation and amortization.............................. $ 15,819
Capital expenditures....................................... 15,826
</TABLE>
<TABLE>
<CAPTION>
As of
December 31, 1998
-----------------
(in thousands)
<S> <C>
Balance Sheet Data:
Cash........................................................ $ 7,467
Working capital............................................. 43,991
Total assets................................................ 307,049
Long-term debt.............................................. 240,742
Stockholders' equity........................................ 33,155
</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 (date of incorporation) to December 31,
1996 and for the years ended December 31, 1997 and 1998, and the balance sheet
data as of December 31, 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.
<TABLE>
<CAPTION>
Predecessor Panolam
-------------- --------------------------------------------
Period from Period from For the year ended
January 1 to May 16 to December 31,
June 11, December 31, -----------------------------
1996 1996(a) 1997 1998
-------------- -------------- -------------- --------------
(in thousands) (in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............. $ 59,508 $ 74,453 $ 142,209 $ 146,747
Cost of goods sold.... (51,970) (61,057) (121,699) (122,572)
-------- -------- --------- ---------
Gross profit.......... 7,538 13,396 20,510 24,175
Operating expenses.... (3,498) (5,766) (9,723) (8,316)
Unusual charges....... -- -- -- (1,829)
-------- -------- --------- ---------
Income from
operations........... 4,040 7,630 10,787 14,030
-------- -------- --------- ---------
Net income (loss)..... $ 3,951 $ 2,060 $ (1,393) $ 3,398
======== ======== ========= =========
Other Data:
Net cash provided by
operating activities. $ 6,600 $ 3,974 $ 10,320 $ 16,469
Net cash used in
investing activities. (941) (99,589) (9,997) (4,821)
Net cash provided by
(used in) financing
activities........... (5,177) 95,617 662 (7,179)
EBITDA................ 6,446 10,042 15,373 22,099
Depreciation and
amortization......... 2,406 2,412 4,586 6,240
Capital expenditures.. 944 4,075 9,997 4,232
</TABLE>
<TABLE>
<CAPTION>
As of
December 31, 1998
-----------------
(in thousands)
<S> <C>
Balance Sheet Data:
Cash........................................................ $ 5,456
Working capital............................................. 14,511
Total assets................................................ 119,592
Long-term debt.............................................. 70,217
Stockholders' equity........................................ 31,138
</TABLE>
- --------------------
(a) 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.
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.
We are highly leveraged, which may affect our ability to make debt payments.
In connection with the old offering and our new credit facilities, we
incurred significant indebtedness. We now have substantially greater
indebtedness than prior to the transactions. Additionally, we are highly
leveraged, and have substantial repayment obligations. Subject to the
restrictions contained in the new credit facilities and the indenture, we may
incur additional indebtedness from time to time to finance acquisitions,
capital expenditures or for other purposes. As of December 31, 1998 as if the
transactions had taken place and giving effect to the entry by the Issuer into
the engagement agreement with Genstar Capital, we would have had approximately
$242.3 million of consolidated indebtedness outstanding, of which approximately
$105.3 million would have been senior or effectively senior to the notes and
the Guarantees. Panolam Canada's ability to borrow under the revolving portions
of the new credit facilities will be restricted by a borrowing base consisting
of a percentage of eligible inventory and accounts receivable. We were able to
borrow the full amount of $20.0 million under the U.S. revolving facility and
Panolam Canada borrowed $6.7 million of the $15.0 million available under the
Canadian 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. Our level of leverage could have
important consequences to holders of the exchange notes, including:
. a substantial portion of our cash flow from operations must be dedicated
to the payment of interest on the exchange and old notes and interest on
our other existing indebtedness, reducing our funds available for other
purposes,
. our ability to obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate purposes may be
impaired,
. the agreements governing our long-term indebtedness, including the new
credit facilities and the indenture, contain certain restrictive
financial and operating covenants,
. we are vulnerable to increases in interest rates because the
indebtedness under the new credit facilities is at variable rates of
interest,
. some of the indebtedness outstanding under the new credit facilities is
secured by substantially all of our assets and will become due prior to
the time the principal payment on the notes will become due,
. we are substantially more leveraged than certain of our competitors,
which might place us at a competitive disadvantage,
. we may be hindered in our ability to adjust rapidly to changing market
conditions,
. our substantial degree of leverage may negatively affect suppliers'
willingness to give us favorable payment terms and
. our substantial degree of leverage could make us more vulnerable in the
event of a downturn in general economic conditions or in our business.
See "Description of Certain Indebtedness."
Based upon our current and anticipated levels of operations, we should have
sufficient capital to carry on our business and we expect to be able to meet
our debt service obligations when due. However, our future cash flow is not
guaranteed to meet our obligations and commitments. These obligations and
commitments include
14
<PAGE>
interest payments on the notes principal and interest payments under the new
credit facilities and the ability (but not the obligation) of Holdings'
subsidiaries to transfer funds to Holdings for the payment of the Domtar Note,
granted in connection with Holdings' purchase of Panolam U.S. and Panolam
Canada. See "Description of Certain Indebtedness--New Credit Facilities" and
"--Domtar Note." If we cannot generate sufficient cash flow from operations to
service our indebtedness and to meet other obligations and commitments, we
might be required to refinance our debt or to dispose of assets to obtain funds
for such purpose. There is no assurance that refinancings or asset dispositions
could be effected on a timely basis or on satisfactory terms, if at all, or
would be permitted by the terms of the new credit facilities or the indenture.
In the event that we are unable to refinance the new credit facilities or raise
funds through asset sales, sales of equity or otherwise, our ability to pay
principal and interest on the exchange notes would be adversely affected.
We may have difficulty integrating Pioneer.
Our integration of Pioneer into our business is inherently risky. The
efficiencies, cost reductions and other benefits expected from the acquisition
require successful combination of Pioneer's business with our other operations.
Successful combination is not guaranteed. For instance, the following risks
could limit integration benefits:
. we may not be able to realize fully the anticipated synergies and cost
savings, including savings related to raw material purchase price
reductions, production process automation, vertical integration and
distribution synergies,
. we may not be able to successfully pursue some or all of the anticipated
revenue opportunities, including increasing sales to OEMs and
distributors,
. our distributors or customers may react negatively to the acquisition,
particularly our distributors or customers that compete with us,
. we may fail to sufficiently increase Pioneer's operation efficiencies
and
. the Rugby companies may not perform their obligations under the Rugby
Building Products agreement.
Moreover, our recourse against the Rugby companies under the Pioneer
acquisition documents is extremely limited, and unanticipated events or
liabilities related to Pioneer's business could have an adverse effect on our
business. The Rugby companies would be a limited source of compensation for us
under these circumstances.
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 estimates and assumptions underlying our pro forma financial
information are subject to significant uncertainties," "The Transactions--The
Pioneer Acquisition" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."
15
<PAGE>
The estimates and assumptions underlying our pro forma financial information
are subject to significant uncertainties.
We have based the unaudited pro forma combined financial data set forth in
the "Summary" and under "Unaudited Pro Forma Combined Financial Data" and our
estimates of certain cost savings upon assumptions and estimates related to the
integration of Pioneer. Such assumptions and estimates include:
. estimated annual cost savings on a pro forma basis of approximately $4.3
million related to the reduction of extra staff at Pioneer and certain
company-wide employee benefit savings and
. committed raw material purchase price reductions that would have saved
approximately $2.5 million in 1998 on a pro forma basis.
These estimated cost savings are subject to significant uncertainties which
may be beyond our control, especially those related to the integration of
Pioneer. Actual results may be different than those reflected in the unaudited
pro forma combined financial data due to the possibility that we may not
realize any of the anticipated cost savings.
There may be difficulties associated with Pioneer's business or the
integration of Pioneer's operations with ours. The unaudited pro forma combined
financial data does not necessarily represent actual results of operations on
the date indicated, or what such results will be in the future.
Actual results and cost savings may be different from those reflected in the
unaudited pro forma combined financial data. We cannot be sure that the
unaudited pro forma combined financial data would have been realized in the
periods or will be realized in the future. See "--We may have difficulty
integrating Pioneer," "Unaudited Pro Forma Combined Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The decorative overlay industry is subject to many risks.
The decorative overlay industry is affected by cyclical fluctuations in both
the general economy and those particular to our industry. These fluctuations
result from:
. consumer behavior, preferences, confidence and level of discretionary
spending,
. housing construction and remodeling activity,
. demographics,
. interest rates,
. seasonal purchasing from OEMs and distributors,
. credit availability and
. increases in shipping costs.
Generally, prolonged economic downturns could adversely affect our business.
Moreover, our products have been previously marketed primarily to companies
that manufacture cabinetry, store fixtures and furniture for use by the
construction industry. The construction industry is subject to significant
fluctuations in activity caused by general economic conditions. Reductions in
construction activity could materially reduce the demand for TFMs and HPLs and
adversely affect our business.
Our operations are not generally subject to seasonal fluctuations. However,
we usually curtail manufacturing operations for one to two weeks during the
month of July. Our working capital needs generally increase as we increase
inventory in anticipation of the curtailment and we replenish our inventory
following the curtailment. In addition, Pioneer historically experiences higher
sales in the second and third fiscal quarters
16
<PAGE>
of each year compared with the first and fourth quarters. Seasonal fluctuations
in the demand for Pioneer's HPL products account for this unevenness.
Our estimates of market share and industry size are limited by a lack of
reliable statistical information.
We define the decorative overlay industry to include three principal product
areas:
. TFMs (including thermally fused polyester panels, which George Carter &
Affiliates, a private consulting firm, estimated accounted for less than
an approximate 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 ("NEMA")
and Carter Affiliates. The TFM and other adhesive based overlay market data is
derived exclusively from materials prepared by the Laminating Materials
Association, Inc. and Carter Affiliates. Wall paneling and flooring data are
excluded from all market information disclosed here. The HPL market data refers
only to the U.S., while the data for TFMs and other adhesive based overlays
refers to the U.S. and Canada. The information provided to us by NEMA does not
include Canadian HPL data and we do not believe that such data is available.
The U.S. and Canadian TFM market is comprised of large producers--accounting
for a majority of the TFMs sold in the U.S. and Canada--and a number of smaller
regional manufacturers--accounting for the remainder of the market. See
"Business--Our products face substantial competition." TFM manufacturers do not
generally report their TFM production or sales, and the TFM market data
presented here is estimated based on the limited information available to us
and to Laminating Association and Carter Affiliates. Laminating Association and
Carter Affiliates base their TFM market information on square feet of
decorative overlay paper produced. Carter Affiliates and Laminating Association
estimate that more than 99% of decorative overlay paper produced is used in the
production of TFMs. However, because TFM panels may be laminated on either one
or two sides and the TFM industry does not report such breakdown, Laminating
Association and Carter Affiliates are unable to translate decorative overlay
paper production into TFM panel production on a square footage basis.
Substantially all of the TFM panels that we produce are double-sided.
Accordingly, our share of the actual TFM market--based on square feet of TFM
panels produced--may be less than our share of the estimated TFM market
presented herein--which is based on square feet of decorative overlay paper
produced--if a significant amount of the decorative overlay paper produced is
used by our competitors to manufacture single-sided TFMs. In addition, the
dollar size of the decorative overlay industry is based on wholesale prices.
These prices are not independently tracked and are estimated based on market
information available to Carter Affiliates. As a result, our estimates of the
dollar size of the decorative overlay industry may be inaccurate.
We may face environmental liabilities.
Our manufacturing operations involve the use, handling, storage, treatment
and disposal of materials and waste products that may be toxic or hazardous.
Consequently, we are subject to numerous federal, state, provincial and local
environmental and occupational health and safety laws and regulations. Our
operations are subject to environmental laws and regulations governing waste
disposal, air and water emissions, the handling of hazardous substances,
workplace exposure and other matters. Stringent environmental laws and
regulations govern the handling and disposal of chemicals and substances, such
as solvents and lubricants, commonly used in certain of our manufacturing
operations. In addition, certain of our facilities operate, or have operated,
above ground and underground storage tanks for fuels and chemical storage which
are subject to a variety of environmental laws and regulations. Failure to
comply with environmental laws and regulations may result in a material
liability to us in the form of administrative, civil or criminal enforcement by
government agencies or other parties. Environmental laws and regulations also
may require us to make material capital expenditures to maintain compliance.
See "Business--Government Regulation and Environmental Matters."
17
<PAGE>
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, future events, such as
the adoption of new laws and regulations, changes in existing laws and
regulations or their interpretation, stricter enforcement of existing laws and
regulations or governmental or private claims for damage to persons, property
or the environment resulting from our current or former operations, may give
rise to additional compliance costs or liabilities that could have a material
adverse effect on our business.
In addition, releases to the environment of hazardous or toxic wastes or
substances, whether at facilities currently or formerly owned or operated by us
or off-site locations in the United States where we have arranged for disposal
of such substances, also may subject us to liability for cleaning up
contamination which results from any releases. In some cases, liability may be
imposed without regard to fault or the lawfulness of the original activity that
resulted in the contamination.
We are aware that soil or groundwater contamination may be present on certain
of our properties. For example, operations of our facility in Auburn, Maine by
a prior owner resulted in past releases of hazardous substances to soil and
groundwater. The contamination of soil and groundwater at the Auburn facility
has been investigated by us and the prior owner of the facility pursuant to
administrative orders issued by the Maine Department of Environmental
Protection. Under the terms of a settlement agreement, the prior owner of the
facility is primarily responsible for performing any remediation which may be
required by the Maine DEP 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. While we believe that the
prior owner has sufficient financial resources to perform the remedial
obligations, there is a risk that we may be required to perform remedial work
at the Auburn facility or contribute financially to the cost of such
remediation if the prior owner fails to perform its remedial responsibility.
This is because the federal Comprehensive Environmental Response, Compensation,
and Liability Act ("CERCLA") 42 USC (S) 9601, et seq., and the Maine
Uncontrolled Hazardous Substance Sites Law (the "UHSS Law"), 38 M.R.S.A. (S)
1361, et seq., provide that responsible parties (including current owners and
operators) may be jointly and severally liable for releases of hazardous
substances regardless of when the contamination occurred. Although CERCLA and
the UHSS Law allow private parties to enter into private agreements to allocate
responsibility for cleanup of hazardous substances, the government retains the
authority to impose liability on the current owner or operator of a facility.
Under the terms of the settlement agreement, there is also a risk that we may
be required to contribute financially to the cost of remediation if Pioneer's
past operation of the Auburn facility is shown to have contributed to the
existing contamination at the site. While eventual remedial work at the
facility may cost in the range of several million dollars, we believe that
these costs will be borne by the prior owner. The presence of contamination at
the Auburn facility may also make it more difficult for us to develop or sell
portions of the property. However, we are entitled to an indemnity from the
prior owner for loss in value of the Auburn, Maine property caused by past
releases of hazardous substances related to certain previous operations of the
facility. Past releases have been identified on certain other of Pioneer's
current or former properties. However, we believe that it will not incur
material liability for these releases.
We also may incur liability under CERCLA for its off-site waste disposal.
Based on our past experience with such matters and certain indemnities obtained
in connection with its acquisitions, we believe that such liability will not
have a material adverse effect on our business.
We may not be able to buy necessary raw materials at reasonable prices because
of market conditions.
TFM and HPL decorative overlays are produced from a few basic raw materials.
TFM production uses wood substrate, papers and melamine resins, each of which
constitute approximately one-third of the required raw materials. Papers
constitute nearly 75% of the total raw materials used in HPL production.
Resins, including melamine and phenolic resin, constitute the remaining HPL raw
materials. The price and availability of these raw materials are subject to
market conditions affecting supply and demand. We believe that all of our raw
materials are available at current market prices in sufficient quantities and
of adequate quality. However, a substantial increase in raw material prices or
a substantial decrease in raw material supply or quality could have
18
<PAGE>
a material adverse effect on our business. For instance, we may be unable to
pass price increases through to our customers.
Our high-end acrylic based product, Pionite Solid Surface, is made to our
specifications by DuPont. However, DuPont may terminate production of this
product on 180 days prior notice to us. In the event DuPont terminates
production, we may not be able to replace Pionite Solid Surface with a similar
product. This could have a material adverse effect on our business, including
our strategy of offering "one stop shopping" for all customer needs.
Our products face substantial competition.
Our business, the decorative overlay industry, is highly competitive.
Competition is based on price, breadth of product line, design leadership,
product quality, customer service and distribution coverage. We believe that
no single competitor competes with us in all of our product lines. However, we
face significant competition in individual product lines.
The U.S. and Canadian TFM market is highly concentrated. We estimate that
the number of TFM manufacturers in the U.S. and Canada has consolidated over
the past two decades to approximately 40 in 1997. We estimate that the largest
producers account for a majority of the TFMs sold in the U.S. and Canada (on a
square footage basis). The rest of the market is comprised of a number of
smaller regional manufacturers.
The U.S. and Canadian HPL market has also consolidated over the past two
decades to four manufacturers in 1997. Many of our competitors have
significantly larger and substantially greater financial and other resources
than we do. There is no guarantee that our products will continue to compete
successfully with competitive products. We may not be able to improve or
maintain profit margins in the future. In addition, we might not be able to
increase sales and market share. See "Business--Our products face substantial
competition." Finally, European manufacturers are competitors, although to
date European competition has not been material.
Our business may be adversely affected by our acquisition strategy.
Our business strategy includes growth through acquisitions that expand our
markets and complement our product portfolio. From time to time we investigate
opportunities for acquisitions. Factors that could adversely effect the
success of these acquisitions include:
. difficulty in identifying suitable acquisition candidates,
. inability to obtain financing,
. increasing and unacceptable prices for attractive acquisition candidates
as consolidation becomes more prevalent in our industry and
. inability of future acquisitions to achieve sales and profitability.
See "--We are highly leveraged, which may affect our ability to make debt
payments." "--Restrictive Loan Covenants" and "Business--What are the key
elements of our business strategy?"
In addition, there may be problems associated with our expanding operations
in connection with the acquisition of new businesses. The following factors
could influence our ability to expand and operate future acquisitions
profitably or effectively:
. need for additional personnel, assets and cash expenditures,
. changing demands on operating, financial and management information
systems,
. delays, disruptions and unanticipated expenses in connection with
acquisitions,
19
<PAGE>
. ability to develop the skills of our managers and supervisors and
. ability to retain, train and effectively manage our employees.
Our failure to meet these challenges could adversely affect our business.
Our international sales may be adversely affected by factors beyond our
control.
A significant portion of our products are manufactured in Canada. Canadian
sales represented approximately 22.4% and 9.9%, respectively, of our historical
and pro forma consolidated net sales for the year ended December 31, 1998. 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 business.
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 were
derived from sales to customers outside of the U.S. and Canada, and certain of
Pioneer's U.S. and Canadian customers may resell Pioneer's products to end
users in international markets. Pioneer's sales in 1998--particularly in the
fourth quarter of 1998--were adversely effected by a decline in Pioneer sales
of bowling lane flooring products to its largest U.S. purchaser. We believe the
decline is primarily due to a decrease in sales of these products by our
customers to end users in Asian markets. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Future declines
could occur in sales involving ultimate consumption outside the U.S. These
declines could adversely affect our business.
We are dependent upon our president and other key employees.
Our performance depends partially upon the continued service of our president
and chief executive officer, Robert J. Muller, Jr. The loss of Mr. Muller's
services could have an adverse effect on our business operations and financial
condition. We do not presently maintain a "key man" life insurance policy on
Mr. Muller. See "Management--Employment Agreements" for a description of the
employment agreement that we entered into with Mr. Muller.
Beginning in January 1998, we reorganized our management. The persons then
serving as our executive officers either resigned or were terminated. We
replaced these officers with a new management team. See "Management--New
Executive Officers" and "Certain Transactions--Severance." 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.
Genstar Capital has the shareholder voting power to control our business.
As of April 15, 1999, Genstar Capital Partners II, and an affiliate,
collectively beneficially owned approximately 95.3% of the Common Stock.
Holdings indirectly owns all of the outstanding common stock of the Issuer.
Consequently, Genstar Capital, as manager of Genstar Fund II, and its
affiliates, have the ability to control the business and affairs of the Issuer
by virtue of its ability to elect a majority of Holdings' and the Issuer's
respective boards of directors and by virtue of its voting power regarding
stockholder approval. The interests of Genstar Capital Partners as the majority
equity holder of Holdings may differ from the interests of the holders of the
notes. See "Principal Stockholders" and "Certain Transactions."
The Issuer and the Parent Guarantors are holding companies, and the obligations
of our operating companies are secured by liens on all of their property and
assets.
The Issuer and the parent guarantors are holding companies whose only
material assets are the stock of their respective subsidiaries. The Issuer's
cash flow and, consequently, its ability to service debt (including the
20
<PAGE>
notes), is dependent upon the earnings of its subsidiaries and the payment of
funds by those subsidiaries to the Issuer in the form of loans, dividends or
otherwise. Subsidiary funding may be inadequate to fund the note payments.
The exchange notes are guaranteed on an unsecured senior subordinated basis
by all the guarantors. Should the Issuer fail to satisfy any payment
obligations under the exchanges notes, the holders of exchanges notes would
have a direct claim against the guarantors. The guarantors are also obligors
with respect to other substantial indebtedness, including borrowings and
guarantees on a senior basis under the new credit facilities. Moreover, the
capital stock of the subsidiary guarantors is pledged to secure amounts
borrowed or guaranteed under the new credit facilities. The obligations of the
subsidiary guarantors under the new credit facilities will be secured by liens
on substantially all of the properties and assets of the subsidiary guarantors.
See "Description of 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 Panolam
Canada, are separate and distinct legal entities and have no obligation to pay
any amounts due under the notes. The indenture will permit the Issuer and its
subsidiaries, including non-guarantor subsidiaries, to incur additional
indebtedness, subject to certain restrictions. See "Description of Exchange
Notes--Certain Covenants." If the Issuer participates in any distribution of
the assets of any of a non-guarantor subsidiaries upon its liquidation,
reorganization or insolvency, the Issuer will be subject to the claims of
creditors of the non-guarantor subsidiary--including trade creditors, the
lenders under the new credit facilities and preferred stockholders--except to
the extent that the Issuer has a creditor claim against the non-guarantor
subsidiary.
The payment of dividends and the making of loan advances to the Issuer by its
subsidiaries are subject to restrictive covenants including those under the new
credit facilities. Payment of dividends will be restricted upon an event of
default under the new credit facilities. A subsidiary guarantee will be
discharged upon the sale of the relevant subsidiary guarantor, in accordance
with the provisions of the indenture. See "Description of Exchange Notes."
The exchange notes and guarantees will be junior to some of our other
obligations.
The exchange notes will be senior subordinated, unsecured general obligations
of the Issuer, ranking subordinate in right of payment to all existing and
future senior debt of the Issuer, including the new credit facilities. The
exchange notes will rank equally in right of payment to all existing and future
senior subordinated indebtedness of the Issuer and will rank senior in right of
payment to all existing and future subordinated indebtedness of the Issuer, of
which there is none currently outstanding.
The Issuer's obligations under the exchange notes will be fully and
unconditionally guaranteed on a senior subordinated basis by the guarantors
pursuant to the guarantees. The guarantees will be senior subordinated,
unsecured general obligations of the guarantors and, as such, will be
subordinate in right of payment to all senior debt of the guarantors, including
guarantees by the guarantors under the new credit facilities. In the event of
our insolvency, liquidation or other reorganization, the assets of the Issuer
and the guarantors will be available to pay obligations on the exchange notes
and the guarantees only after all senior debt of the Issuer and the guarantors
has been paid in full. The senior debt includes the obligations of the
guarantors under the new credit facilities that will be secured by liens on
substantially all of their properties and assets. Accordingly, there may be
insufficient assets remaining after payment of prior claims to pay amounts due
on the exchange notes. Generally, no payments may be made with respect to the
exchange notes if a default exists with respect to any senior debt of the
Issuer. See "Description of Certain Indebtedness--New Credit Facilities--
Guarantees; Security" and "Description of Exchange Notes--Subordination."
Our discretion over certain business matters is limited by covenants in the
Indenture.
The indenture and the new credit facilities contain numerous financial and
operating covenants that limit the discretion of our management with respect to
certain business matters. The most restrictive covenants are contained in the
new credit facilities and include a minimum interest coverage ratio, a maximum
leverage ratio
21
<PAGE>
and a minimum fixed charge coverage ratio. Additionally, the new credit
facilities will prevent us from repurchasing any of the notes under any
covenant of the indenture until the repayment of all amounts due and owing
under the new credit facilities. The indenture and the new credit facilities
also will contain covenants that restrict payment of cash dividends and
restrict the amount that we can repurchase of our subordinated indebtedness and
equity. These covenants will place significant restrictions on our ability to:
. incur additional indebtedness,
. create liens or other encumbrances,
. make certain payments and investments,
. change our central business,
. sell or otherwise dispose of assets and
. merge or consolidate with other entities.
Our ability to comply with such covenants may be affected by events beyond
our control, including prevailing economic, financial and industry conditions.
The breach of any of the covenants or restrictions could result in a default
under the indenture or the new credit facilities. Such a default would permit
the senior lenders, or the holders of the notes, or both, to declare all
amounts borrowed to be due and payable with accrued and unpaid interest.
Additionally, the commitments of the senior lenders to make further extensions
of credit under the new credit facilities could be terminated. If we are unable
to repay our indebtedness to its senior lenders, such lenders could seize the
collateral securing the indebtedness. See "Description of Certain
Indebtedness--New Credit Facilities" and "Description of Exchange Notes."
Genstar Capital has the shareholder voting power to control our business.
As of April 15, 1999, Genstar Capital Partners II, and an affiliate,
collectively beneficially owned approximately 95.3% of the Common Stock.
Holdings indirectly owns all of the outstanding common stock of the Issuer.
Consequently, Genstar Capital, as manager of Genstar Fund II, and its
affiliates, have the ability to control the business and affairs of the Issuer
by virtue of its ability to elect a majority of Holdings' and the Issuer's
respective boards of directors and by virtue of its voting power regarding
stockholder approval. The interests of Genstar Capital Partners as the majority
equity holder of Holdings may differ from the interests of the holders of the
notes. See "Principal Stockholders" and "Certain Transactions."
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. 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 business.
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 were
derived from sales to customers outside of the U.S. and Canada, and certain of
Pioneer's U.S. and Canadian customers may resell Pioneer's products to end
users in international markets. Pioneer's sales in 1998--particularly in the
fourth quarter of 1998--were adversely effected by a decline in Pioneer sales
of bowling lane flooring products to its largest U.S. purchaser. We believe the
decline is primarily due to a decrease in sales of these products by our
customers to end users in Asian markets. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Future declines
could occur in sales involving ultimate consumption outside the U.S. These
declines could adversely affect our business.
22
<PAGE>
We may be unable to repurchase the exchange notes upon a change of ownership.
The indenture provides that, upon the occurrence of a change of control, we
will be required to make an offer to purchase all of the notes at a price in
cash equal to 101% of the aggregate principal amount plus any accrued and
unpaid interest and liquidated damages. Certain events involving a change of
control could result in acceleration of our other indebtedness, including the
new credit facilities, or other indebtedness that we may incur in the future.
In the event of a change of control, we may have insufficient funds to purchase
all notes tendered.
The new credit facilities prohibit us from repurchasing any notes unless and
until such time as the indebtedness under the new credit facilities is paid in
full. See "--Our discretion over certain business matters is limited by
covenants in the Indenture." Our failure to purchase notes would result in a
default under the indenture and the new credit facilities which would permit
the trustee under the indenture, the holders of at least 25% in principal
amount of the outstanding notes or the lenders under the new credit facilities
to declare the principal and accrued but unpaid interest due and payable on
both the notes and the new credit facilities.
Likewise, the inability to repay the indebtedness under the new credit
facilities (if accelerated) would also constitute an event of default under the
indenture, which could cause an acceleration of the indebtedness under the
indenture. In the event of a change of control, there can be no assurance that
we would have the ability to refinance the new credit facilities or sufficient
assets to satisfy all of our obligations under the new credit facilities and
the notes. The provisions relating to a change of control included in the
indenture may increase the difficulty of a potential acquiror to obtain control
of us. See "Description of Certain Indebtedness--New Credit Facilities" and
"Description of Exchange Notes--Certain Covenants--Repurchase of Notes at the
Option of the Holder upon a Change of Control."
Consequences of not tendering old notes in the exchange offer.
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.
The exchange notes are being offered to the holders of the old notes. Prior
to this exchange offer, there has been no existing trading market for any of
the old notes and we expect that a trading market will not develop for the
exchange notes. We do not intend to apply for listing of the exchange notes on
any securities exchange or on the Nasdaq National Market. The exchange notes
may trade at a discount from their initial offering price, depending upon
prevailing interest rates, the market for similar securities, our performance
and other factors. In connection with the issuance of the old notes, we were
advised by the initial purchasers that they intended to make a market in the
exchange notes. However, the initial purchasers are not obligated to do so and
any such market-making activities may be discontinued at any time without
notice. Therefore, we cannot assure you that an active market for the exchange
notes will develop.
Fraudulent transfer laws could change our obligations under the exchange notes.
The Issuer's obligations under the exchange notes may be subject to review
under state or federal fraudulent transfer laws in the event of our bankruptcy
or other financial difficulty. Under those laws, a court could cancel our
obligations under the exchange notes, or direct that the exchange notes holders
repay us or direct that the payments under the exchange notes be held for the
benefit of our creditors. This would likely happen in a lawsuit by an unpaid
creditor or representative of our creditors, such as a trustee in bankruptcy or
23
<PAGE>
the Issuer as debtor in possession, if when the exchange notes were issued, we
(a) received less than fair consideration or reasonably equivalent value
therefor, and we (b) either:
. were or became insolvent,
. were engaged in a business or transaction for which our remaining
unencumbered assets constituted unreasonably small capital or
. intended to incur or believed (or reasonably should have believed) that
we would incur debts beyond our ability to pay as those debts matured.
Regardless of the factors identified in clauses (a)-(b) above, the court could
cancel the notes and direct repayment if it found that we issued the exchange
notes with actual intent to hinder, delay or defraud our creditors.
Separately, a court might determine that we did not receive fair
consideration or reasonably equivalent value to the extent the old offering
proceeds were used to retire our former General Electric credit facilities.
In addition, a guarantor's obligations under its guarantee may be subject to
review under the same laws in the event of the guarantor's bankruptcy or other
financial difficulty. If a court were to find that when a guarantor issued its
guarantee (or, in some jurisdictions, when it became obligated to make
payments thereunder) the factors in clauses (a)-(b) above applied to the
guarantor (or that the guarantor issued its guarantee with actual intent to
hinder, delay or defraud its creditors), the court could cancel the guarantee
and direct the repayment of amounts paid. A court will likely hold that a
subsidiary guarantor did not receive fair consideration or reasonably
equivalent value for its guarantee. The indenture will limit each guarantor's
liability under its guarantee to the maximum amount that the guarantor could
pay without the guarantee being deemed a fraudulent transfer. See "Description
of Exchange Notes." If this limitation is effective, the limited amount
guaranteed might be sufficient to pay amounts owed under the notes in full.
The measure of insolvency varies depending on the law of the jurisdiction
being applied. Generally, however, an entity is considered insolvent if the
sum of its debts--including contingent or unliquidated debts--is greater than
(1) all of its property at a fair valuation or (2) 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.
We face risks related to the year 2000.
The "Year 2000 Issue" is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations that could disrupt normal business activities.
We are currently reviewing our readiness for handling the Year 2000 Issue.
We rely on our own and supplied technology. We have developed plans to
minimize the potential problems by December 31, 1999. We are completing the
second phase of a three phase process to modify all of our systems related to
purchasing, order entry, accounts receivable and sales history. The final
phase, which began in the first quarter of 1999, includes manufacturing and
inventory control systems that are date sensitive. We plan to contact all of
our key external business partners to determine their plans for Year 2000
compliance.
We believe our current staff will be able to address the Year 2000 Issue
without having an adverse effect on other projects. We estimate that our total
costs related to our Year 2000 Issues will be approximately $8.5 million. As
of December 31, 1998, we have incurred approximately $6.0 million of Year 2000
costs. We believe such costs do not adversely affect on our business, though
it is possible that there could be increased costs and delays associated with
the Year 2000 Issue. If we cannot handle these problems, our business could be
adversely affected.
If our major customers or vendors fail to appropriately address the Year
2000 Issue in a timely manner, it could have an adverse effect on our
business. Further, we do not have a contingency plan for continued operations
in the case of business interruption caused by the Year 2000 issue, though a
plan is needed. We anticipate that a plan will be in place by July 1999,
although it may not be successful.
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<PAGE>
The Transactions
The Pioneer Acquisition
On February 18, 1999, the Issuer acquired all of the outstanding equity
securities of Pioneer from Rugby USA under a Stock Purchase Agreement. The
total consideration paid at closing was $159.1 million, including $10 million
attributable to a noncompetition agreement between Panolam and Rugby Group.
Pioneer was bought partially with the proceeds of the old offering. However,
the purchase price is also subject to certain post-closing adjustments based on
a comparison of the actual financial statements of Pioneer as of the closing
date and the estimated financial statements of Pioneer referred to above. In
addition, we will be required to make certain post-closing payments to Rugby
USA of up to an aggregate maximum of $15.0 million contingent upon our having
achieved an EBITDA target of $60.0 million in 1999, which target will increase
each year thereafter through 2003. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
In connection with the acquisition, we entered into a number of ancillary
agreements providing for distribution arrangements with Rugby Building Products
and noncompetition agreements with Rugby Group. Under distribution agreements
entered into between Rugby Building Products' network of 21 distributors--
which accounted for approximately 30% of Pioneer's HPL sales in 1997--and
Pioneer, Rugby Building Products for 5 years--subject to renewal--will act as
exclusive distributor in several U.S. territories of certain Pionite HPL
products manufactured by Pioneer. In addition, Rugby Building Products agreed
during the five year period to purchase on a calendar year basis at least the
same amount of certain products from Pioneer, measured by square feet, as it
purchased in 1997, subject to a permitted diminution in sales of such products
for industry-wide slow-downs and closings of any Rugby Building Products
distributor. However any reduction can be no greater than a 7.5% decrease in
the aggregate from amounts purchased in 1997, thus maintaining on a calendar
year basis Rugby Building Products' market share within its territory at a
level equal to or greater than the U.S. distributor's market share average as
established by Pioneer. Pioneer has also been granted a right of first refusal
on the sale by RBP of certain of its Distributorship Business Units (as defined
in the respective distribution agreements). Pioneer has also entered into
noncompetition agreements with several of Pioneer's key employees.
Certain agreements ancillary to the acquisition provide that, with
exceptions, Rugby Group will neither:
. engage in any business for a period of five years anywhere in the world
that manufactures, produces, distributes or supplies products or
services of the kind manufactured, produced or supplied by Pioneer as of
the consummation of the Acquisition, or own any such business,
. call upon, solicit, advise or otherwise do, or attempt to do, business
for a period of two years with any customers of Pioneer with whom
Pioneer had any dealings during the period of time that Pioneer was an
affiliate of Rugby nor
. solicit officers, employees or representatives of Pioneer.
Certain former executive officers of Pioneer--whom Panolam terminated after
the acquisition--have similarly agreed for three years not to compete with
Pioneer, and not to solicit key Pioneer employees.
The Pioneer stock purchase agreement contains customary representations,
warranties and covenants. With some exceptions, the representations and
warranties of Rugby USA expire two years after the date of the closing.
Environmental representations and warranties by Rugby USA will survive until
the tenth anniversary of the closing. Rugby USA and we have agreed to indemnify
each other for losses arising out of any breach of the representations,
warranties and covenants made by the other party in the stock purchase
agreement. In addition, Rugby USA has agreed to indemnify us for environmental
claims relating to the off-site disposal of hazardous material by Pioneer prior
to the closing. The maximum amount that we may recover for losses arising out
of breaches of representations, warranties and covenants is $20.0 million in
the aggregate, plus $20.0 million in the aggregate for losses relating to the
separately indemnified environmental matters described
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<PAGE>
above. We may also recover for such environmental losses any unutilized portion
of the $20.0 million limit for breaches of general representations, warranties
and covenants within two years of consummating the acquisition. Rugby USA also
has guaranteed to us certain obligations of third parties with regard to
payments for environmental claims.
The Refinancing
We effected the refinancing concurrently with the old offering and the
acquisition. The refinancing resulted in the refinancing of all of our
indebtedness under its existing credit facilities with General Electric and
make available to us additional cash under the new credit facilities for
working capital requirements, permitted acquisitions, capital expenditures and
general corporate purposes. The refinancing consisted of:
. the old offering,
. the repayment of approximately $72.8 million of outstanding indebtedness
under our former General Electric credit facilities,
. our entry by into the new credit facilities providing for $105.0 million
in term loans and up to $35.0 million in revolving credit loans and
. the $5.0 million share purchase by Holdings stockholders, the proceeds
of which were contributed to the capital of the Issuer.
The new credit facilities will consist of the U.S. facilities and the
Canadian facilities. The U.S. facilities provides the Issuer with up to $20.0
million in revolving credit loans and $55.0 million in term loans. The Canadian
facilities provides the Issuer's Canadian subsidiary, Panolam Canada, with up
to $15.0 million in revolving credit loans and $50.0 million in term loans. The
Issuer's and Panolam Canada's ability to borrow under the revolving facilities
will be restricted by a borrowing base consisting of a percentage of eligible
inventory and accounts receivable. The Issuer borrowed the full amount of $20.0
million under the U.S. revolving facility and Panolam Canada borrowed $6.7
million of the $15.0 million available under the Canadian revolving facility.
See "Description of Certain Indebtedness--New Credit Facilities."
The obligations of the Issuer under the U.S. facilities are guaranteed by
Holdings and each of its direct and indirect domestic subsidiaries, other than
the Issuer and two inactive subsidiaries of Panolam U.S. In addition, Holdings
and each of its direct and indirect domestic subsidiaries, including the Issuer
but excluding two inactive subsidiaries of Panolam U.S., guarantee Panolam
Canada's obligations under the Canadian facilities. Panolam Canada will not
guarantee the Issuer's obligations under the U.S. facilities. The obligations
of the Issuer under the U.S. facilities are secured by a first priority lien--
except as described below with respect to the stock of Panolam Canada and
certain intercompany indebtedness--on substantially all of the Issuer's
property and assets--tangible and intangible--including the stock and
intercompany debt of the Issuer's domestic subsidiaries. The obligations of
Panolam Canada under the Canadian facilities are secured by a first priority
lien on substantially all of its property and assets (tangible and intangible)
and by a junior lien on substantially all of the property and assets of the
Issuer and its domestic subsidiaries except that the liens securing the
Canadian facilities in respect of the stock of Panolam Canada and certain
intercompany indebtedness may be senior to the liens on such assets securing
the U.S. facilities. All borrowings and guarantees under the new credit
facilities are senior to the indebtedness evidenced by the notes and the
guarantees. See "Description of Certain Indebtedness--New Credit Facilities."
No liens are attached under the new credit facilities to the stock, property,
assets and intercompany debt of the two inactive subsidiaries of Panolam U.S.
26
<PAGE>
In connection with the acquisition, the stockholders of Holdings made an
aggregate equity investment of $5.0 million into Holdings through a share
purchase. The share purchase took the form of a pro rata purchase of common
stock by the stockholders of Holdings. The proceeds of the share purchase were
contributed to the capital of the Issuer. See "Certain Transactions--Share
Purchase."
The gross proceeds from the old offering, together with the initial
borrowings of $105.0 million under the new credit facilities and the $5.0
million share purchase, were used:
. to pay $159.1 million in connection with the acquisition,
. to repay $72.8 million in outstanding indebtedness under our former
General Electric credit facilities and
. to pay $13.1 million in fees and expenses related to the Transactions.
See "Use of Proceeds."
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<PAGE>
Use of Proceeds
We will not receive any cash proceeds from the issuance of the exchange notes
offered hereby. The old notes surrendered in exchange for the exchange notes
will be retired and canceled and cannot be reissued. Accordingly, the issuance
of the exchange notes will not result in any increase in our indebtedness. The
section "The Transactions" describes how we used the $135.0 million of proceeds
from the sale of the old notes.
Capitalization
The following table sets forth:
(A) our historical capitalization as of December 31, 1998 and
(B) our pro forma capitalization after giving effect to:
.the offering of our old notes,
.the initial borrowings under our new credit facilities,
.the acquisition of Pioneer,
. the contribution to capital by Holdings from the proceeds of the
share purchase by its stockholders,
.the refinancing of our existing indebtedness, and
.the other matters described under "Unaudited Pro Forma Combined
Financial Data."
See "The Transactions" and "Use of Proceeds." The following table should be
read in conjunction with the "Unaudited Pro Forma Combined Financial Data" and
the Consolidated Financial Statements and the related notes appearing elsewhere
in this prospectus.
<TABLE>
<CAPTION>
As of
December 31, 1998
-----------------
Pro
Historical forma
---------- ------
(in millions)
<S> <C> <C>
Cash......................................................... $ 5.5 $ 7.5
====== ======
Total debt (including current portion):
General Electric credit facilities.......................... $ 72.8 $ --
Other debt.................................................. 0.3 2.3
New credit facilities (a):
U.S. facilities............................................ -- 55.0
Canadian facilities........................................ -- 50.0
11 1/2% Senior Subordinated Notes due 2009.................. -- 135.0
------ ------
Total debt................................................. 73.1 242.3
Total stockholders' equity (b)............................... 31.1 33.2
------ ------
Total capitalization....................................... $104.2 $275.5
====== ======
</TABLE>
- ---------------------
(a) Total revolving credit availability under our new revolving credit
facilities is $35.0 million, subject to borrowing base restrictions.
See "Description of Certain Indebtedness--New Credit Facilities."
(b) Pro forma data reflects the contribution to Panolam's capital pursuant to
the $5.0 million share purchase by Holdings' stockholders, offset by the
effect of the write off of existing debt issuance costs ($3.0 million)
relating to debt that was retired in connection with the Transactions. See
"Unaudited Pro Forma Combined Financial Data" and "Certain Transactions--
Share Purchase."
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<PAGE>
The Exchange Offer
Purpose and effect
We sold the old notes to Donaldson, Lufkin & Jenrette Securities Corporation
and Credit Suisse First Boston Corporation, the initial purchasers in the
offering of the old notes, on February 18, 1999 pursuant to a purchase
agreement. The initial purchasers subsequently resold the old notes in reliance
on Rule 144A and other exemptions under the Securities Act of 1933. We also
entered into a registration rights agreement with the initial purchasers,
pursuant to which we agreed with respect to the old notes (1) 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, (2) 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 (3) to 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 (1) the exchange notes have been registered under
the Securities Act of 1933 and, therefore, will not bear legends restricting
their transfer, (2) holders of exchange notes will not be entitled to
liquidated damages under the registration rights agreement subject to certain
limited exceptions, and (3) 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 (as defined in Rule 405 under the Securities Act of
1933) of Panolam. We shall be deemed to have accepted validly tendered old
notes when, as and if we have given oral or written notice thereof to the
exchange agent. The exchange agent will act as agent for the tendering holders
of old notes and for the purposes of receiving the exchange notes from us. If
any tendered old notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
certificates for any such unaccepted old notes will be returned without expense
to the tendering holder of those notes as promptly as practicable after the
expiration date.
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
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<PAGE>
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 (1) to delay accepting any old notes, (2) to extend the exchange
offer, (3) 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 (4) 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 (1) it is not an affiliate of
Panolam, (2) 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 (3) 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 (1) 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 (2) 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 (1) a "qualified institutional buyer" within the meaning of
Rule 144A under the Securities Act of 1933, (2) 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 (3) 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 (1) any registration statement required by the registration
rights agreement is not filed with the SEC on or prior to the applicable filing
deadline, (2) any registration statement has not been declared effective by the
SEC on or prior to the applicable effectiveness deadline, (3) the exchange
offer has not been
30
<PAGE>
consummated within 30 days after the exchange offer registration statement is
first declared effective by the SEC or (4) 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
(amounting to an aggregate of $964.29 per day for the $135.0 million principal
amount of notes outstanding) for the first 90-day period immediately following
the occurrence of such registration default. The amount of liquidated damages
shall increase by an additional $.05 per week per $1,000 in principal amount of
old notes with respect to each subsequent 90-day period until all registration
defaults have been cured, up to a maximum amount of liquidated damages of $.50
per week per $1,000 in principal amount of old notes. The exchange offer shall
be deemed consummated when we deliver to the registrar under the indenture the
exchange notes in the same aggregate principal amount as the aggregate
principal amount of old notes that are validly tendered by holders thereof
pursuant to the exchange offer. See "Description of Exchange Notes--
Registration Rights."
Accrued interest on the old notes
The exchange notes will bear interest at a rate equal to 11 1/2% per annum
from and including their date of issuance. Holders whose old notes are accepted
for exchange will have the right to receive interest accrued thereon from the
date of their original issuance or the last interest payment date, as
applicable, to, but not including, the date of issuance of the exchange notes,
such interest to be payable with the first interest payment on the exchange
notes. Interest on the old notes accepted for exchange, which interest accrued
at the rate of 11 1/2% per annum, will cease to accrue on the day prior to the
issuance of the exchange notes. See "Description of Exchange Notes--General."
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
31
<PAGE>
tendered for exchange in our sole discretion, which determination shall be
final and binding. We reserve the absolute right to reject any and all old
notes not properly tendered and to reject any old notes our acceptance of which
might, in our judgment or the judgment of our counsel, be unlawful. We also
reserve the absolute right to waive any defects or irregularities or conditions
of the exchange offer as to particular old notes either before or after the
expiration date (including the right to waive the ineligibility of any holder
who seeks to tender old notes in the exchange offer). Our interpretation of the
terms and conditions of the exchange offer (including the letter of transmittal
and its instructions) shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
old notes for exchange must be cured within such period of time as we shall
determine. We will use reasonable efforts to give notification of defects or
irregularities with respect to tenders of old notes for exchange notes but
shall not incur any liability for failure to give such notification. Tenders of
the old notes will not be deemed to have been made until such irregularities
have been cured or waived. If any letter of transmittal, endorsement, bond
power, power of attorney or any other document required by the letter of
transmittal is signed by a trustee, executor, corporation or other person
acting in a fiduciary or representative capacity, such person should so
indicate when signing, and, unless waived by us, proper evidence satisfactory
to us, in our sole discretion, of such person's authority to so act must be
submitted. Any beneficial owner of the old notes whose old notes are registered
in the name of a broker, dealer, commercial bank, trust company or other
nominee and who wishes to tender old notes in the exchange offer should contact
such registered holder promptly and instruct such registered holder to tender
on such beneficial owner's behalf. If such beneficial owner wishes to tender
directly, such beneficial owner must, prior to completing and executing the
letter of transmittal and tendering old notes, make appropriate arrangements to
register ownership of the old notes in such beneficial owner's name. Beneficial
owners should be aware that the transfer of registered ownership may take
considerable time.
By tendering, each registered holder will represent to us that, among other
things (1) 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, (2) 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, (3) 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," (4) 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, (5) 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 (6) 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
(1) tender must be made by or through an eligible institution and a notice of
guaranteed delivery (as defined in the letter of transmittal) must be signed by
such holder, (2) on or prior to the expiration date, the exchange agent must
have received from the holder and the eligible institution a properly completed
32
<PAGE>
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 (3)
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.
Acceptance of old notes for exchange; delivery of exchange notes
Upon satisfaction or waiver of all the conditions to the exchange offer, we
will accept any and all old notes that are properly tendered in the exchange
offer prior to 5:00 p.m., New York City time, on the expiration date. The
exchange notes issued pursuant to the exchange offer will be delivered as soon
as practicable after acceptance of the old notes. For purposes of the exchange
offer, we shall be deemed to have accepted validly tendered old notes, if we
have given oral or written notice thereof to the exchange agent. In all cases,
issuances of exchange notes for old notes that are accepted for exchange
pursuant to the exchange offer will be made only after timely receipt by the
exchange agent of such old notes, a properly completed and duly executed letter
of transmittal and all other required documents (or of confirmation of a book-
entry transfer of such old notes into the exchange agent's account at DTC);
provided, however, that we reserve the absolute right to waive any defects or
irregularities in the tender or conditions of the exchange offer. If any
tendered old notes are not accepted for any reason, such unaccepted old notes
will be returned without expense to the tendering holder as promptly as
practicable after the expiration or termination of the exchange offer.
Withdrawal rights
Tenders of the old notes may be withdrawn by delivery of a written notice to
the exchange agent, at its address set forth on the back cover page of this
prospectus, at any time prior to 5:00 p.m., New York City time, on the
expiration date. Any such notice of withdrawal must (1) specify the name of the
person having deposited
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<PAGE>
the old notes to be withdrawn, (2) identify the old notes to be withdrawn
(including the certificate number or numbers and principal amount of such old
notes, as applicable), (3) 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 (4) 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: By overnight courier:
State Street Bank and State Street Bank and State Street Bank and
Trust Company Trust Company Trust Company
61 Broadway, 15th Floor 61 Broadway, 15th Floor 61 Broadway, 15th Floor
New York, NY 10006 New York, NY 10006 New York, NY 10006
Attention: Corporate Trust Attention: Corporate Trust
Dept. Attention: Corporate Trust Dept. Dept.
</TABLE>
Solicitation of tenders; fees and expenses
No person has been authorized to give any information or to make any
representation in connection with the exchange offer other than those contained
in this prospectus. If given or made, such information or representations
should not be relied upon as having been authorized by us. Neither the delivery
of this prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in our
affairs since the respective dates as of which information is given herein. The
exchange offer is not being made to (nor will offers be accepted from or on
behalf of) holders of notes in any jurisdiction in which the making of the
exchange offer or the acceptance thereof would not be in compliance with the
laws of such jurisdiction. However, we may, at our discretion, take such action
as we may deem necessary to make the exchange offer legal in any such
jurisdiction and extend the exchange offer to holders of notes in such
jurisdiction. We will bear all expenses incident to our consummation of the
exchange offer and compliance with the registration rights agreement,
including, without limitation: (1) all registration and filing fees (including,
without limitation, fees and expenses of compliance with state securities
laws), (2) 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), (3) messenger, telephone and delivery
expenses, (4) fees and disbursements of our counsel, (5) fees and disbursements
of independent certified public accountants, (6) rating agency fees, (7) our
internal expenses (including, without limitation, all salaries and expenses of
our officers and employees performing legal or accounting duties)and (8) 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.
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<PAGE>
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 (other than
(1) 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 (2) a person that is an affiliate
of Panolam within the meaning of Rule 405 under the Securities Act of 1933)
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. We have not requested or obtained an interpretive letter
from the SEC staff with respect to this exchange offer, and we and the holders
are not entitled to rely on interpretive advice provided by the SEC staff to
other persons, which advice was based on the facts and conditions represented
in such letters. However, the exchange offer is being conducted in a manner
intended to be consistent with the facts and conditions represented in such
letters. If any holder acquires exchange notes in the exchange offer for the
purpose of distributing or participating in a distribution of the exchange
notes, such holder cannot rely on the position of the staff of the SEC
enunciated in Morgan Stanley & Co., Incorporated (available June 5, 1991) and
Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in
the SEC's letters to Shearman and Sterling (available July 2, 1993) and K-III
Communications Corporation (available May 14, 1993), or similar no-action or
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act of 1933 in connection with a
secondary resale transaction, unless an exemption from registration is
otherwise available. Each broker-dealer that receives exchange notes for its
own account in exchange for old 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--Consequences of failure to exchange."
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 "Certain
Federal Income Tax Consequences." 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
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<PAGE>
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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Unaudited Pro Forma Combined Financial Data
The following unaudited pro forma combined financial data present the
combined balance sheet of Panolam as of December 31, 1998 as if the
Transactions had occurred on December 31, 1998, and present the combined
statement of operations data of Panolam for the period presented as if the
Transactions had occurred on January 1, 1998. See "The Transactions." The
unaudited pro forma combined financial data are based on the historical
consolidated financial statements of Panolam and the financial statements of
Pioneer, and on the assumptions and adjustments described in the notes to such
unaudited pro forma combined financial data, including assumptions relating to
the allocation of the consideration paid for Pioneer to the assets and
liabilities of Pioneer based on preliminary estimates of their respective fair
value. The actual allocation of such consideration may differ from that
reflected in the unaudited pro forma combined financial data.
In connection with the Pioneer acquisition, we identified estimated annual
cost savings on a pro forma basis of approximately $4.3 million related to the
elimination of redundant and excess staffing at Pioneer and certain employee
benefit savings, which cost savings are reflected in the unaudited pro forma
financial data as adjustments to cost of sales and selling, general and
administrative expenses. Panolam has also obtained committed raw material
purchase price reductions 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, which cost savings are reflected in the unaudited pro forma
financial information as adjustments to cost of sales.
We also believe that Panolam will be able to realize additional distribution
synergies and cost savings as a result of the Pioneer acquisition which have
not been included in the unaudited pro forma combined financial data, including
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. This program is expected to be
completed by the second quarter of 1999. Pioneer completed a portion of this
automation program, which resulted in cost savings of $1.2 million in 1998
compared to 1997. Although we expect that Panolam will begin to realize a
portion of the benefit of the cost savings described above in the quarter after
the consummation of the Pioneer acquisition, a significant portion of the
benefit of such cost savings is not expected to be realized until the second
half of 1999. We cannot assure you that these additional distribution synergies
and cost savings will in fact be realized.
Our actual results may differ materially from the pro forma financial data
presented herein. See "Risk Factors--The estimates and assumptions underlying
our pro forma financial information are subject to significant uncertainties."
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."
In connection with the refinancing, we expect to record a pre-tax
extraordinary charge in the first quarter of 1999 of approximately $3.0 million
for the write off of unamortized financing expenses and to pay prepayment
penalties. We have also incurred costs of approximately $1.8 million in 1998
for severance payments for redundant individuals and for headquarters
consolidation into our main office in Shelton, Connecticut. In connection with
the elimination of excess staffing at Pioneer following the closing of the
Pioneer acquisition, we expect to accrue additional liabilities of
approximately $3.2 million, which have been accounted for as an adjustment to
goodwill in the unaudited pro forma consolidated balance sheet.
The unaudited pro forma combined financial data do not purport to represent
what our financial position and results of operations would have been if the
Transactions had actually been completed as of the dates indicated and are not
intended to project our financial position or results of operations for any
future period.
The unaudited pro forma combined financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the respective historical financial statements of Panolam
and Pioneer and the related notes included elsewhere in this prospectus.
37
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
As of December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
Historical Pro
---------------- Transaction forma
Panolam Pioneer adjustments combined
-------- ------- ----------- --------
<S> <C> <C> <C> <C>
Cash.................................. $ 5,456 $ -- $ 2,011 (1) $ 7,467
Accounts receivable, net.............. 7,956 15,892 -- 23,848
Inventories........................... 14,788 25,864 750 (2)
(713)(3) 40,689
Other current assets.................. 942 3,308 (2,717)(4) 1,533
-------- ------- -------- --------
Total current assets.................. 29,142 45,064 (669) 73,537
Property, plant and equipment--net.... 80,127 47,363 -- 127,490
Goodwill--net......................... -- 3,423 (3,423)(5)
75,557 (6) 75,557
Deferred taxes........................ 1,022 -- 1,022
Other intangible assets............... -- -- 10,000 (7) 10,000
Other non-current assets.............. 9,301 25 (2,983)(8)
11,075 (9)
2,025 (13) 19,443
-------- ------- -------- --------
Total non-current assets.............. 90,450 50,811 92,251 233,512
-------- ------- -------- --------
Total assets.......................... $119,592 $95,875 $ 91,582 $307,049
======== ======= ======== ========
Trade accounts payable................ $ 5,471 $ 6,589 $ 3,200 (10) 15,260
Accrued liabilities................... 5,689 6,440 -- 12,129
Accrued interest...................... 739 -- (739)(11) --
Term loan............................. 2,050 -- (2,050)(11)
800 (12) 800
Other debt and obligations under
capital lease........................ 75 -- 675 (13) 750
Payable to parent..................... 607 -- -- 607
-------- ------- -------- --------
Total current liabilities............. 14,631 13,029 1,886 29,546
Pension liabilities and accrued post-
retirement benefit costs............. 738 -- -- 738
Other debt and obligations under
capital lease........................ 192 -- 1,350 (13) 1,542
Deferred income taxes................. 2,868 2,911 (2,911)(4) 2,868
Payable to parent..................... -- 546 (546)(14) --
Term loan............................. 60,525 (60,525)(11)
27,631 (27,631)(14)
104,200 (15) 104,200
Subordinated debt..................... 9,500 -- (9,500)(11) --
Senior subordinated notes............. -- -- 135,000 (16) 135,000
-------- ------- -------- --------
Total liabilities..................... 88,454 44,117 141,323 273,894
Common stock.......................... -- 1 (1)(17) --
Additional paid in capital............ 27,073 20,999 (20,999)(17)
5,000 (18) 32,073
Retained earnings..................... 4,065 30,758 (30,758)(17)
(2,983)(8) 1,082
-------- ------- -------- --------
Total stockholders' equity............ 31,138 51,758 (49,741) 33,155
-------- ------- -------- --------
Total liabilities and stockholders'
equity............................... $119,592 $95,875 $ 91,582 $307,049
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
consolidated financial statements.
38
<PAGE>
Notes to Unaudited Pro Forma Consolidated Balance Sheet
The unaudited pro forma balance sheet at December 31, 1998 has been prepared
as if the Transactions had taken place as of December 31, 1998. The following
adjustments were recorded:
(1) The following table sets forth the sources and uses of funds in
connection with the Transactions:
<TABLE>
<CAPTION>
Sources of funds: (in thousands)
<S> <C>
Proceeds from the offering of the old notes............ $135,000
Initial borrowings under our new credit facilities..... 105,000
Contribution to capital from the share purchase by
Holdings' stockholders................................ 5,000
--------
Total sources......................................... $245,000
========
Uses of funds:
Pioneer acquisition (a)................................ $159,100
Repayment of our former General Electric credit
facilities (including accrued interest)............... 72,814
Estimated cash fees and expenses (b)................... 11,075
Cash................................................... 2,011
--------
Total uses............................................ $245,000
========
</TABLE>
- ---------------------
(a) The amount set forth in the above table includes $10.0 million
attributable to a noncompetition agreement between Panolam and
Rugby and excludes (i) certain post-closing adjustments based on
the actual net operating assets of Pioneer (determined in
accordance with the Stock Purchase Agreement) as of the closing
date of the acquisition and (ii) certain post-closing payments of
up to an aggregate maximum of $15.0 million that Panolam will be
required to pay to Rugby USA contingent upon Panolam having
achieved certain EBITDA (as defined in the stock purchase
agreement) targets in 1999, 2000, 2001, 2002 and 2003. See "The
Transactions--The Pioneer Acquisition."
(b) Excludes deferred fees associated with the Transactions under our
engagement agreement with Genstar (see note 13).
(2) Represents the step up of inventories to fair value.
(3) Represents the adjustment of inventories from a LIFO to FIFO basis.
(4) Represents the elimination of deferred taxes at Pioneer due to the
write up of assets to equal fair value for tax purposes.
(5) Represents the elimination of historical goodwill at Pioneer.
(6) Represents the estimated fair values of assets and liabilities
acquired in the Pioneer acquisition as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Accounts receivable........................................ $ 15,892
Inventories................................................ 25,901
Other current assets....................................... 591
Property, plant and equipment.............................. 47,363
Goodwill................................................... 75,557
Non-compete agreement...................................... 10,000
Other assets............................................... 25
Accounts payable and other current liabilities............. (16,229)
--------
$159,100
========
</TABLE>
(7) Represents the covenant not to compete entered into in connection with
the Pioneer acquisition.
(8) Represents the effect of the write-off of existing debt issuance costs
relating to debt that was retired in connection with the Transactions.
39
<PAGE>
(9) Represents $600 of transaction costs associated with the acquisition
of Pioneer to be amortized over 30 years and deferred debt issuance
costs of $12,500 associated with the refinancing to be amortized over
seven years to the extent such deferred costs and fees relate to our
new credit facilities and over ten years to the extent such deferred
costs and fees relate to the notes.
(10) Represents the accrual of additional costs associated with the Pioneer
acquisition, primarily for termination payments relating to headcount
reductions that will occur subsequent to the Pioneer acquisition.
(11) Represents the repayment of term loan indebtedness and a subordinated
note under the our former General Electric credit facilities ($70,025
long term, $2,050 current and $739 of accrued interest) with effective
interest rates ranging from 8.89% to 12.5%.
(12) Represents current portion of term loan indebtedness under our new
credit facilities.
(13) Represents deferred fees associated with the Transactions under our
engagement agreement with Genstar ($675 current liabilities and $1,350
long term liabilities). See "Certain Transactions--Genstar
Transactions."
(14) Represents elimination of debt recorded by Pioneer which was not
assumed as part of the Pioneer acquisition.
(15) Represents the long term portion of the term loan indebtedness under
our new credit facilities, $79,200 in borrowings under the New Term B
Facilities and $25,000 in borrowings under the New Term A Facilities.
(16) Represents the issuance of the old notes.
(17) Represents the elimination of the equity accounts of Pioneer as
required by purchase accounting.
(18) Represents the contribution to the Issuer's paid-in capital by
Holdings with the proceeds from the share purchase by Holdings'
stockholders.
40
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations
For the Year ended December 31, 1998
(in thousands, except ratios)
<TABLE>
<CAPTION>
Historical
-------------------- Transaction Pro forma
Panolam Pioneer adjustments combined
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales...................... $ 146,747 $ 185,018 $ -- $ 331,765
Cost of sales.................. (122,572) (130,375) 2,000 (1) (250,947)
--------- --------- -------- ---------
Gross profit................... 24,175 54,643 2,000 80,818
Operating expenses:
Selling, general and
administrative............... (7,231) (30,237) 4,045 (2) (33,423)
Depreciation and amortization. (1,085) (861) (2,519)(3)
295 (4)
(2,000)(5) (6,170)
Unusual charges............... (1,829) -- -- (1,829)
--------- --------- -------- ---------
Income from operations......... 14,030 23,545 1,821 39,396
Interest expense............... (7,557) (2,587) 10,144 (6)
(24,367)(7) (24,367)
Amortization of debt issuance
cost.......................... (732) -- 732 (8)
(1,577)(9) (1,577)
Other income (expense)......... -- (21) -- (21)
--------- --------- -------- ---------
Income from continuing
operations before income
taxes......................... 5,741 20,937 (13,247) 13,431
Provision for income taxes..... (2,343) (8,551) 5,640 (10) (5,254)
--------- --------- -------- ---------
Income from continuing
operations.................... $ 3,398 $ 12,386 $ (7,607) $ 8,177
========= ========= ======== =========
Other Data:
Depreciation and amortization. $ 6,240 $ 5,355 $ 4,224 $ 15,819
Capital expenditures.......... 4,232 11,594 -- 15,826
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
consolidated financial statements.
41
<PAGE>
Notes to Unaudited Pro Forma Consolidated Statement of Operations
The unaudited pro forma statement of operations have been prepared as if the
Transactions had occurred on January 1, 1998. The following adjustments were
recorded:
(1) Represents (i) reductions in costs resulting from raw material
purchase price reductions negotiated following the execution of the
stock purchase agreement ($2,500), (ii) reduction of medical insurance
premiums resulting from lower rates negotiated with various insurance
carriers ($250), and (iii) offset by recognition of $750 for increased
inventory costs related to acquisition accounting.
(2) Represents reductions in costs and expenses resulting from the
elimination of overstaffing and redundant staffing at Pioneer ($3,995)
and a reduction in medical insurance premiums resulting from lower
rates negotiated with various insurance carriers ($50). Liabilities
related to employee terminations in connection with the Pioneer
acquisition have been accrued pursuant to EITF 95-3 "Recognition of
Liabilities in Connection with a Business Combination."
(3) Represents the amortization of goodwill associated with the Pioneer
acquisition over 30 years ($2,519).
(4) Represents the elimination of amortization of historical goodwill at
Pioneer ($295).
(5) Represents amortization of the non-competition agreement with Rugby
over 5 years ($2,000).
(6) Represents the elimination of interest associated with debt that was
retired in connection with the refinancing as follows:
<TABLE>
<CAPTION>
For the year
ended
December 31,
1998
------------
<S> <C>
Panolam--term loan indebtedness under our former General
Electric credit facilities................................ $ 7,557
Pioneer--debt owed to parent............................... 2,587
-------
$10,144
=======
</TABLE>
(7) Represents interest expense based on pro forma debt as follows:
<TABLE>
<CAPTION>
For the year
ended
December 31,
1998
------------
<S> <C>
New Term A Facility (interest 7.85%)......................... $ 1,962
New Term B Facility (interest 8.60%)......................... 6,880
Notes (interest 11.50%)...................................... 15,525
-------
$24,367
=======
</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.
(8) Represents the elimination of historical debt issuance costs
associated with our former General Electric credit facilities.
(9) Represents the amortization of acquisition costs ($20) over a period
of thirty years and debt issuance costs associated with the
refinancing ($1,557) over a period of seven years to the extent such
deferred costs and fees relate to our new credit facilities and over
ten years to the extent such deferred costs and fees relate to the
notes.
(10) Represents the tax effect of the adjustments at an effective tax rate
of approximately 43%.
42
<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 (date of
incorporation) 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. 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 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
December 31, January 1 May 16 to December 31,
-------------------- to June 11, December 31, --------------------
1994 1995 1996 1996(1) 1997 1998
--------- --------- ----------- ------------ --------- ---------
(in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales.............. $ 102,460 $ 108,483 $ 59,508 $ 74,453 $ 142,209 $ 146,747
Cost of sales.......... (86,010) (91,610) (51,970) (61,057) (121,699) (122,572)
--------- --------- -------- -------- --------- ---------
Gross profit........... 16,450 16,873 7,538 13,396 20,510 24,175
Operating expenses..... (7,067) (6,198) (3,498) (5,766) (9,723) (8,316)
Unusual charges........ -- -- -- -- -- (1,829)
--------- --------- -------- -------- --------- ---------
Operating income....... 9,383 10,675 4,040 7,630 10,787 14,030
--------- --------- -------- -------- --------- ---------
Net income (loss)...... $ 9,383 $ 10,545 $ 3,951 $ 2,060 $ (1,393) $ 3,398
========= ========= ======== ======== ========= =========
Other Data:
Net cash provided by $ 10,779 $ 12,304 $ 6,600 $ 3,974 $ 10,320 $ 16,469
operating activities..
Net cash used in
investing activities.. (2,173) (10,975) (941) (99,589) (9,997) (4,821)
Net cash provided by
(used in) financing
activities............ (8,606) (1,329) (5,177) 95,617 662 (7,179)
EBITDA (2)............. 13,483 15,192 6,446 10,042 15,373 22,099
Depreciation and
amortization.......... 4,100 4,517 2,406 2,412 4,586 6,240
Capital expenditures... 2,243 6,542 944 4,075 9,997 4,232
Ratio of earnings to
fixed charges (3)..... 90.4x 49.5x 54.2x 1.7x 1.3x 1.7x
Balance Sheet Data (at
end of period):
Cash................... $ 427 $ -- $ 2 $ 987 $ 5,456
Working capital........ 12,646 16,987 19,244 11,162 14,511
Total assets........... 79,845 99,769 117,653 123,284 119,592
Long term debt
(including current
portion).............. -- -- 69,248 73,157 70,217
Stockholders' equity... 72,706 91,027 28,133 26,740 31,138
</TABLE>
- ---------------------
(1) 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.
(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,
. amortization expense, and
. unusual one-time charges incurred in connection with the reorganization of
Panolam related to headcount reductions and the relocation of Panolam's
corporate headquarters to Shelton, Connecticut, in each case for the
applicable period.
43
<PAGE>
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for a discussion of such unusual one-time charges. We
consider EBITDA to be a widely accepted financial indicator of a company's
ability to service debt, fund capital expenditures and expand its business;
however, EBITDA is not calculated in the same way by all companies and is
neither a measurement required by, nor represents cash flow from operations
as defined by, generally accepted accounting principles. EBITDA should not
be considered by an investor as an alternative to net income, as an
indicator of operating performance or as an alternative to cash flow as a
measure of liquidity. The calculation of EBITDA for purposes of the
financial information presented herein is calculated differently than for
purposes of the covenants under our indenture and our new credit facilities
and for any post-closing contingent payments to Rugby under the stock
purchase agreement. See "The Transactions--The Pioneer Acquisition,"
"Description of Exchange Notes" and "Description of 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.
44
<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.
45
<PAGE>
We consider EBITDA to be a widely accepted financial indicator of a
company's ability to service debt, fund capital expenditures and expand its
business; however, EBITDA is not calculated in the same way by all companies
and is neither a measurement required by, nor represents cash flow from
operations as defined by, generally accepted accounting principles. EBITDA
should not be considered by an investor as an alternative to net income, as
an indicator of operating performance or as an alternative to cash flow as a
measure of liquidity. The calculation of EBITDA for purposes of the
financial information presented herein is calculated differently than for
purposes of the covenants under our indenture and our new credit facilities
and for any post-closing contingent payments to Rugby under the stock
purchase agreement. See "The Transactions--The 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.
46
<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 and the Unaudited Pro
Forma Financial Information, including the footnotes.
Overview
We are the market leader in the design, manufacture and distribution of
decorative TFM 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 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 the corresponding period of 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, the Issuer acquired Pioneer from Rugby USA. See "The
Transactions--The Pioneer Acquisition." Pioneer primarily designs, manufactures
and distributes HPLs which are used in residential and commercial indoor
surfacing applications, including countertops and cabinetry, furniture,
fixtures and flooring, which require greater surface wear and impact resistance
than TFMs. Pioneer's line--now our 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 the refinancing, we will record a pre-tax extraordinary
charge of approximately $3.0 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
the twelve months of 1998, for severance payments for redundant individuals and
for headquarters consolidation into our main office in Shelton, Connecticut.
In connection with the Pioneer acquisition, we identified estimated annual
cost savings on a pro forma basis of approximately $6.8 million. Of this
amount, approximately $4.3 million is related to the elimination of redundant
staffing at Pioneer and certain company-wide employee benefit savings. The
balance from committed
47
<PAGE>
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. We also believe that Panolam will be able
to realize additional distribution synergies and cost savings as a result of
the Pioneer acquisition, including an additional $4.0 million in estimated
saving would be realized upon the completion of a program to automate certain
production processes at Pioneer's manufacturing facilities, which is expected
to be completed by the second quarter of 1999. Pioneer completed a portion of
this automation program, 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. However, we expect that a significant portion of the benefit of these
cost savings will not be realized until the second half of 1999. See "Risk
Factors--We may have difficulty integrating Pioneer," "--The assumptions and
estimates underlying our pro forma financial information are subject to
significant uncertainties" and "Unaudited Combined Pro Forma Financial Data."
In late 1995 Domtar Industries acquired The Melamine Group ("MDL"), 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 (the "Facility
Consolidations"). 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."
48
<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. The table does not include a discussion of Pioneer and does not give pro
forma effect to the Pioneer acquisition. The table sets forth information for
Domtar Decorative Panels for the period from January 1 to June 11, 1996, and
for Panolam for the period from May 16 to December 31, 1996, to arrive at a
total for the 12 months ended December 31, 1996. We have arrived at the total
for the 12 months ended December 31, 1996 by combining the two periods, without
adjustments, the two periods. We have provided this information for the purpose
of constructing a period for comparison with Panolam's year ended December 31,
1997 . We make no representations as to the usefulness of the information for
this purpose. The following should be read in conjunction with the financial
statements of Panolam and Domtar Decorative Panels and the related notes
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Predecessor Panolam Combined Panolam
----------- ----------- ------------ --------------------------
Period from Period from For the year ended
Jan. 1 to May 16 to Year ended Dec. 31,
June 11, Dec. 31, Dec. 31, --------------------------
1996 1996 (a) 1996 1997 1998
----------- ----------- ------------ ------------ ------------
$ % $ % $ % $ % $ %
----- ----- ----- ----- ------ ----- ------ ----- ------ -----
(unaudited)
<S> <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%
Gross profit............ 7.5 12.7 13.4 18.0 20.9 15.6 20.5 14.4 24.2 16.5
Operating expenses...... 3.5 5.9 5.8 7.8 9.2 6.9 9.7 6.8 10.2 6.9
Operating income........ 4.0 6.8 7.6 10.2 11.7 8.7 10.8 7.6 14.0 9.6
Net interest expense.... -- 0.0 4.5 6.0 4.5 3.3 8.1 5.7 8.3 5.6
Income taxes............ 0.1 0.2 1.1 1.5 1.2 0.9 0.8 0.5 2.3 1.6
</TABLE>
- ---------------------
(a) 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.
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.
49
<PAGE>
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.
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's acquisition of Domtar Decorative Panels in June 1996.
50
<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 RBP's
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.
51
<PAGE>
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 (which product was introduced 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.
52
<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 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 (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 $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. See "We face risks
related to the year 2000." 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--We face risks related to the year
2000" 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 $9.6 million in 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--We may face
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 expect to accrue additional
liabilities of approximately $3.2 million. See "Unaudited Pro Forma Combined
Financial Data."
In connection with the Pioneer acquisition, we will be required to make
certain post-closing payments to Rugby USA of up to a maximum of $15.0 million
contingent upon our having achieved EBITDA (as defined in
53
<PAGE>
the stock purchase agreement) targets in 1999, 2000, 2001, 2002 and 2003. Any
such post-closing contingent payments are not expected to affect our liquidity
or capital resources because such payments are expected to be paid from the
additional earnings.
Our short-term liquidity needs, including a portion of the one-time costs
associated with the Pioneer acquisition, are expected to be provided by: (i)
our existing cash balances; (ii) our operating cash flows; and (iii) borrowings
under our new credit facilities, all of which we expect will be adequate to
meet our anticipated short-term requirements for working capital, interest
payments, planned capital expenditures and principal payments on our
indebtedness. We expect to fund our long-term liquidity needs from our
operating cash flows, the issuance of debt and/or equity securities and bank
borrowings. Concurrently with the offering of the old notes, we entered into
our new credit facilities, providing for up to $20.0 million of revolving
credit to the Issuer and up to $15.0 million of revolving credit to Panolam
Canada, subject to the terms and conditions contained therein. See "Description
of Certain Indebtedness--New Credit Facilities." The Issuer's and Panolam
Canada's ability to borrow under the new revolving credit facilities will be
restricted by a borrowing base consisting of a percentage of eligible inventory
and accounts receivable. As of December 31, 1998, on a pro forma basis, the
Issuer would have been able to borrow the full amount of $20.0 million under
its new U.S. revolving credit facility and that Panolam Canada would have been
able to borrow a portion of the $15.0 million under its new Canadian revolving
credit facility, both subject to the terms and conditions of the new revolving
credit facilities. See "Description of 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
Based on our analysis completed to date, we believe our current staff will be
sufficient to address the year 2000 issue and that the staff time required to
address such issues should not have an adverse effect on our other projects. We
currently estimate that our total costs related to year 2000 issues will be
approximately $8.5 million. See "Risk Factors--We face risks related to the
year 2000." As of December 31, 1998, we have incurred costs year 2000 issue of
approximately $6.0 million. We believe such costs have not, and will not have,
a material adverse effect on our business, financial condition and results of
operations.
54
<PAGE>
Business
General
We are the market leader in designing, manufacturing and distributing
decorative TFMs in the U.S. and Canada. TFMs are used as durable and economical
substitutes for natural surfacing materials such as wood, stone and ceramic.
Our products are used in a wide variety of residential and commercial indoor
surfacing applications, including kitchen and bath cabinets, furniture,
fixtures, displays and other specialty applications. We believe we are the
leading producer of TFMs in the U.S. and Canada, with sales of approximately
300 million square feet of double sided TFM panels in 1997. We estimate we have
approximately a 20% 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 flooring. 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. Pioneer also selectively
produces and markets a variety of specialty resins for industrial uses, such as
(1) powder paint, (2) adhesives and melamine resins for TFM and HPL production,
(3) custom treated and chemically prepared decorative overlay papers for the
TFM industry and (4) 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 distribution network,
.vertically integrate our production processes and
.realize certain anticipated operational efficiencies.
See "--What makes us competitive," "--What are the key elements of our business
strategy" and "The Transactions--The Pioneer Acquisition." On a combined basis,
after giving effect to the acquisition of Pioneer, our pro forma net sales for
the year ended December 31, 1998 would have been approximately $331.8 million.
As a result of our acquisition of Pioneer, we are now one of two vertically
integrated manufacturers of TFMs and HPLs in the U.S. and Canada and 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
55
<PAGE>
to increase sales by offering "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 in 1997
of approximately 500 million square feet of double sided TFMs and single sided
HPLs.
In connection with the Pioneer acquisition, we identified estimated annual
cost savings on a pro forma basis of approximately $6.8 million. Of this
amount, approximately $4.3 million is related to the elimination of excess
staffing at Pioneer and certain employee benefit savings. The balance results
from 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. However, we expect that
a significant portion of the benefit of these costs savings will not be
realized until the second half of 1999. We also believe that Panolam will be
able to realize additional distribution synergies and cost savings as a result
of the Pioneer acquisition, including an additional $4.0 million in estimated
cost savings that we believe would be realized upon the completion of a program
to automate certain processes at Pioneer's manufacturing facilities, which is
expected to be completed by the second quarter of 1999. See "Risk Factors--We
may have difficulty integrating Pioneer," "--Risks Related to Pro Forma
Financial Information," "Unaudited Combined Pro Forma Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
What makes us competitive?
We believe that our leading market position can be attributed to the
following factors:
We offer a broad range of products. We believe we have the broadest product
line in the U.S. and Canadian decorative overlay industry. We carry TFMs, HPLs
and solid surface products in a broad range of colors, patterns and wood grains
in varying panel thicknesses and texture finishes. Our customers can purchase a
wide variety of matching and complementary decorative overlay and solid surface
products with the price/performance characteristics that meet their specific
needs. We also sell an extensive range of other products, including industrial
laminates such as aircraft cargo liners and bowling lane flooring, specialty
resins and decorative overlay papers for use in TFM and HPL production. Our
products are sold for residential and commercial end uses, including new
construction, remodeling and renovation, and furniture manufacturing. We
believe that the diversified residential and commercial applications for our
products will help stabilize our revenues and reduce our exposure to an
economic downturn in any one end-user application.
We have a strong distribution and sales network. Our network of over 310
mostly exclusive distributors constitutes what we believe to be the largest TFM
distribution channel in the U.S. and Canada. We cover most major market
segments and geographic regions. We also sell our products directly to regional
OEMs. We believe that our distribution network is one of the largest decorative
overlay distribution networks in the U.S. and Canada. We expect our expanded
range of product lines to allow us to further strengthen our distribution
network in the TFM and HPL markets. We have a large direct sales force
consisting of sales representatives 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
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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 45%
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 intend to create 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 intend to produce 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.
We intend to increase our sales to OEM customers. We estimate that in 1997
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 1997 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
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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 intend to dedicate 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
10.7% from 1992 to 1997 (based on square feet of decorative overlay paper used
in the production of TFMs.) We were the leading producer of TFM panels in 1997,
with an estimated share of the combined U.S. and Canadian TFM market of
approximately 20% (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 1997, sales of other adhesive based overlays
in the U.S. and Canada increased by an estimated compound annual growth rate of
approximately 6.2% 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 3.0% from 1992 to 1997 on a square footage basis.
Pioneer's estimated market share in HPLs has steadily increased over the past
five years from approximately 7.5% in 1992 to approximately 10.1% in 1998. We
believe that we have an opportunity to continue to increase our share of the
U.S. HPL market through implementation of our business strategy. See "Risk
Factors--Our estimates of market share and industry size are limited by a lack
of reliable statistical information."
We intend to maximize our operating efficiencies. We have recently upgraded
and expanded existing production capabilities. In 1998 we implemented a series
of process improvement programs at our existing manufacturing facilities. These
improvements increased particleboard production at our Huntsville, Ontario
facility and increased TFM production yields at all of our manufacturing
facilities, which resulted in an increase in gross profit of approximately $1.8
million in 1998 as compared with 1997. We believe that we are currently one of
the lowest cost TFM producers in the U.S. and Canada. We are also implementing
a capital improvement program to automate certain production processes at
Pioneer's manufacturing facilities. We believe that this program would have
resulted in an estimated $4.0 million of cost savings in 1998. Pioneer
completed a portion of this information program, which resulted in cost savings
of $1.2 million in 1998 compared to 1997. 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. See "Risk Factors--We may
have difficulty integrating Pioneer," "--Risks Relating to Pro Forma Financial
Information," "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.
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We intend to acquire complimentary businesses. We intend to continue to
selectively search for and make strategic acquisitions of North American
businesses. Our goal is to acquire companies that make products complementing
our existing product portfolio or that enable us to vertically integrate our
manufacturing operations. We also intend to enter into strategic
collaborations, including joint ventures, with similarly complementary
businesses. Our broad product line, extensive distribution network and strong
brand name recognition should enable us to capitalize on other consolidation
opportunities in the decorative overlay industry.
Industry overview
We estimate that sales of decorative overlay products in the U.S. and Canada
were approximately $2.7 billion in 1997. 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 1997, approximately 10.4 billion square
feet of decorative overlays were produced in the U.S. and Canada, consisting of
approximately 2.8 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
6.2 billion square feet of other adhesive based overlays (based on square feet
of decorative overlay paper used in the production of such other adhesive based
laminates). See "Risk Factors--Our estimates of market share and industry size
are limited by a lack of reliable statistical information."
TFMs consist of a decorative paper overlay that is impregnated with melamine
resin and thermally fused to an engineered wood substrate such as particleboard
or medium density fiberboard under pressure and heat. TFMs are also known as
low pressure laminated panels or LPLs. These have significantly better
price/performance characteristics than adhesive based overlays which, although
marginally cheaper, are significantly poorer in terms of quality, finish, wear
and durability. TFMs are significantly less expensive than HPLs while offering
comparable appearance characteristics. HPLs consist of several layers of
melamine and phenolic impregnated decorative paper that are cured under
pressure and heat and fused together to form a laminate that is then bonded by
the user to a substrate. HPLs provide significantly greater surface wear and
impact resistance than TFMs, but cost approximately twice as much to produce
and install. However, because HPL overlays are bonded rather than fused to the
substrate, HPLs are more likely to chip or delaminate than TFMs. Other adhesive
based overlays consist of a single layer of vinyl, foil or low basis weight
paper that is bonded to a substrate. Although adhesive based overlays are
cheaper than TFMs and HPLs, they offer significantly lower performance.
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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 6.7% from 1992 to 1997
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
10.7% from 1992 to 1997, 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 1997, the U.S. HPL market grew by an estimated compound annual
growth rate of approximately 3.0% on a square footage basis. Sales of other
adhesive based overlays increased by an estimated compound annual growth rate
of approximately 6.2% on a square footage basis in the same five years. See
"Risk Factors--Our estimates of market share and industry size are limited by a
lack of reliable statistical information."
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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: (1) 35% for standard grade; (2) 17% for post-forming
grade; (3) 33% for vertical grade; (4) 9% for specialty HRLs; and (5) 6%
consisting of unfinished backing sheets. Pionite HPLs accounted for
approximately 60% of our sales for 1998.
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
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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 % 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.
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
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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 1997, we also sold Panolam
products to over 50 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 RBP's $12 million in
TFM sales in 1998--through this distribution network. See "The Transactions--
The Pioneer Acquisition." In 1998, Pioneer also sold Pionite products to 67 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.
The U.S. and Canadian HPL market has also consolidated over the past two
decades to four manufacturers in 1998: Wilsonart International, Inc. (a
subsidiary of Premark International, Inc.), Formica Corporation, International
Paper Company (marketed under the brand name Nevamar) and Pioneer. We believe
that Wilsonart International, Inc. is the largest supplier of HPLs in the U.S.
market followed by Formica Corporation. Higher capital costs restrict the
ability of smaller regional manufacturers to effectively compete in
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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 45% 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. 1999)
Albany, OR.............. TFM manufacturing 170,000 Owned
Lewiston, ME (Pioneer).. Warehousing 10,000 Leased (month-to-month)
South Paris, ME
(Pioneer).............. Warehousing 10,000 Leased (month-to-month)
Auburn, ME (Pioneer).... HPL, specialty resin and 570,000 Owned
decorative overlay
paper manufacturing
Morristown, TN
(Pioneer).............. TFM and industrial 185,000 Owned
laminate manufacturing
Elkhart, IN (Pioneer)... Distribution 50,000 Leased (through Jan. 2004)
Pomona, CA (Pioneer).... Distribution 25,000 Leased (month-to-month)
Covington, GA (Pioneer). Distribution 61,500 Leased (through March 2008)
</TABLE>
We produce TFMs at three of our manufacturing facilities, one of which is
integrated and produces particleboard. Our aggregate annual production capacity
is approximately 160 million square feet of particleboard and 360 million
square feet of double sided TFM panels. We currently operate one HPL, specialty
resin and decorative overlay paper manufacturing facility and one nonintegrated
TFM and industrial laminate manufacturing facility. Total aggregate production
capacity breaks down to approximately 220 million square feet of TFMs, 348
million square feet of decorative overlay papers, 25 million square feet of
HPLs, and 20 million pounds of specialty resins.
We believe that the Huntsville, Ontario facility (which is ISO 9000
certified) is one of the largest integrated TFM and particleboard manufacturing
facilities in the U.S. and Canada and has sufficient capacity to meet
anticipated near term customer demand without requiring significant additional
capital expenditures. Each of our TFM manufacturing facilities is located near
raw material supply sources and is well positioned to service its respective
geographic market: southeastern and south central Canada and northeastern and
north central U.S. (Huntsville, Ontario), southeastern U.S. (Norcross, Georgia)
and western U.S. and Canada (Albany, Oregon). Our geographic diversity gives us
an advantageous position in terms of shipping TFM products cost effectively to
most of the principal markets in the U.S. and Canada (other than the central
U.S.). Geographic diversity also allows us to meet customers' delivery
requirements. The acquisition of Pioneer added an additional TFM production
facility in Morristown, Tennessee, increasing the geographic diversity of our
TFM manufacturing facilities, which is expected to provide an additional cost
advantage. Pioneer spent additional amounts on capital improvements at its
facilities prior to the closing of the acquisition, including amounts spent in
connection with a program to automate certain labor-intensive production
processes. We believe that, through a combined series of cost savings measures
and process improvements, Pioneer should become more competitive and capable of
producing sufficient volumes at lower cost without any significant additional
investment of capital. See "--What are the key elements of our business
strategy?--We intend to maximize our operating efficiencies," "Risk Factors--We
may have difficulty integrating Pioneer," "--Risks Related to Pro Forma
Financial Information," "Unaudited Combined Pro Forma Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
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
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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 DEP. Under the terms
of a settlement agreement, the prior owner of the facility is primarily
responsible for fulfilling the requirements of the Maine DEP 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 UHSS Law 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 UHSS Law 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 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
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<PAGE>
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--We may face environmental liabilities."
Employees
As of April 15, 1999, we employed 1,391 (1,020 hourly and 371 salaried)
persons. None of our employees is party to collective bargaining agreements,
and we have good employee relations. We believe the high level of expertise of
our manufacturing and sales force maintains our competitive advantage. We have
incentive compensation programs for vital employees based on sales growth and
profitability.
Legal Proceedings
Various litigation matters involving us may arise in the ordinary course of
our business. We cannot estimate our legal and financial liability at the
present time. However, we believe that we are not involved in matters that are
material to our business.
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Management
Executive Officers and Directors
The following table sets forth relevant information as of April 15, 1999,
with respect to our directors and executive officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Robert J. Muller, Jr........ 52 President, Chief Executive Officer and
Director
Sara M. Foster.............. 41 Director of Finance and Secretary
Stephen Feuring............. 47 Director of Marketing and Customer
Service
Richard Ricci............... 56 Director of Sales
Martin Skojec............... 52 Director of Manufacturing
Bernard Lishinsky........... 56 Director of Human Resources
Jean-Pierre L. Conte........ 35 Chairman of the Board of Directors (a)
Richard D. Paterson......... 56 Director (a)
Richard F. Hoskins.......... 35 Director (a)
</TABLE>
- ---------------------
(a) Member of Audit Committee and Compensation Committee
Robert J. Muller has been our President, Chief Executive Officer and a member
of our board of directors since January 1998. Prior to joining us, Mr. Muller
was Executive Vice President of Crane Co., a Delaware corporation, for 13
years, with responsibility for various of Crane Co.'s industrial and supply
businesses. Mr. Muller received a B.Ch.E. from Manhattan College, a M.S. from
the University of Massachusetts and a M.B.A. from the University of Delaware.
Sara M. Foster has been our Director of Finance and Secretary since December
1998. From August 1988 until joining us, Ms. Foster served in various
accounting positions, most recently as Senior Director of Corporate Accounting
International, with United States Surgical Corporation, a Delaware corporation.
Prior to joining United States Surgical Corporation, Ms. Foster was an auditor
with Coopers & Lybrand for approximately four years. Ms. Foster received a B.S.
from Indiana University and a B.S. from Sacred Heart University, and is a
certified public accountant.
Stephen Feuring has been our Director of Marketing and Customer Service since
May 1998. Prior to joining us, Mr. Feuring served as Director of Marketing and
Customer Service for Crane National Vendors, a Delaware corporation, from
February 1995 to May 1998 and in various marketing positions with Cadbury
Beverages, a U.K. corporation, from 1987 to January 1994. Mr. Feuring received
a B.S. from the University of Tennessee.
Richard Ricci has been our Director of Sales since May 1998. For 25 years
prior to joining us, Mr. Ricci held various sales positions with Crane Co., a
Delaware corporation, most recently serving as Vice President of Sales.
Martin Skojec has been our Director of Manufacturing since December 1, 1998.
From May 1994 until joining us, Mr. Skojec served as Technical Customer Service
Manager for CDM Laminates, Inc., a Quebec corporation. Mr. Skojec received a
B.S. in Business Administration from Rochester Institute of Technology.
Bernard Lishinsky has been our director of Human Resources since March 1999.
From March 1985 until joining us, Mr. Lishinsky served as Corporate Director of
Human Resources for Handy & Harman, a Delaware corporation. Mr. Lishinsky
received a B.A. in Political Science from Brooklyn College.
Jean-Pierre L. Conte has been a member of our board of directors since 1996
and Chairman of our board of directors since 1998. Mr. Conte joined Genstar in
1995 and has been a managing director of Genstar since 1997. Prior to joining
Genstar, from 1989 to 1995 Mr. Conte was a principal at The NTC Group, Inc., a
private equity investment firm. In addition, he is currently a director of TB
Woods Corporation (NYSE:TBW) and a
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<PAGE>
number of privately held corporations, including NEN Life Science Products
Inc., Skyway Freight Systems, Inc., and Andros Incorporated.
Richard D. Paterson has been a member of our board of directors since 1996.
Mr. Paterson has been a managing director of Genstar since its formation and
Executive Vice President and a director of GIC, an affiliate of Genstar, since
1987, and was a director of Genstar Fund I from 1988 through August 1995. In
addition, he is currently Chairman of the board of directors of Prestolite
Electric Holding, Inc., a reporting company under the Securities Exchange Act
of 1934, and a director of a number of privately held corporations, including
NEN Life Science Products, Inc., Skyway Freight Systems, Inc., Andros
Incorporated, and Gentek Building Products, Inc.
Richard F. Hoskins has been a member of our board of directors and a managing
director of Genstar since April 1998. Prior to joining Genstar from January
1993 to April 1996, Mr. Hoskins was a partner with Schroeder Ventures in
Germany, where he was responsible for a number of investments in industrial and
technology companies, and an independent consultant from April 1996 to April
1998. In addition, he is currently Chairman of the Board of Directors of Skyway
Freight Systems, Inc., and a director of a number of privately held
corporations, including NEN Life Science Products, Inc. and Andros
Incorporated.
Our directors are elected annually to serve until our next annual
stockholders meeting or until their successors have been elected and qualified.
Our executive officers are appointed by, and serve at the discretion of, our
board of directors. None of our directors or executive officers is related by
blood, marriage or adoption to any other director or executive officer.
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
(collectively, the "Named Executive Officers") who served as:
. our chief executive officer at December 31, 1998, and
. our former chief executive officer.
None of our executive officers, other than our chief executive officer, who was
serving as such as of December 31, 1998, had total annual salary and bonus in
excess of $100,000 in 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Compensation
Annual Compensation Awards
------------------------ ------------
Other
Annual Securities All Other
Compen- Underlying Compen-
Name and Principal Position Salary Bonus sation(1) Options(#) sation(2)
--------------------------- -------- ----- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Current Executive Officers
Robert J. Muller............... $265,360 $-- $ -- 5,556 $ --
President and Chief Executive
Officer
Former Executive Officers
Claude Arcand(3)............... 6,784 -- 13,446 -- 537,553
Former President and Chief
Executive Officer
</TABLE>
- ---------------------
(1) Includes excludable moving expenses, vacation, car allowance and relocation
costs.
(2) Includes severance paid in connection with termination.
(3) Mr. Arcand was terminated on January 12, 1998.
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<PAGE>
Option/SAR Grants in Last Fiscal Year
Option Grants and Exercises
The following table provides information concerning grants of options to
purchase Holdings' common stock made during 1998 to the Named Executive
Officers. The only Named 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>
Potential
Realizable Value
Individual Grants at Assumed Annual
-------------------------- Rates of Stock
Number of Percent of Price
Securities Total Options Appreciation for
Underlying Granted to Exercise of Option Terms
Options Employees Base Price -----------------
Name Granted (#) in Fiscal Year ($/sh) Expiration Date 5% 10%
---- ----------- -------------- ----------- ---------------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert J. Muller, Jr. .. 5,556 100% 203.06 January 12, 2008 710,767 1,793,841
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values
The following table summarizes the number and value of all unexercised
options held by Mr. Muller as of December 31, 1998. No options were exercised
by Mr. Muller during 1998. No other Named Executive Officer held any options as
of December 31, 1998.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options at
Options at FY-End (#) FY-End ($) (a)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert J. Muller, Jr........ -- 5,556 -- $526,319.80
</TABLE>
- ---------------------
(a) Value is based upon the fair market value of the 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.
Compensation Committee Interlocks and Insider Participation
The current members of our compensation committee are Messrs. Conte, Paterson
and Hoskins. No member of our board of directors or of its compensation
committee serves as an executive officer of any entity that has one or more of
our executive officers serving as members of its board of directors or
compensation committee. No such interlocking relationship has existed in the
past. See "Certain Transactions" for a description of transactions between us
and entities affiliated with members of our compensation committee.
1996 Option Plan
In 1996, Holdings adopted the Panolam Industries Holdings, Inc. 1996 Equity
Incentive Plan (the "1996 Option Plan"), intended to enhance the ability of
Holdings to attract, retain and motivate officers and key employees of Holdings
and its subsidiaries by providing such persons with an opportunity to obtain an
ownership interest in Holdings and by rewarding them for their contributions.
The 1996 Option Plan is administered by the Compensation Committee of the Board
of Directors of Holdings (the "Committee"). As of April 15, 1998, an aggregate
of 11,111 shares have been reserved for issuance under the 1996 Option Plan, of
which options to purchase 6,061 shares of Common Stock were outstanding, none
of which were vested.
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<PAGE>
The Committee has authority to, from time to time, make grants of stock
options to any employee of Holdings or one of its subsidiaries to purchase
shares of Common Stock. The Committee is required to grant an aggregate of not
fewer than 11,111 options to purchase shares of Common Stock under the 1996
Option Plan prior to June 6, 1999. At its discretion the Committee may grant
options that are intended to qualify as an incentive stock option (an
"Incentive Stock Option") under Section 422 of the Internal Revenue Code of
1986, as amended, and the rules and regulations promulgated thereunder, or that
are not intended to be so qualified (a "Non-qualified Stock Option"). The
purchase price of each share of Common Stock subject to the options is
determined by the Committee at the time of the grant, provided that the option
price for an Incentive Stock Option shall be no less than 100%, and for a Non-
qualified Stock Option no less than 85%, of the fair market price of a share of
Common Stock on the date of the grant. All options granted are subject to the
terms of the option agreement entered into by the recipient of the options.
Options vest and become exercisable as determined by the Committee and as set
forth in the applicable option agreement, but not over a period greater than
five years and not less than 20% per year. Options are not exercisable unless
either the Common Stock subject to the options has been registered under the
Securities Act of 1933 and qualified under applicable state "blue sky" laws or
the exercising recipient has furnished an investment representation
satisfactory to Holdings that such registration and qualification is not
required. Options are effective for such term as determined by the Committee
and set forth in the applicable option agreement, but not for fewer than ten
years from the grant date. Shares of Common Stock issued upon exercise of an
option to purchase Common Stock granted under the 1996 Option Plan are subject
to the restrictions and entitled to the benefits of the Stockholders' Agreement
(as defined). See "Certain Transactions--Stockholders' Agreement."
If the recipient's full time employment with us terminates by reason of
retirement, death or disability, then all vested options are exercisable for
one year following the date of such termination. Upon termination of a
recipient for cause or through voluntary resignation for any reason other than
disability or retirement, all options immediately terminate and cease to be
exercisable as of such date. Upon termination for any other reason, vested
options are exercisable by such recipient for 90 days following the date of
such termination.
In the event of a change of control of Holdings or the sale, merger,
consolidation, reorganization or liquidation of the division or subsidiary for
which the recipient performs services, then the Committee may, but is not
required to, make adjustments and take such actions as the Committee determines
to be necessary or advisable to provide such recipient with a benefit
equivalent to what such recipient would have been entitled to had such event
not occurred. The options are subject to anti-dilution provisions in the event
of a change in the capital structure of Holdings. Options are not transferable
by the recipient other than by will or the laws of descent and distribution,
and are exercisable during the recipient's lifetime only by the recipient.
Compensation of Directors
The directors of Holdings do not receive any compensation for their services
as directors.
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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 Holdings as of April 15, 1999, by:
.each person or entity known by us to own beneficially 5% or more of the
common stock of Holdings,
.each of our Named Executive Officers and directors, and
.all of our executive officers and directors as a group.
As of April 15, 1999, there were 129,187.2 shares of common stock
outstanding. Holdings owns, directly or indirectly, 100% of the common stock of
the Issuer and the Guarantors.
<TABLE>
<CAPTION>
Shares
Beneficially Owned
--------------------
Number(1) Percent(1)
--------- ----------
<S> <C> <C>
Genstar Capital Partners II, L.P. ........................ 122,008.6 94.4%
950 Tower Lane, Suite 1170
Foster City, California 94404
Robert J. Muller, Jr. (2)................................. 6,083.5 4.7
Jean-Pierre L. Conte (3).................................. 2,426.0 1.8
Richard D. Paterson (3)................................... 2,426.0 1.8
Richard F. Hoskins (3).................................... 2,426.0 1.8
All executive officers and directors as a group (9
persons) (2)............................................. 8,509.5 6.5
</TABLE>
- ---------------------
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to
securities. Shares of common stock subject to options or warrants currently
exercisable or convertible, or exercisable or convertible within 60 days of
April 15, 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.
(2) Does not include 5,556 shares issuable upon exercise of options which vest
more than 60 days after April 15, 1999.
(3) Consists of 1,330.9 shares of common stock owned by Genstar by virtue of
Genstar's ownership in Genstar Capital Partners II, as to which Messrs.
Conte, Paterson and Hoskins disclaim beneficial ownership, and 1,095.1
shares of common stock owned by StarGen II LLC, which is an affiliate of
Genstar, and of which each of Messrs. Conte, Paterson and Hoskins are
members.
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<PAGE>
Certain Relationships and Related Transactions
Stock Purchase by Robert J. Muller, Jr.
In connection with becoming our president and chief executive officer,
Mr. Muller entered into a Management Stock Subscription Agreement pursuant to
which he purchased 4,924 shares of common stock from Holdings for $203.06 per
share, for an aggregate purchase price of approximately $1.0 million.
Stockholders' Agreement
Each of Holdings, Domtar Industries, Inc., Genstar Fund II, Mr. Muller and
each option holder under our 1996 Option Plan are party to a Stockholders'
Agreement, dated as of June, 1996. The Stockholders' Agreement covers common
stock of Holdings and other securities convertible into or exchangeable for
shares of common stock of Holdings ("Convertible Securities") held by the
parties thereto. The Stockholders' Agreement provides for, among other things:
. transfer restrictions,
. tag-along rights pursuant to which certain stockholders have the right
to participate in certain sales by Genstar Fund II,
. drag-along rights pursuant to which Genstar Fund II can compel the sale
by the other stockholders in certain transactions,
. call and put options with respect to common stock of Holdings and
Convertible Securities held by management stockholders who we have
terminated as our employees,
. registration rights relating to the common stock of Holdings,
. call and put options granted to Holdings and Domtar Industries with
respect to the common stock of Holdings held by Domtar Industries upon
the occurrence of certain events and
. the right of Domtar Industries to purchase a pro rata share of
additional common stock of Holdings or Convertible Securities issued to
Genstar Fund II in certain circumstances.
Domtar Industries elect not to purchase its pro rata share of the additional
shares of common stock of Holdings that was issued to Genstar Fund II in the
share purchase. See "--Share Purchase." Each person or entity to whom Holdings
issues common stock or Convertible Securities, including under the 1996 Option
Plan, is required to become a party to the Stockholders' Agreement.
Genstar Transactions
Panolam U.S. and Panolam Canada (together, the "Operating Subsidiaries") have
entered into a Management Advisory and Consulting Services Agreement (the
"Management Agreement") with Genstar, terminating on June 6, 2006. Pursuant to
such agreement, Genstar has agreed to provide the Operating Subsidiaries with
ongoing management consulting and advisory services related to the business and
affairs of the Operating Subsidiaries. The Operating Subsidiaries have agreed
to pay Genstar a fee of $600,000 per year, increasing 3% on June 7 of each
year, as compensation for services rendered by Genstar under the Management
Agreement, and to pay all reasonable out-of-pocket costs and expenses incurred
in connection therewith. For the years ended December 31, 1996, 1997 and 1998,
the Operating Subsidiaries have paid or will pay Genstar fees of approximately
$328,000, $618,000 and $629,000, respectively, under the Management Agreement,
plus out-of-pocket expenses. The Management Agreement was amended and restated
as of January 24, 1999 to extend the termination date thereof to January 24,
2009 and to provide that following the third anniversary date of the
Transactions, the total annual management fee then payable to Genstar
thereunder will increase to approximately $1.4 million, which amount will
increase by 3% per year on each June 7 thereafter. However, this increase is
subject to certain limitations described in the indenture. See "Description of
Exchange Notes--Certain Definitions--Management Services Agreement."
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<PAGE>
Pursuant to a letter agreement dated January 24, 1999 that we entered into
with Genstar (the "Engagement Agreement"), we paid Genstar a fee of $2.0
million upon the closing of the Transactions, plus its reasonable out-of-pocket
expenses, in connection with its negotiation of the Transactions and for
providing us with certain financial advisory and management consulting services
(including obtaining the financing for the Transactions, including the offering
of the old notes, the new credit facilities and the share purchase, and for
services performed in connection with our acquisition of Pioneer). Pursuant to
the Engagement Agreement, Genstar will also be paid an additional deferred fee
of $2,025,000 (the "Deferred Fee") in connection with the services provided
thereunder, payable in twelve quarterly installments of $168,750 (or the pro
rata amount thereof), commencing on March 31, 1999. The Deferred Fee
constitutes subordinated indebtedness under the indenture. See "Description of
Exchange Notes."
Share Purchase
In connection with our acquisition of Pioneer, the stockholders of Holdings
made an aggregate equity investment of $5.0 million in Holdings through the
share purchase. The share purchase took the form of a pro rata purchase of
common stock of Holdings by its stockholders. The proceeds of the share
purchase were contributed to the capital of the Issuer. See "The Transactions--
The Refinancing" and "Principal Stockholders."
Warrant Agreement
Holdings and Domtar Industries are parties to a Warrant Agreement, dated June
7, 1996. Pursuant to such agreement, Holdings granted to Domtar Industries
warrants, each to purchase 2,500 shares of common stock of Holdings at no
exercise price. The first warrant is exercisable after July 1, 2000, and the
second warrant is exercisable after July 1, 2001. The warrants expire upon the
earlier of (1) the date on which all amounts outstanding under the Domtar Note
are paid in full, if such payment in full occurs prior to January 1, 2000, and
(2) July 1, 2002. The warrants are subject to certain anti-dilution rights.
Stock Option Agreement
The Issuer, Genstar Fund II, and Domtar Industries are parties to a Stock
Option Agreement, dated June 7, 1996, as amended. Pursuant to such agreement,
the Issuer granted to the other stockholders party to such agreement the option
to purchase all of the shares of capital stock of Panolam Canada on a pro rata
basis at any time upon the request of a majority of the stockholders of
Holdings. However, so long as Genstar Fund II owns at least 20% of the
outstanding capital stock of Holdings, Genstar Fund II must be one of the
stockholders requesting exercise of this option. Further, if (1) certain
indebtedness of Panolam Canada remains outstanding (2) any amounts remain
outstanding under the Domtar Note, or (3) if certain conditions are met with
respect to the Issuer pledging its capital stock, this option shall not be
exercisable. The option exercise price equals $1,000.00 divided by the total
number of outstanding shares of Panolam Canada and expires on June 6, 2006. The
exercise of this option is not permitted under the terms of the notes. See
"Discussion of Exchange Notes--Certain Covenants--Limitations on Sales of
Assets and Subsidiary Stock." Genstar Fund II has informed us that it does not
intend to request exercise of this option if it becomes available.
Severance
Beginning in January 1998, we undertook a reorganization of our management
and manufacturing processes. See "Summary--Ownership and Management" and
"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 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
Concurrently with the issuance of the old notes in connection with the
offering, (i) the Issuer entered into a Credit Agreement (the "Credit
Agreement") with DLJ Capital Funding, as Syndication Agent, Donaldson, Lufkin &
Jenrette Securities Corporation, as Lead Arranger, Credit Suisse First Boston,
New York branch, as Administrative Agent, and Royal Bank of Canada, as
Documentation Agent, and certain other lenders party to the Credit Agreement
(such agents and lenders are collectively referred to as the "Lenders") and
(ii) Panolam Canada entered into a Credit Agreement (the "Canadian Credit
Agreement") with Donaldson, Lufkin & Jenrette Securities Corporation, as Lead
Arranger, Credit Suisse First Boston Canada, as Canadian Administrative Agent,
and Royal Bank of Canada, as Documentation Agent, and certain other lenders
party to the Canadian Credit Agreement (such agents and lenders are
collectively referred to as the "Canadian Lenders"). The following is a summary
description of the principal terms of the new credit facilities. Copies of the
Credit Agreement and the Canadian Credit Agreement have been filed as exhibits
to the registration statement of which this prospectus forms a part. The
description set forth below does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the Credit Agreement and the
Canadian Credit Agreement setting forth the principal terms and conditions of
the new credit facilities.
Structure
The new credit facilities provide for up to $140.0 million in senior secured
financing, including separate U.S. and Canadian facilities, and consist of (i)
an aggregate principal amount of $35.0 million of revolving credit facilities
(the "Revolving Facilities") and (ii) an aggregate principal amount of $105.0
million of term loan facilities (the "Term Facilities") in two tranches: (A) a
$25.0 million five-year term A loan facility (the "Term A Facility") and (B) an
$80.0 million seven-year term B loan facility (the "Term B Facility"). Loans
and letters of credit under the Revolving Facilities are available at any time
during a five-year term subject to the fulfillment of customary conditions
precedent, including the absence of a default under the new credit facilities.
The Revolving Facilities and the Term A Facility will terminate on December 31,
2003, at which time all outstanding indebtedness thereunder will become due.
The Term B Facility will terminate on December 31, 2005, at which time all
outstanding indebtedness will become due.
Up to $20.0 million of the Revolving Facilities (the "U.S. Revolving
Facility") is available to the Issuer in U.S. Dollars and up to $15.0 million
of the Revolving Facilities (the "Canadian Revolving Facility") is available to
Panolam Canada in either U.S. Dollars or Canadian Dollars. The Term Facilities
are available, subject to certain conditions, to the Issuer and Panolam Canada
(together, the "Borrowers") in U.S. Dollars only. The following table sets
forth the allocation of the new credit facilities that was available to the
Issuer (the "U.S. Facilities") and to Panolam Canada (the "Canadian
Facilities") (expressed in terms of its equivalent in U.S. Dollars):
<TABLE>
<CAPTION>
U.S. Facilities Canadian Facilities
Available to the Issuer Available to Panolam Canada
----------------------- ---------------------------
<S> <C> <C>
Revolving Facilities.. $20.0 million $15.0 million
Term A Facility....... $15.0 million $10.0 million
Term B Facility....... $40.0 million $40.0 million
</TABLE>
On the closing date, the Issuer and Panolam Canada (together the "Borrowers")
drew the full $105.0 million under the Term Facilities which was used, together
with the net proceeds from the offering of the old notes and the share purchase
by Holding's stockholders, to consummate our acquisition of Pioneer and the
refinancing of our existing General Electric credit facilities, to pay the fees
and expenses related to these transactions, and for general corporate purposes.
The Revolving Facilities are available, subject to certain conditions
(including, without limitation, adequate availability under each Borrower's
borrowing base, determined from a formula based on 85% of such Borrower's
eligible accounts receivable and 60% of such
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Borrower's eligible inventory), to fund the working capital requirements,
permitted acquisitions, capital expenditures and general corporate purposes of
the Borrowers and their respective subsidiaries.
Amortization
The Borrowers are required to repay loans outstanding under the Term
Facilities as follows.
Term A Loans. Loans under the Term A Facility (the "Term A Loans") have a
final maturity date of December 31, 2003. Quarterly amortization is required,
resulting in annual amounts, expressed as a percentage of the original
aggregate principal amount of the Term A Loans, as follows:
<TABLE>
<CAPTION>
Term A Loans
-------------------------
Annual Annual
amortization amortization
Year percentage amount
---- ------------ ------------
<S> <C> <C>
1................. 0.0% $ 0
2................. 15.0% 3,750,000
3................. 22.5% 5,625,000
4................. 27.5% 6,875,000
5................. 35.0% 8,750,000
------ -----------
Total........... 100.0% $25,000,000
====== ===========
</TABLE>
Term B Loans. Loans under the Term B Facility (the "Term B Loans") have a
final maturity date of December 31, 2005. Quarterly amortization is required,
resulting in aggregate annual amounts equal to 1.0% of the original aggregate
principal amount of the Term B Loans during each of the first six years
following the closing date and equal to 94.0% of the original aggregate
principal amount of the Term B Loans in the seventh year.
Guarantees; Security
The obligations of the Issuer under the U.S. Facilities are guaranteed by
Holdings and each of its direct and indirect domestic subsidiaries, other than
the Issuer and two inactive subsidiaries of Panolam U.S. (the "U.S. Facilities
Guarantee"). The U.S. Facilities Guarantee are senior to the guarantees with
respect to the notes. In addition, Holdings and each of its direct and indirect
domestic subsidiaries, including the Issuer but excluding two inactive
subsidiaries of Panolam U.S., guarantee Panolam Canada's obligations under the
Canadian Facilities (the "Canadian Facilities Guarantee"); however, Panolam
Canada does not guarantee the Issuer's obligations under the U.S. Facilities.
The Canadian Facilities Guarantee are subordinated in right of payment to the
guarantors' obligations in respect of the U.S. Facilities but are senior to the
guarantees with respect to the notes.
The obligations of the Issuer under the U.S. Facilities are secured by a
first priority lien (except as described below with respect to the stock of
Panolam Canada and certain intercompany indebtedness) on substantially all of
the Issuer's property and assets (tangible and intangible), including the stock
and intercompany debt of the Issuer's domestic subsidiaries. The obligations of
Panolam Canada under the Canadian Facilities are secured by a first priority
lien on substantially all of Panolam Canada's property and assets (tangible and
intangible), and by a junior lien on substantially all of the property and
assets of the Issuer and its domestic subsidiaries (except that the liens
securing the Canadian Facilities in respect of the stock of Panolam Canada and
certain intercompany indebtedness may be senior to the liens on such assets
securing the U.S. Facilities). The obligations of the Issuer under the U.S.
Facilities and under the Canadian Facilities Guarantee are also secured by
liens on the stock of Panolam Canada (which lien in respect of the U.S.
Facilities is limited to 65% of such stock). These liens will be subject to
intercreditor arrangements (including subordination provisions) among the U.S.
Lenders and the Canadian Lenders. The obligations of Holdings and its direct
and indirect domestic subsidiaries under the U.S. Facilities Guarantee are
secured by a first priority
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lien on all of the capital stock of their respective existing and future direct
and indirect domestic subsidiaries and, with certain limited exceptions, by a
first priority lien on substantially all of their respective property and
assets (tangible and intangible) (except as described above with respect to the
stock of Panolam Canada and certain intercompany indebtedness). The obligations
of Holdings and its domestic subsidiaries under the Canadian Facilities
Guarantee are secured by a junior lien on substantially all of the property and
assets of such persons (except, that the stock of Panolam Canada and certain
intercompany indebtedness may be pledged on a first priority basis, as
described above). No liens attach under the new credit facilities to the stock,
property, assets and intercompany debt of the two inactive subsidiaries of
Panolam U.S.
Interest Rates
U.S. Facilities. Borrowings by the Issuer under the U.S. Facilities bear
interest, at the Issuer's option, at the Administrative Agent's (i) alternative
base rate ("ABR") or (ii) reserve-adjusted London Interbank Offered Rate
("LIBOR"), in each case plus applicable margins, which (in the case of the U.S.
Revolving Facility and the U.S. Term A Facility only) vary based on the
consolidated leverage ratio of the Issuer and its subsidiaries (the "Leverage
Ratio"). Initially, the applicable margins for the U.S. Revolving Facility and
U.S. Term A Facility are ABR plus 175 basis points or LIBOR plus 275 basis
points. The margins for the U.S. Term B Facility is to be ABR plus 250 basis
points or LIBOR plus 350 basis points.
Canadian Facilities. Borrowings by Panolam Canada under the Canadian
Facilities bear interest, at Panolam Canada's option, as follows:
(1) In the case of U.S. Dollar denominated loans under the Revolving
Facility and the Term Facilities, such loans bear interest at the Canadian
Administrative Agent's (i) Canadian base rate ("CBR") or (ii) LIBOR, in
each case plus applicable margins, which (in the case of the Canadian
Revolving Facility and the Canadian Term A Facility only) vary based on the
Leverage Ratio.
(2) In the case of Canadian Dollar denominated loans under the Revolving
Facility, such loans (i) bear interest at the Canadian Administrative
Agent's Canadian prime rate (the "CPR") or (ii) may be made by way of the
Canadian Lenders' acceptance and purchase of bankers' acceptances ("BAs")
or acceptance notes, in each case at a discount rate, in the case of the
foregoing clause (i), plus applicable margins, and, in the case of the
foregoing clause (ii), plus a stamping fee calculated at a rate per annum
equal to the BA acceptance rate (the "BA Acceptance Rate"), each of which
vary based on the Leverage Ratio. Canadian Dollar denominated borrowings
will be available only under the Canadian Revolving Facility.
Initially, the applicable margins for the Canadian Revolving Facility and
Canadian Term A Facility are CBR plus 175 basis points, LIBOR plus 275 basis
points and CPR plus 175 basis points, respectively, and the BA Acceptance Rate
is to be 275 basis points. The margins for the Canadian Term B Facility are CBR
plus 250 basis points or LIBOR plus 350 basis points.
Prepayments
Borrowings and commitments under the new credit facilities are subject to
mandatory prepayment and reduction under certain circumstances, with customary
exceptions, from the proceeds of permitted asset sales, the sale or issuance of
permitted debt securities, the sale or issuance of equity securities by
Holdings or any of its subsidiaries, from insurance and condemnation proceeds,
from a percentage of excess cash flow and under certain other circumstances.
Mandatory prepayments of loans under the Canadian Term Facilities is limited
under certain circumstances. Voluntary prepayment of any of the loans under the
new credit facilities is permitted in whole or in part with prior notice and
without premium or penalty (other than funding losses), subject to limitations
as to minimum amounts.
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Fees
Each Borrower is required to pay the Lenders under its respective Revolving
Facility an ongoing commitment fee based on the daily average unused portion of
the Revolving Facilities available to such Borrower, which fee will accrue from
the closing date under the new credit facilities. Each Borrower is also
obligated to pay ongoing letter of credit fees on the daily average undrawn
amount of all outstanding letters of credit issued for the account of such
Borrower and issuance fees on the aggregate stated amount of outstanding
letters of credit issued for the account of such Borrower. In addition, the
Company paid certain one-time underwriting and other fees to the Lenders upon
the closing.
Representations and Warranties
The Credit Agreement and the Canadian Credit Agreement contain
representations and warranties customarily found in loan agreements for similar
financings.
Covenants
The Credit Agreement and the Canadian Credit Agreement contain a number of
covenants that, among other things, restrict the ability of Holdings and its
subsidiaries (including the Borrowers) to dispose of assets, incur additional
indebtedness, prepay other indebtedness (including the old notes and exchange
notes) or amend certain debt instruments (including the indenture), pay
dividends, create liens on assets, enter into contingent obligations, enter
into synthetic lease transactions, make investments, loans or advances, make
acquisitions, engage in mergers, amalgamations or consolidations, change the
business conducted by Holdings and its subsidiaries, make capital expenditures
or engage in certain transactions with affiliates and otherwise restrict
certain corporate activities. In addition, the Credit Agreement and the
Canadian Credit Agreement contain financial covenants that require the Issuer
and its subsidiaries to maintain, on a consolidated basis, specified financial
ratios and tests, including minimum interest coverage and fixed charge coverage
ratios, minimum EBITDA (as defined in the new credit facilities) tests, maximum
leverage ratios, and specified capital expenditure tests.
Events of Default
The Credit Agreement and the Canadian Credit Agreement contain customary
events of default, including nonpayment of principal, interest or fees,
material inaccuracy of representations and warranties, violation of covenants,
cross-defaults to certain other indebtedness of Holdings and its subsidiaries,
cross-defaults between loans under the U.S. Facilities and Canadian Facilities,
certain events of bankruptcy and insolvency, certain ERISA matters, material
judgments, material impairment of any loan document or security and a change of
control of Holdings or its subsidiaries (including the Borrowers) in certain
circumstances as set forth in the Credit Agreement and in the Canadian Credit
Agreement.
Domtar Note
In connection with the acquisition by Genstar Capital of Domtar Inc.
subsidiaries in June 1996, Holdings issued to Domtar Industries, a subsidiary
of Domtar Inc., a promissory note in the aggregate principal amount of $8.0
million (the "Domtar Note"). The Domtar Note bears interest at a rate of 12%
per annum, compounded semi-annually on June 30 and December 31 of each year and
matures on December 10, 2001 (the "Maturity Date"). Any portion of the
principal amount that remains unpaid after the Maturity Date will bear interest
at a rate of 13% per annum and such interest shall accrue on a day-to-day
basis. Holdings may prepay, at any time, all or any portion of the Domtar Note
without notice or penalty. The Domtar Note contains certain covenants that,
among other things, limit (i) the incurrence of additional debt by Holdings
that ranks senior or pari passu in right of payment with the Domtar Note
(except for guarantees with respect to indebtedness of Panolam U.S. and Panolam
Canada and refinancings thereof), (ii) the payment of dividends on and the
redemption or purchase of capital stock of Holdings except in limited
circumstances, (iii) certain business
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activities of the Company, (iv) management fees paid by Holdings' subsidiaries
to Genstar in excess of $600,000 in any fiscal year, which amount shall
increase by 3%, on a cumulative basis, for 1997 and each subsequent fiscal
year, (v) certain transactions with Genstar and (vi) the pledge of shares of
Holdings. In addition, the Company is required to use reasonable commercial
efforts in the event of any refinancing or extension of certain debt of the
Company to negotiate with such lenders to permit the repayment of the Domtar
Note no later than the Maturity Date and to make certain payments in connection
therewith. Holdings is also required to pledge the capital stock of Panolam
Group, Inc. as security for the Domtar Note in the event such shares are not
pledged as security for any other debt of Holdings.
Other Indebtedness
On December 31, 1998, we had on a consolidated basis, approximately $73.1
million of indebtedness outstanding. Such indebtedness included approximately
$72.8 million outstanding under our former General Electric credit facilities,
which were repaid in full at the closing of the offering of the old notes, and
approximately $0.3 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. (for purposes of this description, the "Issuer"), 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 certain 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. Capitalized terms used but not otherwise defined herein have the
respective meanings ascribed to them in the Indenture. 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. Certain terms used herein and in the
Indenture are defined below under "--Certain Definitions." 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 an
affiliate of the Company) 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.
General
The Notes are senior subordinated, unsecured, general obligations of the
Issuer, limited in aggregate principal amount to $135.0 million. The Notes rank
pari passu with all existing and future senior subordinated Indebtedness of the
Issuer and rank senior, with limited exceptions, to all other existing and
future subordinated indebtedness of the Issuer, and are subordinated in right
of payment to all other existing and future senior debt of the Issuer. The
Notes are jointly, severally, irrevocably and unconditionally guaranteed (the
"Guarantees") on a senior subordinated basis by each of the Issuer's present
and future Subsidiary Guarantors and the Parent Guarantors. The obligations of
each Guarantor under its guarantee, however, are limited in a manner intended
to avoid fraudulent transfer risks under applicable law. See "Certain
Bankruptcy Limitations" below and "Risk Factors--Fraudulent transfer laws could
change our obligations under the exchange notes." The Exchange Notes will be
issued only in fully registered form, without coupons, in denominations of
$l,000 and integral multiples thereof. 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 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 Interest Payment Date to which interest on the Old Notes
has been paid or provided for, payable semi-annually in arrears on February 15
and August 15, of each year commencing August 15, 1999 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 or, if no interest has been paid, from February
18, 1999. 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.
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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 the office or agency of the Issuer 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 the option of
the Issuer, payment of interest may be made by check mailed to the holders of
the Notes (the "Holders") at the addresses set forth upon the registry books of
the Issuer. No service charge will be made for any registration of transfer or
exchange of Notes, but the Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Until otherwise designated by the Issuer, the Issuer's 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.
The term "Subsidiaries" as used in this Description of Exchange Notes does
not include Unrestricted Subsidiaries. The Company has designated two of its
indirect, inactive subsidiaries, The Melamine Group, Inc. and Melamine
Decorative Laminate, Inc., as Unrestricted Subsidiaries. Neither of such
Unrestricted Subsidiaries has any material assets or liabilities or conducts
any operations. Under certain circumstances, the Issuer 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.
Subordination
The Notes and the Guarantees are general, unsecured obligations of the Issuer
and the Guarantors, respectively, subordinated in right of payment to prior
payment of all senior debt of the Issuer and the Guarantors, as applicable. On
a pro forma basis, as of December 31, 1998, after giving effect to the issuance
of the Old Notes and the initial borrowings under the Credit Agreement and the
Canadian Credit Agreement and the application of the estimated net proceeds
therefrom, as well as the entry by the Company into the Engagement Agreement,
the Company would have had outstanding on a consolidated basis an aggregate of
approximately $242.3 million of consolidated Indebtedness, approximately $105.3
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). The rights of Holders will be
subordinated by operation of law to all existing and future Indebtedness and
preferred stock of the Issuer's Foreign Subsidiaries, which are not Guarantors,
which as of December 31, 1998 (on an aggregate pro forma basis as set forth
above) would have had $50.3 million of Indebtedness (excluding guarantees of
Indebtedness of the Issuer and the Guarantors) and liquidation preference of
preferred stock outstanding. The Indenture will permit the incurrence of
additional senior debt by the Issuer and its subsidiaries in the future,
subject to certain conditions. See "Certain Covenants--Limitation on Incurrence
of Additional Indebtedness."
The Indenture provides that no payment (by set-off or otherwise) may be made
by or on behalf of the Issuer or a Guarantor, as applicable, 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), (i) upon the maturity of any senior debt of the Issuer
or such Guarantor by lapse of time, acceleration (unless waived) or otherwise,
unless and until all principal of, premium, if any, and the interest on, 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 (ii) in the event of default in the payment of
any principal of, premium, if any, or interest on, or any other amount owing in
respect of, senior debt of the Issuer or 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 (i) 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 (ii) written notice of
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such event of default given to the Issuer 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 the
Issuer 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, the Issuer 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 (i) not more than one Payment Notice shall be given within a period of any
360 consecutive days and (ii) no default that existed upon the date of such
Payment Notice or the commencement of such Payment Blockage Period (whether or
not such event of default is on the same issue of senior debt) shall be made
the basis for the commencement of any other Payment Blockage Period (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 assets of the Issuer or any Guarantor upon any
dissolution, winding up, total or partial liquidation or reorganization of the
Issuer or a Guarantor, whether voluntary or involuntary, in bankruptcy,
insolvency, receivership or a similar proceeding or upon assignment for the
benefit of creditors or any marshalling of assets or liabilities, (i) the
holders of all senior debt of the Issuer or such Guarantor, 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 (ii) any payment or distribution of assets of the Issuer or such Guarantor
of any kind or character from any source, whether in cash, property or
securities (other than Junior Securities) to which the Holders or the Trustee
on behalf of the Holders would be entitled (by set-off or otherwise), except
for the subordination provisions contained in 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 assets of the Issuer or any Guarantor (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.
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No provision contained in the Indenture or the Notes will affect the
obligations of the Issuer and 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 the creditors of the Issuer or
the Guarantors or a marshalling of assets or liabilities of the Issuer or the
Guarantors, Holders of the Notes may receive ratably less than other creditors.
The Issuer conducts its operations through its subsidiaries. Accordingly, the
Issuer's ability to meet its cash obligations is dependent upon the ability of
its subsidiaries to make cash distributions to the Issuer. Furthermore, any
right of the Issuer 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 the Issuer is
itself recognized as a creditor or preferred stockholder of such subsidiary, in
which case the claims of the Issuer would still be subordinate to any
indebtedness or preferred stock of such subsidiary senior in right of payment
to that held by the Issuer.
Certain Bankruptcy Limitations
The Issuer and the Parent Guarantors are holding companies, conducting
substantially all of their business through the Issuer's Subsidiaries, not all
of the Issuer's Subsidiaries have guaranteed or will guarantee the Issuer's
Obligations with respect to the Notes. See "Risk Factors--The Issuer and the
Parent Guarantors are holding companies, and the obligations of our operating
companies are secured by liens on all of their property and assets." Holders of
the Exchange Notes will be direct creditors of each Guarantor by virtue of its
Guarantee. Nonetheless, in the event of the bankruptcy or financial difficulty
of a Guarantor, such Guarantor's obligations under its Guarantee may be subject
to review and avoidance under state and federal fraudulent transfer laws. Among
other things, a court may avoid these obligations if it concludes that when the
Guarantor entered into its Guarantee (or in some jurisdictions, when payments
became due thereunder), the Guarantor received less than reasonably equivalent
value or fair consideration and was or was rendered insolvent, undercapitalized
or unable to pay its debts as they became due. A court would likely conclude
that a Guarantor did not receive reasonably equivalent value or fair
consideration to the extent that the aggregate amount of its liability on its
Guarantee exceeds the economic benefits it receives in the Offering. The
obligations of each Guarantor under its Guarantee are limited in a manner
intended to avoid fraudulent transfer risk under applicable law, although no
assurance can be given that a court would give the Holders the benefit of such
provision. See "Risk Factors--Fraudulent transfer laws could change our
obligations under the exchange notes."
If the obligations of a Guarantor under its Guarantee were avoided, Holders
of Notes would have to look to the assets of any remaining Guarantors for
payment. There can be no assurance in that event that such assets would suffice
to pay the outstanding obligations owed with respect to the Notes.
The Issuer conducts substantially all of its foreign operations through
Foreign Subsidiaries. Accordingly, the Issuer's ability to meet its cash
obligations may in part depend upon the ability of such Foreign Subsidiaries
and any future Foreign Subsidiaries to make cash distributions to the Issuer
and the Subsidiary Guarantors. Furthermore, any right of the Issuer and the
Subsidiary Guarantors 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 the
Issuer or the Subsidiary Guarantors are recognized as creditors or preferred
stockholders of such Foreign Subsidiary, in which case the claims of the
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Issuer or 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
The Issuer 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 the option of the Issuer, 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>
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 the option of the Issuer 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.
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.
The Notes will not have the benefit of any sinking fund and the Issuer will
not be required to make any mandatory redemption payments with respect to the
Notes.
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 the Issuer defaults in the payment
thereof.
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Certain Covenants
Repurchase of Notes at the Option of the Holder Upon a Change of Control
The Indenture provides that in the event that a Change of Control has
occurred, each Holder of Notes will have the right, at such Holder's option,
pursuant to an offer (subject only to conditions required by applicable law, if
any) by the Issuer (the "Change of Control Offer"), to require the Issuer to
repurchase all or any part of such Holder's Notes (provided that the principal
amount of such Notes must be $1,000 or an integral multiple thereof) on a date
(the "Change of Control Purchase Date") that is no later than 35 Business Days
after the occurrence of such Change of Control, at a cash price equal to 101%
of the principal amount thereof (the "Change of Control Purchase Price"),
together with accrued and unpaid interest and Liquidated Damages, if any, to
the Change of Control Purchase Date. The Change of Control Offer shall be made
within 10 Business Days following a Change of Control and shall remain open for
20 Business Days following its commencement (the "Change of Control Offer
Period"). Upon expiration of the Change of Control Offer Period, the Issuer
promptly shall purchase all Notes properly tendered in response to the Change
of Control Offer.
As used herein, a "Change of Control" means (i) prior to consummation of an
Initial Public Equity Offering, the Excluded Person shall cease beneficially to
own, directly or indirectly, at least 51% of the voting power of the Voting
Equity Interests of the Issuer or (ii) following the consummation of an Initial
Public Equity Offering, (A) any merger or consolidation of the Issuer with or
into any Person or any sale, transfer or other conveyance, whether direct or
indirect, of all or substantially all of the assets of the Issuer, 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 the Issuer which indicates that, or the Issuer otherwise becomes
aware that, (x) any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) (other
than the Excluded Person and Robert J. Muller, Jr.) is or becomes the
"beneficial owner," directly or indirectly, of more than 35% of the total
voting power in the aggregate of all classes of Capital Stock of the Issuer
then outstanding normally entitled to vote in elections of directors, managers,
or trustees, as applicable, of the transferee(s) or surviving entity or
entities and (y) the Excluded Person and Robert J. Muller, Jr. "beneficially
own," directly or indirectly, in the aggregate a lesser percentage of such
voting power than such other person or group; provided, however, that a Person
shall not be deemed the "beneficial owner" of shares tendered pursuant to a
tender or exchange offer made by such Person or any Affiliate of such Person
until the tendered shares are accepted for purchase or exchange, (C) during any
period of 12 consecutive months after the Issue Date, individuals who at the
beginning of any such 12-month period constituted the Board of Directors of the
Issuer (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the Issuer
was approved by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved, including new directors
designated in or provided for in an agreement regarding the merger,
consolidation or sale, transfer or other conveyance, of all or substantially
all of the assets of the Issuer or any parent guarantor or Holdings, if such
agreement was approved by a vote of such majority of directors) cease for any
reason to constitute a majority of the Board of Directors of the Issuer then in
office or (D) the Issuer adopts a plan of liquidation.
Notwithstanding the foregoing, the Issuer 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 the Issuer, including any requirements to repay in full
all Indebtedness under the Credit Agreement and the
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Canadian Credit Agreement, any senior debt of the Issuer 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, the
Issuer shall (i)(a) repay in full and terminate all commitments under
Indebtedness under the Credit Agreement and the Canadian Credit Agreement or
(b) offer to repay in full and terminate all commitments under all Indebtedness
under the Credit Agreement and the Canadian Credit Agreement and repay in full
the Indebtedness owed to each such lender which has accepted such offer or (ii)
obtain the requisite consents under the Credit Agreement and the Canadian
Credit Agreement to permit the repurchase of the Notes as provided herein. The
Issuer's failure to comply with the preceding sentence shall constitute an
Event of Default described in clause (iii) and not in clause (ii) under "Events
of Default" below.
On or before the Change of Control Purchase Date, the Issuer shall, to the
extent lawful, (i) accept for payment Notes or portions thereof properly
tendered and not validly withdrawn pursuant to the Change of Control Offer,
(ii) deposit with the Paying Agent an amount in cash sufficient to pay the
Change of Control Purchase Price (together with accrued and unpaid interest and
Liquidated Damages, if any), of all Notes so tendered and (iii) deliver or
cause to be delivered to the Trustee the Notes so accepted together with an
Officers' Certificate listing the Notes or portions thereof being purchased by
the Issuer. The Paying Agent promptly will pay the Holders of Notes so accepted
an amount equal to the Change of Control Purchase Price (together with accrued
and unpaid interest and Liquidated Damages, if any), and the Trustee promptly
will authenticate and deliver to such Holders a new Note equal in principal
amount to any unpurchased portion of the Note surrendered. Any Notes not so
accepted will be delivered promptly by the Issuer to the Holder thereof. The
Issuer 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 the Issuer, and, thus, the removal of incumbent
management.
The phrase "all or substantially all" of the assets of the Issuer 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 the
assets of the Issuer has occurred. In addition, no assurances can be given that
the Issuer 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
the Issuer or any of the Guarantors with such laws and regulations shall not in
and of itself cause a breach of its obligations under such covenant.
If the Change of Control Purchase Date hereunder is on or after an interest
payment Record Date and on or before the associated Interest Payment Date, any
accrued and unpaid interest (and Liquidated Damages, if any) due on such
Interest Payment Date will be paid to the Person in whose name a Note is
registered at the close of business on such Record Date, and such interest (and
Liquidated Damages, if applicable) will not be payable to Holders who tender
the Notes pursuant to the Change of Control Offer.
The Change of Control purchase feature of the Notes is a result of
negotiations between the Issuer and the Initial Purchasers. The Board of
Directors of the Issuer has no present intention to engage in a transaction
involving a Change of Control, although it is possible that the Issuer would
decide to do so in the future. Subject to the limitations discussed below, the
Issuer could, in the future, enter into certain transactions, including
acquisitions, refinancings or other recapitalizations, that would not
constitute a Change of Control
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under the Indenture, but that could increase the amount of Indebtedness
outstanding at such time or otherwise significantly affect the Issuer's capital
structure or credit rating. Restrictions on the ability of the Issuer 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 the Issuer from purchasing any Notes and will also provide that the
occurrence of certain change of control events with respect to the Issuer would
constitute a default thereunder. In the event a Change of Control occurs at a
time when the Issuer is prohibited from purchasing Notes, the Issuer could seek
the consent of its lenders to the purchase of Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Issuer does not
obtain such a consent or repay such borrowings, the Issuer will remain
prohibited form purchasing Notes. In addition, the Issuer's 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.
Future Indebtedness of the Issuer 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 the Issuer 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 the Issuer. Finally, the Issuer's ability to pay cash to the
Holders following the occurrence of a Change of Control may be limited by the
Issuer's 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 the Issuer's
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, the Issuer
and the Subsidiary Guarantors will not, and will not permit any of their
Subsidiaries to, directly or indirectly, issue, assume, guaranty, incur, become
directly or indirectly liable with respect to (including as a result of an
Acquisition), or otherwise become responsible for, contingently or otherwise
(individually and collectively, to "incur" or, as appropriate, an
"incurrence"), any Indebtedness (including Acquired Indebtedness), other than
Permitted Indebtedness. Notwithstanding the foregoing if (i) no Default or
Event of Default shall have occurred and be continuing at the time of, or would
occur after giving effect on a pro forma basis to, such incurrence of
Indebtedness (including Acquired Indebtedness) and (ii) on the date of such
incurrence (the "Incurrence Date"), the Consolidated Coverage Ratio of the
Issuer for the Reference Period immediately preceding the Incurrence Date,
after giving effect on a pro forma basis to such incurrence of such
Indebtedness and, to the extent set forth in the definition of Consolidated
Coverage Ratio, the use of proceeds thereof, would be at least 2.0 to 1.0 (the
"Debt Incurrence Ratio"), then the Issuer and the Subsidiary Guarantors may
incur such Indebtedness (including Acquired Indebtedness).
In addition, the foregoing limitations will not apply to:
(a) the incurrence by the Issuer or any Subsidiary Guarantor or Foreign
Subsidiary of Purchase Money Indebtedness; provided that (i) the aggregate
amount of such Indebtedness incurred and outstanding at any time pursuant
to this paragraph (a) (plus any Refinancing Indebtedness incurred to
retire, defease, refinance, replace or refund such Indebtedness) shall not
exceed $10 million (or the equivalent thereof, at the time of incurrence,
in the applicable foreign currencies), and (ii) in each case, such
Indebtedness shall not constitute more than 100% of the cost (determined in
accordance with GAAP
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in good faith by the Board of Directors of the Issuer) to the Issuer or
such Subsidiary Guarantor or Foreign Subsidiary, as applicable, of the
property so acquired, constructed or improved;
(b) (i) the incurrence by the Issuer or any Subsidiary Guarantor of
Indebtedness (including Acquired Indebtedness) in an aggregate amount
incurred and outstanding at any time pursuant to this clause (b)(i) (plus
any Refinancing Indebtedness incurred to retire, defease, refinance,
replace or refund such Indebtedness) of up to $45 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)(ii) of this covenant, and (ii) the incurrence by any Canadian
Subsidiary of Indebtedness (including Acquired Indebtedness) in an
aggregate amount incurred and outstanding at any time pursuant to this
clause (b)(ii) (plus any Refinancing Indebtedness incurred to retire,
defease, refinance, replace or refund such Indebtedness) of up to $20
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(i) of this covenant;
provided, that the aggregate amount of Indebtedness incurred pursuant to
clauses b(i) and b(ii) 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 the Issuer 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 (i) retired with the
Net Cash Proceeds from any Asset Sale applied to permanently reduce the
outstanding amounts or the commitments with respect to such Indebtedness
pursuant to clause (1)(b)(ii) of the first paragraph of the covenant
"Limitation on Sale of Assets and Subsidiary Stock" or (ii) assumed by a
transferee in an Asset Sale; provided, that the aggregate amount of
Indebtedness incurred pursuant to this paragraph (c) and paragraph (d) of
this covenant shall in no event exceed $105 million (or the equivalent
thereof, at the time of incurrence, in the applicable foreign currencies);
and
(d) the incurrence by any Canadian Subsidiary, and the guarantee thereof
by the Issuer 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 (i) retired with the Net Cash Proceeds from any Asset Sale
applied to permanently reduce the outstanding amounts or the commitments
with respect to such Indebtedness pursuant to clause (1)(b)(ii) of the
first paragraph of the covenant "Limitation on Sale of Assets and
Subsidiary Stock" or (ii) 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 a Subsidiary of the Issuer (including upon designation of any
subsidiary or other Person as a Subsidiary) or is merged with or into or
consolidated with the Issuer or a Subsidiary of the Issuer shall be deemed to
have been incurred at the time such Person becomes such a Subsidiary of the
Issuer or is merged with or into or consolidated with the Issuer or a
Subsidiary of the Issuer, as applicable.
Notwithstanding any other provision of this covenant, and to avoid
duplication only, a guarantee of Indebtedness of the Issuer or 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 a Subsidiary of the Issuer, will not constitute a
separate incurrence, or amount outstanding, of
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Indebtedness. Upon each incurrence, the Issuer 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 the Issuer and the Subsidiary Guarantors will
not, and will not permit any of their Subsidiaries to, directly or indirectly,
make any Restricted Payment if, after giving effect to such Restricted Payment
on a pro forma basis, (1) a Default or an Event of Default shall have occurred
and be continuing, (2) the Issuer is 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 the Issuer and its Subsidiaries,
including after giving effect to such proposed Restricted Payment, from and
after the Issue Date, would exceed, without duplication of any credits in this
paragraph, the following paragraph or the definition of Permitted Indebtedness,
the sum of (a) 50% of the aggregate Consolidated Net Income of the Issuer for
the period (taken as one accounting period), commencing on the first day of the
first full fiscal quarter commencing after the Issue Date, to and including the
last day of the Issuer's most recently ended fiscal quarter for which internal
financial statements are available at the time of such calculation (or, in the
event Consolidated Net Income for such period is a deficit, then minus 100% of
such deficit), plus (b) the aggregate Net Cash Proceeds received by the Issuer
from a Capital Contribution or from the sale of its Qualified Capital Stock
(other than (i) to a Subsidiary of the Issuer or (ii) to the extent applied in
connection with a Qualified Exchange), after the Issue Date, plus (c) other
than amounts credited pursuant to clause (t) of the next following paragraph or
permitted pursuant to the definition of Permitted Investments, the net amount
of any Restricted Investments (not to exceed the original amount of such
Investment) made after the Issue Date (other than pursuant to clause (t) of the
next following paragraph or permitted pursuant to the definition of Permitted
Investments) that are returned to the Issuer or the Subsidiary that made such
prior Restricted Investment, without restriction, in cash or Cash Equivalents
on or prior to the date of any such calculation and the Issuer's direct and
indirect proportionate interest in the fair market value of an Unrestricted
Subsidiary which is redesignated to be a Subsidiary, at the time of such
redesignation.
The foregoing clause (3) of the immediately preceding paragraph, however,
will not prohibit (r) Restricted Payments in addition to those set forth in the
immediately preceding paragraph after the Issue Date not in excess of
$15,189,000 in the aggregate which may be used only to repay or settle amounts
owing to Domtar, Inc. or its Affiliates with respect to the Domtar Note
(including dividends to any parent guarantor or Holdings for such purpose); in
addition the foregoing clauses (2) and (3) of the immediately preceding
paragraph, however, will not prohibit (s) the Transactions (including dividends
to any parent guarantor or Holdings for the purpose of payments pursuant to the
Transactions), (t) Restricted Investments; provided that after giving pro forma
effect to such Restricted Investment, the aggregate amount of all such
Restricted Investments made on or after the Issue Date that are outstanding
(after giving effect to any such Restricted Investments that are returned to
the Issuer 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 its Subsidiaries upon the death, disability or termination of
employment in an aggregate amount to all such employees not to exceed the sum
of (A) $1.0 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 employees of Holdings, such parent guarantor, the
Issuer or such Subsidiary in the same year and Net Cash Proceeds from life
insurance payments in the same year, and the provisions of the immediately
preceding paragraph will not prohibit (v) any dividend, distribution or other
payments by any Subsidiary of the Issuer 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
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foregoing provisions, (y) to the extent deemed a Restricted Payment, payment of
amounts to Genstar Capital in accordance with the terms of the Management
Services Agreement and the Engagement Agreement, both in accordance with the
terms thereof on the Issue Date (including dividends to any parent guarantor or
Holdings for the purpose of such payment), and (z) Permitted Payments to
Holdings. The full amount of any Restricted Payment made pursuant to the
foregoing clauses (t), (u), (v) and (x) (but not pursuant to clauses (r), (s),
(w), (y) or (z)) of the immediately preceding sentence, however, will be
deducted in the calculation of the aggregate amount of Restricted Payments
available to be made referred to in clause (3) of the immediately preceding
paragraph.
For purposes of this covenant, the amount of any Restricted Payment made or
returned, if other than in cash, shall be the fair market value thereof, as
determined in the good faith reasonable judgment of the Board of Directors of
the Issuer. Additionally, concurrently with each Restricted Payment, the Issuer
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 the Issuer and the Subsidiary Guarantors will
not, and will not permit any of their Subsidiaries to, directly or indirectly,
create, assume or suffer to exist any consensual restriction on the ability of
any Subsidiary of the Issuer to pay dividends or make other distributions to or
on behalf of, or to pay any obligation to or on behalf of, or otherwise to
transfer assets or property to or on behalf of, or make or pay loans or
advances to or on behalf of, the Issuer or any Subsidiary of the Issuer, except
(a) restrictions imposed by the Notes or the Indenture or by other indebtedness
of the Issuer (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 the Issuer or any of its Subsidiaries, which restrictions in each
case existed at the time of Acquisition, were not put in place in connection
with or in anticipation of such Acquisition and are not applicable to any
Person, other than the Person acquired, or to any property, asset or business,
other than the property, assets and business so acquired, (e) any such
restriction or requirement imposed by Indebtedness incurred under the Credit
Agreement or the Canadian Credit Agreement or any guarantee thereof in
accordance with 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 a Subsidiary of the Issuer 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 the Issuer and the Guarantors will not, and will
not permit any of the Issuer's Subsidiaries to, directly or indirectly, incur,
or suffer to exist any Indebtedness that is subordinate in right of payment to
any other Indebtedness of the Issuer or a Guarantor unless, by its terms, such
Indebtedness is subordinate in right of payment to, or ranks pari passu with,
the Notes or the Guarantees, as applicable; provided that this limitation will
not apply to Acquired Indebtedness (other than Acquired Indebtedness incurred
in connection with or in contemplation of a merger of the Issuer, any Guarantor
or any of their Subsidiaries, or in connection with another transaction
pursuant to which a Person becomes a Subsidiary of the Issuer or any
Guarantor); provided, further that this limitation will not apply to guarantees
by the Issuer or any Guarantor of Indebtedness incurred pursuant to the
Canadian Credit Agreement.
Limitation on Liens Securing Indebtedness
The Issuer and the Guarantors will not, and will not permit any of the
Issuer's Subsidiaries to, create, incur, assume or suffer to exist any Lien of
any kind, other than Permitted Liens, upon any of their respective assets now
owned or acquired on or after the date of the Indenture or upon any income or
profits therefrom securing any Indebtedness of the Issuer or any Guarantor,
unless the applicable Guarantor and the Issuer provide, and cause their
Subsidiaries (that are Subsidiaries of the Issuer) 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 the Issuer and the Subsidiary Guarantors will
not, and will not permit any of their Subsidiaries to, in one or a series of
related transactions, convey, sell, transfer, assign or otherwise dispose of,
directly or indirectly, any of its property, business or assets, including by
merger or consolidation (in the case of a Subsidiary Guarantor or a Subsidiary
of the Issuer), and including any sale or other transfer or issuance of any
Equity Interests of any Subsidiary of the Issuer (other than directors'
qualifying shares or shares required by applicable law to be held by a Person
other than the Issuer or a Subsidiary), whether by the Issuer or a Subsidiary
or through the issuance, sale or transfer of Equity Interests by a Subsidiary
of the Issuer, and including any sale and leaseback transaction (any of the
foregoing, an "Asset Sale"), unless (l)(a) the Net Cash Proceeds therefrom (the
"Asset Sale Offer Amount") are applied (i) within 180 days after the date of
such Asset Sale to the optional redemption of the Notes in accordance with the
terms of the Indenture and other Indebtedness of the Issuer ranking on a parity
with the Notes and with similar provisions requiring the Issuer to redeem such
Indebtedness with the proceeds for asset sales, pro rata in proportion to the
respective principal amounts (or accreted values in the case of Indebtedness
issued with an original issue discount) of the Notes and such other
Indebtedness then outstanding or (ii) within 210 days after the date of such
Asset Sale to the repurchase of the Notes and such other Indebtedness on a
parity with the Notes and with similar provisions requiring the Issuer to make
an offer to purchase such Indebtedness with the proceeds for asset sales
pursuant to a cash offer (subject only to conditions required by applicable
law, if any) (pro rata in proportion to the respective principal amounts (or
accreted values in the case of Indebtedness issued with an original issue
discount) of the Notes and such other Indebtedness then outstanding) (the
"Asset Sale Offer") at a purchase price of 100% of principal amount (or
accreted value in the case of Indebtedness issued with an original issue
discount) (the "Asset Sale Offer Price") together with accrued and unpaid
interest and Liquidated Damages, if any, to the date of payment, made within
180 days of such Asset Sale or (b) within 180 days following such Asset Sale,
the Asset Sale Offer Amount is (i) invested (or committed, pursuant to a
binding commitment subject only to reasonable, customary closing conditions, to
be invested, and in fact is so invested, within an additional 90 days) in
assets and property (except in connection with the acquisition of a Wholly
Owned Subsidiary in a Related Business, other than Notes, bonds, obligation and
securities) which in the good faith reasonable judgment of the Board of
Directors of the Company will immediately constitute or be a part of a
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Related Business of the Issuer 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 (ii) used to retire Purchase Money Indebtedness or
senior debt and to permanently reduce (in the case of senior debt that is not
Purchase Money Indebtedness) the amount of such Indebtedness outstanding on the
Issue Date or permitted pursuant to paragraph (b) (but only to the extent that
such paragraph (b) relates to revolving credit borrowings under the Credit
Agreement and the Canadian Credit Agreement), (c) or (d), as applicable, of 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)
the Board of Directors of the Issuer determines in good faith that the Issuer
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)(i) 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, the Issuer
shall apply the Asset Sale Offer Amount plus an amount equal to accrued and
unpaid interest and Liquidated Damages, if any, to the purchase of all
Indebtedness properly tendered (on a pro rata basis if the Asset Sale Offer
Amount is insufficient to purchase all Indebtedness so tendered) at the Asset
Sale Offer Price (together with accrued interest and Liquidated Damages, if
any). To the extent that the aggregate amount of Notes and such other pari
passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the
Asset Sale Offer Amount, the Issuer 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 the Issuer, the Guarantors and their Subsidiaries are released from all
obligations in connection therewith and (b) property that within 30 days of
such Asset Sale is converted into cash or Cash Equivalents; provided that such
cash and Cash Equivalents shall be treated as Net Cash Proceeds attributable to
the original Asset Sale for which such property was received.
Notwithstanding, and without complying with, the provisions of this covenant:
(i) the Issuer and its Subsidiaries may, in the ordinary course of
business, (1) convey, sell, transfer, assign or otherwise dispose of
inventory and other assets acquired and held for resale in the ordinary
course of business and (2) liquidate Cash Equivalents;
(ii) the Issuer and its 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";
(iii) the Issuer and its Subsidiaries may sell or dispose of damaged,
worn out or other obsolete personal property in the ordinary course of
business so long as such property is no longer necessary for the proper
conduct of the business of the Issuer or such Subsidiary, as applicable;
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(iv) the Issuer and the Subsidiary Guarantors may convey, sell, transfer,
assign or otherwise dispose of assets to the Issuer, any of its Subsidiary
Guarantors or any Canadian Subsidiary;
(v) the Issuer and its Subsidiaries, in the ordinary course of business,
may convey, sell transfer, assign, or otherwise dispose of assets (or
related assets in related transactions) with a fair market value of less
than $500,000;
(vi) the Issuer and each of its Subsidiaries may surrender or waive
contract rights or settle, release or surrender contract, tort or other
claims of any kind or grant Liens (and permit foreclosure thereon) not
prohibited by the Indenture; and
(vii) Foreign Subsidiaries may convey, sell, transfer, assign or
otherwise dispose of assets to the Issuer, 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 the Issuer or any of its Subsidiaries with such laws and
regulations shall not in and of itself cause a breach of its 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 the Issuer nor any of its Subsidiaries
will be permitted on or after the Issue Date to enter into or suffer to exist
any contract, agreement, arrangement or transaction with any Affiliate (an
"Affiliate Transaction"), or any series of related Affiliate Transactions,
(other than Exempted Affiliate Transactions), (i) unless it is determined that
the terms of such Affiliate Transaction are fair and reasonable to the Issuer,
and no less favorable to the Issuer, than could have been obtained in an arm's
length transaction with a non-Affiliate, and (ii) if involving consideration to
either party in excess of $1.0 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 the Board of Directors of the Issuer that are
disinterested in such transaction, if any, and (iii) if involving consideration
to either party in excess of $5.0 million, unless in addition the Issuer, prior
to the consummation thereof, obtains a written favorable opinion as to the
fairness of such transaction to the Issuer 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 the Issuer 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 its assets (computed on a consolidated
basis), whether in a single transaction or a series of related transactions, to
another Person or group of affiliated Persons, unless (i) either (a) the Issuer
is the continuing entity or (b) the resulting, surviving
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or transferee entity is a corporation organized under the laws of the United
States, any state thereof or the District of Columbia and expressly assumes by
supplemental indenture all of the obligations of the Issuer in connection with
the Notes and the Indenture; (ii) no Default or Event of Default shall exist or
shall occur immediately after giving effect on a pro forma basis to such
transaction; and (iii) immediately after giving effect to such transaction on a
pro forma basis, the consolidated resulting, surviving or transferee entity
would immediately thereafter be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Debt Incurrence Ratio set forth in 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, the Issuer's interest in which constitutes all or
substantially all of the properties and assets of the Issuer, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Issuer.
Upon any consolidation or merger or any transfer of all or substantially all
of the assets of the Issuer in accordance with the foregoing, the successor
corporation formed by such consolidation or into which the Issuer is merged or
to which such transfer is made shall (except in the case of a lease) succeed to
and be substituted for, and may exercise every right and power of, the Issuer
under the Indenture with the same effect as if such successor corporation had
been named therein as the Issuer, and (except in the case of a lease) the
Issuer 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 the Issuer nor any of its Subsidiaries
shall directly or indirectly engage to any substantial extent in any line or
lines of business activity other than that which, in the reasonable good faith
judgment of the Board of Directors of the Issuer, is a Related Business.
Subsidiary Guarantors
The Indenture provides that all present and future Subsidiaries of the Issuer
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
Subsidiary (including Foreign Subsidiaries) of the Issuer that is not a
Subsidiary Guarantor guarantees any other Indebtedness of the Issuer or any
Subsidiary Guarantor (other than any guarantee by a Foreign Subsidiary of
Indebtedness of any other Foreign Subsidiary of the Issuer), or the Issuer or a
Subsidiary of the Issuer, 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, (i) the Person formed by or surviving any such
consolidation or merger (if other than such Guarantor) assumes all the
obligations of such Guarantor pursuant to a supplemental indenture in form
reasonably satisfactory to the Trustee, pursuant to which such Person shall
unconditionally guarantee, on a senior subordinated basis, all of such
Guarantor's obligations under such Guarantor's Guarantee on the terms set forth
in the Indenture; and (ii) immediately before and immediately after giving
effect to such transaction on a pro forma basis, no Default or Event of Default
shall have occurred or be continuing. The provisions of this covenant shall not
apply to the merger of any Guarantors with and into each other or with or into
the Issuer.
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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
Indebtedness of the Issuer or any other Subsidiary of the Issuer shall also
terminate upon such release, sale or transfer.
Limitation on Status as Investment Company
The Indenture will prohibit the Issuer and its 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 the Issuer or any direct or
indirect parent of the Issuer is subject to the reporting requirements of
Section 13 or 15(d) of the Exchange Act, the Issuer shall deliver to the
Trustee and to each Holder and to prospective purchasers of Notes identified to
the Issuer by an Initial Purchaser, within 15 days after it is or would have
been (if it were subject to such reporting obligations) required to file such
with the Commission, annual and quarterly financial statements substantially
equivalent to financial statements that would have been included in reports
filed with the Commission, if the Issuer were subject to the requirements of
Section 13 or 15(d) of the Exchange Act, including, with respect to annual
information only, a report thereon by the Issuer's certified independent public
accountants as such would be required in such reports to the Commission, and,
in each case, together with a management's discussion and analysis of financial
condition and results of operations which would be so required and, unless the
Commission will not accept such reports, file with the Commission the annual,
quarterly and other reports which it is or would have been required to file
with the Commission. In lieu of filing and providing reports as set forth
above, the Issuer may, so long as any direct or indirect parent of the Issuer
owns 100% of the Capital Stock of the Issuer and if permitted by the
Commission, include in the reports filed and provided by such direct or
indirect parent of the Issuer such financial information and narrative
disclosure regarding the Issuer and the Subsidiary Guarantors as required by
the Commission in lieu of filing such reports by the Issuer.
Events of Default and Remedies
The Indenture defines an Event of Default as (i) the failure by the Issuer 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, (ii) the failure by the Issuer or any Subsidiary of the
Issuer 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"), (iii) failure by the
Issuer or any Subsidiary of the Issuer 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," (iv) failure by the Issuer or any Subsidiary of the Issuer 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, (v) certain events
of bankruptcy, insolvency or reorganization in respect of the Issuer or any of
its Significant Subsidiaries, (vi) a default in Indebtedness of the Issuer or
any of its Subsidiaries with an aggregate
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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, (vii) final
unsatisfied judgments not covered by insurance aggregating in excess of $5.0
million, at any one time rendered against the Issuer or any of its Subsidiaries
and not stayed, bonded or discharged within 60 days and (viii) except as
permitted by the Indenture, any of the Guarantees shall be held in a judicial
proceeding to be unenforceable or invalid or shall cease for any reason to be
in full force and effect or the respective Guarantor, or any Person acting on
behalf of such Guarantor, shall deny or disaffirm its obligations under its
Guarantee. The Indenture provides that if a Default occurs and is continuing,
the Trustee must, within 90 days after the occurrence of such default, give to
the Holders notice of such default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (v), above, relating to the Issuer) 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 the
Issuer (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 the Issuer 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 (vi)
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 (vi) 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 (v) above, relating to the Issuer 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.
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Legal Defeasance and Covenant Defeasance
The Indenture provides that the Issuer may, at its option, elect to have its
obligations and the obligations of the Guarantors discharged with respect to
the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that
the Issuer 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 (i) 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; (ii) the Issuer's 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; (iii) the rights,
powers, trust, duties, and immunities of the Trustee, and the Issuer's
obligations in connection therewith; and (iv) the Legal Defeasance provisions
of the Indenture. In addition, the Issuer may, at its option and at any time,
elect to have the obligations of the Issuer and 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, (i) the
Issuer 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; (ii) in the case of Legal Defeasance, the
Issuer shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Issuer has
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; (iii) in the case of
Covenant Defeasance, the Issuer 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; (iv) 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; (v) 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 the Issuer or any of its Subsidiaries is a party or by
which the Issuer or any of its Subsidiaries is bound; (vi) the Issuer shall
have delivered to the Trustee an Officers' Certificate stating that the deposit
was not made by the Issuer with the intent of preferring the Holders of such
Notes over any other creditors of the Issuer or with the intent of defeating,
hindering, delaying or defrauding any other creditors of the Issuer or others;
and (vii) the Issuer 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, (i)
through (vi) and, in the case of the opinion of counsel, clauses (i), (with
respect to the validity and perfection of the security interest) (ii), (iii)
and (v) of this paragraph have been complied with.
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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 the obligations of the Issuer and 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 the Issuer, 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, the Issuer, 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: (i)
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 the option of the Issuer 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 the option of the Issuer, 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 the right of the Issuer to redeem the Notes as a right
or at the option of the Issuer in a manner adverse to the Holders, or (ii)
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 (iii) 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 the Issuer, the
Guarantors Holdings, or any successor entity shall have any personal liability
in respect of the obligations of the Issuer or the Guarantors under the
Indenture or the Notes solely by reason of his or its status as such
stockholder, employee, officer or director, except that this provision shall in
no way limit the obligation of any Guarantor pursuant to any Guarantee of the
Notes.
Governing Law
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
Certain Definitions
"Acquired Indebtedness" means Indebtedness or Disqualified Capital Stock of
any Person existing at the time such Person becomes a Subsidiary of the Issuer,
including by designation, or is merged or consolidated into or with the Issuer
or one of its Subsidiaries.
"Acquisition" means the purchase or other acquisition of any Person or all or
substantially all the assets of any Person by any other Person, whether by
purchase, merger, consolidation, or other transfer, and whether or not for
consideration.
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"Affiliate" means any Person directly or indirectly controlling or controlled
by or under direct or indirect common control with the Issuer. 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 the Issuer and its
Subsidiaries, a Beneficial Owner of 10% or more of the total voting power
normally entitled to vote in the election of directors, managers or trustees,
as applicable, shall for such purposes be deemed to constitute control.
"Average Life" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing (i) the sum of the
products (a) of the number of years from the date of determination to the date
or dates of each successive scheduled principal (or redemption) payment of such
security or instrument and (b) the amount of each such respective principal (or
redemption) payment by (ii) the sum of all such principal (or redemption)
payments.
"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 (i) extending the maturity of any Indebtedness incurred thereunder or
contemplated thereby, (ii) adding or deleting borrowers or guarantors
thereunder, so long as such remaining borrowers or guarantors include one or
more of Panolam Canada and its Subsidiaries and their respective successors and
assigns, (iii) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder; provided that on the date such
Indebtedness is incurred it would not be prohibited by the covenant "Limitation
on Incurrence of Additional Indebtedness" or (iv) otherwise altering the terms
and conditions thereof in a manner not prohibited by the terms of the
Indenture.
"Canadian Subsidiary" means a Wholly Owned Subsidiary that is domiciled and
doing business principally in Canada.
"Capital Contribution" means any contribution to the equity of the Issuer
from a direct or indirect parent of the Issuer for which no consideration is
given other than the issuance of Qualified Capital Stock.
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"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness that is not itself otherwise capital stock), warrants, options,
participations or other equivalents of or interests (however designated) in
stock issued by that corporation.
"Cash Equivalent" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) or (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation
of any domestic commercial bank of recognized standing having capital and
surplus in excess of $500 million or (iii) 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 (i), (ii), and (iii) maturing within one year after
the date of acquisition, or (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses (i)
and (ii) above entered into with any financial institution meeting the
qualifications specified in clause (ii) above, or (v) investments in money
market funds which invest substantially all their assets in securities of the
types described in the foregoing clauses (i) through (iv).
"Consolidation" means, with respect to the Issuer, the consolidation of the
accounts of the Subsidiaries with those of the Issuer, all in accordance with
GAAP; provided that "consolidation" will not include consolidation of the
accounts of any Unrestricted Subsidiary with the accounts of the Issuer. The
term "consolidated" has a correlative meaning to the foregoing.
"Consolidated Coverage Ratio" of any Person on any date of determination (the
"Transaction Date") means the ratio, on a pro forma basis, of (a) the aggregate
amount of Consolidated EBITDA of such Person attributable to continuing
operations and businesses (exclusive of amounts attributable to operations and
businesses recorded as permanently discontinued or disposed of) for the
Reference Period to (b) the aggregate Consolidated Fixed Charges of such Person
(exclusive of amounts attributable to operations and businesses recorded as
permanently discontinued or disposed of, but only to the extent that the
obligations giving rise to such Consolidated Fixed Charges would no longer be
obligations contributing to such Person's Consolidated Fixed Charges subsequent
to the Transaction Date) during the Reference Period; provided that for
purposes of such calculation, (i) Acquisitions which occurred during the
Reference Period or subsequent to the Reference Period and on or prior to the
Transaction Date shall be assumed to have occurred on the first day of the
Reference Period without regard to the effect of subsection (c) of the
definition of "Consolidated Net Income," (ii) transactions giving rise to the
need to calculate the Consolidated Coverage Ratio shall be assumed to have
occurred on the first day of the Reference Period without regard to the effect
of subsection (c) of the definition of "Consolidated Net Income," (iii) the
incurrence of any Indebtedness during the Reference Period or subsequent to the
Reference Period and on or prior to the Transaction Date (and the application
of the proceeds therefrom to the extent used to refinance or retire other
Indebtedness) shall be assumed to have occurred on the first day of the
Reference Period, and (iv) the Consolidated Fixed Charges of such Person
attributable to interest on any Indebtedness (or dividends on any Disqualified
Capital Stock) bearing a floating interest (or dividend) rate shall be computed
on a pro forma basis as if the average rate in effect from the beginning of the
Reference Period to the Transaction Date had been the applicable rate for the
entire period, 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
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Consolidated Net Income), without duplication, the sum of (i) Consolidated
income tax expense, (ii) Consolidated depreciation and amortization expense,
(iii) Consolidated Fixed Charges and (iv) all other non-recurring non-cash
charges of such Person and its Consolidated Subsidiaries, less the amount of
all cash payments made by such Person or any of its Subsidiaries during such
period to the extent such payments relate to non-recurring non-cash charges
that were added back in determining Consolidated EBITDA for such period or any
prior period; provided that Consolidated income tax expense and depreciation
and amortization of a Subsidiary that is a less than a Wholly-Owned Subsidiary
shall only be added to the extent of the equity interest of the Issuer in such
Subsidiary.
"Consolidated Fixed Charges" of any Person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid, accrued, or scheduled
to be paid or accrued (including, in accordance with the following sentence,
interest attributable to Capitalized Lease Obligations) of such Person and its
Consolidated Subsidiaries during such period, including (i) original issue
discount and non-cash interest payments or accruals on any Indebtedness,
(ii) the interest portion of all deferred payment obligations and (iii) all
commissions, discounts and other fees and charges owed with respect to bankers'
acceptances and letters of credit financings and currency and Interest Swap and
Hedging Obligations, in each case to the extent attributable to such period,
and (b) the amount of dividends accrued or payable (or guaranteed) by such
Person or any of its Consolidated Subsidiaries in respect of Preferred Stock
(other than by Subsidiaries of such Person to such Person or such Person's
Wholly-Owned Subsidiaries). For purposes of this definition, (x) interest on a
Capitalized Lease Obligation shall be deemed to accrue at an interest rate
reasonably determined in good faith by the Issuer 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 the Issuer, 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,
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subject to the proviso to the next succeeding sentence, irrespective of any
changes in the terms and conditions thereof. Without limiting the generality of
the foregoing, the term "Credit Agreement" shall include agreements in respect
of Interest Swap and Hedging Obligations with lenders party to the Credit
Agreement and shall also include any amendment, amendment and restatement,
renewal, extension, restructuring, supplement or modification to any Credit
Agreement and all refundings, refinancings and replacements of any Credit
Agreement, including any agreement (i) extending the maturity of any
Indebtedness incurred thereunder or contemplated thereby, (ii) adding or
deleting borrowers or guarantors thereunder, so long as such borrowers or
guarantors include one or more of the Issuer and its Subsidiaries and their
respective successors and assigns, (iii) increasing the amount of Indebtedness
incurred thereunder or available to be borrowed thereunder; provided that on
the date such Indebtedness is incurred it would not be prohibited by the
covenant "Limitation on Incurrence of Additional Indebtedness" or (iv)
otherwise altering the terms and conditions thereof in a manner not prohibited
by the terms of the Indenture.
"Disqualified Capital Stock" means (a) except as set forth in (b), with
respect to any Person, Equity Interests of such Person that, by its terms or by
the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event (other than customary
change of control provisions) or the passage of time or both would be, required
to be redeemed or repurchased (including at the option of the holder thereof)
by such Person or any of its Subsidiaries, in whole or in part, other than
solely for Qualified Capital Stock of the Issuer, on or prior to 91 days
following the Stated Maturity of the Notes and (b) with respect to any
Subsidiary of such Person (including with respect to any Subsidiary of the
Issuer), 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.
"Engagement Agreement" means that certain Engagement Agreement dated as of
January 24, 1999 between Genstar Capital, LLC, and the Issuer, 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 (i) loss,
destruction or damage of such property or asset or (ii) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.
"Excluded Person" means Genstar Capital and all Related Persons of such
Person.
"Exempted Affiliate Transaction" means (a) customary employee compensation
arrangements approved by a majority of independent (as to such transactions)
members of the Board of Directors of the Issuer, (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 common stock of the Issuer, (c) transactions solely between the
Issuer and any of its Consolidated Subsidiaries or solely among Consolidated
Subsidiaries of the Issuer, (d) Permitted Investments, (e) any issuance of
securities, or other payments, awards or grants in cash, securities or
otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by a majority of members of the
Board of Directors of the Issuer and, if any, a majority of the independent
members of such Board consistent with industry practice, (f) the grant of stock
options or similar rights to employees and directors of the Issuer and its
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Subsidiaries pursuant to plans approved by a majority of members of the Board
of Directors of the Issuer and, if any, a majority of the independent members
of such Board, (g) loans or advances to employees in the ordinary course of
business in accordance with the past practices of the Issuer or its
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 directors of the Issuer and its Subsidiaries who are not employees of the
Issuer or its Subsidiaries, (i) the issuance or sale of any Capital Stock
(other than Disqualified Capital Stock) of the Issuer if approved by a majority
of the members of the Board of Directors and, if any, a majority of the
independent members of such Board and (j) transactions pursuant to the
Management Services Agreement and the Engagement Agreement, both in accordance
with the terms thereof on the Issue Date and without giving effect to any
future amendment or supplement thereto.
"Existing Indebtedness" means the Indebtedness of the Issuer and its
Subsidiaries (other than Indebtedness under the Credit Agreement and the
Canadian Credit Agreement) in existence on the Issue Date, until such amounts
are repaid.
"Foreign Subsidiary" means any Subsidiary of the Issuer which (i) is not
organized under the laws of the United States, any state thereof or the
District of Columbia and (ii) conducts substantially all of its business
operations outside the United States of America.
"GAAP" means United States generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession in the United States applied on a consistent basis and as
in effect from time to time.
"Genstar Capital" means Genstar Capital Corporation and its Affiliates and
stockholders.
"Holdings" means Panolam Industries Holdings, Inc., a Delaware corporation,
so long as Panolam Industries Holdings, Inc. is the direct or indirect parent
of the Issuer.
"Indebtedness" of any Person means, without duplication, (a) all liabilities
and obligations, contingent or otherwise, of any such Person, to the extent
such liabilities and obligations would appear as a liability upon the
Consolidated balance sheet of such Person in accordance with GAAP, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such Person or only to a portion thereof),
(ii) evidenced by bonds, notes, debentures or similar instruments, (iii)
representing the balance deferred and unpaid of the purchase price of any
property or services, except (other than accounts payable or other obligations
to trade creditors which have remained unpaid for greater than 60 days past
their original due date) those incurred in the ordinary course of its business
that would constitute ordinarily a trade payable to trade creditors; (b) all
liabilities and obligations, contingent or otherwise, of such Person (i)
evidenced by bankers' acceptances or similar instruments issued or accepted by
banks, (ii) relating to any Capitalized Lease Obligation or (iii) evidenced by
a letter of credit or a reimbursement obligation of such Person with respect to
any letter of credit; (c) all net obligations of such Person under Interest
Swap and Hedging Obligations; (d) all liabilities and obligations of others of
the kind described in the preceding clause (a), (b) or (c) that such Person has
guaranteed or that is otherwise its legal liability or which are secured by any
assets or property of such Person; (e) any and all deferrals, renewals,
extensions, refinancing and refundings (whether direct or indirect) of, or
amendments, modifications or supplements to, any liability of the kind
described in any of the preceding clauses (a), (b), (c) or (d), or this clause
(e), whether or not between or among the same parties; and (f) all Disqualified
Capital Stock of such Person (measured at the greater of its voluntary or
involuntary maximum fixed repurchase price plus accrued and unpaid dividends).
For purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the Fair Market Value of such Disqualified
Capital
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Stock, such Fair Market Value to be determined in good faith by the Board of
Directors of the issuer (or managing general partner of the issuer) 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 the common stock of the Issuer, the parent guarantors or
Holdings, as the case may be, is listed on a national securities exchange or
quoted on the national market system of the Nasdaq stock market.
"Interest Swap and Hedging Obligation" means any obligation of any Person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such Person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such Person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any Person in any other Person means, without duplication,
(a) the acquisition (whether by purchase, merger, consolidation or otherwise)
by such Person (whether for cash, property, services, securities or otherwise)
of capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such other
Person or any agreement to make any such acquisition; (b) the making by such
Person of any deposit with, or advance, loan or other extension of credit to,
such other Person (including the purchase of property from another Person
subject to an understanding or agreement, contingent or otherwise, to resell
such property to such other Person) or any commitment to make any such advance,
loan or extension (but excluding accounts receivable, endorsements for
collection or deposits arising in the ordinary course of business); (c) other
than guarantees of Indebtedness of the Issuer or 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 the Board of
Directors of the Issuer of any Person to be an Unrestricted Subsidiary. The
Issuer shall be deemed to make an Investment in an amount equal to the fair
market value of the net assets of any subsidiary (or, if neither the Issuer nor
any of its Subsidiaries has theretofore made an Investment in such subsidiary,
in an amount equal to the Investments being made), at the time that such
subsidiary is designated an Unrestricted Subsidiary, and any property
transferred to an Unrestricted Subsidiary from the Issuer or a Subsidiary of
the Issuer shall be deemed an Investment valued at its fair market value at the
time of such transfer. If the Company or any of its Subsidiaries sells or
otherwise disposes of any Equity Interests of any direct or indirect Subsidiary
such that, after giving effect to any such sale or disposition, such Person is
no longer a Subsidiary of the Company or such Subsidiary, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Person not sold
or disposed of in an amount determined as provided in the final paragraph of
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 Indebtedness of
the Issuer or a Subsidiary Guarantor, as applicable, that is subordinated in
right of payment to senior debt at least to the same extent as the Notes or the
Guarantees, as applicable, and has no scheduled installment of principal due,
by redemption, sinking fund payment or otherwise, on or prior to the Stated
Maturity of the Notes; provided, that in case of subordination in respect of
senior debt under the new credit facilities, "Junior Security" shall mean any
Qualified Capital Stock and any Indebtedness of the Issuer or Subsidiary
Guarantor, as applicable, that is issued to a Holder on account of the Notes
pursuant to an order or decree of a court of competent jurisdiction in a
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reorganization proceeding under any applicable bankruptcy or reorganization
law, which Qualified Capital Stock or Indebtedness (i) has a maturity,
mandatory redemption obligation or put right, if any, longer than, or occurring
after the final maturity date of, all senior debt outstanding under the new
credit facilities on the date of issuance of such Qualified Capital Stock or
Indebtedness (and to any securities issued in exchange for any such senior
debt), (ii) is unsecured, (iii) has an Average Life longer than the security
for which such Qualified Capital Stock or Indebtedness is being exchanged, (iv)
does not provide for terms, conditions or covenants more onerous than those
provided in the Notes and (v) by its terms or by law is subordinated to senior
debt outstanding under the new credit facilities on the date of issuance of
such Qualified Capital Stock or Indebtedness (and to any securities in exchange
for any such senior debt) at least to the same extent as the Notes.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable,
now owned or hereafter acquired.
"Management Services Agreement" means that certain Amended and Restated
Management Advisory and Consulting Agreement dated as of January 24, 1999,
between Panolam Industries International, Inc., Panolam Industries, Ltd. and
Genstar Capital, LLC, in accordance with the terms thereof on the Issue Date
and without giving effect to any future amendment or supplement thereto;
provided that the consulting fee payable thereunder may not increase to
$1,391,000 pursuant to the terms thereof before the last to occur of (i) the
cancellation of, and the payment of all amounts owing under, the Domtar Note,
(ii) the termination of, and the payment of all amounts owing under, the
Engagement Agreement, and (iii) the third anniversary date of the Issue Date.
"Material Facility" means the manufacturing facilities owned by the Issuer,
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 the Issuer in the case of a sale, or Capital Contribution in
respect, of Qualified Capital Stock and by the Issuer and its Subsidiaries in
respect of an Asset Sale plus, in the case of an issuance of Qualified Capital
Stock upon any exercise, exchange or conversion of securities (including
options, warrants, rights and convertible or exchangeable debt) of the Issuer
that were issued for cash on or after the Issue Date, the amount of cash
originally received by the Issuer upon the issuance of such securities
(including options, warrants, rights and convertible or exchangeable debt)
less, in each case, the sum of all payments, fees, commissions and (in the case
of Asset Sales, reasonable and customary) expenses (including, without
limitation, the fees and expenses of legal counsel and investment banking fees
and expenses) incurred in connection with such Asset Sale or sale of Qualified
Capital Stock, and, in the case of an Asset Sale only, less the amount
(estimated reasonably and in good faith by the Issuer) of income, franchise,
sales and other applicable taxes required to be paid by the Issuer or any of
its respective Subsidiaries in connection with such Asset Sale in the taxable
year that such sale is consummated or in the immediately succeeding taxable
year, the computation of which shall take into account the reduction in tax
liability resulting from any available operating losses and net operating loss
carryovers, tax credits and tax credit carryforwards, and similar tax
attributes.
"Non-Recourse Indebtedness" means Indebtedness (a) as to which neither the
Issuer nor any of its Subsidiaries nor any Guarantor (i) provides credit
support of any kind (including any undertaking, agreement or instrument that
would constitute Indebtedness), (ii) is directly or indirectly liable (as a
guarantor or otherwise) or (iii) constitutes the lender, and (b) no default
with respect to which (including any rights that the holders thereof may have
to take enforcement action against an Unrestricted Subsidiary) would permit
(upon notice, lapse of time or both) any holder of any other Indebtedness of
the Issuer or any of its Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
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"Obligation" means any principal, premium or interest payment, or monetary
penalty, or damages, due by the Issuer or any Guarantor under the terms of the
Notes or the Guarantees or the Indenture, including any Liquidated Damages due
pursuant to the terms of the Registration Rights Agreement.
"Permitted Indebtedness" means that:
(a) the Issuer 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) the Issuer 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) the Issuer and its Subsidiaries may incur Indebtedness solely in
respect of bankers acceptances, letters of credit, surety and appeal bonds,
and performance bonds (to the extent that such incurrence does not result
in the incurrence of any obligation to repay any obligation relating to
borrowed money of others), all in the ordinary course of business in
accordance with customary industry practices, in amounts and for the
purpose of purchasing or acquiring, or securing the purchase or acquisition
of, goods and services as is customary in the Issuer's industry; provided
that the aggregate principal amount outstanding of such Indebtedness
(including any Refinancing Indebtedness and any other Indebtedness issued
to retire, refinance, refund, defease or replace such Indebtedness) shall
at no time exceed $2.5 million;
(d) the Issuer may incur Indebtedness to any Subsidiary Guarantor or
Canadian Subsidiary and any Subsidiary Guarantor or Canadian Subsidiary may
incur Indebtedness to any other Subsidiary Guarantor or Canadian Subsidiary
or to the Issuer; provided that in the case of Indebtedness of the Issuer
(except for loans to the Issuer from any Canadian Subsidiary made with
borrowings under the Canadian Credit Agreement), such obligations shall be
unsecured and subordinated in all respects to the Issuer's obligations
pursuant to the Notes and any event that causes any such obligee to no
longer be a Subsidiary Guarantor or Canadian Subsidiary, as applicable,
shall be deemed to be a new incurrence subject to the Indenture at such
time;
(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 the Issuer or any of its subsidiaries of Interest
Swap and Hedging Obligations that are incurred for the purpose of fixing or
hedging (a) interest rate risk with respect to any floating rate
Indebtedness that is permitted by the Indenture to be incurred or (b)
currency risk (to the extent incurred in the ordinary course of business as
is customary practice in the Issuer's industry and not for purposes of
speculation), but only to the extent that such incurrence does not result
in a net increase in the notional amount of Indebtedness of the Issuer
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 clauses (d)
or (e) of the definition of "Permitted Indebtedness"; (d) Investments by the
Issuer 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 the
Issuer or a Wholly Owned Subsidiary Guarantor; (e) loans and advances to
employees and officers of the Issuer and its Subsidiaries in the ordinary
course of business for a bona fide business purpose not in excess of $1.5
million at any one time outstanding; (f) Interest Swap and Hedging Obligations
entered into in the ordinary course of the Issuer's or its Subsidiaries'
business and otherwise in compliance with the Indenture; (g) Investments in
securities of trade creditors or customers
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received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers; (h) Investments
by the Issuer or any Subsidiary Guarantor in a Canadian Subsidiary or a
Subsidiary of a Canadian Subsidiary; (i) any Investment in the Issuer or in a
Wholly Owned Subsidiary Guarantor; and (j) Investments made by the Issuer or
its 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 the books of the Issuer in accordance with GAAP; (c) statutory
liens of carriers, warehousemen, mechanics, material men, landlords, repairmen
or other like Liens arising by operation of law in the ordinary course of
business; provided that (i) the underlying obligations are not overdue for a
period of more than 30 days, or (ii) such Liens are being contested in good
faith and by appropriate proceedings and adequate reserves with respect thereto
are maintained on the books of the Issuer in accordance with GAAP; (d) Liens
securing the performance of bids, trade contracts (other than borrowed money),
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of a like nature incurred in the ordinary course of business;
(e) easements, rights-of-way, zoning, similar restrictions and other similar
encumbrances or title defects which, singly or in the aggregate, do not in any
case materially detract from the value of the property subject thereto (as such
property is used by the Issuer or any of its Subsidiaries) or interfere with
the ordinary conduct of the business of the Issuer or any of its Subsidiaries;
(f) Liens arising by operation of law in connection with judgments, only to the
extent, for an amount and for a period not resulting in an Event of Default
with respect thereto; (g) pledges or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security legislation; (h) Liens securing the Notes; (i)
Liens securing Indebtedness of a Person existing at the time such Person
becomes a Subsidiary or is merged with or into the Issuer 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 the
business of the Issuer or any of its Subsidiaries or materially detracting from
the value of the relative assets of the Issuer or any Subsidiary; (l) Liens
arising from precautionary Uniform Commercial Code financing statement filings
regarding operating leases entered into by the Issuer or any of its
Subsidiaries in the ordinary course of business; (m) Liens securing Refinancing
Indebtedness incurred to refinance any Indebtedness that was previously so
secured in a manner no more adverse to the Holders of the Notes than the terms
of the Liens securing such refinanced Indebtedness, 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 the Issuer and its Subsidiaries
including any reasonable professional fees and expenses, but not in excess of
$50,000 in the aggregate during any consecutive 12-month period, and
(b) payments to Holdings (or to any parent guarantor for immediate payment to
Holdings) to enable Holdings to pay foreign, federal, state or local tax
liabilities ("Tax Payments"), not to exceed the amount of any tax liabilities
that would be otherwise payable by the Issuer and its United States
Subsidiaries to the appropriate taxing authorities if they filed separate tax
returns, to the extent that Holdings has an obligation to pay such tax
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liabilities relating to the operations, assets or capital of the Issuer or its
United States Subsidiaries; provided that (i), notwithstanding the foregoing,
in the case of determining the amount of a Tax Payment that is permitted to be
paid by the Issuer and any of its United States Subsidiaries in respect of
their Federal income tax liability, such payment shall be determined assuming
that the Issuer is 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 (ii) any Tax Payments shall, within 90 days of Holdings'
receipt of such payment, either be (a) used by Holdings to pay such tax
liabilities or (b) refunded to the payor.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"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 (i) Qualified Capital Stock of the
Issuer or (ii) Qualified Capital Stock of any parent guarantor or Holdings, to
the extent that the cash proceeds therefrom are used as a Capital Contribution
to the Issuer.
"Purchase Money Indebtedness" of any Person means any Indebtedness of such
Person to any seller or other Person incurred solely to finance the acquisition
(including in the case of a Capitalized Lease Obligation, the lease),
construction, installation, or improvement of any after acquired real or
personal tangible property which, in the reasonable good faith judgment of the
Board of Directors of the Issuer, is directly related to a Related Business of
the Issuer 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 the Issuer or any Guarantor other than the
Person which owns the related assets.
"Qualified Capital Stock" means any Capital Stock of the Issuer, and for
purposes of the definition of "Public Equity Offering" only, any parent
guarantor or Holdings, that is not Disqualified Capital Stock.
"Qualified Exchange" means (i) any legal defeasance, redemption, retirement,
repurchase or other acquisition of Capital Stock or Indebtedness of the Issuer
issued on or after the Issue Date with the Net Cash Proceeds received by the
Issuer from the substantially concurrent sale of Qualified Capital Stock or, to
the extent used to retire Indebtedness of the Issuer issued on or after the
Issue Date, subordinated indebtedness of the Issuer or (ii) any exchange of
Qualified Capital Stock for any Capital Stock or Indebtedness of the Issuer
issued on or after the Issue Date or (iii) any exchange of subordinated
indebtedness of the Issuer for subordinated indebtedness of the Issuer 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 (i) the principal amount or, in the case of Disqualified Capital
Stock, liquidation
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preference, of the Indebtedness or Disqualified Capital Stock so Refinanced and
(ii) if such Indebtedness being Refinanced was issued with an original issue
discount, the accreted value thereof (as determined in accordance with GAAP) at
the time of such Refinancing; provided that (A) such Refinancing Indebtedness
shall only be used to Refinance outstanding Indebtedness or Disqualified
Capital Stock of such Person issuing such Refinancing Indebtedness, (B) such
Refinancing Indebtedness shall (x) not have an Average Life shorter than the
Indebtedness or Disqualified Capital Stock to be so refinanced at the time of
such Refinancing and (y) in all respects, be no less subordinated or junior, if
applicable, to the rights of Holders of the Notes than was the Indebtedness or
Disqualified Capital Stock to be refinanced, (C) such Refinancing Indebtedness
shall have a final stated maturity or redemption date, as applicable, no
earlier than the final stated maturity or redemption date, as applicable, of
the Indebtedness or Disqualified Capital Stock to be so refinanced, and (D)
such Refinancing Indebtedness shall be secured (if secured) in a manner no more
adverse to the Holders of the Notes than the terms of the Liens (if any)
securing such refinanced Indebtedness, including, without limitation, the
amount of Indebtedness secured shall not be increased.
"Related Business" means the business conducted (or proposed to be conducted)
by the Issuer and its Subsidiaries as of the Issue Date and any and all
businesses that in the good faith judgment of the Board of Directors of the
Issuer 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 (i) 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; (ii) any
dividend, distribution or other payment to the Issuer, or to any of its
Subsidiary Guarantors, by the Issuer or any of its Subsidiaries; or (iii) Earn-
Out Payments made pursuant to the Stock Purchase Agreement.
"Senior Debt" of the Issuer or any Guarantor means (i) all Indebtedness
(including any monetary obligation in respect of the Credit Agreement or the
Canadian Credit Agreement, and interest, whether or not allowable, accruing on
Indebtedness incurred pursuant to the Credit Agreement or the Canadian Credit
Agreement after the filing of a petition initiating any proceeding under any
bankruptcy, insolvency or similar law) outstanding under the Credit Agreement
and the Canadian Credit Agreement, including any guarantees thereof and all
Interest Swap and Hedging Obligations with respect thereto, (ii) any other
Indebtedness permitted to be incurred by the Issuer or such Guarantor under the
terms of the Indenture, unless the instrument under which such Indebtedness is
incurred expressly provides that it is on a parity with or subordinated in
right of payment to the Notes, and (iii) all Obligations with respect to the
foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Debt will not include (w) any liability for federal, state, local or other
taxes owed or owing by the Company, (x) any Indebtedness of the Issuer or any
Guarantor to any of its Subsidiaries or other Affiliates, (y) any trade
payables or (z) any Indebtedness that is incurred in violation of the
Indenture.
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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
the Issuer, as in effect on the Issue Date.
"Subordinated Indebtedness" means Indebtedness of the Issuer 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 (i) any corporation a
majority of whose Equity Interests with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such Person, by such Person and one or more Subsidiaries of such Person or
by one or more Subsidiaries of such Person, (ii) any other Person (other than a
corporation) in which such Person, one or more Subsidiaries of such Person, or
such Person and one or more Subsidiaries of such Person, directly or
indirectly, at the date of determination thereof has at least majority
ownership interest and (iii) any partnership in which such Person or a
Subsidiary of such Person is, at the time, a general partner and in which such
Person, directly or indirectly, at the date of determination thereof has at
least a majority ownership interest. Notwithstanding the foregoing, an
Unrestricted Subsidiary shall not be a Subsidiary of the Issuer or of any
Subsidiary of the Issuer. Unless the context requires otherwise, Subsidiary
means each direct and indirect Subsidiary of the Issuer.
"Unrestricted Subsidiary" means any subsidiary of the Issuer that does not
own any Capital Stock of, or own or hold any Lien on any property of, the
Issuer or any other Subsidiary of the Issuer and that, at the time of
determination, shall be an Unrestricted Subsidiary (as designated by the Board
of Directors of the Issuer); provided that at the time of designation such
Subsidiary: (a) has no Indebtedness other than Non-Recourse Indebtedness; (b)
is not party to any agreement, contract, arrangement or understanding with the
Issuer or any Subsidiary of the Issuer unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Issuer or
such Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of the Issuer; (c) is a Person with respect to which neither
the Issuer nor any of its Subsidiaries has any direct or indirect obligation
(x) to subscribe for additional Equity Interests or (y) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of the
Issuer or any of its Subsidiaries. The Board of Directors of the Issuer may
designate any Unrestricted Subsidiary to be a Subsidiary; provided that (i) no
Default or Event of Default is existing or will occur as a consequence thereof
and (ii) immediately after giving effect to such designation, on a pro forma
basis, the Issuer 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. The Company designated two of its indirect, inactive
subsidiaries, The Melamine Group, Inc., and Melamine Decorative Laminate, Inc,
as Unrestricted Subsidiaries. Neither Unrestricted Subsidiary had any material
assets or liabilities or conducts any operations.
"U.S. Government Obligations" means direct non-callable obligations of, or
noncallable obligations guaranteed by, the United States of America for the
payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
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"Voting Equity Interests" means Equity Interests which at the time are
entitled to vote in the election of, as applicable, directors, members or
partners generally.
"Wholly Owned Subsidiary" means a Subsidiary all the Equity Interests of
which are owned by the Issuer or one or more Wholly-Owned Subsidiaries of the
Issuer.
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 the Issuer 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. The Issuer is 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.
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 the Issuer, the Trustee nor any Paying
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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.
The Issuer expects 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. The Issuer also expects
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 the Issuer 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 the Issuer 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 the Issuer 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 (i) DTC notifies the Issuer 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, (ii) the Issuer in its discretion
at any time determines not to have all of the Exchange Notes represented by the
Global Exchange Note or (iii) 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.
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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, the Issuer and the Guarantors
(the "Obligors") are required to use 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 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 (i) the Exchange Offer is not permitted by
applicable law or SEC policy or (ii) any holder of the Notes which are Transfer
Restricted Securities (as defined in the Registration Rights Agreement)
notifies the Issuer 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 the Issuer or any of
the Issuer's 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 the Issuer 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 (i) 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, (ii) if the Exchange Offer Registration
Statement is not declared effective by the SEC on or prior to the 150th day
after the Issue Date, (iii) if the Exchange Offer is not consummated on or
before the 30th business day after the Exchange Offer Registration Statement is
declared effective, (iv) 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, (v) 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 (vi) if the
Exchange Offer Registration Statement or the Shelf Registration Statement, as
the case may be, is declared effective but thereafter ceases to be effective or
useable in connection with resales of the Transfer Restricted Securities, for
such time of non-effectiveness or non-usability (each, a "Registration
Default"), the Obligors agree to pay to each holder of Transfer Restricted
Securities affected thereby Liquidated Damages in an amount equal to $0.05 per
week per $1,000 in principal amount of Transfer Restricted Securities held by
such holder for each week or portion thereof that the Registration Default
continues for the first 90 day period immediately following the occurrence of
such Registration Default. The amount of the Liquidated Damages shall increase
by an additional $0.05 per week per $1,000 in principal amount of Transfer
Restricted Securities at the beginning of and for each subsequent 90 day period
until all Registration Defaults have been cured, up to a maximum amount of
Liquidated Damages of $0.50 per week, per $1,000 in principal amount of
Transfer Restricted Securities.
Assuming consummation of the Exchange Offer made hereby, all of the Obligor's
registration obligations with respect to the Old Notes under the Registration
Rights Agreement will have been fulfilled.
The foregoing summary of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an Exhibit to the Registration
Statement of which this prospectus forms a part.
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Certain Federal Income Tax Consequences
The following is a discussion of certain material United States 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 persons who are original beneficial owners of the
exchange notes and who hold such exchange notes as capital assets ("Holders").
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 Non-U.S. Holders (as
defined below) that are 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.
Prospective purchasers of the exchange notes are urged to consult their tax
advisors concerning the United States federal income tax consequences to them
of acquiring, owning and disposing of the exchange notes, as well as the
application of state, local and foreign income and other tax laws.
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 beneficial
owner who or which is: (i) a citizen or resident of the United States; (ii) a
corporation created or organized under the laws of the United States or any
State thereof (including the District of Columbia); or (iii) a person otherwise
subject to U.S. federal income taxation on its worldwide income (a "U.S.
Holder") as ordinary 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 U.S. Holder of an exchange note purchased an old note for an amount in
excess of the amount payable at the maturity date (or a call date, if
appropriate) of the old note, the 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.
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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 (i) such
gain (or appreciation, in the case of a gift) or (ii) 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 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 rate of 20%. The deductibility of capital losses
is subject to limitations.
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 a U.S. Holder (a "Non-U.S. Holder") will not be subject to
U.S. federal withholding tax, provided that in the case of interest (a) (1)
the beneficial owner 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) the
beneficial owner is not a controlled foreign corporation that is related to
the Issuer through stock ownership, (3) the beneficial owner is not a bank
described in Section 881(c)(3)(A) of the Internal Revenue Code, and (4)
either (A) the beneficial owner 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) the Non-U.S. Holder is
entitled to the benefits of an income tax treaty under which interest on
the exchange notes
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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.
Under finalized Treasury regulations (the "New Regulations"), generally
effective for payments made after December 31, 1999, 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,
1998 with respect to an offshore account or through certain intermediaries. In
addition, under the New 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, 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, 1999, 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.
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Plan of Distribution
Each broker-dealer that receives notes for its own account pursuant to the
exchange offer must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act of 1933 in connection with any resale of
exchange notes received in respect of such notes pursuant to the exchange
offer. This prospectus, as we may amend or supplement from time to time, may be
used by a broker-dealer in connection with resales of exchange notes received
in exchange for old notes where such old notes were acquired as a result of
market-making activities or other trading activities. We have agreed to make
this prospectus, as we may amend or supplement it, available to any broker-
dealer for use in connection with any such resale. In addition, until
, 1999, all dealers effecting transactions in the exchange notes
may be required to deliver a prospectus.
We will not receive any proceeds from any sales of the exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange notes or a combination of these
methods of resale, at market prices prevailing at the time of resale, at prices
related to these prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes. Any broker-
dealer that resells the exchange notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act of 1933 and any profit
on any such resale of exchange notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act of 1933. The letter of transmittal in connection with
this exchange offer states that by acknowledging that it will deliver and by
delivering a prospectus meeting the requirements of the Securities Act of 1933,
a broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act of 1933.
With respect to resales of exchange notes, based on interpretations by the
SEC staff set forth in no-action letters issued to third parties, we believe
that a holder or other person who receives exchange notes, whether or not such
person is the holder (other than a person that is an "affiliate" of us within
the meaning of Rule 405 under the Securities Act of 1933) who receives exchange
notes in exchange for notes in the ordinary course of business and who is not
participating, does not intend to participate, and has no arrangement or
understanding with person to participate, in the distribution of the exchange
notes, will be allowed to resell the exchange notes to the public without
further registration under the Securities Act of 1933 and without delivering to
the purchasers of the exchange notes a prospectus that satisfies the
requirements of Section 10 of the Securities Act of 1933. However, if any
holder acquires exchange notes in the exchange offer for the purpose of
distributing or participating in a distribution of the exchange notes, such
holder cannot rely on the position of the staff enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act of 1933
in connection with any resale transaction and such a secondary resale
transaction should be covered by an effective registration statement containing
the selling security holder information required by Item 507 or 508, as
applicable, of Regulation S-K under the Securities Act of 1933, unless an
exemption from registration is otherwise available. Further, each broker-dealer
that receives exchange notes for its own account in exchange for old notes,
where such old notes were acquired by such broker-dealer as a result of market-
making activities or other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such exchange notes.
For a period of 180 days after the expiration date, we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the letter of
transmittal. We have agreed to pay all expenses incident to the exchange offer
(including the expenses of one counsel for the holders of the notes) other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the notes (including any broker-dealer) against certain liabilities,
including liabilities under the Securities Act of 1933.
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Legal Matters
Certain legal matters in connection with the issuance of the exchange notes
offered hereby will be passed upon for Panolam by Brobeck, Phleger & Harrison
LLP, San Francisco, California.
Experts
The consolidated financial statements as of December 31, 1998 and 1997, 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 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 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. Some information is omitted and you
should refer to the registration statement and its exhibits. With respect to
references made in this prospectus to any contract, agreement or other document
of Panolam, these references are not necessarily complete and you should refer
to the exhibits attached to the registration statement for copies of the actual
contract, agreement or other document. You may review a copy of the
registration statement, including exhibits, at the SEC's public reference room
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or Seven
World Trade Center, 13th Floor, New York, New York 10048 or Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the
SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms.
Following the effective date of the registration statement, we will be
subject to the information requirements of the Securities Exchange Act of 1934
and will be required to file annual, quarterly and current reports and other
information with the SEC. We have agreed that, whether or not we are subject to
the reporting requirements of the Securities Exchange Act of 1934, we will file
with the SEC (unless the SEC will not accept such a filing), and furnish to our
noteholders the annual reports and such information, documents and other
reports as are specified in the Securities Exchange Act of 1934. You may read
and copy any reports or other information on file at the SEC's public reference
rooms. You can also request copies of these documents, for a copying fee, by
writing to the SEC.
Our SEC filings and the registration statement can also be reviewed by
accessing the SEC's Internet site at http://www.sec.gov, which contains reports
and other information regarding registrants that file electronically with the
SEC.
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Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
PANOLAM GROUP, INC. and Subsidiaries
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
DOMTAR DECORATIVE PANELS (a Division of Domtar Inc.)
Auditors' Report........................................................ F-28
Combined Divisional Statement of Operations for the period from January
1 to June 11, 1996..................................................... F-29
Combined Divisional Statement of Owner's Equity for the period from
January 1 to June 11, 1996............................................. F-30
Combined Divisional Statement of Cash Flows for the period from January
1 to June 11, 1996..................................................... F-31
Notes to Combined Divisional Financial Statements....................... F-32
PIONEER PLASTICS CORPORATION
Balance Sheets as of December 26, 1997 and December 25, 1998............ F-38
Statements of Income and Retained Earnings for the years ended December
27, 1996, December 26, 1997 and December 25, 1998...................... F-39
Statements of Cash Flows for the years ended December 27, 1996, December
26, 1997 and December 25, 1998......................................... F-40
Notes to Financial Statements........................................... F-41
</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 ended December 31, 1998, 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 sheets of Panolam Group, Inc. and
Subsidiaries as at December 31, 1997 and 1996 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 1996 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 to December 31, 1996, and the
years ended December 31, 1997 and 1998
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional Total
------------- Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Initial Capitalization......... 1,000 $ -- $18,073 $ -- $18,073
Contribution from Parent....... -- -- 8,000 -- 8,000
Net income for the period from
May 16 to December 31, 1996... -- -- -- 2,060 2,060
----- ---- ------- ------- -------
Balance at December 31, 1996... 1,000 26,073 2,060 28,133
Net loss for the year ended
December 31, 1997............. -- -- -- (1,393) (1,393)
----- ---- ------- ------- -------
Balance at December 31, 1997... 1,000 26,073 667 26,740
Contribution from Parent....... -- -- 1,000 -- 1,000
Net income for the year ended
December 31, 1998............. -- -- -- 3,398 3,398
----- ---- ------- ------- -------
Balance at December 31, 1998... 1,000 $ -- $27,073 $ 4,065 $31,138
===== ==== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the For the year
period from ended December
May 16 31,
to December 31, -----------------
1996 1997 1998
--------------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................... $ 2,060 $ (1,393) $ 3,398
Extraordinary items........................ -- 5,159 --
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization............ 2,412 4,586 6,240
Loss on disposition of property, plant,
and equipment........................... -- 2,339 452
Deferred income taxes.................... 1,194 (841) 1,119
Amortization of deferred financing
costs................................... 685 1,081 732
Pension liabilities and accrued post
retirement costs........................ 112 533 (1,749)
Changes in operating assets and
liabilities:
Trade and other accounts receivable...... 594 (2,111) 3,297
Other current assets..................... (1,005) 554 965
Inventories.............................. (718) (315) 1,204
Trade accounts payable and accruals...... (2,188) 1,919 834
Other.................................... 828 (1,191) (23)
------- -------- -------
Net cash provided by operating activities... 3,974 10,320 16,469
------- -------- -------
Cash flows from investing activities
Acquisition costs, net of acquired cash.... (95,514) -- (589)
Acquisition of property, plant, and
equipment................................. (4,075) (9,997) (4,232)
------- -------- -------
Net cash used in investing activities....... (99,589) (9,997) (4,821)
------- -------- -------
Cash flows from financing activities
Contribution from Parent................... 8,000 -- 1,000
Issue of common stock...................... 18,073 -- --
Repayment of long-term debt................ -- (70,952) (2,925)
Proceeds from long-term debt............... 70,983 75,000 --
Payment of financing costs................. (6,495) (3,792) (58)
Obligations under capital leases........... 340 (57) (17)
Proceeds (payment) of revolving credit
facility, net............................. 3,922 (307) (3,615)
Bank overdraft............................. 794 770 (1,564)
------- -------- -------
Net cash provided by (used in) financing
activities................................. 95,617 662 (7,179)
------- -------- -------
Net increase in cash........................ 2 985 4,469
Cash--Beginning of period................... -- 2 987
------- -------- -------
Cash--End of period......................... $ 2 $ 987 $ 5,456
======= ======== =======
Supplemental disclosure of cash flow
information:
Cash payments for interest................. $ 3,814 $ 6,672 $ 7,458
Cash payments for income taxes............. $ -- $ 121 $ --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands)
1. Organization and Nature of Operations
Panolam Industries International, Inc was incorporated in the State of
Delaware on May 16, 1996 and changed its name to Panolam Group, Inc. ("PGI") on
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.) ("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, 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 5,689
Accrued interest............................................... 891 739
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
<TABLE>
<CAPTION>
1996
-------
<S> <C>
Supplemental schedule of investing activities:
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.
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>
F-18
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
14. Contingencies and commitments--(Continued)
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.
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 $160 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 $25 million and term loan facilities providing for loans in an
aggregate principal amount of $80 million.
On February 15, 1999, PIIT entered into a Purchase Agreement to issue and
sell $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.
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 unconditionally guaranteed, on a senior subordinated basis, by
PGI and the following 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.
F-19
<PAGE>
PANOLAM GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(in thousands)
17. Summarized consolidating information--(Continued)
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
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 Guarantors, and the non-guarantor
subsidiaries. Separate financial statements of the Issuer and 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 Guarantors combine the operations of the Issuer (PIII),
the Parent Guarantors (PGI and PIIS) and the Operating Subsidiaries which are
Guarantors. 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>
Combined Non-
Issuer Guarantor
and Guarantors Subsidiary Eliminations Consolidated
-------------- ---------- ------------ ------------
<S> <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................ 3,223 -- (3,223) --
-------- -------- ------- ---------
Net income................. $ 3,398 $ 3,223 $(3,223) $ 3,398
======== ======== ======= =========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
Combined Non-
Issuer Guarantor
and Guarantors Subsidiary Eliminations Consolidated
-------------- ---------- ------------ ------------
<S> <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................ 556 -- (556) --
-------- -------- ----- ---------
(Loss) income before
extraordinary item........ (133) 2,646 (556) 1,957
Extraordinary item......... (1,260) (2,090) -- (3,350)
-------- -------- ----- ---------
Net (loss) income.......... $ (1,393) $ 556 $(556) $ (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>
Combined Non-
Issuer Guarantor
and Guarantors Subsidiary Eliminations Consolidated
-------------- ---------- ------------ ------------
<S> <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................ 1,896 -- (1,896) --
-------- -------- ------- --------
Net income................. $ 2,060 $ 1,896 $(1,896) $ 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>
Combined Non-
Issuer Guarantor
and Guarantors Subsidiary Eliminations Consolidated
-------------- ---------- ------------ ------------
<S> <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... 6,856 2,445 -- 9,301
Investment in subsidiary... 5,676 -- (5,676) --
-------- ------- ------- --------
Total assets............. $ 44,197 $81,071 $(5,676) $119,592
======== ======= ======= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable and
accrued liabilities...... $ 6,260 $ 6,246 $ -- $ 12,506
Current portion of long
term debt................ 1,500 625 -- 2,125
Intercompany payable
(receivable)............. (11,453) 11,453 -- --
-------- ------- ------- --------
Total current
liabilities............. (3,693) 18,324 -- 14,631
Long-term liabilities:
Long term debt............ 16,500 53,717 -- 70,217
Other long term
liabilities.............. 252 3,354 -- 3,606
-------- ------- ------- --------
Total liabilities........ 13,059 75,395 -- 88,454
Stockholders' equity....... 31,138 5,676 (5,676) 31,138
-------- ------- ------- --------
Total liabilities and
stockholders' equity.... $ 44,197 $81,071 $(5,676) $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>
Combined Non-
Issuer Guarantor
and Guarantors Subsidiary Eliminations Consolidated
-------------- ---------- ------------ ------------
<S> <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 insubsidiary.... 2,453 -- (2,453) --
-------- ------- ------- --------
Total assets............. $ 44,658 $81,079 $(2,453) $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 2,453 (2,453) 26,740
-------- ------- ------- --------
Total liabilities and
stockholders' equity.... $ 44,658 $81,079 $(2,453) $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 Guarantor
and Guarantors Subsidiary Eliminations Consolidated
-------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net cash provided by
operating activities...... $ 5,732 $13,960 $(3,223) $16,469
------- ------- ------- -------
Cash flows from investing
activities:
Acquisition costs, net of
acquired cash............ (589) -- -- (589)
Acquisition of property,
plant and equipment...... (691) (3,541) -- (4,232)
------- ------- ------- -------
Net cash used in investing
activities................ (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>
Combined Non-
Issuer Guarantor
and Guarantors Subsidiary Eliminations Consolidated
-------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net cash provided by
operating activities...... $ (4,149) $ 15,025 $ (556) $ 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
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.. 10,698 (10,036) -- 662
-------- -------- ------ --------
Net increase in cash....... 1,374 167 (556) 985
Cash--Beginning of period.. 1 1 -- 2
-------- -------- ------ --------
Cash--End of period........ $ 1,375 $ 168 $ (556) $ 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>
Combined Non-
Issuer Guarantor
and Guarantors Subsidiary Eliminations Consolidated
-------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Net cash provided by
operating activities...... $ 1,966 $ 3,904 $(1,896) $ 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
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...... 34,196 61,421 -- 95,617
-------- -------- ------- --------
Net increase in cash....... 1,897 1 (1,896) 2
Cash--Beginning of period.. -- -- -- --
-------- -------- ------- --------
Cash--End of period........ $ 1,897 $ 1 $(1,896) $ 2
======== ======== ======= ========
</TABLE>
F-27
<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-28
<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-29
<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-30
<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-31
<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-32
<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-33
<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-34
<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-35
<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-36
<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-37
<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-38
<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-39
<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-40
<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-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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.............................................................. 1
The Transactions.......................................................... 2
Use of Proceeds........................................................... 28
Capitalization............................................................ 28
The Exchange Offer........................................................ 29
Unaudited Pro Forma Combined Financial Data............................... 37
Selected Historical Financial Data........................................ 43
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 47
Business.................................................................. 55
Management................................................................ 68
Security Ownership of Certain Beneficial Owners and Management............ 72
Certain Relationships and Related Transactions............................ 73
Description of Certain Indebtedness....................................... 75
Description of Exchange Notes............................................. 80
Certain Federal Income Tax Consequences................................... 114
Plan of Distribution...................................................... 117
Legal Matters............................................................. 118
Experts................................................................... 118
Where You Can Find Additional Information................................. 118
Index to Financial Statements ............................................ F-1
</TABLE>
---------------
Until , 1999 (90 days after the date of this prospectus), all dealers
that buy, sell or trade these securities, whether or not participating in this
exchange offer, may be required to deliver a prospectus. This is in addition
to dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Panolam 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 and as amended on September
11, 1998, October 16, 1998 and November 30, 1998, 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.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------------------
<C> <S>
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, by and among 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 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, by and among 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, by and among Panolam Group, Inc., PII
Second, Inc., Panolam Industries, Inc., and Pioneer Plastics Corporation, as
Guarantors, and Donaldson, Lufkin & Jenrette Securities Corporation and Credit
Suisse First Boston Corporation, as Initial Purchasers
5.1* Opinion of Brobeck, Phleger & Harrison LLP
10.1 Credit Agreement, dated as of February 18, 1999 by and among Panolam Industries
Ltd., certain financial institutions and Credit Suisse First Boston Canada, as
Canadian Administrative Agent, and Royal Bank of Canada, as Documentation Agent
10.2 Credit Agreement, dated as of February 18, 1999 by and among Panolam Industries
International, Inc., 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
10.3 Amended and Restated Management Advisory and Consulting Agreement dated as of
January 24, 1999 between Panolam Industries, Inc., Panolam Industries Ltd., and
Genstar Capital Partners II, L.P.
10.4 Stockholders Agreement, dated as of June 7, 1996 between Panolam Industries
Holdings, Inc., Domtar Industries, Inc., Genstar Capital Partners II, L.P.,
Robert J. Muller, Jr., and each option holder party thereto
10.5 Stock Option Agreement, dated as of June 7, 1996 and as amended on June 7, 1996
between Panolam Industries International, Inc., Genstar Capital Partners II, L.P.
and Domtar Industries, Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
10.6 Promissory Note dated June 12, 1996, executed by Panolam Industries Holdings, Inc.
in favor of Domtar Industries Inc.
10.7 Warrant Agreement, dated as of June 7, 1996 between Panolam Industries Holdings,
Inc. and Domtar Industries, Inc.
10.8* Form of Pionite Solid Surface Distribution Agreement, between Pioneer Plastics
Corporation and the Distributors party thereto
10.9* Form of Pionite Decorative Laminates Distributorship Agreement, between Pioneer
Plastics Corporation and the Distributors party thereto
10.10 Panolam Industries Holdings, Inc. 1996 Equity Incentive Plan
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 Brobeck, Phleger & Harrison LLP (included in its opinion filed as
Exhibit 5.1)
24.1 Powers of Attorney (contained on page II-6 of this Registration Statement)
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>
- ---------------------
* to be filed by amendment
(b) Financial Statement Schedules
Schedule II* Valuation and Qualifying Accounts and Reserves.
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.
- ---------------------
* to be filed by amendment
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
II-3
<PAGE>
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.
(1) The undersigned Registrants hereby undertake as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the Issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The undersigned Registrants hereby undertake that every prospectus
(i) that is filed pursuant to paragraph (a)(1) immediately preceding, or
(ii) that purports to meet the requirements of Section 10(a)(3) of the Act
and is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the Registration Statement
and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Act, 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.
(b) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrants
pursuant to the provisions described under Item 20 hereof or otherwise, the
Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrants will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) Each undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(d) Each undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
undersigned Registrants have duly caused this Registration Statement to be
signed on their behalf by the undersigned, thereunto duly authorized, in the
City of Shelton, State of Connecticut, on May 14, 1999.
ISSUER:
PANOLAM INDUSTRIES INTERNATIONAL, INC.
/s/ Robert J. Muller, Jr.
By: __________________________________
Name: Robert J. Muller, Jr.
Title:President and Chief
Executive Officer
GUARANTORS:
PANOLAM GROUP, INC.
/s/ Robert J. Muller, Jr.
By: __________________________________
Name: Robert J. Muller, Jr.
Title:President and Chief
Executive Officer
PII SECOND, INC.
/s/ Robert J. Muller, Jr.
By: __________________________________
Name: Robert J. Muller, Jr.
Title:President and Chief
Executive Officer
PANOLAM INDUSTRIES, INC.
/s/ Robert J. Muller, Jr.
By: __________________________________
Name: Robert J. Muller, Jr.
Title:President and Chief
Executive Officer
PIONEER PLASTICS CORPORATION
/s/ Robert J. Muller, Jr.
By: __________________________________
Name: Robert J. Muller, Jr.
Title:President and Chief
Executive Officer
II-5
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert J. Muller, Jr. and Sara M. Foster and
each of them their true and lawful attorneys-in-fact and agents each with full
power of substitution and resubstitution, for it and in its name, place and
stead, in any and all capacities, to sign any or all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as it might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, and each of them or their substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
Signature Title Dated
--------- ----- -----
<C> <S> <C>
/s/ Robert J. Muller, Jr. President, Chief Executive May 14, 1999
____________________________________ Officer (principal
Robert J. Muller, Jr. executive officer) and
Director of the Issuer
and each Guarantor
/s/ Sara M. Foster Director of Finance May 14, 1999
____________________________________ (principal financial
Sara M. Foster officer and principal
accounting officer) of
the Issuer and each
Guarantor
/s/ Jean-Pierre L. Conte Director of the Issuer and May 14, 1999
------------------------------------ each Guarantor
Jean-Pierre L. Conte
/s/ Richard D. Paterson Director of the Issuer and May 14, 1999
------------------------------------ each Guarantor
Richard D. Paterson
/s/ Richard F. Hoskins Director of the Issuer and May 14, 1999
------------------------------------ each Guarantor
Richard F. Hoskins
</TABLE>
II-6
<PAGE>
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
by and between
RUGBY USA, INC.,
and
PII THIRD, INC.
as of
July 17, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
1. DEFINITIONS...................................................... 1
2. SALE AND PURCHASE; CLOSING....................................... 11
(a) Sale and Purchase...................................... 11
(b) Preliminary Purchase Price............................. 11
(c) Closing................................................ 12
(d) Closing Obligations.................................... 12
(e) Adjustment of Preliminary Purchase Price............... 13
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER..................... 17
(a) Organization and Power................................. 17
(b) Authorization.......................................... 17
(c) Absence of Conflicts................................... 17
(d) Shares................................................. 17
(e) Brokerage.............................................. 18
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY............ 18
(a) Organization and Standing.............................. 18
(b) Capitalization......................................... 18
(c) Absence of Conflicts................................... 19
(d) Financial Statements................................... 19
(e) Books and Records...................................... 20
(f) Accounts Receivable.................................... 20
(g) Inventory.............................................. 20
(h) Absence of Undisclosed Liabilities..................... 21
(i) Absence of Changes..................................... 21
(j) Real Property.......................................... 24
(k) Personal Property...................................... 24
(l) Material Contracts..................................... 25
(m) Proprietary Rights..................................... 27
(n) Litigation............................................. 27
(o) Compliance with Laws................................... 27
(p) Environmental Compliance and Other Permits and
Licenses.............................................. 27
(q) Employee Benefits...................................... 28
(r) Tax Matters............................................ 30
(s) Certain Proceedings.................................... 32
(t) Brokerage.............................................. 32
(u) Sales and Purchase Order Backlog....................... 32
(v) Certain Interests...................................... 32
(w) Governmental Consents and Approvals.................... 33
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
(x) Assets................................................. 33
(y) Customers.............................................. 33
(z) Suppliers.............................................. 34
(aa) Labor Matters.......................................... 34
(bb) Key Employees.......................................... 35
(cc) Insurance.............................................. 35
(dd) Product and Service Warranties......................... 36
(ee) Full Disclosure........................................ 36
(ff) Disclaimer of Other Representations and Warranties..... 36
5. REPRESENTATIONS AND WARRANTIES OF THE BUYER...................... 36
(a) Organization and Power................................. 37
(b) Authorization.......................................... 37
(c) Absence of Conflicts................................... 37
(d) Brokerage.............................................. 37
(e) Investment............................................. 37
(f) Finance Letters........................................ 37
(g) Certain Proceedings.................................... 37
6. COVENANTS OF THE SELLER BEFORE THE CLOSING DATE.................. 38
(a) Access and Investigation............................... 38
(b) Operation of the Company's Business.................... 38
(c) Required Approvals..................................... 38
(d) No Solicitation or Negotiation......................... 39
(e) Preparation and Filing of Tax Returns; Payment of
Taxes................................................. 39
(f) Notification of Tax Proceedings........................ 39
(h) Notice of Developments................................. 40
7. COVENANTS OF THE BUYER BEFORE THE CLOSING DATE................... 40
8. CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATIONS................. 41
9. ADDITIONAL CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATIONS...... 42
10. CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS.................. 43
11. TERMINATION...................................................... 44
(a) Termination Events..................................... 44
(b) Effect of Termination.................................. 44
12. INDEMNIFICATION.................................................. 45
(a) Survival of Representations and Warranties............. 45
(b) Indemnification by the Seller.......................... 45
(c) Limits on Indemnification.............................. 47
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
(d) Tax Matters......................................... 47
(e) Indemnification by the Buyer........................ .47
(f) Tax Effects of Indemnification on Payment........... 49
(g) Insurance Coverage.................................. 49
(h) Sole Remedy......................................... 49
(i) Characterization of Indemnification Payments........ 49
13. GUARANTY OF AEROQUIP PERFORMANCE.............................. 50
14. TAX MATTERS................................................... 52
(a) Allocation of Liability for Taxes................... 52
(b) Proration of Taxes.................................. 53
(c) Refunds of Taxes; Amended Returns; Carryovers....... 53
(d) Preparation and Filing of Tax Returns............... 54
(e) Tax Controversies; Assistance and Cooperation....... 55
(f) Termination of Tax Allocation Agreements............ 57
(g) Election Under Section 338(h)(10)................... 57
15. COSTS AND EXPENSES............................................ 58
(a) Costs and Expenses of the Seller.................... 58
(B) Costs and Expenses of the Buyer..................... 58
16. FURTHER ASSURANCES............................................ 58
17. MISCELLANEOUS................................................. 59
(a) Release of Indemnity Obligations.................... 59
(b) Payment of Transaction Induced Payments............. 59
(c) Preparation of Financial Statements................. 59
(d) Press Releases and Public Announcements............. 59
(e) Notices............................................. 59
(f) No Third Party Beneficiaries; Successors and Assigns 61
(g) Counterparts........................................ 61
(h) Governing Law....................................... 61
(i) Severability........................................ 61
(j) Headings............................................ 62
(k) Construction........................................ 62
(l) Waiver.............................................. 62
(m) Amendment........................................... 62
(n) Pronouns............................................ 62
(o) Entire Agreement.................................... 62
(p) Incorporation of Disclosure Schedule and Exhibits... 62
(q) Rugby Covenant...................................... 62
(r) Enforcement......................................... 63
</TABLE>
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<PAGE>
EXHIBITS
Exhibit 2(d)(iv) Form of Distributor Agreements
Exhibit 8(a) Form of Updated Finance Letter
Exhibit 8(b) Form of Acceptance Letter
Exhibit 10(j) Terms and Conditions of Non-Competition Agreement
(The Rugby Group plc)
Exhibit 10(k) Form of Non-Competition Agreement (James P. Tees, Douglas G.
McDonald, Robert H. Stevenson and Patrick H. Peyton)
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STOCK PURCHASE AGREEMENT
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This Stock Purchase Agreement (the "Agreement") is entered into as of July
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17, 1998, by and between Rugby USA, Inc., a Georgia corporation (the "Seller"),
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and PII Third, Inc., a Delaware corporation (the "Buyer").
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RECITALS
A. Pioneer Plastics Corporation (the "Company")is a wholly-owned subsidiary of
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the Seller.
B. The Seller desires to sell to the Buyer, and the Buyer desires to acquire
from the Seller, all of the issued and outstanding shares of capital stock of
the Company for the consideration and on the terms and conditions set forth in
this Agreement.
C. The Rugby Group plc ("Rugby"), the indirect parent company of the Seller,
desires that the aforesaid sale be consummated on the terms and conditions set
forth in this Agreement and in connection therewith Rugby acknowledges that its
non-competition covenant to the Buyer, as provided for in Section 10, is an
essential element of the aforesaid sale and but for the agreement of Rugby to
comply with this covenant the Buyer would not have entered into this Agreement.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms and variations thereof
have the meanings specified or referred to in this Section 1.
"ACCEPTANCE LETTER" has the meaning set forth in Section 8.
"ACQUISITION DOCUMENTS" has the meaning set forth in Section 11(a).
"AEROQUIP" means together Aeroquip Corporation and Aeroquip-Vickers, Inc.
"AEROQUIP AGREEMENTS" means those agreements and documents set forth on
Schedule 1.
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<PAGE>
"AEROQUIP CLAIMS" means those Environmental Claims for which, after the
Closing, the Company is entitled to indemnification by Aeroquip pursuant to the
Aeroquip Agreements.
"ACTION" means any claim, action, suit, arbitration, inquiry, proceeding,
hearing or investigation by or before any Governmental Body.
"ADVERSE CONSEQUENCES" means all Actions, charges, complaints, claims,
demands, injunctions, judgments, orders, decrees, rulings, damages, dues,
penalties, fines, costs, reasonable amounts paid in settlement, liabilities,
obligations, Taxes, Encumbrances, losses, expenses and fees, including court
costs and reasonable attorneys' fees and expenses.
"AFFILIATE" means any Person that directly or indirectly owns or controls,
is owned or controlled by or is under common ownership or control with the
Person in question.
"AGREEMENT" has the meaning set forth in the first paragraph of this
Agreement.
"ALLOCATION ARBITER" has the meaning set forth in Section 14(g)(iii).
"ASSETS" has the meaning set forth in Section 4(x)(i).
"BUSINESS" means, collectively, the high pressure decorative laminating
business, the low pressure laminates business, the specialty resin business and
the saturated papers business (including the manufacture, distribution,
marketing and sale of related products) and all other business which prior to
the date hereof has been conducted by the Company.
"BUSINESS DAY" means any day on which commercial banks are open for
business in the City of New York.
"BUYER" has the meaning set forth in the first paragraph of this Agreement.
"BUYER GROUP" has the meaning set forth in Section 2(e)(v)(F)(1).
"BUYER INDEMNIFIED PARTY" has the meaning set forth in Section 12(b)(i).
"BUYER'S ACCOUNTANTS" means Ernst & Young LLP or such other independent
accounting firm of international reputation as the Buyer may select.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended through the date hereof.
"CERCLIS" means the Comprehensive Environmental Response, Compensation and
Liability Information System, as updated through the date hereof.
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<PAGE>
"CLOSING" has the meaning set forth in Section 2(c).
"CLOSING DATE" has the meaning set forth in Section 2(c).
"CLOSING NET OPERATING ASSETS" means the Net Operating Assets of the
Company as of the Closing Date based on the Closing Net Operating Assets
Statement.
"CLOSING NET OPERATING ASSETS STATEMENT" means the Net Operating Assets of
the Company as of the Closing Date has the meaning set forth in Section 2(e).
"COMPANY" has the meaning set forth in the recitals of this Agreement.
"COMPANY EMPLOYEE BENEFIT PLANS" has the meaning set forth in Section
4(q)(i).
"CONFIDENTIALITY AGREEMENT" means the confidentiality letter agreement by
and between Genstar Capital LLC and Rugby, dated April 21, 1998.
"CONTEMPLATED TRANSACTIONS" means all of the transactions contemplated by
this Agreement.
"DEVIATION DETERMINATION" has the meaning set forth in Section 8.
"DISCLOSURE SCHEDULE" has the meaning set forth in Section 4.
"DISTRIBUTOR AGREEMENTS" has the meaning set forth in Section 2(d)(ii)(D).
"EARN-OUT AMOUNT" has the meaning set forth in Section 2(e)(v)(B).
"EBITDA" has the meaning set forth in Section 2(e)(v)(F)(2).
"EBITDA STATEMENT" has the meaning set forth in Section 2(e)(v)(A).
"EMPLOYEE BENEFIT PLAN" means an Employee Pension Benefit Plan, an Employee
Welfare Benefit Plan or any bonus, incentive compensation, profit sharing,
retirement, pension, group insurance, death benefit, health, cafeteria, flexible
benefit, medical expense reimbursement, dependent care, stock option, stock
purchase, stock appreciation rights, savings, deferred compensation, consulting,
severance pay or termination pay, vacation pay, life insurance, welfare or other
employee benefit or fringe benefit plan, program or arrangement.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in ERISA Section
3(2).
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in ERISA Section
3(1).
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<PAGE>
"ENCUMBRANCE" means any charge, claim, condition, equitable interest, lien,
option, pledge, security interest, mortgage, right of first refusal or
restriction of any kind, including any restriction on use, voting, transfer,
receipt of income or exercise of any other attribute of ownership.
"ENVIRONMENT" means surface waters, groundwaters, soil, subsurface strata
and ambient air.
"ENVIRONMENTAL CAP" has the meaning set forth in Section 12(c).
"ENVIRONMENTAL CLAIMS" means any and all written and, to the Seller's
Knowledge, oral administrative, regulatory or judicial actions, suits, causes of
action, demands, demand letters, claims, liens, notices of non-compliance or
violation, investigations, proceedings, consent orders or consent or settlement
agreements relating in any way to any Environmental Law or any Environmental
Permit (hereinafter "Claims"), including (a) any and all Claims or directions by
------
Governmental Bodies for enforcement, investigation, cleanup, removal, response,
remedial or other actions or damages pursuant to any applicable Environmental
Law and (b) any and all Claims by any Person (excluding any current or former
employee of the Company) seeking damages (including natural resource damages),
contribution, indemnification, cost recovery, compensation or injunctive relief
resulting from Hazardous Materials or arising from alleged injury or threat of
injury to the Environment.
"ENVIRONMENTAL LAWS" means any Law, in effect as of the date hereof, and
any applicable judicial or administrative interpretation thereof, including any
applicable written judicial or administrative order, consent decree or judgment,
relating to the Environment or Hazardous Materials, including the CERCLA; the
Resource Conservation and Recovery Act, 42 U.S.C. (S)(S) 6901 et seq.; the
-- ---
Hazardous Materials Transportation Act, 49 U.S.C. (S)(S) 6901 et seq.; the Clean
-- ---
Water Act, 33 U.S.C. (S)(S) 1251 et seq.; the Toxic Substances Control Act, 15
-- ---
U.S.C. (S)(S) 2601 et seq.; the Clean Air Act, 42 U.S.C. (S)(S) 7401 et seq.;
-- --- -- ---
the Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f et seq.; the Atomic Energy
-- ---
Act, 42 U.S.C. (S)(S) 2011 et seq.; the Federal Insecticide, Fungicide and
-- ---
Rodenticide Act, 7 U.S.C. (S)(S) 136 et seq.; and analogous Laws.
-- ---
"ENVIRONMENTAL PERMITS" means all permits, approvals, identification
numbers, licenses and other authorizations required under any applicable
Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor law and regulations and roles issued pursuant thereto.
"ERISA AFFILIATE" means any person (as defined in Section 3(9) of ERISA)
that together with the Company (or any person whose liabilities the Company has
assumed or is otherwise subject to) would be treated as a single employer under
Section 4001(b) of ERISA or would be aggregated with the Company under Sections
414(b), (c), (m) or (o) of the U.S. Code.
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<PAGE>
"ESTIMATED NET OPERATING ASSETS" means the estimated Net Operating Assets
of the Company as of the Closing Date based on the Estimated Net Operating
Assets Statement.
"ESTIMATED NET OPERATING ASSETS STATEMENT SHEET" has the meaning set forth
in Section 2(e)(i).
"ESTIMATED PURCHASE PRICE" means the Preliminary Purchase Price plus the
Estimated Net Operating Assets less the Threshold Amount.
"FINANCE LETTERS" means the letter, dated June 15, 1998, from Credit Suisse
First Boston Corporation and the letters, dated June 16, 1998, from Donaldson,
Lufkin & Jenrette Securities Corporation.
"FINANCIAL STATEMENTS" has the meaning set forth in Section 4(d)(i).
"GAAP" means the United States generally accepted accounting principles in
effect from time to time.
"GENERAL CAP" has the meaning set forth in Section 12(c).
"GILLINGHAM" has the meaning set forth in Section 17(q)
"GOVERMENTAL BODY" means any: (a) nation, state, county, city, town,
village, district or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign or other government; (c) governmental or quasi-
governmental authority of any nature (including any governmental agency, branch,
department, subdivision, official or entity and any court or other tribunal);
(d) multi-national organization or body; or (e) body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory or taxing authority or power of any nature.
"GOVERNMENTAL ORDER" means any written order, writ, judgment, decree,
stipulation, determination or award enforced by or with any Governmental Body.
"HAZARDOUS MATERIALS" means (a) petroleum and petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
polychlorinated biphenyls, and radon gas, and (b) any other chemicals, materials
or substances defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely hazardous
wastes", "restricted hazardous wastes", "toxic substances", "toxic pollutants",
"contaminants" or "pollutants", or words of similar import, under any applicable
Environmental Law.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, or any successor law and regulations and rules issued pursuant
thereto.
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<PAGE>
"INCLUDING" means "including, but not limited to" and "including, without
limitation."
"INDEBTEDNESS" means, with respect to any Person, (a) all indebtedness of
such Person, whether or not contingent, for borrowed money; (b) all obligations
of such Person for the deferred purchase price of property or services, (c) all
obligations of such Person evidenced by notes, bonds, debentures or other
similar instruments, (d) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (e) all obligations of such Person as lessee under
leases that have been or should be, in accordance with GAAP, recorded as capital
leases, (f) all obligations, contingent or otherwise, of such Person under
acceptance, letter of credit or similar facilities, (g) all obligations of such
Person to purchase, redeem, retire, defease or otherwise acquire for value any
capital stock of such Person or any warrants, rights or options to acquire such
capital stock, valued, in the case of redeemable preferred stock, at the greater
of its voluntary or involuntary liquidation preference plus accrued and unpaid
dividends, (h) all Indebtedness of others referred to in clauses (a) through (f)
above guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement (i)
to pay or purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Indebtedness or to assure
the holder of such Indebtedness against loss, (iii) to supply funds to or in any
other manner invest in the debtor (including any agreement to pay for property
or services irrespective of whether such property is received or such services
are rendered) or (iv) otherwise to assure a creditor against loss, and (i) all
Indebtedness referred to in clauses (a) through (f) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Encumbrance on property (including accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness.
"INDEMNIFIED PARTY" means a Buyer Indemnified Party or a Seller Indemnified
Party as the particular context requires.
"INDEPENDENT ACCOUNTING FIRM" has the meaning set forth in section
2(e)(iii)(2).
"INVENTORIES" means all inventory, merchandise, finished goods and raw
materials, packaging, supplies and other personal property related to the
Business maintained, held or shared by or to the Company on the Closing Date and
any prepaid deposits by the same.
"IRS" means the United States Internal Revenue Service or any successor
agency and, to the extent relevant, the United States Department of Treasury.
"JUNE MANAGEMENT ACCOUNTS" has the meaning set forth in Section 4(d)(i).
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<PAGE>
"KNOWLEDGE" A Person shall be deemed to have "Knowledge" of a particular
fact or other matter if such Person is actually aware of such fact or other
matter after reasonable investigation or, in the case of the Seller's
representations and warranties in Section 4, if any one or more of the
individuals set forth on Schedule 2, without undertaking any investigation, is
actually aware of such fact or other matter.
"LAWS" means all applicable statutes, ordinances, rules, regulations,
decrees and orders, as amended as of the date hereof, of all federal, state,
county, municipal, local and special purpose district authorities.
"LEASE" has the meaning set forth in Section 4(l)(i).
"LEASED REAL PROPERTY" has the meaning set forth in Section 4(j)(ii).
"LIABILITIES" means any and all debts, liabilities and obligations, whether
accrued or fixed, absolute or contingent, matured or unmatured or determined or
determinable, including those arising under any Law (including any Environmental
Law), Action or Governmental Order and those arising under any contract,
agreement, arrangement, commitment or undertaking.
"LOSS" has the meaning set forth in Section 12(b)(i).
"MATERIAL ADVERSE EFFECT" means any circumstance, change in, or effect on
the Business or the Company that, individually or in the aggregate with any
other circumstances: (a) is, or could be, materially adverse to the Business,
operations, Assets or Liabilities, employee relationships, customer or supplier
relationships, results of operations or the condition (financial or otherwise)
of the Company; or (b) could materially adversely affect the ability of the
Buyer or the Company to operate or conduct the Business in the manner in which
it is currently operated or conducted by the Company.
"MATERIAL CONTRACTS" has the meaning set forth in Section 4(1)(i).
"MULTIEMPLOYER PLAN" has the meaning set forth in ERISA Section 3(37).
"NET OPERATING ASSETS" has the meaning set forth in Schedule 3.
"NET OPERATING ASSETS INSTRUCTIONS" means the instructions set forth in
Schedule 3.
"NON-COMPETITION AGREEMENT" has the meaning set forth in Section 2(d)(iv).
"OFF-SITE ENVIRONMENTAL MATTERS" means any lawsuit, action, cause of
action, claim (including Environmental Claims), charge, complaint, liability or
obligation asserted against the Company by a Governmental Body or a private
party which is the result of or relates in any manner to the transportation for
disposal or disposal of Hazardous Materials and non-hazardous
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<PAGE>
solid waste, prior to the Closing Date by any means and by any party from any
Real Property or any real property previously owned or operated by the Company
or any Affiliate (directly or indirectly) at real property not owned or leased
by the Company. Off-Site Environmental Matters shall include lawsuits and claims
by any Governmental Body or private party under any statutory or common law or
regulation (including CERCLA or any similar Laws, rules or regulation of any
federal, state or local government, or the laws, rules and regulations of
another country) regarding the cleanup or remediation of Hazardous Materials at
or emanating from real property not owned or leased by the Company, or regarding
personal injury or damages to natural resources, real property or personal
property as a result of the presence of Hazardous Materials at or emanating from
real property not owned or leased by the Company.
"ORDINARY COURSE OF BUSINESS" means as to any Person the ordinary course of
business consistent with the past practices of such Person (including with
respect to quantity and frequency) in the normal day-to-day operations of such
Person.
"OWNED REAL PROPERTY" has the meaning set forth in Section 4(j)(i).
"PANOLAM GROUP" has the meaning set forth in Section 2(e)(v)(F)(1).
"PAYABLE TO PARENT ACCOUNT" means the account which includes such items
cash advances, cash receipts, accruals for management fees, income taxes,
accrued interest and other items that have been posted by the Company to such
account during the fiscal year ended December 26, 1997, and subsequent thereto
as those items relate solely to the Seller.
"PERMITS" has the meaning set forth in Section 4(p)(i).
"PERSON" means any individual, partnership, limited liability company,
corporation, association, joint stock company, estate, trust, joint venture,
organization, labor union or other entity or Governmental Body.
"POMONA LICENSE" has the meaning set forth in Section 2(d)(ii)(e).
"POST-CLOSING PERIOD" means with respect to the Company any Tax Period
commencing after the Closing Date and the portion of any Straddle Period
commencing after the Closing Date.
"PRE-CLOSING EMPLOYEE CLAIMS" means all liabilities in connection with
claims incurred prior to the Closing Date by employees of the Company under the
Seller's or any of the Seller's Affiliates' employee welfare benefit plans (as
defined in Section 3(1) of ERISA).
"PRE-CLOSING PERIOD" means with respect to the Company any Tax Period
ending on or before the Closing Date and the portion of any Straddle Period
ending on the Closing Date.
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<PAGE>
"PRE-CLOSING WAGE CLAIMS" means all wages and salary earned by employees of
the Company prior to the Closing Date including pro rata portions of the
Company's 1998 bonus plan (such pro rata portions being determined on the
quotient of the number of days prior to the Closing and 365).
"PREDECESSOR" means a predecessor in interest to the Business as conducted
on the Real Property.
"PRELIMINARY PURCHASE PRICE" has the meaning set forth in Section 2(b).
"PROCEEDING" means any action, arbitration, audit, hearing, investigation,
litigation or suit (whether civil, administrative, criminal, investigative or
informal) commenced, brought, conducted or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
"PROMPT NOTICE" has the meaning set forth in Section 17(d).
"PROPRIETARY RIGHTS" has the meaning set forth in Section 4(m).
"PURCHASE PRICE" has the meaning set forth in Section 2(e)(iv).
"REAL ESTATE LEASES" has the meaning set forth in Section 4(j)(ii).
"REAL PROPERTY" has the meaning set forth in Section 4(j)(ii).
"REFERENCE NET OPERATING ASSETS STATEMENT" means the statement of net
operating assets of the Company dated as of June 26, 1998, consistent with the
Net Operating Assets Instructions, a copy of which has been delivered by the
Seller to the Buyer.
"REFERENCE NET OPERATING ASSETS STATEMENT DATE" means June 26, 1998.
"RELEASE" means disposing, discharging, injecting, spilling, leaking,
leaching, dumping, emitting, escaping, emptying, seeping and placing into the
Environment.
"REMAINING AMOUNT" has the meaning set forth in Section 2(e)(v)(D).
"REPRESENTATIVES" of a Person means a Person's directors, officers,
employees, agents, consultants, attorneys, accountants, advisors and any other
representatives of such Person.
"RBP" means Rugby Building Products, Inc.
"RUGBY" has the meaning set forth in the recitals of this Agreement.
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<PAGE>
"SEC" means the United States Securities and Exchange Commission or any
successor agency.
"SECTION 338 FORMS" has the meaning set forth in Section 14(g)(i).
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor law and regulations and rules issued pursuant thereto.
"SELLER" has the meaning set forth in the first paragraph of this
Agreement.
"SELLER INDEMNIFIED PARTY" has the meaning set forth in Section 12(e)(i).
"SELLER'S ACCOUNTANTS" means PricewaterhouseCoopers LLP.
"SHARES" has the meaning set forth in Section 4(b).
"STRADDLE PERIOD" means with respect to the Company any Tax Period that
begins before and ends after the Closing Date.
"SUBSIDIARIES" means any and all corporations, partnerships, joint
ventures, associations and other entities controlled by the Company directly or
indirectly through one or more intermediaries.
"TARGET" has the meaning set forth in Section 2(e)(v)(F)(3).
"TAX" or "TAXES" means any income, corporation, gross receipts, profits,
gains, capital stock, capital duty, franchise, withholding, social security
(including any social security charge or premium), unemployment, disability,
property, wealth, welfare, stamp, excise, occupation, sales, use, transfer,
value added, alternative minimum, estimated or other similar tax (including any
fee, assessment, or other charge in the nature of or in lieu of any tax) imposed
by any Governmental Body and any interest, penalties, additions to tax, or
additional amounts in respect of the foregoing, and including any transferee or
secondary liability in respect of any tax (whether by Law, contractual agreement
or otherwise) and any liability in respect of any tax as a result of being a
member of any affiliated, consolidated, combined, unitary or similar group.
"TAX AUTHORITY" means with respect to any Tax the Governmental Body that
imposes or collects such Tax, including any Governmental Body that imposes, or
is charged with collecting, social security or similar charges or premiums.
"TAX BENEFIT" means the present value of any refund, credit or reduction in
otherwise required Tax payments including any interest payable thereon, which
present value shall be computed as of the Closing Date or the first date on
which the right to the refund, credit or other Tax reduction arises or otherwise
becomes available to be utilized, whichever is later, (i)
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using the Tax rate applicable to the highest level of income with respect to
such Tax under the applicable Tax Law on such date, and (ii) discounting using
the interest rate on such date imposed on corporate deficiencies paid within
thirty (30) days of a notice of proposed deficiency under the U.S. Code or other
applicable Tax Law, which interest rate shall be compounded annually. Any Tax
Benefit shall be computed net of any related Tax cost (which shall be computed
in the same manner in which Tax Benefits are otherwise computed pursuant to this
definition).
"TAX PERIOD" means with respect to any Tax the period for which the Tax is
reported as provided under applicable Tax Laws.
"TAX RETURN" means with respect to any Tax any information return with
respect to such Tax, any report, statement, declaration or document required to
be filed under the applicable Tax Law in respect of such Tax, any claims for
refund of Taxes paid and any amendment or supplements to any of the foregoing.
"THIRD PARTY CLAIMS" has the meaning set forth in Section 12(b)(ii).
"THREATENED" means as to any claim, proceeding, dispute, action or other
matter that a demand or statement has been made that would lead a prudent Person
to conclude that such claim, proceeding, dispute, action or other matter is
likely to be asserted, commenced, taken or otherwise pursued in the future.
"THRESHOLD AMOUNT" means $84.550 million.
"UPDATED FINANCE LETTER" has the meaning set forth in Section 8(a).
"U.S. CODE" means the United States Internal Revenue Code of 1986, as
amended, or any successor law and regulations issued pursuant thereto.
"USTs" means underground storage tanks, as such term is defined in the
Resource Conservation and Recovery Act, as amended, and the regulations issued
pursuant thereto.
2. SALE AND PURCHASE; CLOSING
(a) SALE AND PURCHASE. On and subject to the terms and conditions of this
Agreement (including the conditions of the Seller set forth in Section 8
hereof), at the Closing, the Seller will sell and transfer the Shares to the
Buyer, and the Buyer will purchase the Shares from the Seller.
(b) PRELIMINARY PURCHASE PRICE. The preliminary purchase price for the
Shares will be $165 million (the "Preliminary Purchase Price"). The Preliminary
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Purchase Price will be subject to adjustment as provided in Section 2(e).
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(c) CLOSING. The purchase and sale (the "Closing") provided for in this
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Agreement will take place at the offices of Brobeck, Phleger & Harrison LLP,
Spear Street Tower, One Market, San Francisco, California 94105, at 10:00 a.m.
(local time) on the date that is two (2) Business Days following the
satisfaction or waiver of all of the conditions precedent set forth in Sections
9 and 10, or at such other time and place as the parties may agree (the "Closing
-------
Date"). Subject to the provisions of Section 11, failure to consummate the
- ----
purchase and sale provided for in this Agreement on the date and time and at the
place determined pursuant to this Section 2(c) will not result in the
termination of this Agreement and will not relieve either party of any
obligations under this Agreement.
(d) CLOSING OBLIGATIONS. At the Closing:
(i) the Seller will contribute to the shareholder's equity of the
Company the long-term debt and the balance of the Payable to Parent Account as
of the Closing and to be reflected on the Closing Balance Sheet (or in the event
that such balance is a receivable from the Seller, the Company will forgive such
receivable) and in connection therewith the Seller will deliver to the Company
all promissory notes of the Company to the Seller, with appropriate notations
thereon reflecting the cancellation thereof;
(ii) the Seller will deliver to the Buyer:
(A) the certificate representing the Shares, duly endorsed (or
accompanied by a duly executed stock power) for transfer to the Buyer;
(B) an officer's certificate of the Seller as to the accuracy in
all material respects at the Closing of all of the Seller's representations and
warranties as if made on the Closing Date, the fulfillment of all of the
Seller's covenants in all material respects and the satisfaction of all
conditions of the Closing to be satisfied by the Seller;
(C) an opinion of the Seller's counsel, Baker & McKenzie, dated
the Closing Date, in form and substance reasonably satisfactory to the Buyer;
(D) executed copies of the distributor agreements in the form of
Exhibit 2(d)(ii)(D) (the "Distributor Agreements"); and
----------------------
(E) an executed copy of the license for the Pomona, California
facility between RBP and the Company, in form and substance reasonably
satisfactory to the Buyer (the "Pomona License");
--------------
(iii) the Buyer will deliver to the Seller:
(A) the sum of the Estimated Purchase Price payable by wire
transfer of immediately available funds to the account specified by the Seller;
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(B) an officer's certificate of the Buyer as to the accuracy in
all material respects at the Closing of all of the Buyer's representations and
warranties as if made on the Closing Date, the fulfillment of all of the Buyer's
covenants in all material respects and the satisfaction of all conditions of the
Closing to be satisfied by the Buyer; and
(C) an opinion of the Buyer's counsel, Brobeck, Phleger &
Harrison LLP, dated the Closing Date, in form and substance reasonably
satisfactory to the Seller;
(iv) Rugby will execute and deliver to the Buyer the non-competition
agreement contemplated in Section 10(j) (the "Non-Competition Agreement"), and
-------------------------
in consideration therefor the Buyer will wire transfer immediately available
funds to the account specified by Rugby in the amount of $10 million;
(v) the Seller and the Buyer will execute and deliver all such other
documents and instruments referred to in Sections 9 and 10 and further shall do
all such other acts and things, as may be necessary, required or reasonably
requested by the other party, to consummate the Contemplated Transactions in
accordance with the terms and conditions hereof; and
(vi) all deliveries at the Closing as provided for in this Section 2
shall be deemed to be made and effected simultaneously and all such deliveries
shall be deemed to be in escrow until all such deliveries have been made and
effected.
(e) ADJUSTMENT OF PRELIMINARY PURCHASE PRICE. The Preliminary Purchase
Price shall be subject to adjustment after the Closing as specified in this
Section 2(e).
(i) DETERMINATION OF ESTIMATED PURCHASE PRICE. As of the close of
business on the Friday immediately preceding the Closing Date (the "Estimation
----------
Date"), the Seller will deliver to the Buyer (A) an estimated net operating
- ----
assets statement (the "Estimated Net Operating Assets Statement") as of the
----------------------------------------
Closing Date, which Estimated Net Operating Assets Statement shall be prepared
in accordance with the Net Operating Assets Instructions and consistent with the
preparation of the Reference Net Operating Assets Statement and (B) the
calculation of the Estimated Net Operating Assets and the Estimated Purchase
Price.
(ii) CLOSING NET OPERATING ASSETS STATEMENT. As promptly as
practicable, but in any event within ninety (90) calendar days following the
Closing Date, the Buyer shall deliver to the Seller the Closing Net Operating
Assets Statement, together with a report thereon of the Buyer's Accountants
stating that the Closing Net Operating Assets Statement was prepared in
accordance with the Net Operating Assets Instructions and in conformity with
GAAP (except as provided for in the Net Operating Assets Instructions).
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<PAGE>
(iii) DISPUTES.
(1) Subject to clause (2) of this Section 2(e)(iii), the Closing
Net Operating Assets Statement delivered by the Buyer to the Seller shall be
deemed to be and shall be final, binding and conclusive on the parties hereto.
(2) The Seller may dispute any amounts reflected on the Closing
Net Operating Assets Statement, but only on the basis that the amounts reflected
on the Closing Net Operating Assets Statement were not arrived at in accordance
with Net Operating Assets Instructions and in conformity with GAAP (except as
provided for in the Net Operating Assets Instructions); provided, however, that
-------- -------
the Seller shall have notified the Buyer and the Buyer's Accountants in writing
of each disputed item, specifying the amount thereof in dispute and setting
forth, in reasonable detail, the basis for such dispute, within thirty (30)
calendar days of the Buyer's delivery of the Closing Net Operating Assets
Statement to the Seller. In the event of such a dispute, the Seller's
Accountants and the Buyer's Accountants shall attempt to reconcile their
differences, and any resolution by them as to any disputed amounts shall be
final, binding and conclusive on the parties hereto. If the Seller's Accountants
and the Buyer's Accountants are unable to reach a resolution with such effect
within twenty (20) Business Days after receipt by the Buyer and the Buyer's
Accountants of the Seller's written notice of dispute, the Seller's Accountants
and the Buyer's Accountants shall submit the items remaining in dispute for
resolution to another independent accounting firm of international reputation
mutually acceptable to the Buyer and the Seller (such other accounting firm
being referred to herein as the "Independent Accounting Firm"), which shall,
---------------------------
within thirty (30) Business Days after such submission, determine and report to
the Buyer and the Seller upon such remaining disputed items, and such report
shall be final, binding and conclusive on the parties hereto. The fees and
disbursements of the Independent Accounting Firm shall be allocated between the
Seller and the Buyer in the same proportion that the aggregate amount of such
remaining disputed items so submitted to the Independent Accounting Firm that is
unsuccessfully disputed by each such party (as finally determined by the
Independent Accounting Firm) bears to the total amount of such remaining
disputed items so submitted.
(3) In acting under this Agreement, the Buyer's Accountants, the
Seller's Accountants and the Independent Accounting Firm shall be entitled to
the privileges and immunities of arbitrators.
(iv) PURCHASE PRICE ADJUSTMENT. The Closing Net Operating Assets
Statement shall be deemed final for the purposes of this Section 2(e) upon the
earliest of (A) the failure of the Seller to notify the Buyer of a dispute
within thirty (30) calendar days of the Buyer's delivery of the Closing Net
Operating Assets Statement to the Seller, (B) the resolution of all disputes,
pursuant to Section 2(e)(iii)(2), by the Buyer's Accountants and the Seller's
Accountants and (C) the resolution of all disputes, pursuant to Section
2(e)(iii)(2), by the Independent Accounting Firm. Within three (3) Business Days
of the Closing Net Operating Assets Statement being deemed final, the Estimated
Purchase Price shall be adjusted by the
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<PAGE>
difference between (1) the Net Operating Assets reflected on the Closing Net
Operating Assets Statement and (2) the Estimated Net Operating Assets. The
Estimated Purchase Price, as so adjusted, is referred to herein as the "Purchase
--------
Price." If such difference is positive, then the Buyer shall, within three (3)
- -----
Business Days of the Closing Net Operating Assets Statement being deemed final,
pay such difference to the Seller by wire transfer of immediately available
funds to the account specified by the Seller. If such difference is negative,
then the Seller shall, within three (3) Business Days of the Closing Net
Operating Assets Statement being deemed final, pay such difference to the Buyer
by wire transfer of immediately available funds to the account specified by the
Buyer. Any payment of a difference amount shall bear interest thereon from the
Closing Date to the date of payment at the rate equal to one percent (1%) above
the prime rate of Credit Suisse First Boston Corporation on the Closing Date.
(v) ADDITIONAL CONSIDERATION. Contingent upon the Buyer Group
meeting certain EBITDA targets as specified below, the Buyer shall pay
additional consideration to the Seller in respect of the Shares purchased at the
Closing as provided in this Section 2(e)(v). Such payments represent additional
consideration for the Shares and are not intended to be royalty payments. In no
event shall the additional consideration payable to the Seller pursuant to this
Section 2(e)(v) exceed $10 million.
(A) Within ninety (90) days after the end of each of the Buyer's
fiscal years ending in 1999, 2000, 2001 and 2002, unless no further amounts are
payable to the Seller pursuant to this Section 2(e)(v), the Buyer shall cause
its independent certified public accountants at the time to submit to the Seller
the audited consolidated financial statements of the Buyer Group for such years,
accompanied by an unqualified opinion of such accountants, and a statement of
such accountants (an "EBITDA Statement") setting forth their computation of
----------------
EBITDA for such year based upon such financial statements. Such financial
statements will be prepared in accordance with the books of account and other
financial records of the Buyer Group, will present fairly the financial
condition and results of operations of the Buyer Group as of the dates thereof
or for the periods covered thereby and will be prepared in accordance with GAAP.
(B) Within thirty (30) calendar days after submission to the
Seller of any such EBITDA Statement by such independent certified public
accountants, the Buyer shall pay to the Seller cash in an amount equal to an
amount (the "Earn-Out Amount") equal to 50% of the amount by which the EBITDA
---------------
for such year exceeds the Target for such year.
(C) The Seller may dispute any amounts reflected on any EBITDA
statement but only on the basis that the amounts reflected on such EBITDA
Statement were not arrived at in accordance with the terms of this Agreement.
The Seller shall notify the Buyer and the independent certified public
accountants who submitted the EBITDA Statement in writing of each such disputed
item, specifying the amount thereof in dispute and setting forth, in detail, the
basis for such dispute, within twenty (20) Business Days of the Seller's receipt
of the EBITDA Statement. If the Seller and the Buyer are unable to resolve any
such disputed items within twenty (20) Business Days after the Buyer's receipt
of the Seller's written notice of
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<PAGE>
dispute, then the Buyer and the Seller shall submit the items remaining in
dispute for resolution to an Independent Accounting Firm, which shall, within
thirty (30) Business Days of such submission, determine and report to the Buyer
and the Seller upon. such remaining disputed items, and such report shall be
final, binding and conclusive on the parties hereto. The fees and disbursements
of such Independent Accounting Firm shall be allocated between the Seller and
the Buyer in the same proportion that the aggregate amount of such remaining
disputed items unsuccessfully disputed by each such party bears to the total
amount of such remaining disputed items.
(D) If, prior to the end of the Buyer's 2002 fiscal year, the Buyer
or an Affiliate of the Buyer that owns, directly or indirectly, the business of
the Buyer Group (a "Panolam Seller") (1) sells or otherwise disposes of all or
--------------
substantially all of the assets of the business of the Buyer Group or merges or
consolidates with another entity, and the transferee of the assets of the
business of the Buyer Group or the survivor of the merger does not expressly
assume the obligations set forth in Section 2(e)(v) of this Agreement, then the
Buyer shall pay to the Seller as additional consideration to the Seller in
respect of the Shares purchased at the Closing an amount equal to the maximum
amount that remains to be paid pursuant to the terms of Section 2(e)(v) (the
"Remaining Amount") and (2) sells or otherwise disposes of the business of the
- -----------------
Buyer Group (the "Sale Assets") that contributed more than 10% of the EBITDA
-----------
during the twelve full months immediately preceding execution of the disposition
agreement governing such sale (the "LTM EBITDA"), then the Buyer shall pay to
----------
the Seller as additional consideration to the Seller in respect of the Shares
purchased at the Closing an amount equal to the amount, if any, by which the
product of seven times the LTM EBITDA contributed by the Sale Assets exceeds the
sale proceeds to the Panolam Seller with respect to the Sale Assets.
(E) If, prior to the end of Buyer's 2002 fiscal year, the Buyer or a
Panolam Seller makes an initial public offering, registered under the Securities
Act, of the common stock of an entity for which the assets of the business of
the Buyer Group are part of the consolidated group, then the Buyer shall have
the option to pay to the Seller the Remaining Amount as additional consideration
in respect of the Shares purchased at the Closing in full satisfaction of all
obligations of the Buyer and its Affiliates under Section 2(e)(v).
(F) For purposes of this Section 2(e)(v), the following items shall
have the following meanings:
(1) "Buyer Group" shall include (x) Panolam Industries
-----------
International, Inc. and its subsidiaries on the date hereof (together with the
Company, the "Panolam Group"), (y) any other affiliate of the Buyer to which all
-------------
or substantially all of the assets of the Panolam Group may be transferred and
(z) any successor to the business of the Panolam Group;
(2) "EBITDA" means consolidated net income (excluding
extraordinary gains and losses) of the Buyer Group plus (i) interest expense,
(ii) income taxes,
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<PAGE>
(iii) depreciation and (iv) amortization, which definition of EBITDA is the same
as will be used in the financing agreements contemplated by the Updated Finance
Letter; and
(3) "Target" shall mean $60 million, $64 million, $68 million and $72
------
million in the case of 1999, 2000, 2001 and 2002, respectively.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer that the statements
contained in this Section 3 are true and correct on the date of this Agreement
and will be true and correct on the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3).
(a) ORGANIZATION AND POWER. The Seller is a corporation duly organized,
validly existing and in good standing under the corporate law of the State of
Georgia. The Seller has the requisite corporate power and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the Contemplated Transactions in accordance with the terms and
conditions hereof.
(b) AUTHORIZATION. The execution, delivery and performance of this
Agreement and the consummation of the Contemplated Transactions have been duly
authorized and approved by all necessary corporate action of the Seller. This
Agreement has been duly and validly executed and delivered by the Seller.
Assuming the due authorization, execution and delivery of this Agreement by the
Buyer, this Agreement constitutes the legal, valid and binding obligation of the
Seller and is enforceable against the Seller in accordance with its terms and
conditions.
(c) ABSENCE OF CONFLICTS. The execution and delivery by the Seller of this
Agreement, the performance by the Seller of its obligations hereunder and the
consummation of the Contemplated Transactions do not and shall not, with or
without the giving of notice or lapse of time or both, (i) violate or conflict
with the Articles of Incorporation or by-laws of the Seller; (ii) violate or
conflict with any provision of Law to which the Seller is subject in a manner
which will have a Material Adverse Effect; (iii) violate or conflict with any
judgment, order, writ or decree of any Governmental Body or arbitrator
applicable to the Seller in a manner which will have a Material Adverse Effect;
or (iv) result in the breach of, constitute a default under, constitute an event
which with notice or lapse of time or both would become a default under, or
result in the creation of any Encumbrance upon the Shares, property or assets of
the Seller under, any contract to which the Seller is a party or by which it,
the Shares or any such property or assets are bound or affected.
(d) SHARES. The Seller is the record and beneficial owner and holder of
the Shares, free and clear of all Encumbrances, Taxes or contracts. The Seller
is not a party to any contract, other than this Agreement, that could require it
to sell, transfer or otherwise dispose
-17-
<PAGE>
of any capital stock of the Company. The Seller is not a party to any contract
with respect to the voting of any capital stock of the Company. Upon
consummation of the Contemplated Transactions and registration of the Shares in
the name of the Buyer in the stock records of the Company, the Buyer will own
all the issued and outstanding capital stock of the Company free and clear of
all Encumbrances, Taxes or contracts other than those created by or through or
suffered by the Buyer.
(e) BROKERAGE. The Seller has incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or similar payment in connection with this Agreement except for the fees payable
to Schroder & Co. Inc.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
The Seller represents and warrants to the Buyer that the statements
contained in this Section 4 are true and correct on the date of this Agreement
and will be true and correct on the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 4) except as set forth in the disclosure schedule
accompanying this Agreement (the "Disclosure Schedule"), in which exceptions are
-------------------
specifically denoted by reference to the relevant subsection or subsections
hereof.
(a) ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the corporate law of the
State of Delaware. The Company is duly qualified to conduct business and is in
good standing under the corporate law of each jurisdiction where such
qualification is required, except where the lack of such qualification would not
have a Material Adverse Effect. The Company has the requisite corporate power
and authority to carry on the business in which it has been or is currently
engaged and to own, lease, operate and use the properties owned and used by it.
Schedule 4(a) lists the Company's directors and officers. The Seller has
delivered to the Buyer true and complete copies of the Certificate of
Incorporation and by-laws of the Company, as amended to date.
(b) CAPITALIZATION. The authorized capital stock of the Company consists
of 1,000 shares of common stock, $1.00 par value per share, all of which shares
are issued and outstanding (the "Shares"). All of the Shares have been duly
------
authorized and are validly issued, fully paid and nonassessable. None of the
Shares was issued in violation of any preemptive rights. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights or other contracts that could require
the Company to issue, sell or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation or similar rights with respect to the
Company. There are no voting trusts, proxies or other agreements or
understandings with respect to the voting or transfer of the Shares. There are
no outstanding contractual obligations of the Company to repurchase, redeem or
otherwise acquire any shares of common stock or to provide funds to, or make any
investment (in the form of a loan, capital
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<PAGE>
contribution or otherwise) in, any other Person. Upon consummation of the
Contemplated Transactions, the Shares will be fully paid and nonassessable. The
Company has, and has had, no Subsidiaries.
(c) ABSENCE OF CONFLICTS. Except as set forth in Schedule 4(c), the
execution and delivery by the Seller of this Agreement, the performance by the
Seller of its obligations hereunder and the consummation of the Contemplated
Transactions do not and shall not, with or without the giving of notice or lapse
of time or both, (i) violate or conflict with the Certificate of Incorporation
or by-laws of the Company; (ii) violate or conflict in any material respect with
any provision of Law to which the Company is subject; (iii) violate or conflict
in any material respect with any judgment, order, writ or decree of any
Governmental Body or arbitrator applicable to the Company; or (iv) result in the
breach of, constitute a default under, constitute an event which with notice or
lapse of time or both would become a default under, or result in the creation of
any Encumbrance upon any of the properties or assets of the Company under, any
Material Contract in a manner which will have a Material Adverse Effect.
(d) FINANCIAL STATEMENTS.
(i) True and complete copies of (A) the audited balance sheet of the
Company for the fiscal year ended as of December 26, 1997, and the related
audited statements of operations and cash flows of the Company for the year
ended December 26, 1997 (together with the related notes thereto), accompanied
by the report thereon of the Seller's Accountants (collectively referred to
herein together with the audited balance sheet of the Company for the fiscal
year ended as of December 27, 1996 and the related audited statements of
operations and cash flows of the Company for each of the two fiscal years in the
period ended December 27, 1996 (together with the related notes thereto),
accompanied by the reports thereto of the Seller's Accountants, true and
complete copies of which the Seller hereby agrees to provide to the Buyer no
later than July 21, 1998, as the "Financial Statements") and (B) the unaudited
--------------------
balance sheet of the Company as of June 26, 1998, and the related statements of
operations and cash flows of the Company (together with the related notes
thereto) (collectively referred to herein as the "June Management Accounts")
------------------------
have been delivered by the Seller to the Buyer. The Financial Statements were
prepared in accordance with the books of account and other financial records of
the Company, present fairly the financial condition and results of operations of
the Company as of the dates thereof or for the periods covered thereby and have
been prepared in accordance with GAAP. The June Management Accounts were
prepared in accordance with the books of account and other financial records of
the Company, present fairly the financial condition and results of operations of
the Company as of the dates thereof or for the periods covered thereby, and
include all adjustments that are necessary for a fair presentation of the
financial condition of the Company and the results of operations of the Company
as of the dates thereof or for the periods covered thereby.
(ii) The books of account and other financial records of the Company:
(A) reflect in all material respects all items of income and expense and all
Assets and Liabilities, (B)
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<PAGE>
are in all material respects complete and correct, and do not contain or reflect
any material inaccuracies or discrepancies and (C) have been maintained in
accordance with good business and accounting practices.
(e) BOOKS AND RECORDS. The books of account, minute books, stock record
books and other records of the Company, all of which have been made available to
the Buyer, are complete and correct and have been maintained in accordance with
sound business practices, including the maintenance of an adequate system of
internal controls. The minute books of the Company contain accurate and complete
records of all meetings held of, and corporate action taken by, the
stockholders, the boards of directors and any committees of the boards of
directors of the Company, and no meeting of any of the stockholders, board of
directors or committee has been held for which minutes have not been prepared
and are not contained in such minute books. At the Closing, all of those books
and records will be in the possession of the Company.
(f) ACCOUNTS RECEIVABLE. All accounts receivable of the Company that are
reflected on the Reference Net Operating Assets Statement or on the accounting
records of the Company as of the Closing Date represent or will represent valid
obligations arising from sales actually made or services actually performed in
the Ordinary Course of Business. Unless paid prior to the Closing Date, the
accounts receivable are or will be as of the Closing Date current and
collectible net of the allowances or reserves shown on the Reference Net
Operating Assets Statement or on the accounting records of the Company as of the
Closing Date (consistent with the Net Operating Assets Instructions). Schedule
4(f) sets forth an aged list of accounts receivable of the Company as of March
27, 1998. Subject to such allowances or reserves and except as set forth in
Schedule 4(f), each of the accounts receivable either has been or will be
collected in full, without any set-off, within ninety (90) days after the day on
which it first becomes due and payable.
(g) INVENTORY. All Inventory of the Company, whether or not reflected in
the Financial Statements, consists of a quality and quantity usable and salable
in the Ordinary Course of Business, except for obsolete items and items of
below-standard quality, all of which have been written off or written down to
net realizable value in the Reference Net Operating Assets Statement or on the
accounting records of the Company as of the Closing Date (consistent with the
Net Operating Assets Instructions), as the case may be. All Inventories not
written off have been stated at the lower of standard cost (which approximates
the last-in, first-out method) or market. The quantities of each item of
Inventory (whether raw materials, work-in-process or finished goods) are
reasonable in the present circumstances of the Company. The Inventories do not
consist of any items held by the Company on consignment. The Company is not
under any obligation or liability with respect to accepting returns of items of
Inventory or merchandise in the possession of its customers other than in the
Ordinary Course of Business consistent with past practice or in accordance with
distribution agreements listed in Schedule 4(1). No clearance or extraordinary
sale of the Inventories (other than items written off) has been conducted since
the Reference Net Operating Assets Statement Date. Since the Reference Net
Operating Assets Statement Date the Company has not acquired or committed to
acquire or manufacture
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<PAGE>
Inventories for sale in the absence of a purchase order or contract therefor or
related thereto which is not of a quality and quantity usable in the Ordinary
Course of Business within a reasonable period of time and consistent with past
practice, nor has the Company changed the price of its products except for (i)
price reductions to reflect any reduction in the cost thereof to the Company,
(ii) reductions and increases responsive to normal competitive conditions and
consistent with the Company's past sales practices, (iii) increases to reflect
any increase in the cost thereof to the Company and (iv) increases and
reductions made with the written consent of the Buyer. Schedule 4(g) is a
complete list of the addresses of all warehouses and other facilities in which
the Inventories are located.
(h) ABSENCE OF UNDISCLOSED LIABILITIES. The Company has no liabilities or
obligations of any nature (whether absolute, accrued, contingent or otherwise)
except for (i) liabilities or obligations reflected or reserved against in the
Reference Net Operating Assets Statement, (ii) liabilities or obligations which
arose in the Ordinary Course of Business and would not be required to be
reflected on the Reference Net Operating Assets Statement in accordance with the
Net Operating Assets Instructions, (iii) liabilities or obligations arising
after the date of the Reference Net Operating Assets Statement in the Ordinary
Course of Business, and (iv) liabilities or obligations set forth in Schedules
4(h), 4(j), 4(1), 4(m), 4(n), 4(o), 4(p) and 4(q).
(i) ABSENCE OF CHANGES. Except as set forth in Schedule 4(i), since the
Reference Net Operating Assets Statement Date, the Company has conducted its
business only in the Ordinary Course of Business and has not engaged in any
practice, taken any action or entered into any transaction outside the Ordinary
Course of Business. Without limiting the generality of the foregoing and except
as set forth in Schedule 4(i), since the Reference Net Operating Assets
Statement Date the Company has not:
(i) suffered any Material Adverse Effect;
(ii) amended its Certificate of Incorporation or by-laws;
(iii) sold or pledged, or agreed to sell or pledge, any capital stock
owned by it;
(iv) split, combined or reclassified its outstanding stock or issued
or authorized or proposed the issuance of any other securities with respect to,
in lieu of or in substitution for, the Shares;
(v) declared, set aside or paid dividends on, or made any other
distribution with respect to, the Shares;
(vi) redeemed, purchased or otherwise acquired or agreed to redeem,
purchase or acquire any Shares;
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<PAGE>
(vii) incurred indebtedness for borrowed money outside the Ordinary
Course of Business;
(viii) guaranteed indebtedness of another Person other than in the
Ordinary Course of Business;
(ix) paid or increased any bonuses, salaries or other compensation
to any director, officer or (except in the Ordinary Course of Business) employee
or entered into any employment, severance or similar contract with any director,
officer or employee;
(x) adopted, or made an increase in the payments to or benefits
under, any profit sharing, bonus, deferred compensation, savings, insurance,
pension, retirement or other employee benefit plan for or with any employees of
the Company;
(xi) sold (other than sales of Inventory in the Ordinary Course of
Business), leased or otherwise disposed of any material asset or property of the
Company (other than capital assets of an aggregate value of up to $50,000) or
mortgaged, pledged or encumbered any material asset or property of the Company,
including the sale, lease or other disposition of any of the Proprietary Rights;
(xii) made any material changes in the customary methods of
operations of the Company, including practices and policies relating to
manufacturing, purchasing, inventories, marketing, selling and pricing;
(xiii) merged with, entered into a consolidation with or acquired an
interest of five percent (5%) or more in, any business or any Person or
acquired a substantial portion of the assets or business of any Person or any
division or line of business thereof, or otherwise acquired any material assets
other than in the Ordinary Course of Business consistent with past practice;
(xiv) made any capital expenditure or commitment for any capital
expenditure in excess of $50,000 individually except for expenditures or
commitments consistent with the capital projects budget attached to Schedule
4(i) (and the Company's customary ten percent (10%) variance);
(xv) issued any purchase orders or otherwise agreed to make any
purchases involving exchanges in value in excess of $1,400,000 individually or
$60,000,000 in the aggregate (except for purchases made or agreed to be made
with the prior written consent of the Buyer);
(xvi) written down or written up (or failed to write down or write
up in accordance with GAAP consistent with past practice) the value of any
Inventories or receivables
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or revalued any assets of the Company other than in the Ordinary Course of
Business consistent with past practice and in accordance with GAAP;
(xvii) amended, terminated, cancelled or compromised any material
claims of the Company or waived any other rights of substantial value to the
Company;
(xviii) made any change in any method of accounting or accounting
practice or policy used by the Company, other than such changes required by GAAP
or disclosed in the Disclosure Schedule;
(xix) failed to maintain the Assets in accordance with good business
practice and in good operating condition and repair (normal wear and tear
excepted);
(xx) allowed any Permit or Environmental Permit that was issued or
relates to the Company or otherwise relates to any asset to lapse or terminate
or failed to renew any such Permit or Environmental Permit or any insurance
policy (set forth on Schedule 4(cc)) that is scheduled to terminate or expire
within forty-five (45) calendar days after the Closing Date;
(xxi) terminated, discontinued, closed or disposed of any plant,
facility or other business operation, or laid off any employees (other than
layoffs of less than fifty (50) employees in any six-month period in the
Ordinary Course of Business consistent with past practice) or implemented any
early retirement or separation program or any program providing early
retirement window benefits within the meaning of Treasury Regulation Section
1.401(a)-4 or announced or planned any such action or program for the future;
(xxii) amended, modified or consented to the termination of any
Material Contract or the Company's rights thereunder;
(xxiii) made any charitable contribution in excess of $1,000;
(xxiv) disclosed any secret or confidential intellectual property
(except by way of issuance of a patent or pursuant to the terms of any of the
Material Contracts) or permitted to lapse or go abandoned any intellectual
property (or any registration or grant thereof or any application relating
thereto) to which, or under which, the Company has any right, title, interest or
license;
(xxv) made any express or deemed election or settled or compromised
any liability with respect to Taxes of the Company;
(xxvi) suffered any casualty loss or damage with respect to any of
the Assets which in the aggregate have a replacement cost of more than $50,000,
whether or not such loss or damage shall have been covered by insurance; and
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(xxvii) agreed, whether in writing or otherwise, to take any of the
actions specified in this Section 4(i) or granted any options to purchase,
rights of first refusal, rights of first offer or any other similar rights or
commitments with respect to any of the actions specified in this Section 4(i),
except as expressly contemplated by this Agreement.
The Buyer acknowledges that there may be a disruption to the Business as a
result of the execution and delivery of this Agreement (or the announcement
thereof by the Buyer or the Seller) or the consummation of the Contemplated
Transactions, and the Buyer agrees that the Seller bears the burden of proving
that any inaccuracies in Section 4(i)(i) or Sections 4(y) or 4(z) resulted
solely from such disruptions and that such inaccuracies that proved to have
resulted solely from such disruptions will not constitute breaches of Sections
4(i)(i), 4(y) or 4(z) for the purpose of Section 12(b).
(j) REAL PROPERTY.
(i) Schedule 4(j) lists all real property owned by the Company (the
"Owned Real Property"). With respect to each such parcel of Owned Real Property,
-------------------
except for matters which would not have a Material Adverse Effect and except as
set forth in Schedule 4(j)(i):
(A) the Company has good and marketable title to the parcel of
real property, free and clear of any security interest, easement, covenant or
other restriction, except for any and all Taxes for the current year and
subsequent years, and any and all installments of special assessments not yet
delinquent, recorded easements, covenants, conditions and other restrictions,
utility easements, building, environmental, zoning and other laws, regulations
and restrictions applicable to the parcel or existing generally with respect to
properties of a similar character;
(B) there are no leases, subleases, licenses, concessions or
other agreements granting to any party or parties the right of use or occupancy
of any portion of the parcel of real property; and
(C) there are no outstanding options or rights of first refusal
to purchase the parcel of real property or any portion thereof or interest
therein.
(ii) Schedule 4(j) lists all real property leased or subleased to the
Company (the "Leased Real Property" and, together with the Owned Real Property,
--------------------
the "Real Property"). The Seller has delivered to the Buyer correct and complete
-------------
copies of the leases, subleases and other contracts pursuant to which the Leased
Real Property is leased (the "Real Estate Leases").
------------------
(k) PERSONAL PROPERTY. The Company owns all the personal property and
assets (whether tangible or intangible) that it purports to own, including all
of the personal property and assets reflected in the Reference Net Operating
Assets Statement (except for personal property sold since the date of the
Reference Net Operating Assets Statement in the Ordinary
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Course of Business), and all of the properties and assets purchased or otherwise
acquired by the Company since the date of the Reference Net Operating Assets
Statement (except for personal property acquired and sold since the date of the
Reference Net Operating Assets Statement in the Ordinary Course of Business and
consistent with past practice). All material personal property and assets
reflected in the Reference Net Operating Assets Statement are free and clear of
all Encumbrances except as set forth in Schedule 4(k) and except (i) mortgages
or security interests shown on the Reference Net Operating Assets Statement as
securing specified liabilities or obligations, with respect to which no default
(or event that, with notice or lapse of time or both, would constitute a
default) by the Company in any material respect exists, (ii) mortgages or
security interests incurred in connection with the purchase of property or
assets after the date of the Reference Net Operating Assets Statement (such
mortgages and security interests being limited to the property or assets so
acquired), with respect to which no default (or event that, with notice or lapse
of time or both, would constitute a default) by the Company in any material
respect exists, and (iii) liens for current taxes not yet due.
(l) MATERIAL CONTRACTS.
(i) Schedule 4(1) lists each of the following contracts and
agreements (including oral legally binding agreements) of the Company (such
contracts and agreements, together with all contracts, agreements, leases and
subleases concerning the management or operation of any Real Property (including
brokerage contracts) listed or otherwise disclosed in Schedule 4(j) to which the
Company is a party and all agreements relating to Intellectual Property set
forth in Schedule 4(m) being "Material Contracts"):
------------------
(1) each contract and agreement for the purchase of Inventory, spare
parts, other materials or personal property with any supplier or for the
furnishing of services to the Company or otherwise related to the Business
under the terms of which the Company: (A) is likely to pay or otherwise
give consideration of more than $1,000,000 in the aggregate during the
calendar year ending December 31, 1998, (B) cannot be cancelled by the
Company without penalty or further payment and without more than thirty
(30) days' notice, or (C) obtains all of its requirements for the item(s)
covered thereunder;
(2) each contract and agreement for the sale of Inventory or other
personal property or for the furnishing of services by the Company which:
(A) is likely to involve consideration of more than $1,000,000 in the
aggregate during the calendar year ending December 31, 1998, or (B) cannot
be cancelled by the Company without penalty or further payment and without
more than thirty (30) days' notice;
(3) all distributor, sales representative, franchise, agency,
advertising and marketing, sales promotion, market research, or broker
contracts and agreements to which the Company is a party;
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(4) all management contracts and contracts with independent
contractors or consultants (or similar arrangements) to which the Company
is a party and which are not cancelable without penalty or further payment
and without more than thirty (30) days' notice;
(5) all contracts and agreements relating to Indebtedness of the
Company;
(6) all contracts and agreements with any Governmental Body to which
the Company is a party;
(7) all contracts and agreements that limit or purport to limit the
ability of the Company to compete in any line of business or with any
Person or in any geographic area or during any period of time;
(8) all contracts and agreements between or among the Company and
the Seller or any Affiliate of the Seller;
(9) all contracts and agreements providing for benefits under any
Employee Benefit Plan; and
(10) all other contracts and agreements whether or not made in the
Ordinary Course of Business, which are material to the Company or the
conduct of the Business or the absence of which would have a Material
Adverse Effect.
For purposes of this Section 4(l) and Sections 4(j), (k) and (m), the
term "Lease" shall include any and all leases, subleases, sale/leaseback
-----
agreements or similar arrangements.
(ii) Except as disclosed in Schedule 4(1), to the Seller's Knowledge,
each Material Contract is legal, valid, binding, enforceable and in full force
and effect. Except as disclosed in Schedule 4(1), each Material Contract, upon
consummation of the Contemplated Transactions, except to the extent that any
consents set forth in Schedule 4(1) are not obtained, shall continue in full
force and effect without penalty or other Adverse Consequences. Neither the
Company nor, to the Seller's Knowledge, the other party to each Material
Contract is in default or breach thereunder in any material respect, and no
event has occurred that with notice or the lapse of time or both would
constitute a default or breach thereunder by the Company, or to the Seller's
Knowledge, the other party thereto.
(iii) Except as disclosed in Schedule 4(1), there is no contract,
agreement or other arrangement granting any Person any preferential right to
purchase, other than in the Ordinary Course of Business consistent with past
practice, any of the properties or assets of the Company.
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(m) PROPRIETARY RIGHTS. Schedule 4(m) lists all of the patents,
trademarks, servicemarks, trade names, assumed or fictitious names, logos,
copyrights, trade secrets, know-how and other proprietary rights and
applications therefor and registrations thereof that are material to the conduct
of the business of the Company (the "Proprietary Rights"). Except as disclosed
------------------
in Schedule 4(m), the Company has the right to use the Proprietary Rights in
connection with its business as presently being conducted, and no claim has been
made against the Company that such use violates the rights of any third party.
All of the Proprietary Rights are free from any Encumbrance except as disclosed
in Schedule 4(m) and, to the Seller's Knowledge, are valid, enforceable and in
full force and effect. None of the Proprietary Rights has been held invalid and
except as set forth in Schedule 4(m) (i) the validity of such Proprietary Rights
has not been and is not now being questioned or challenged in any way or
involved in any pending or, to the Seller's Knowledge, Threatened infringement,
unfair competition or other proceeding restricting the use thereof by the
Company or restricting the licensing thereof by the Company to any Person and
(ii) to the Seller's Knowledge the Company is not infringing the intellectual
property rights of any other Person, whether in relation to the use of any
Proprietary Rights or otherwise nor has the Company received any claim of any
such infringement or violation. To the Seller's Knowledge, no Person is using
any patents, copyrights, trademarks, service marks, trade names, trade secrets
or similar property that are confusingly similar to the Proprietary Rights held
by the Company or that infringe upon the Proprietary Rights or upon the rights
of the Company therein. Except as disclosed in Schedule 4(m), neither the Seller
nor the Company has granted any license or other right to any other Person with
respect to the Proprietary Rights. The consummation of the Contemplated
Transactions will not result in the termination or impairment of any of the
Proprietary Rights.
(n) LITIGATION. Schedule 4(n) sets forth each instance in which the
Company (i) is subject to a outstanding injunction, judgment, order, decree,
ruling or charge; or (ii) is a party or, to the Seller's Knowledge, is
Threatened to be made a party to any action, suit, proceeding, hearing or
investigation of, in or before any Governmental Body or arbitrator (other than
those matters set forth in Schedules 4(m)(i), 4(o), 4(p) or 4(t)(iii)).
(o) COMPLIANCE WITH LAWS. To the Seller's Knowledge, except as set forth
in Schedules 4(o) or 4(p), the Company is in compliance with all Laws, except
where the failure to comply would not have a Material Adverse Effect.
(p) ENVIRONMENTAL COMPLIANCE AND OTHER PERMITS AND LICENSES.
(i) (A) Except as set forth in Schedule 4(p), the Company currently
holds all the health and safety and other permits, licenses, authorizations,
certificates, exemptions and approvals of any Governmental Body (collectively,
"Permits"), including Environmental Permits, necessary or proper for the current
-------
use, occupancy and operation of each Asset and the conduct of the Business. (B)
Schedule 4(p) sets forth those Permits the absence of which would have a
Material Adverse Effect. (C) Except as set forth in Schedule 4(p), to the
Seller's Knowledge there is no past or existing practice, action or activity of
the Company or any Predecessor or,
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with respect to any portion of the Business, the Seller and no past or existing
condition of the Assets or the Business, which presently gives rise to any
potential civil or criminal Liability under, or presently violates or prevents
compliance with, any applicable Environmental Law. (D) Except as set forth in
Schedule 4(p), neither the Seller nor the Company has received any written
notice from any Governmental Body revoking, cancelling, rescinding, suspending,
materially modifying or refusing to renew any Permit. (E) Except as set forth in
Schedule 4(p), the Company is in all material respects in compliance with the
Permits, and all of the Permits are in full force and effect. (F) Schedule 4(p)
identifies all Permits which will require the consent of any Governmental Body
prior to the consummation of the Contemplated Transactions.
(ii) Except as disclosed in Schedule 4(p), (A) Hazardous Materials
have not been generated, used, treated, handled or stored on, or transported to
or from, any Real Property by the Company or, to the Seller's Knowledge, any
property adjoining any Real Property, in non-compliance in any material respect
with applicable Environmental Laws; (B) to the Seller's Knowledge the Company
has disposed of all wastes, including those wastes containing Hazardous
Materials, in material compliance with all applicable Environmental Laws and
Environmental Permits; (C) there are no pending or, to the Seller's Knowledge,
Threatened Environmental Claims against the Company or any Real Property; (D) no
Owned Real Property or, to the Seller's Knowledge, any Leased Real Property is
listed or proposed for listing as of the date of this Agreement on the National
Priorities List under CERCLA or is listed on the CERCLIS or any analogous state
list of sites requiring investigation or cleanup; and (E) Hazardous Materials
have not been Released on any Owned Real Property, or on any property adjoining
any Owned Real Property, by the Company or any Predecessor.
(iii) Except as disclosed in Schedule 4(p), to the Seller's Knowledge
there are no circumstances with respect to any Real Property or other Asset or
the current or past operation of the Business which could reasonably be
anticipated (A) to form the basis of a material Environmental Claim against the
Company or any Real Property or Asset or (B) to cause such Real Property or
Asset to be subject to any material restrictions on ownership, occupancy, use or
transferability under any applicable Environmental Law.
(iv) Except as disclosed in Schedule 4(p), to the Seller's Knowledge
there are not now and never have been any USTs located on any Real Property.
(q) EMPLOYEE BENEFITS.
(i) Schedule 4(q)(i) lists each Employee Benefit Plan maintained by
the Company or any ERISA Affiliate, or to which the Company or any ERISA
Affiliate contributes, covering any employee or former employee of the Company
(the "Company Employee Benefit Plans").
------------------------------
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<PAGE>
(ii) With respect to each Company Employee Benefit Plan, except for
matters which would not have a Material Adverse Effect on the Company and
except as set forth in Schedule 4(q)(ii):
(A) each Company Employee Benefit Plan (and each related trust,
insurance contract or fund) complies in form and in operation in all respects
with the applicable requirements of ERISA and the U.S. Code;
(B) each Company Employee Benefit Plan which is intended to
comply with U.S. Code Section 401(a) has received a favorable determination
letter from the IRS to the effect that each such Company Employee Benefit Plan
is qualified and exempt from federal income tax under Sections 401(a) and
501(a), respectively, of the U.S. Code, as amended through December 31, 1994;
(C) all contributions (including all employer contributions and
employee salary reduction contributions) which are due to each Company Employee
Benefit Plan which is an Employee Pension Benefit Plan have been paid or will
have been paid by the Closing;
(D) neither the Company nor any ERISA Affiliate has any
liability (including current or potential withdrawal liability) with respect to
any Multiemployer Plan;
(E) the Company does not presently maintain, contribute to or
have any liability under any funded or unfunded medical, health or life
insurance plan or arrangement for terminated employees or retirees except as
required by the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended;
(F) to the Seller's Knowledge, there has been no act or acts
which would result in a disallowance of a deduction or the imposition of a tax
pursuant to U.S. Code Section 4980B, or any predecessor provision thereof, or
any regulations promulgated thereunder, whether final, temporary or proposed;
(G) no Company Employee Benefit Plan is subject to U.S. Code
Section 412 or ERISA Section 302;
(H) no Company Employee Benefit Plan is subject to Title IV of
ERISA;
(I) neither the Company nor any ERISA Affiliate, nor any of
their respective directors, officers, employees or any other "fiduciary", as
such term is defined in Section 3(21) of ERISA, has any liability for failure to
comply with ERISA or the U.S. Code for any action or failure to act in
connection with the administration or investment of any of the Company Employee
Benefit Plans. No event has occurred with respect to which the Company or any
ERISA Affiliate could be liable for a civil penalty or other liability under
Section 502(c) or Section 502(1) of ERISA;
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(J) the Seller has delivered or made available to the Buyer
correct and complete copies of (where applicable): the plan document (or a
written summary of the terms and conditions of the plan if there is no written
plan document) and summary plan description, the most recent determination
letter received from the IRS, the most recent three Form 5500 Annual Reports and
all related trust agreements, insurance contracts and other funding agreements
which implement each Company Employee Benefit Plan;
(K) neither the Seller, the Company, nor any of their respective
officers, directors or employees has engaged in any prohibited transaction
(within the meaning of Section 406 of ERISA or Section 4975 of the U.S. Code)
with respect to any Employee Benefit Plan. The Company has not incurred any
liability for any penalty or tax arising under Section 4971, 4972, 4980 or 6652
of the U.S. Code or any liability under Section 502 of ERISA, and no fact or
event exists which could give rise to any such liability. The Company has not
incurred any liability under, arising out of or by operation of Title IV of
ERISA (other than liability for premiums to the Pension Benefit Guaranty
Corporation arising in the ordinary course), including, without limitation, any
liability in connection with (i) the termination or reorganization of any
Employee Benefit Plan subject to Title IV of ERISA or (ii) the withdrawal from
any Multiemployer Plan or Multiple Employer Plan, and no fact or event exists
which could give rise to any such liability. No complete or partial termination
has occurred within the five (5) years preceding the date hereof with respect to
any Employee Benefit Plan. No reportable event (within the meaning of Section
4043 of ERISA) has occurred or is expected to occur with respect to any Employee
Benefit Plan subject to Title IV of ERISA. No Employee Benefit Plan had an
accumulated funding deficiency (within the meaning of Section 302 of ERISA or
Section 412 of the U.S. Code), whether or not waived, as of the most recently
ended plan year of such Employee Benefit Plan. None of the assets of the Company
is the subject of any lien arising under Section 302(o) of ERISA or Section
412(n) of the U.S. Code; the Company has not been required to post any security
under Section 307 of ERISA or Section 401(a)(29) of the U.S. Code; and no fact
or event exists which could give rise to any such lien or requirement to post
any such security.
(r) TAX MATTERS.
(i) The Company has duly and timely filed each Tax Return required to
be filed with any Tax Authority (or has timely and properly filed valid
extensions of time with respect to the filling thereof) which include or are
based upon the assets, operations, ownership or activities of the Company,
including any consolidated, combined, unitary, fiscal unity or similar Tax
Return which includes or is based upon the assets, operations, ownership or
activities of the Company except where the failure to file a Tax Return would
not have a Material Adverse Effect on the Company. Except as set forth in
Schedule 4(r), to the Seller's Knowledge there is no investigation or other
proceeding pending by any Tax Authority for any jurisdiction where the Company
did not file Tax Returns with respect to a given Tax that may lead to an
assertion by such Tax Authority that the Company is or may be subject to a given
Tax in such jurisdiction. Neither the Seller nor any Subsidiary or Affiliate of
the Seller is a party
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to any agreement or arrangement that would result, individually Or in the
aggregate, in the payment of any "excess parachute payment" within the meaning
of Section 280G of the U.S. Code.
(ii) The Company has paid or will have paid all Taxes with respect
to periods through the Closing Date with respect to the assets, operations,
ownership or activities of the Company other than Taxes due or accrued as
reflected on the Closing Net Operating Assets Statement.
(iii) Except as disclosed in Schedule 4(r), there are no pending, or,
to the Seller's Knowledge, Threatened or proposed audits, assessments or claims
from any Tax Authority for deficiencies, penalties or interest against the
Company. Except as disclosed in Schedule 4(r), there are no pending claims for
refund of any Tax of the Company.
(iv) The Company does not own, directly or indirectly, any interest
in any entity classified as a partnership for United States federal income Tax
purposes.
(v) Except as disclosed in Schedule 4(r), there are no outstanding
rulings of, or requests for rulings with, any Tax Authority expressly addressed
to the Company that are, or if issued would be, binding upon the Company for any
Post-Closing Period.
(vi) Except as disclosed in Schedule 4(r), as to each year or period
for which the statute of limitations for assessments has not yet expired as to a
given Tax, the Company is not (A) a member of an affiliated, consolidated,
unitary, fiscal unity, combined or similar Tax group which files a consolidated
unitary, combined or similar Tax Return for purposes of that Tax, or (B) a party
to any Tax allocation, Tax sharing or Tax reimbursement agreement or arrangement
with any Person.
(vii) The Company has not made or is not subject to any election
under Section 341(f) of the U.S. Code.
(viii) The Company has not made and is not bound by any election
under Section 197 of the U.S. Code.
(ix) (1) Schedule 4(r) lists all income and income-based Tax Returns
(federal, state, local and foreign) filed with respect to the Company for
taxable periods ended on or after December 31, 1995, indicates for which
jurisdictions Tax Returns have been filed on the basis of a unitary group,
indicates the most recent income or income-based Tax Return for each relevant
jurisdiction for which an audit has been completed or the statute of limitations
has lapsed and indicates all such Tax Returns that currently are the subject of
audit; (2) the Seller has delivered or made available to the Buyer correct and
complete copies of all federal, state and foreign income and income-based Tax
Returns, examination reports, and statements of deficiencies assessed against or
agreed to by the Company since June 29, 1995; and (3) the
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Seller has delivered to the Buyer a true and complete copy of any tax-sharing or
allocation agreement or arrangement involving the Company and a true and
complete description of any such unwritten or informal agreement or arrangement.
(s) CERTAIN PROCEEDINGS. There is no pending Proceeding that has been
commenced against the Seller or the Company that challenges, or may have the
effect of preventing, delaying, making illegal or otherwise interfering with,
any of the Contemplated Transactions. To the Seller's Knowledge, no such
Proceeding has been Threatened.
(t) BROKERAGE. The Company has incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or similar payment in connection with this Agreement.
(u) SALES AND PURCHASE ORDER BACKLOG.
(i) As of May 22, 1998 and the Reference Net Operating Assets
Statement Date, open sales orders accepted by the Company totalled approximately
$6,172,000 and $6,890,000 respectively.
(ii) As of May 22, 1998 and the Reference Net Operating Assets
Statement Date, open purchase orders issued by the Company totalled
approximately $9,577,000 (after giving effect to such purchaser orders filled
through June 26, 1998) and $13,563,000, respectively.
(v) CERTAIN INTERESTS.
(i) Except as disclosed in Schedule 4(v), no officer or director of
the Seller, the Company and no relative or spouse (or relative of such spouse)
who resides with, or is a dependent of, any such officer or director:
(1) has any direct or indirect financial interest in any competitor,
supplier or customer of the Company; provided, however, that the ownership
-------- -------
of securities representing no more than one percent (1%) of the outstanding
voting power of any competitor, supplier or customer, and which are listed
on any national securities exchange or traded actively in the national
over-the-counter market, shall not be deemed to be a "financial interest"
so long as the Person owning such securities has no other connection or
relationship with Such competitor, supplier or customer;
(2) owns, directly or indirectly, in whole or in part, or has any
other interest in any tangible or intangible property which the Company
uses or has used in the conduct of the Business or otherwise; or
(3) has outstanding any Indebtedness to the Company.
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(ii) Except as disclosed in Schedule 4(v), no officer or director of
the Company and no relative or spouse (or relative of such spouse) who resides
with, or is a dependent of, any such officer or director has outstanding any
Indebtedness to the Seller.
(iii) Except as disclosed in Schedule 4(v) or Sections 4(q) or 4(bb),
the Company has no Liability or any other obligation of any nature whatsoever to
any officer, director or shareholder of the Seller or the Company or to any
relative or spouse (or relative of such spouse) who resides with, or is a
dependent of, any such officer, director or shareholder.
(w) GOVERNMENTAL CONSENTS AND APPROVALS. The execution, delivery and
performance of this Agreement by the Seller do not and will not require any
consent, approval, authorization or other order of, action by, filing with or
notification to any Governmental Authority, except (a) as described in Schedule
4(w) and (b) the notification requirements of the HSR Act.
(x) ASSETS.
(i) Except as disclosed in Schedule 4(x) the Company owns, leases or
has the legal right to use all the properties and assets including the
Proprietary Rights, real property and the personal property, used or intended to
be used in the conduct of the Business or otherwise owned, leased or used by the
Company and, with respect to contract rights, is a party to and enjoys the right
to the benefits of all contracts, agreements and other arrangements used or
intended to be used by the Company or in or relating to the conduct of the
Business (all such properties, assets and contract rights being the "Assets").
The Company has good and marketable title to, or, in the case of leased or
subleased Assets, valid and subsisting leasehold interests in, all the Assets,
free and clear of all Encumbrances, except as disclosed in Schedules 4(j), (k),
(m) or (x).
(ii) The Assets constitute all the properties, assets and rights
forming a part of, used, held or intended to be used in, and all such
properties, assets and rights as are necessary in the conduct of, the Business.
(iii) Immediately following the Closing, the Company will own,
pursuant to good and marketable title, or lease under valid and subsisting
leases, or otherwise retain its respective interest in the Assets without
incurring any penalty or other adverse consequence, including any increase in
rentals, royalties, or licenses or other fees imposed as a result of, or arising
from, the consummation of the Contemplated Transactions. Immediately following
the Closing, the Company will own and possess all documents, books, records,
agreements and financial data of any sort used by the Company in the conduct of
the Business or otherwise.
(y) CUSTOMERS. Listed in Schedule 4(y) are the names and addresses of all
the customers of the Company which purchased goods or merchandise from the
Company with an aggregate value of $1 million or more during the twelve-month
period ended December 26,
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1997, and the amount for which each such customer was invoiced during such
period. Except as disclosed in Schedule 4(y) neither the Seller nor the Company
has received any notice or has any reason to believe that any significant
customer of the Company has ceased, or will cease, to use the products,
equipment, goods or services Of the Company, or has substantially reduced, or
will substantially reduce, the use of such products, equipment, goods or
services at any time.
(z) SUPPLIERS. Listed in Schedule 4(z) are the names and addresses of all
the suppliers from which the Company ordered raw materials, supplies,
merchandise and other goods for the Company with an aggregate purchase price of
$1 million or more during the twelve-month period ended December 26, 1997, and
the amount paid to each such supplier by the Company during such period. Except
as disclosed in Schedule 4(z), neither the Seller nor the Company has received
any notice or has any reason to believe that any such supplier will not sell raw
materials, supplies, merchandise and other goods to the Company at any time
after the Closing Date on terms and conditions substantially similar to those
used in its current sales to the Company, subject only to general and customary
price increases.
(aa) LABOR MATTERS. Except as set forth in Schedule 4(aa), (i) the Company
is not a party to any collective bargaining agreement or other labor union
contract applicable to persons employed by the Company and currently there are
no organizational campaigns, petitions or other unionization activities seeking
recognition of a collective bargaining unit which could affect the Company; (ii)
there are no controversies, strikes, slowdowns or work stoppages pending or, to
the Seller's Knowledge, Threatened between the Company and any of their
employees, and. the Company has not experienced any such controversy, strike,
slowdown or work stoppage within the past three (3) years; (iii) neither the
Company has not breached or otherwise failed to comply with the provisions of
any collective bargaining or union contract and there are no grievances
outstanding against the Company under any such agreement or contract which could
have a Material Adverse Effect; (iv) there are no unfair labor practice
complaints pending against the Company before the National Labor Relations Board
or any other Governmental Body or any current union representation questions
involving employees of the Company which could have a Material Adverse Effect;
(v) the Company is currently in compliance with all applicable Laws relating to
the employment of labor, including those related to wages, hours, collective
bargaining except where the failure to comply would not have a Material Adverse
Effect and the payment and withholding of taxes and other sums as required by
the appropriate Governmental Body and has withheld and paid to the appropriate
Governmental Body or is holding for payment not yet due to such Governmental
Body all amounts required to be withheld from employees of the Company and is
not liable for any arrears of wages, taxes, penalties or other sums for failure
to comply with any of the foregoing; (vi) the Company has paid in full to all
its employees or adequately accrued for in accordance with GAAP all wages,
salaries, commissions, bonuses, benefits and other compensation due to or on
behalf of such employees; (vii) there is no claim with respect to payment of
wages, salary or overtime pay that has been asserted or is now pending or, to
the Seller's Knowledge, Threatened before any Governmental Body with respect to
any Persons currently or formerly employed by the Company; (viii) the Company is
not a party to, or otherwise bound by, any consent decree with, or citation by,
any
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Governmental Body relating to employees or employment practices; (ix) there is
no charge or proceeding with respect to a violation of any occupational safety
or health standards that has been asserted or is now pending or, to the Seller's
Knowledge, Threatened with respect to the Company; and (x) there is no charge of
discrimination in employment or employment practices, for any reason, including
age, gender, race, religion or other legally protected category, which has been
asserted or is now pending or, to the Seller's Knowledge, Threatened before the
United States Equal Employment Opportunity Commission, or any other Governmental
Body in any jurisdiction in which the Company has employed or currently employs
any Person.
(bb) KEY EMPLOYEES.
(i) Schedule 4(bb) lists the name, position, place and date of
employment, the current annual salary, commission, bonus, deferred or contingent
compensation, pension and/or the Company contribution under the Seller's Profit
Sharing Retirement Plan and Trust, current accrued vacation, "golden parachute"
and other like benefits paid or payable (in cash or otherwise) in 1996 and 1997
of each current salaried employee, officer or director of the Company whose
total annual compensation exceeded (or, in 1998, is expected to exceed)
$100,000.
(ii) Schedule 4(bb) lists those officers, management employees, and
technical and professional employees of the Company who are under written
obligation to the Company to maintain in confidence all confidential or
proprietary information acquired by them in the course of their employment and
to assign to the Company all inventions made by them within the scope of their
employment during such employment and for a reasonable period thereafter.
(cc) INSURANCE.
(i) Schedule 4(cc) sets forth the following information with respect
to each insurance policy (including policies providing property, casualty,
liability, workers' compensation, and bond and surety arrangements) under which
the Company has been an insured, a named insured or otherwise the principal
beneficiary of coverage at any time within the past three (3) years:
(1) the name, address and telephone number of the agent or
broker;
(2) the name of the insurer and the names of the principal
insured and each named insured;
(3) the policy number and the period of coverage;
(4) the type, scope (including an indication of whether the
coverage was on a claims made, occurrence or other basis) and amount
(including a description of how deductibles, retentions and aggregates are
calculated and operate) of coverage;
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(5) the premium charged for the policy, including, without
limitation, a description of any retroactive premium adjustments or other
loss-sharing arrangements; and
(6) claims history under each such policy for the last three (3)
years.
(ii) Schedule 4(cc) sets forth all risks against which the Company
is self-insured or which are covered under any risk retention program in which
the Company participates, together with details for the last five (5) years of
the Company's loss experience with respect to such risks.
(iii) Except as set forth on Schedule 4(cc), no insurance policy
listed in Schedule 4(cc) will cease to be legal, valid, binding, enforceable in
accordance with its terms and in full force and effect on terms identical to
those in effect as of the date hereof as a result of the consummation of the
Contemplated Transactions.
(dd) PRODUCT AND SERVICE WARRANTIES. Set forth on Schedule 4(dd) are the
standard written forms of product and service warranties and guarantees utilized
by the Company as of the date of this Agreement. Except as set forth on Schedule
4(dd), to the Seller's Knowledge, during a period of five (5) years prior to the
Closing Date, neither the Company nor any Affiliate of the Company has made any
other written material warranties with regard to products and/or services
supplied by the Company.
(ee) FULL DISCLOSURE. No representation, warranty or other statement
contained in any certificate or Schedule furnished or to be furnished by the
Seller to the Buyer in, or pursuant to the provisions of, this Agreement
contains or shall contain any untrue statement of a material fact or omits or
shall omit to state any material fact necessary, in light of the circumstances
under which it was made, in order to make the statements herein or therein not
misleading.
(ff) DISCLAIMER OF OTHER REPRESENTATIONS AND WARRANTIES. Except as
expressly set forth in Sections 3 and 4, the Seller makes no representation or
warranty, express or implied, at law or in equity, with respect to its ownership
of the Shares, the Company or any of its assets, liabilities or operations,
including with respect to merchantability or fitness for any particular purpose,
and any such other representations or warranties are hereby expressly
disclaimed.
5. REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller that the statements
contained in this Section 5 are true and correct on the date of this Agreement
and will be true and correct on the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 5).
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(a) ORGANIZATION AND POWER. The Buyer is a corporation duly organized,
validly existing and in good standing under the corporate law of the State of
Delaware. The Buyer has the requisite corporate power and authority to execute
and deliver this Agreement to perform its obligations hereunder and to
consummate the Contemplated Transactions in accordance with the terms and
conditions hereof.
(b) AUTHORIZATION. The execution, delivery and performance of this
Agreement and the consummation of the Contemplated Transactions have been duly
authorized and approved by all necessary corporate action of the Buyer. This
Agreement has been duly and validly executed and delivered by the Buyer.
Assuming the due authorization, execution and delivery of this Agreement by the
Seller, this Agreement constitutes the legal, valid and binding obligation of
the Buyer and is enforceable against the Buyer in accordance with its terms and
conditions.
(c) ABSENCE OF CONFLICTS. The execution and delivery by the Buyer of this
Agreement, the performance by the Buyer of its obligations hereunder and the
consummation of the Contemplated Transactions do not and shall not, with or
without the giving of notice or lapse of time or both, (i) violate or conflict
with the Certificate of Incorporation or by-laws of the Buyer; (ii) violate or
conflict with any provision of Law to which the Buyer is subject in a judgment,
order, writ or decree of any court, arbitrator or administrative body applicable
to the Buyer in a manner which will have a material adverse effect on the Buyer;
or (iv) result in the breach of, constitute a default under, constitute an event
which with notice or lapse of time or both would become a default under, or
result in the creation of any Encumbrance upon any of the properties of the
Buyer under, any Contract to which the Buyer is a party or by which it is bound
or affected in a manner which will have a material adverse effect on the Buyer.
(d) BROKERAGE. The Buyer has incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or similar payment in connection with this Agreement.
(e) INVESTMENT. The Buyer is acquiring the Shares for its own account and
not with a view to their distribution within the meaning of Section 2(11) of the
Securities Act.
(f) FINANCE LETTERS. The Buyer has provided to the Seller true and correct
copies of the Finance Letters. The financing contemplated by the Finance Letters
and the Updated Finance Letter is sufficient to pay the Purchase Price and fees
and expenses related to the Contemplated Transactions to be paid by the Buyer
and to provide for the working capital requirements of the Buyer after the
Closing.
(g) CERTAIN PROCEEDINGS. There is no pending Proceeding that has been
commenced against the Buyer that challenges, or may have the effect of
preventing, delaying, making illegal or otherwise interfering with, any of the
Contemplated Transactions. To the Buyer's Knowledge, no such Proceeding has been
Threatened.
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6. COVENANTS OF THE SELLER BEFORE THE CLOSING DATE
Between the date of this Agreement and the Closing Date, except as
contemplated by this Agreement or unless the Buyer shall otherwise agree in
writing:
(a) ACCESS AND INVESTIGATION. The Seller shall, and shall cause the
Company to, afford the Buyer and its Representatives reasonable access to the
Company's personnel, properties, Contracts, books and records, and such other
documents and data as the Buyer may reasonably request; provided, however, that
-------- -------
the Buyer may not have access to any such Contracts, books and records, and
other documents and data if such access would, in the reasonable opinion of the
Seller's counsel, jeopardize the Seller or the Company with respect to their
respective attorney-client privilege. The Buyer shall hold, and cause its
Representatives to hold, all such information, including any information that it
obtains from access to the Company's personnel and properties, in accordance
with the terms of the Confidentiality Agreement. The Confidentiality Agreement
shall remain in full force and effect in accordance with its terms until the
Closing Date or, if this Agreement is terminated, thereafter in accordance with
the terms of the Confidentiality Agreement. The Buyer and its Representatives
shall not, in the exercise of their rights under this Section 6(a), unduly
interfere with the Company's business operations or perform any intrusive
investigation that involves sampling of any properties or any building materials
or equipment on any properties of the Company.
(b) OPERATION OF THE COMPANY'S BUSINESS. The Seller shall cause the
Company to conduct the its business only in the Ordinary Course of Business.
Without limiting the generality of the foregoing, the Seller shall not cause or
permit the Company to engage in any practice, take any action or enter into any
transaction of the type described in Section 4(i); provided, however, that for
-------- -------
the purposes of this Section 6(b), Section 4(i)(xiv) shall be deemed to read in
its entirety as follows: "make any capital expenditure in excess of $10,000
individually or $1 million in the aggregate."
(c) REQUIRED APPROVALS. As promptly as practicable after the date of this
Agreement, the Seller shall, and shall cause the Company to, make all filings
required by Law to be made prior to the Closing by either or both of them in
order to consummate the Contemplated Transactions, including all filings under
the HSR Act. Between the date of this Agreement and the Closing Date, the Seller
shall, and shall cause its Representatives and the Company to, (i) cooperate
with the Buyer with respect to all filings that the Buyer elects to make or is
required by Law to make in connection with the Contemplated Transactions; and
(ii) cooperate with the Buyer in obtaining all required consents and approvals
of Governmental Bodies, including using its reasonable efforts to cause early
termination of any applicable waiting period under the HSR Act, and make any
further filings thereunder that may be necessary in connection with this
Agreement; provided, however, that this Agreement shall not require the Seller
-------- -------
or the Company to dispose of or make any change in any portion of its business
or to incur any other burden to make such filing or to obtain such consent or
approval.
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(d) NO SOLICITATION OR NEGOTIATION. The Seller agrees that between the
date of this Agreement and the earlier of (i) the Closing and (ii) the
termination of this Agreement, none of the Seller, the Company, or any of their
respective Affiliates, officers, directors, representatives or agents will,
directly or indirectly, (a) solicit, initiate, consider, encourage or accept any
other proposals or offers from any Person (i) relating to any acquisition or
purchase of all or any portion of the capital stock of the Company or assets of
the Company (other than Inventory to be sold in the Ordinary Course of Business
consistent with past practice), (ii) to enter into any business combination with
the Company or (iii) to enter into any other extraordinary business transaction
involving or otherwise relating to the Company, or (b) participate in any
discussions, conversations, negotiations and other communications regarding, or
furnish to any other Person any information with respect to, or otherwise
cooperate in any way, assist or participate in, facilitate or encourage any
effort or attempt by any other Person to seek to do any of the foregoing. The
Seller immediately shall cease and cause to be terminated all existing
discussions, conversations, negotiations and other communications with any
Persons conducted heretofore with respect to any of the foregoing. The Seller
shall notify the Buyer promptly if any such proposal or offer, or any inquiry or
other contact with any Person with respect thereto, is made and shall, in any
such notice to the Buyer, indicate in reasonable detail the identity of the
Person making such proposal, offer, inquiry or contact and the terms and
conditions of such proposal, offer, inquiry or other contact. The Seller agrees
not to, and to cause the Company not to, without the prior written consent of
the Buyer, release any Person from, or waive any provision of, any
confidentiality or standstill agreement to which the Seller or the Company is a
party.
(e) PREPARATION AND FILING OF TAX RETURNS; PAYMENT OF TAXES. The Seller
shall cause the Company to prepare and file on or before the due date therefor
all Tax Returns required to be filed by the Company (except for any Tax Return
for which a valid extension of time has been timely and properly filed) on or
before the Closing Date and shall pay, or cause the Company to pay, all Taxes
due on such Tax Return (or due with respect to Tax Returns for which a valid
extension of time has been timely and properly filed) or which are otherwise
required to be paid at any time prior to or during such period. Such Tax Returns
shall be prepared in accordance with the most recent Tax practices as to
elections and accounting methods except for new elections that may be made
therein that were not previously available, subject to the Buyer's consent (not
to be unreasonably withheld or delayed).
(f) NOTIFICATION OF TAX PROCEEDINGS. To the extent the Seller has
Knowledge of the commencement or scheduling of any Tax audit, the assessment of
any Tax, the issuance of any notice of Tax due or any bill for collection of any
Tax due for Taxes, or the commencement or scheduling of any other administrative
or judicial proceeding with respect to the determination, assessment or
collection of any Tax of the Company, the Seller shall promptly notify the Buyer
of such matter, setting forth information (to the extent known) describing any
asserted Tax liability in reasonable detail and including copies of any notice
or other documentation received from the applicable Tax Authority with respect
to such matter.
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(g) THIRD PARTY CONSENTS. (i) The Seller will, or will cause the Company
to, give promptly such notices to third parties and use its or their
commercially reasonable efforts to obtain such third party consents and estoppel
certificates as the Buyer may reasonably deem necessary or desirable in
connection with the Contemplated Transactions.
(ii) The Buyer will cooperate and use its commercially reasonable
efforts to assist the Seller or the Company in giving such notices and obtaining
such consents and estoppel certificates; provided, however, that the Buyer will
-------- -------
have no obligation to give any guarantee or other consideration of any nature in
connection with any such notice, consent or estoppel certificate or to consent
to any change in the terms of any agreement or arrangement which the Buyer in
its sole and absolute discretion may deem materially adverse to the interest of
the Buyer, any Affiliate of the Buyer or the Company.
(h) NOTICE OF DEVELOPMENTS. The Seller will give prompt written notice to
the Buyer of any breach of any of its representations and warranties in Sections
3 and 4. From time to time prior to the Closing, the Seller will promptly
supplement or amend the Disclosure Schedule with respect to any matter
heretofore existing or hereafter arising which, if existing, occurring or known
at the date of this Agreement, would have been required to be set forth or
described in the Disclosure Schedule or which is necessary to correct any
information in the Disclosure Schedule which has been rendered inaccurate
thereby. In addition, no disclosure by the Seller pursuant to this Section 6(h)
shall be deemed to amend or supplement the Disclosure Schedule or to prevent or
cure any misrepresentation, breach of warranty, or breach of covenant, unless
the disclosure is of an immaterial matter and the representation, warranty or
covenant itself was subject to a materiality qualification.
7. COVENANTS OF THE BUYER BEFORE THE CLOSING DATE
As promptly as practicable after the date of this Agreement, the Buyer
shall make all filings required by Law to be made by it to consummate the
Contemplated Transactions, including all filings under the HSR Act. Between the
date of this Agreement and the Closing Date, the Buyer shall, and shall cause
its Representatives to, (i) cooperate with the Seller and the Company with
respect to all filings that the Seller and the Company elect to make or are
required by Law to make in connection with the Contemplated Transactions; and
(ii) cooperate with the Seller and the Company in obtaining all required
consents and approvals of Governmental Bodies, including using its reasonable
efforts to cause early termination of any applicable waiting period under the
HSR Act, and make any further filings thereunder that may be necessary in
connection with this Agreement; provided, however, that this Agreement shall not
-------- -------
require the Buyer to dispose of or make any change in any portion of its
business or to incur any other burden to make such filing or obtain such consent
or approval.
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8. CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATIONS
The Seller's obligations under this Agreement are subject to the
satisfaction and occurrence, no earlier than September 2, 1998 (in order to
facilitate the desires of the Seller and the Buyer to announce the Contemplated
Transactions on September 8, 1998), and (A) prior to September 20 or (B) both
(1) on or after October 6, 1998 and (2) no later than November 10, 1998
(provided that the deliveries set forth below are received by the Seller and
Rugby on a Business Day in New York as well as in London) of the following
conditions precedent, either or both of which may be waived in whole or in part
in writing by the Seller in its sole and absolute discretion:
(a) the Buyer shall have delivered to the Seller and Rugby copies of an
executed highly confident letter from Donaldson, Lufkin & Jenrette, dated on or
about the date of delivery of such copies to the Seller and Rugby, in the form
attached hereto as Exhibit 8(a) with respect to the proposed financing described
in the Finance Letters (the "Updated Finance Letter") and which Updated Finance
----------------------
Letter will allow the publication by Rugby of the existence of such Updated
Finance Letter; and
(b) the Buyer shall have delivered to the Seller and Rugby copies of
substantially final drafts of the preliminary offering memorandum with respect
to the proposed high yield financing set forth in the Updated Finance Letter and
the syndication memorandum for the senior credit facilities described in the
Updated Finance Letter.
Unless the Seller makes the reasonable determination that the Updated
Finance Letter and/or the aforementioned memoranda as delivered to the Seller
materially deviate from the form of Exhibit 8(a) or the customary form of such
memoranda in United States practice, respectively (a "Deviation Determination"),
-----------------------
the Seller will execute and deliver to the Buyer, no later than 2:00 p.m. New
York time on the Business Day next following the day on which the latter of the
aforesaid deliveries has been made, the letter in the form of Exhibit 8(b) (the
"Acceptance Letter").
-----------------
The dates set forth in the preceding paragraphs may be varied as the
parties may agree, which agreement will not be unreasonably withheld.
If the Seller fails or refuses to deliver the Acceptance Letter to the
Buyer because of a proper Deviation Determination, this Agreement and all rights
and obligations of the parties hereunder shall terminate without any liability
of either party to the other party.
If a proper Deviation Determination cannot reasonably be made, and yet the
Seller fails or refuses to timely deliver the Acceptance Letter to the Buyer,
this Agreement and all rights and obligations of the parties hereunder shall
terminate without any liability of either party to the other party; provided,
--------
however, that the Seller will be liable to the Buyer for all reasonable actual
- -------
costs and expenses incurred by the Buyer (up to a maximum of $3.3 million) in
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connection with the Contemplated Transactions and a "break-up" fee of $3.7
million. The Seller agrees to pay to the Buyer upon demand the amount of such
costs and expenses (upon presentation to the Seller of reasonable evidence
thereof) up to the aforesaid maximum and the "break-up" fee.
Notwithstanding any termination under this Section 8, the confidentiality
provisions contained in Section 6(a) shall survive termination and the Buyer's
right to pursue all legal remedies at law and as specified herein with respect
to fraud or intentional misconduct of the Seller shall survive such termination
unimpaired.
9. ADDITIONAL CONDITIONS PRECEDENT TO THE SELLER'S OBLIGATIONS
The Seller's obligations to consummate the Contemplated Transactions are
subject to the satisfaction and occurrence, on or before the Closing, of each
and all of the following conditions precedent, any or all of which may be waived
in whole or in part in writing by the Seller in its sole and absolute
discretion:
(a) the representations and warranties set forth in Section 5 shall be
true and correct in all material respects at and as of the Closing Date;
(b) the Buyer shall have performed and complied with, in all material
respects, each of its covenants required by this Agreement to be performed or
complied with on or before the Closing;
(c) there shall not be any injunction, judgment, order, decree, ruling or
charge in effect preventing consummation of any of the Contemplated
Transactions;
(d) all applicable waiting periods (and any extensions thereof) under the
HSR Act shall have expired or otherwise been terminated;
(e) there shall have been delivered to the Seller a certified copy of the
resolutions duly adopted by the Buyer's board of directors authorizing the
execution, delivery and performance of this Agreement, certified by the Buyer's
Secretary; and
(f) all actions to be taken by the Buyer in connection with consummation
of the Contemplated Transactions and all certificates, instruments and other
documents required to effect the Contemplated Transactions hereby shall be
reasonably satisfactory in form and substance to the Seller.
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10. CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS
The Buyer's obligations to consummate the Contemplated Transactions are
subject to the satisfaction and occurrence, on or before the Closing, of each
and all of the following conditions precedent, any or all of which may be waived
in whole or in part in writing by the Buyer in its sole and absolute discretion:
(a) the representations and warranties set forth in Sections 3 and 4 shall
be true and correct in all material respects at and as of the Closing Date;
(b) the Seller shall have performed and complied with, in all material
respects, each of its covenants required by this Agreement to be performed or
complied with on or before the Closing;
(c) there shall not be any injunction, judgment, order, decree, ruling or
charge in effect preventing consummation of any of the Contemplated
Transactions;
(d) all applicable waiting periods (and any extensions thereof) under the
HSR Act shall have expired or otherwise been terminated;
(e) there shall have been delivered to the Buyer a certified copy of the
resolutions duly adopted by the Seller's board of directors authorizing the
execution, delivery and performance of this Agreement, certified by the
Seller's Secretary;
(f) all actions to be taken by the Seller in connection with consummation
of the Contemplated Transactions and all certificates, instruments and other
documents required to effect the Contemplated Transactions shall be reasonably
satisfactory in form and substance to the Buyer;
(g) Buyer shall have received the proceeds of the financing contemplated
by the Updated Finance Letter;
(h) there shall not have occurred a Material Adverse Effect;
(i) all consents set forth on Schedule 4(l)(ii), or the absence of which
could reasonably be entitled to have a Material Adverse Effect, shall have been
obtained;
(j) Rugby shall have executed and delivered to the Buyer a non-competition
agreement containing terms and conditions reasonably satisfactory to the Buyer,
including the terms attached hereto as Exhibit l0(j); and
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(k) the Company and each of James P. Tees, Douglas G. McDonald, Robert H.
Stevenson and Patrick H. Peyton shall have executed and delivered a non-
competition agreement in the form of Exhibit 10(k).
11. TERMINATION
(a) TERMINATION EVENTS. This Agreement may be terminated before the
Closing as follows:
(i) by mutual written consent of the Seller and the Buyer;
(ii) the Buyer may terminate this Agreement by giving written notice
to the Seller at any time before the Closing only:
(A) if the Seller has breached any material representation or
warranty set forth in Sections 3 or 4 or if the Seller has breached any covenant
contained in this Agreement in any material respect, the Buyer has notified the
Seller of the breach, and the breach has continued without cure for a period of
thirty (30) days after the notice of breach; or
(B) if the Closing shall not have occurred on or before
November 30, 1998, by reason of the failure of any condition precedent under
Section 10 (unless the failure results primarily from the Buyer itself breaching
any representation, warranty or covenant contained in this Agreement); or
(C) if either of the Finance Letters has been withdrawn or the
Updated Finance Letter has been withdrawn;
(iii) the Seller may terminate this Agreement by giving written
notice to the Buyer at any time before the Closing only:
(A) if the Buyer has breached any material representation or
warranty in Section 5 or if the Buyer has breached any covenant contained in
this Agreement in any material respect, the Seller has notified the Buyer of the
breach, and the breach has continued without cure for a period of thirty (30)
days after the notice of breach; or
(B) if the Closing shall not have occurred on or before
November 30, 1998, by reason of the failure of any condition precedent under
Section 9 (unless the failure results primarily from the Seller itself breaching
any representation, warranty or covenant contained in this Agreement).
(b) EFFECT OF TERMINATION. If either party terminates this Agreement
pursuant to Section 11(a), all rights and obligations of the parties hereunder
shall terminate without any liability of either party to the other party (except
for any liability of the party then in breach);
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provided, however, that the confidentiality provisions contained in Section 6(a)
- -------- -------
shall survive termination; and further provided, however, that if this Agreement
-------- -------
is terminated by either party because one or more of the conditions to the
terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its covenants, agreements or
obligations under this Agreement, then the terminating party's right to pursue
all legal remedies at law and as specified herein shall survive such termination
unimpaired.
12. INDEMNIFICATION
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Seller contained in this Agreement, the Disclosure Schedule
and any certificate, delivered pursuant to this Agreement (collectively, the
"Acquisition Documents"), shall survive the Closing until the second anniversary
- ----------------------
of the Closing Date; provided, however, that (i) the representations and
-------- -------
warranties dealing with tax matters shall survive as provided in Section 14,
(ii) insofar as any claim is made by the Buyer for the breach of any
representation or warranty of the Seller contained herein relating to
environmental matters, such representations and warranties shall, for purposes
of such claims by the Buyer, survive the Closing Date until the tenth
anniversary of the Closing Date and (iii) insofar as any claim is made by the
Buyer for a breach of the representations and warranties specified in Section
4(b), such representations and warranties shall, for the purposes of such claims
by the Buyer, survive forever. Neither the period of survival nor the liability
of the Seller with respect to the Seller's representations and warranties shall
be reduced by any investigation made at any time by or on behalf of the Buyer.
If written notice of a claim has been given prior to the expiration of the
applicable representations and warranties by the Buyer to the Seller, then the
relevant representations and warranties shall survive as to such claim, until
such claim has been finally resolved.
(b) INDEMNIFICATION BY THE SELLER.
(i) The Buyer and its Affiliates, officers, directors, employees,
agents, successors and assigns (each a "Buyer Indemnified Party") shall be
-----------------------
indemnified and held harmless by the Seller for any and all Liabilities, losses,
damages, claims, costs and expenses, interest, awards, judgments and penalties
(including reasonable attorneys' and consultants' fees and expenses) actually
suffered or incurred by them (including any action brought or otherwise
initiated by any of them (hereinafter a "Loss"), arising out of or resulting
----
from:
(1) the breach of any representation or warranty made by the
Seller contained in the Acquisition Documents; or
(2) the breach of any covenant or agreement by the Seller
contained in the Acquisition Documents or by RBP contained in the Pomona
License or the Distributor Agreements; or
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(3) Environmental Claims and Third Party Claims related to the
Environment and Environmental Claims constituting Off-Site Environmental
Matters to the extent arising out of any action, inaction, event,
condition, liability, or obligation of the Company or any Predecessor, the
Seller, or any of its Affiliates, the Real Property, Assets or formerly
owned or operated real property occurring or existing prior to the Closing
to the extent asserted on or before the tenth year anniversary of the
Closing (other than Aeroquip Claims); or
(4) Pre-Closing Wage Claims and Pre-Closing Employee Claims.
To the extent that the Seller's undertakings set forth in this Section 12(b) may
be unenforceable, the Seller shall contribute the maximum amount that it is
permitted to contribute under applicable law to the payment and satisfaction of
all Losses incurred by the Buyer and the Company. Notwithstanding the foregoing,
the Seller shall have no indemnification obligation to the Buyer with respect to
any liability or obligation (including any estimation thereof) specifically
reflected in the Closing Net Operating Assets Statement.
(ii) A Buyer Indemnified Party shall give the Seller notice of any
matter which a Buyer Indemnified Party has determined has given or could give
rise to a right of indemnification under this Agreement, within sixty (60) days
of such determination, stating the amount of the Loss, if known, and method of
computation thereof, and containing a reference to the provisions of this
Agreement in respect of which such right of indemnification is claimed or
arises. The obligations and Liabilities of the Seller under this Section 12 with
respect to Losses arising from claims of any third party which are subject to
the indemnification provided for in this Section 12 ("Third Party Claims") shall
------------------
be governed by and contingent upon the following additional terms and
conditions: if a Buyer Indemnified Party shall receive notice of any Third Party
Claim, Buyer Indemnified Party shall give the Seller notice of such Third Party
Claim within thirty (30) days of the receipt by the Buyer Indemnified Party of
such notice; provided, however, that the failure to provide such notice shall
-------- -------
not release the Seller from any of its obligations under this Section 12 except
to the extent the Seller is materially prejudiced by such failure and shall not
relieve the Seller from any other obligation or Liability that it may have to
any Buyer Indemnified Party otherwise than under this Section 12. If the Seller
acknowledges in writing its obligation to indemnify the Buyer Indemnified Party
hereunder against any Losses that may result from such Third Party Claim, then
the Seller shall be entitled to assume and control the defense of such Third
Party Claim at its expense and through counsel of its choice if it gives notice
of its intention to do so to the Indemnified Party within five (5) days of the
receipt of such notice from the Buyer Indemnified Party; provided, however, that
--------- -------
if there exists or is reasonably likely to exist a conflict of interest that
would make it inappropriate in the judgment of the Buyer Indemnified Party, in
its sole and absolute discretion, for the same counsel to represent both the
Buyer Indemnified Party and the Seller, then the Buyer Indemnified Party shall
be entitled to retain its own counsel, in each jurisdiction for which the Buyer
Indemnified Party determines counsel is required, at the expense of the Seller.
In the event the Seller exercises the right to undertake any such defense
against any such Third Party
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Claim as provided above, the Buyer Indemnified Party shall cooperate with the
Seller in such defense and make available to the Seller, at the Seller's
expense, all witnesses, pertinent records, materials and information in the
Buyer Indemnified Party's possession or under the Buyer Indemnified Party's
control relating thereto as is reasonably required by the Seller. Similarly, in
the event the Buyer Indemnified Party is, directly or indirectly, conducting the
defense against any such Third Party Claim, the Seller shall cooperate with the
Buyer Indemnified Party in such defense and make available to the Buyer
Indemnified Party, at the Seller's expense, all such witnesses, records,
materials and information in the Seller's possession or under the Seller's
control relating thereto as is reasonably required by the Indemnified Party. No
such Third Party Claim may be sealed by the Seller without the prior written
consent of the Buyer Indemnified Party.
(c) LIMITS ON INDEMNIFICATION. Notwithstanding anything to the contrary
contained in this Agreement (other than Section 12(d)), the maximum amount of
indemnifiable Losses which may be recovered from the Seller arising out of or
resulting from the causes enumerated in (i) Sections 12(b)(i)(1), (2) and (4)
shall be an amount equal to $20 million (the "General Cap") and (ii) Section
12(b)(i)(3) shall be an amount equal to $20 million (the "Environmental Cap")
plus, if necessary, any unutilized portion of the $20 million as set forth in
clause (i) hereof which may be utilized only prior to the second anniversary of
the Closing; provided, however, that such $20 million limitation will not apply
-------- -------
to a breach of Section 4(b). No claim may be made by the Buyer with respect to
indemnifiable Losses under Sections 12(b)(i)(1), (2) and (4) until the aggregate
of all indemnifiable Losses thereunder exceeds $500,000, after which the Seller
shall indemnify the Buyer, subject to the General Cap as applicable, for all
such Losses (inclusive of the first $500,000). No claim may be made by the Buyer
with respect to indemnifiable Losses under Section 12(b)(i)(3) until the
aggregate of all indemnifiable Losses thereunder exceeds $500,000, after which
the Seller shall indemnify the Buyer subject to the Environmental Cap (plus, if
necessary, any unutilized portion of the General Cap as aforesaid for all such
Losses (inclusive of the first $500,000)).
(d) TAX MATTERS. Anything in this Section 12 (except for the specific
reference to
TAX MATTERS IN SECTIONS 14(A) AND (E)) TO THE CONTRARY NOTWITHSTANDING, THE
RIGHTS AND OBLIGATIONS OF THE PARTIES WITH RESPECT TO INDEMNIFICATION FOR ANY
AND ALL TAX MATTERS SHALL BE GOVERNED BY SECTION 14.
(e) INDEMNIFICATION BY THE BUYER.
(i) The Seller and its Affiliates, officers, directors, employees,
agents, successors and assigns (each a "Seller Indemnified Party") shall be
------------------------
indemnified and held harmless by the Buyer for any and all Losses arising out of
or resulting from:
(1) the breach of any representation or warranty made by the
Buyer contained in the Acquisition Documents; or
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(2) the breach of any covenant or agreement by the Buyer
contained in the Acquisition Documents.
To the extent that the Buyer's undertakings set forth in this Section 12(e) may
be unenforceable, the Buyer shall contribute the maximum amount that it is
permitted to contribute under applicable law to the payment and satisfaction of
all Losses incurred by the Seller.
(ii) A Seller Indemnified Party shall give the Buyer notice of any
matter which a Seller Indemnified Party has determined has given or could give
rise to a right of indemnification under this Agreement, within sixty (60) days
of such determination, stating the amount of the Loss, if known, and method of
computation thereof, and containing a reference to the provisions of this
Agreement in respect of which such right of indemnification is claimed or
arises. The obligations and Liabilities of the Buyer under this Section 12 with
respect to Losses arising from Third Party Claims shall be governed by and
contingent upon the following additional terms and conditions: if a Seller
Indemnified Party shall receive notice of any Third Party Claim, the Indemnified
Party shall give the Buyer notice of such Third Party Claim within thirty (30)
days of the receipt by the Seller Indemnified Party of such notice; provided,
---------
however, that the failure to provide such notice shall not release the Buyer
- -------
from any of its obligations under this Section 12 except to the extent the Buyer
is materially prejudiced by such failure and shall not relieve the Buyer from
any other obligation or Liability that it may have to any Seller Indemnified
Party otherwise than under this Section 12. If the Buyer acknowledges in writing
its obligation to indemnify the Seller Indemnified Party hereunder against any
Losses that may result from such Third Party Claim, then the Buyer shall be
entitled to assume and control the defense of such Third Party Claim at its
expense and through counsel of its choice if it gives notice of its intention to
do so to the Seller Indemnified Party within five (5) days of the receipt of
such notice from the Seller Indemnified Party; provided, however, that if there
--------- -------
exists or is reasonably likely to exist a conflict of interest that would make
it inappropriate in the judgment of the Seller Indemnified Party, in its sole
and absolute discretion, for the same counsel to represent both the Seller
Indemnified Party and the Buyer, then the Seller Indemnified Party shall be
entitled to retain its own counsel, in each jurisdiction for which the Seller
Indemnified Party determines counsel is required, at the expense of the Buyer.
In the event the Buyer exercises the right to undertake any such defense against
any such Third Party Claim as provided above, the Seller Indemnified Party shall
cooperate with the Buyer in such defense and make available to the Buyer, at the
Buyer's expense, all witnesses, pertinent records, materials and information in
the Seller Indemnified Party's possession or under the Seller Indemnified
Party's control relating thereto as is reasonably required by the Buyer.
Similarly, in the event the Seller Indemnified Party is, directly or indirectly,
conducting the defense against any such Third Party Claim, the Buyer shall
cooperate with the Seller Indemnified Party in such defense and make available
to the Seller Indemnified Party, at the Buyer's expense, all such witnesses,
records, materials and information in the Buyer's possession or under the
Buyer's control relating thereto as is reasonably required by the Seller
Indemnified Party. No such Third Party Claim may be sealed by the Buyer without
the prior written consent of the Seller Indemnified Party.
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(f) TAX EFFECTS OF INDEMNIFICATION ON PAYMENT. Except for payments made
under Sections 12 or 14 which payments are properly characterized as an
adjustment to Purchase Price under Section 12(i) below, any payment to the
Indemnified Party shall be increased by the amount of any Tax cost to the
Indemnified Party of the receipt of the indemnification payments. Any payments
to be made to an Indemnified Party shall be reduced (but not below zero) by an
amount equal to the Tax Benefits to the Indemnified Party, if any, attributable
to the Loss giving rise to such payment. For purposes of indemnification
payments relating to Taxes, the indemnification payment shall be reduced (but
not below zero) by the Tax Benefit to the Indemnified Party, if any,
attributable to (or arising out of) the adjustment giving rise to the
indemnification payment.
(g) INSURANCE COVERAGE. The parties shall make appropriate adjustments for
insurance coverage in determining the Loss for purposes of this Section 12. The
Buyer shall use (and shall cause the Company to use) reasonable efforts to
collect the proceeds of any available insurance which would have the effect of
reducing any Loss (in which case the net proceeds thereof shall reduce such
Loss). If the Seller shall have made any indemnification payments prior to the
collection of such proceeds, the Buyer shall remit to the Seller the amount of
such proceeds (net of the cost of collection thereof) to the extent of the
indemnification payments received in respect of such Loss. Notwithstanding any
provision herein to the contrary, the provisions of this Section 12(g) shall in
no event delay the Seller's obligations to make payment to the Buyer with
respect to Losses as a result of the lack of final determination of the scope of
insurance coverage.
(h) SOLE REMEDY. The indemnification provisions set forth in Section 12(a)
shall be the Buyer's sole remedy for breach by the Seller of any representation,
warranty or covenant of the Seller in the Acquisition Documents (other than the
indemnification obligations of the Seller under Section 14(a)(i)) except in the
case of fraud or intentional misconduct on the part of the Seller. The
indemnification provisions set forth in Section 12(e) shall be the Seller's sole
remedy for breach by the Buyer of any representation, warranty or covenant of
the Buyer in this Agreement (other than the indemnification obligations of the
Buyer under Section 14(a)(ii)) or any certificate delivered by the Buyer
pursuant to this Agreement except in the case of fraud or intentional misconduct
of the Buyer.
(i) CHARACTERIZATION OF INDEMNIFICATION PAYMENTS. Notwithstanding anything
to the contrary contained herein, all amounts paid by the Buyer or the Seller,
as the case may be, under the terms of this Section 12 or under Section 14 shall
be treated, to the extent allowed under applicable Tax Law as adjustments to the
Purchase Price, and each of the Buyer and the Seller expressly covenants and
agrees to treat all such payments as Purchase Price adjustments to the greatest
extent possible under applicable Tax Laws. To the extent any payment made under
this Section 12 or Section 14 is not permitted to be treated as a Purchase Price
adjustment under applicable Tax Laws, the amount of such payment shall be
adjusted in accordance with Section 12(f) to take into account the Tax Benefit
and/or Tax cost, if any, resulting from such payment.
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13. GUARANTY OF AEROQUIP PERFORMANCE
Subject to the terms and conditions set forth in this Section 13, the
Seller guarantees to the Buyer the due performance by Aeroquip of its
obligations to the Company with respect to any Aeroquip Claim that are not
promptly fulfilled by Aeroquip, provided that the Buyer and/or the Company, as
the case may be, have abided by the following terms and conditions (the
"Seller's Guaranty"):
- ------------------
(a) the Buyer has caused the Company to have complied in all material
respects with the terms of the Aeroquip Agreements such that Aeroquip's failure
to perform is not excused by the Company's failure to perform;
(b) the Buyer will cause the Company to enforce, to the fullest extent
permitted by law and in a timely manner and consistent with the Aeroquip
Agreements, the obligations of Aeroquip and the rights of the Company under the
Aeroquip Agreements, including the Company's commencement and prosecution of
litigation, mediation or arbitration against Aeroquip;
(c) with respect to any Aeroquip Claim which the Company determines to
assert against Aeroquip under the Aeroquip Agreements, the Buyer will:
(i) advise the Seller of any failure or refusal of Aeroquip to honor
any Aeroquip Claim asserted against Aeroquip or to perform any of its
obligations under the Aeroquip Agreements with respect to any Aeroquip
Claim and promptly furnish to the Seller copies of any correspondence
between the Company and/or the Buyer and Aeroquip with respect to any such
failure or refusal;
(ii) promptly furnish to the Seller a copy of any such Aeroquip Claim
in the form delivered to Aeroquip and promptly advise the Seller of any
failure or refusal of Aeroquip to honor any Aeroquip Claim asserted against
Aeroquip or to perform any of its obligations under the Aeroquip Agreements
with respect to any Aeroquip Claim;
(iii) promptly furnish to the Seller a copy of the complaint in any
lawsuit or claim in any mediation or arbitration filed by the Company
against Aeroquip on or with respect to any Aeroquip Claim, Aeroquip's
response thereto, all material pleadings related thereto and correspondence
with Aeroquip relating thereto, and correspondence with Aeroquip relating
thereto; and
(iv) furnish to the Seller no less frequently than quarterly reports
on the status of any pending Aeroquip Claims;
(d) the Buyer will cause the Company not to amend or modify the Aeroquip
Agreements in any material respect without the prior written consent of the
Seller, which consent
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will not be unreasonably withheld; any material amendment or modification
effected without the Seller's consent will constitute a complete discharge of
the Seller's obligations under this Section 13 with respect solely to the issue
or issues that is or are the subject of such material amendment or modification;
(e) any waiver by the Company of an Aeroquip breach or non-performance of
any obligation with respect to any Aeroquip Claim, or settlement by the Company
of any Aeroquip Claim, without the Seller's prior written consent, which will
not be unreasonably withheld, will constitute a full and complete waiver and
release by the Buyer and the Company of the Seller's obligations, if any, under
this Section 13 with respect to such Aeroquip Claim;
(f) the Buyer will not, and will cause the Company not to, oppose the
Seller's intervening in any lawsuit, mediation or arbitration filed by the
Company against Aeroquip with respect to any Aeroquip Claim, to the extent that
such intervention does not violate or void any Aeroquip Agreement; provided,
---------
however, that nothing in this Section 13 will obligate the Seller to intervene
- -------
in any such lawsuit, mediation or arbitration;
(g) the Buyer's rights under this Section 13 are not assignable or
transferable, and such rights will terminate upon a change of fifty percent
(50%) or greater of the equity ownership of the Company, in each case if either
(i) such assignment purports to assign the Buyer's rights under this Section 13
without the assignee assuming the Buyer's related obligations under this Section
13 or (ii) upon consummation of such assignment or change of control, the
assignee or the Company, respectively, does not have rights under the Aeroquip
Agreements related to the assigned assets or the Company, respectively; and
(h) the Buyer acknowledges and agrees that the obligations of the Seller
under this Section 13 are no greater than those of Aeroquip under the Aeroquip
Agreements, and further that the Seller's obligations are subject to the
Environmental Cap plus the unutilized portion of the General Cap as set forth in
Section 12.
So long as the Buyer and the Company, as the case may be, have abided by
and are in compliance with the foregoing terms and conditions, the Seller agrees
that, upon the Company's written notice to the Seller of its claim on the
Seller's Guaranty under this Section 13 (a "Guaranty Claim") accompanied by
--------------
evidence of a judgment or mediation or arbitral award against Aeroquip with
respect to an Aeroquip Claim, the Seller will promptly pay to the Company the
amount of such judgment or award without any reduction. Coincident to such
payment by the Seller, the Buyer will cause the Company to assign (without
recourse) to the Seller such judgment or award, and further the Buyer will, and
will cause the Company to, cooperate with the Seller in its efforts to collect
on the judgment or award against Aeroquip and, in so doing, to make available to
the Seller, at the Buyer's expense, all such witnesses, along with records,
materials and information in the Buyer's or the Company's (or their counsel's)
possession or control relating thereto, as is reasonably required by the Seller.
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The Buyer agrees that the Seller's Guaranty will be the sole right and
remedy of the Buyer for any Aeroquip Claim and for any breach of representation,
warranty or covenant of the Seller in the Acquisition Documents with respect to
any Environmental matter which is, and only to the extent that it is, an
Aeroquip Claim except in the case of fraud or intentional misconduct on the part
of the Seller. The Buyer further agrees that the Seller's Guaranty will
terminate on the tenth anniversary of the Closing; provided, however, that if a
--------- -------
claim under the Seller's Guaranty has been given to the Seller prior to the
tenth anniversary of the Closing, then the Seller's Guaranty shall survive as to
such claim until it has been finally resolved. The Buyer further agrees that the
Seller's liability under the Seller's Guaranty shall be subject to the
Environmental Cap with respect to indemnifiable Losses under Section 12(b)(i)(3)
(and any unutilized portion of the General Cap prior to the second anniversary
of the Closing) and any payments made by the Seller under the Seller's Guaranty
will be aggregated with indemnifiable Losses (and the payments thereof) under
Section 12(b)(i)(3) for purposes of such Environmental Cap and vice versa.
14. TAX MATTERS
(a) ALLOCATION OF LIABILITY FOR TAXES.
(i) The Seller will be liable for, and will indemnify and hold
harmless the Buyer and the Company from and against, any and all federal, state
and local income Taxes or other Taxes based upon net income (however defined)
and sales and use taxes imposed on or with respect to the Company or its assets,
operations, ownership or activities for any Pre-Closing Period, including any
Taxes resulting from the election under Section 338(h)(10) of the U.S. Code.
(ii) The Buyer will be liable for, and will indemnify and hold
harmless the Seller from and against, any and all Taxes imposed on or with
respect to Buyer or its assets, operations, ownership or activities for any
Post-Closing Period.
(iii) Notwithstanding any provision in this Agreement to the
contrary, the obligations of the Seller to indemnify and hold harmless the Buyer
Indemnified Parties pursuant to this Section 14, and the representations and
warranties contained in Section 4(r), shall terminate at the close of business
on the 60th day following the expiration of the applicable statute of
limitations with respect to the Tax liabilities in question (giving effect to
any waiver, mitigation or extension thereof).
(iv) Notwithstanding anything to the contrary contained herein, under
no circumstances shall the Seller be responsible to indemnify the Buyer under
this Section 14 for any Taxes relating to any Pre-Closing Period or any Post-
Closing Period of any Straddle Period which Taxes have caused a negative
adjustment to the Preliminary Purchase Price and/or the Purchase Price under
Section 2(e).
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(b) PRORATION OF TAXES.
(i) METHOD OF PRORATION. For purposes of the allocations under Section
14(a), Tax items shall be apportioned between the Pre-Closing Period and the
Post-Closing Period based on a closing of the books and records of the Company
as of the Closing Date (provided that (A) any Tax item incurred by reason of the
transactions occurring on or before the Closing Date (including any Tax item
resulting from the election under Section 338(h)(10) of the U.S. Code) as
contemplated by this Agreement shall be treated as occurring in a Pre-Closing
Period and (B) depreciation, amortization, depletion, property Taxes and other
similar Tax items determined by reference to the ownership of the Seller's
assets rather than by the operation of the Seller's business shall be
apportioned on a daily pro-rata basis for purposes of allocating such items
between the Pre-Closing Period and the Post-Closing Period (including any
Straddle Period). In general, Tax items shall be apportioned between the Pre-
Closing Period and the Post-Closing Period in accordance with U.S. Treasury
Regulation Section l.1502-76(b), provided that such regulation shall be
interpreted in a manner which is consistent with the manner of apportionment
described in the immediately preceding sentence.
(ii) NO CONTRARY ELECTIONS. The Seller and the Buyer will not exercise
any option or election (including any election to ratably allocate a Tax year's
items under U.S. Treasury Regulation Section 1.1502-76(b)(2)(ii)) to allocate
Tax items in a manner inconsistent with Section 14(b)(ii).
(c) REFUNDS OF TAXES; AMENDED RETURNS; CARRYOVERS.
(i) REFUNDS. Subject to Section 14(c)(iii), if the Buyer receives a
Tax refund with respect to Taxes arising in a Pre-Closing Period (other than any
refund reflected as a receivable on the Closing Balance Sheet), the Buyer will
pay, within the thirty (30) days following the receipt of such Tax refund, the
amount of such Tax refund to the Seller. If the Seller receives a Tax refund
with respect to Taxes arising in any Post-Closing Tax Period, the Seller will
pay, within the thirty (30) days following the receipt of such Tax refund, the
amount of such Tax refund to the Buyer.
(ii) AMENDED TAX RETURNS.
(A) Subject to Section 14(d)(iii), any amended Tax Return or
claim for Tax refund for any Pre-Closing Period other than a Straddle Period
shall be filed, or caused to be filed, only by the Seller. The Seller shall not,
without the prior written consent of the Buyer (which consent shall not be
unreasonably withheld or delayed), make or cause to be made any such filing, to
the extent such filing, if accepted, reasonably might change the Tax liability
of the Buyer for any Tax Period.
(B) An amended Tax Return or claim for Tax refund for any
Straddle Period shall be filed by the party responsible for filing the original
Tax Return hereunder if
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either the Buyer or the Seller so requests, except that such filing shall not be
done without the consent (which shall not be unreasonably withheld or delayed)
of the Buyer (if the request is made by the Seller) or of the Seller (if the
request is made by the Buyer).
(C) Any amended Tax Return or claim for Tax refund for any Post-
Closing Period other than a Straddle Period shall be filed, or caused to be
filed, only by the Buyer. The Buyer shall not, without the prior written consent
of the Seller (which consent shall not be unreasonably withheld or delayed),
file, or cause to be filed, any amended Tax Return or claim for Tax refund for
any Post-Closing Period to the extent that such filing, if accepted, reasonably
might change the Tax liability of the Seller for any Pre-Closing Period.
(iii) CARRYBACKS. If any Tax loss or credit with respect to the
Company arising in a Post-Closing Period may be carried back and included in any
Tax Return filed or caused to be filed by the Seller with respect to the Company
for any Pre-Closing Period, the Buyer may elect (at its expense) to carry back
such Tax items (subject to the Seller's consent, which consent shall not be
unreasonably withheld or delayed), in which case the Seller shall pay to the
Buyer an amount equal to the Tax Benefit resulting from such carryback of Tax
loss or credit, provided that the Seller shall not be required to file any
carryback claim unless the Buyer so requests in writing and agrees to pay the
reasonable expenses related to the claim for refund.
(d) PREPARATION AND FILING OF TAX RETURNS.
(i) THE SELLER'S RESPONSIBILITIES. The Seller shall have the right
anti obligation to timely prepare and file, and cause to be timely prepared and
filed, when due any Tax Return that is required to include the assets,
operations or activities of the Company for Tax Periods ending on or before the
Closing Date.
(ii) THE BUYER'S RESPONSIBILITIES. The Buyer shall have the right and
obligation to timely prepare and file, and cause to be timely prepared and
filed, when due: (a) all Tax Returns that are required to include the assets,
operations, or activities of the Company for any Tax Periods ending after the
Closing Date (including all Straddle Period Returns). The Seller shall reimburse
the Buyer for any Taxes of the Company with respect to Pre-Closing Periods of
any Straddle Periods within forty-five (45) days of receipt of a notice from
Buyer of the amount of such Taxes (including the pertinent draft Tax Return for
such Straddle Period).
(iii) PREPARATION OF TAX RETURNS.
(A) The Seller shall prepare and provide to the Buyer such Tax
information as is reasonably requested by the Buyer with respect to the assets,
operations or activities of the Company for the Pre-Closing Period to the extent
such information is relevant to any Tax Return which the Buyer has the right and
obligation hereunder to file.
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(B) The Seller shall, on the one hand, or the Buyer shall, on the
other hand, with respect to any Tax Return which such party is responsible
hereunder for preparing and filing, or causing to be prepared and filed, make
such Tax Return and related work papers available for review by the other party
if the Tax Return (x) is with respect to Taxes for which the other party or one
of its Affiliates may be liable hereunder or under applicable tax law, or (y)
claims Tax Benefits which the other party or one of its Affiliates is entitled
to receive hereunder. The filing party shall use its reasonable best efforts to
make Tax Returns available for review as required under this Section 14(d)(iii)
sufficiently in advance of the due date for filing such Tax Returns to provide
the non-filing party with a meaningful opportunity to analyze and comment on
such Tax Returns and have such Tax Returns modified before filing, accepting the
position of the filing party unless such position is contrary to the provisions
of Section 14(d)(iv) hereof.
(iv) CONSISTENCY OF ACCOUNTING METHOD. Any Tax Return which
includes or is based on the assets, operation or activities of the Company or
for any Pre-Closing Period, and any Tax Return which includes or is based on the
assets, operations or activities of the Company for any Post-Closing Period to
the extent the items reported on such Tax Return might reasonably increase any
Tax liability of the Seller for any Pre-Closing Period or any Straddle Period
shall be prepared in accordance with past Tax accounting practices used with
respect to the Tax Returns in question (unless such past practices are no longer
permissible under the applicable Tax Law), and to the extent any items are not
covered by past practices (or in the event such past practices are no longer
permissible under the applicable Tax Law), in accordance with reasonable Tax
accounting practices selected by the filing party with respect to such Tax
Return under this Agreement with the consent (not to be unreasonably withheld or
delayed) of the non-filing party.
(e) TAX CONTROVERSIES; ASSISTANCE AND COOPERATION.
(i) NOTICE. In the event any Tax Authority informs the Seller, on the
one hand, or the Buyer or Company, on the other hand, of any notice of proposed
audit, claim, assessment or other dispute concerning an amount of Taxes with
respect to which the other party may incur liability hereunder, the party so
informed shall promptly notify the other party of such matter. Such notice shall
contain factual information (to the extent known) describing any asserted Tax
liability in reasonable detail and shall be accompanied by copies of any notice
or other documents received from any Tax authority with respect to such matter.
If an Indemnified Party has Knowledge of an asserted Tax liability with respect
to a matter for which it is to be indemnified hereunder and such party fails to
provide prompt notice to the Indemnifying Party of such asserted Tax liability,
then (A) if the Indemnifying Party is precluded from contesting the asserted Tax
liability in any forum as a result of the failure to give prompt notice, the
Indemnifying Party shall have no obligation to indemnify the Indemnified Party
for Taxes arising out of such asserted Tax liability, and (B) if the
Indemnifying Party is not precluded from contesting the asserted Tax liability
in any forum, but such failure to provide prompt notice results in a monetary
detriment to the Indemnifying Party, then any amount which the
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Indemnifying Party is otherwise required to pay the Indemnified Party pursuant
to this Agreement shall be reduced by the amount of such detriment.
(ii) CONTROL RIGHTS. The filing party under this Section 14 shall
control any audits, disputes, administrative, judicial or other proceedings
related to Taxes with respect to which either party may incur liability
hereunder. Subject to the preceding sentence, in the event an adverse
determination may result in each party having responsibility for any amount of
Taxes under this Section 14, each party shall be entitled to fully participate
in that portion of the proceedings relating to the Taxes with respect to which
it may incur liability hereunder. For purposes of this Section 14(e)(ii), the
term "participation" shall include (A) participation in conferences, meetings or
proceedings with any Tax Authority, the subject matter of which includes an item
for which such party may have liability hereunder, (B) participation in
appearances before any court or tribunal, the subject matter of which includes
an item for which a party may have liability hereunder, and (C) with respect to
the matters described in the preceding clauses (A) and (B), participation in the
submission and determination of the content of the documentation, protests,
memorandum of fact and law, briefs, and the conduct of oral arguments and
presentations.
(iii) CONSENT TO SETTLEMENT. The Buyer and the Seller shall not agree
to settle any Tax liability or compromise any claim with respect to Taxes, which
settlement or compromise may affect the liability for Taxes hereunder (or right
to tax benefit) of the other party, without such other party's consent (which
consent shall not be unreasonably withheld or delayed).
(iv) EXPENSES. The Buyer and the Seller shall bear their own expenses
incurred in connection with audits and other administrative judicial proceedings
relating to Taxes for which such party and its Affiliates are liable under this
Section 14.
(v) ASSISTANCE AND COOPERATION. The Seller, on the one hand, and the
Buyer and Company, on the other hand, shall cooperate (and cause their
Affiliates to cooperate) with each other and with each other's agents, including
accounting firms and legal counsel, in connection with Tax matters relating to
the Company, including (A) preparation and filing of Tax Returns, (B)
determining the liability and amount of any Taxes due or the right to and amount
of any refund of Taxes, (C) examinations of Tax Returns, and (D) any
administrative or judicial proceeding in respect of Taxes assessed or proposed
to be assessed. Such cooperation shall include each party making all information
and documents in its possession relating to the Company available to the other
party and providing powers of attorney and filing of forms and documents
consistent with the provisions of this Agreement, in connection with any Tax
disputes. The parties shall retain all Tax Returns, schedules and work papers,
and all material records and other documents relating thereto, until the
expiration of the applicable statute of limitations (including, to the extent
notified by any party, any extension thereof) of the Tax Period to which such
Tax Returns and other documents and information relate. Each of the parties also
shall make available to the other party, as reasonably requested and available,
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personnel (including officers, directors, employees and agents) responsible for
preparing, maintaining and interpreting information and documents relevant to
Taxes, and personnel reasonably required as Witnesses or for purposes of
providing, information or documents in connection with any administrative or
judicial proceedings relating to Taxes.
(f) TERMINATION OF TAX ALLOCATION AGREEMENTS. As of the Closing Date, the
Seller shall cause all Tax allocation, Tax sharing, Tax reimbursement and
similar agreements or arrangements between the Seller and its Affiliates, on the
one hand, and the Company, on the other hand, to be extinguished and terminated
with respect to the Company and any rights or obligations existing under any
such agreement or arrangement to be no longer enforceable.
(g) ELECTION UNDER SECTION 338(h)(10).
(i) SECTION 338(h)(10) ELECTION. The Buyer and the Seller shall make
an election under Section 338(h)(10) of the U.S. Code (and any comparable
election under state, local or foreign tax law) with respect to the acquisition
of the Company by the Buyer. The Buyer and the Seller shall cooperate fully with
each other in the making of such election. In particular, the Buyer shall be
responsible for the preparation and filing of all Tax Returns and forms (the
"Section 338 Forms") required under applicable Tax Law to be filed in connection
- ------------------
with making the Section 338(h)(10) election. The Seller shall deliver to the
Buyer, within twenty (20) days prior to the date the Section 338 Forms are
required to be filed, such documents and other forms as reasonably requested by
the Buyer to properly complete the Section 338 Forms.
(ii) PURCHASE PRICE ALLOCATIONS. The Buyer and the Seller shall
allocate the Purchase Price in the manner required by Section 338 of the U.S.
Code. Such allocation shall be used for purposes of determining the modified
aggregate deemed sales price under the U.S. Code and in reporting the deemed
sale of assets of the Company in connection with the Section 338(h)(10)
election.
(iii) PREPARATION OF TAX FORMS. The Buyer shall initially prepare a
completed set of Section 338 Forms and any additional data or materials required
to be attached to the Section 338 Forms, including a proposed allocation of the
Purchase Price among the Company's assets. The Buyer shall deliver said forms
to the Seller for review no later than forty-five (45) days prior to the date
the Section 338 Forms are required to be filed. In the event the Seller objects
to the manner in which the Section 338 Forms have been prepared, the Seller
shall notify the Buyer within fifteen (15) days of receipt of the Section 338
Forms of such objection, and the parties shall endeavor within the next fifteen
(15) days in good faith to resolve such dispute. If the parties are unable to
resolve such dispute within said fifteen (15) day period, the Buyer and the
Seller shall submit such dispute to an independent accounting firm of
international reputation (after excluding their respective regular outside
accounting firms)(the "Allocation Arbiter") selected by the Buyer and the
------------------
Seller. Promptly, but not later than fifteen (15) days after its acceptance of
appointment hereunder, the Allocation Arbiter will determine
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(based solely on presentations of the Buyer and the Seller and not by
independent review) only those matters in dispute and will render a written
report as to the disputed matters and the resulting preparation of the Section
338 Forms shall be conclusive and binding upon the parties.
(iv) FEDERAL INCOME TAXES. The Seller shall be responsible for all
federal income Taxes attributable to the Company for periods ending on or before
the Closing Date (including any Tax resulting from the U.S. Code Section
338(h)(10) election). The Buyer shall be responsible for all federal income
Taxes of the Company for periods ending after the Closing Date.
(v) OTHER TAX JURISDICTIONS. The Seller shall be liable for any state,
local or foreign Tax attributable to an election under the state, local or
foreign law similar to the election available under Section 338(h)(10) of the
U.S. Code. Further, if a state, local or foreign jurisdiction does not have
provisions similar to the election available under Section 338(h)(10) of the
U.S. Code, the Seller will be liable for any Tax imposed on the Company by such
state, local or foreign jurisdiction resulting from the Contemplated
Transactions. The Seller will be liable for non-federal income Taxes of the
Company ending on or before the Closing Date, and the Buyer and the Company will
be liable for non-federal income Taxes of the Company for periods ending after
the Closing Date (other than Taxes with respect to any Pre-Closing Period of any
Straddle Period, which Taxes shall be the responsibility of the Seller).
15. COSTS AND EXPENSES
(a) COSTS AND EXPENSES OF THE SELLER. The Seller shall pay all of its
costs and expenses in connection with this Agreement and the Contemplated
Transactions, including legal and accounting fees and all other costs and
expenses incurred in connection with the performance by the Seller of all of its
covenants, agreements, duties and obligations hereunder. The Seller shall pay
one-half of the filing fee under the HSR Act.
(b) COSTS AND EXPENSES OF THE BUYER. Except as otherwise contemplated
pursuant to Section 8, the Buyer shall pay all of its costs and expenses in
connection with this Agreement and the Contemplated Transactions, including
legal and accounting fees and all other costs and expenses incurred in
connection with the performance by the Buyer of all of its covenants,
agreements, duties and obligations hereunder. The Buyer shall pay one-half of
the filing fee under the HSR Act.
16. FURTHER ASSURANCES
If, at any time after the Closing, any further action is necessary or
desirable to carry out the purposes of this Agreement, each of the parties shall
take such further action, including the execution and delivery of such further
instruments and documents, as the other party reasonably may request. Such
action shall be taken at the sole cost and expense of the requesting party,
unless the requesting party is entitled to indemnification therefor under
Sections 12 or 14.
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17. MISCELLANEOUS
(a) RELEASE OF INDEMNITY OBLIGATIONS. The Seller agrees, on or prior to the
Closing, to execute and deliver to the Company, for the benefit of the Company a
general release and discharge, in form and substance satisfactory to the Buyer
releasing and discharging the Company from any and all obligations to indemnify
the Seller or otherwise hold it harmless pursuant to any agreement or other
arrangement entered into prior to the Closing.
(b) PAYMENT OF TRANSACTION INDUCED PAYMENTS. The Seller agrees to pay all
Transaction Induced Payments.
(c) PREPARATION OF FINANCIAL STATEMENTS. The Seller agrees to use its
commercially reasonable efforts to obtain the assistance of Seller's Accountants
in connection with the proposed financing by the Buyer of the Contemplated
Transactions (including any subsequent registered exchange offer related
thereto) and agrees to cause the Financial Statements and the interim financial
statements of the Company through and including the Company's second fiscal
quarter (or third fiscal quarter in the event the condition described in Section
8 has not been satisfied by November 1, 1998) to conform with the requirements
of Regulation S-X under the Securities Act no later than August 26, 1998 (or
November 6, 1998 in the event the condition described in Section 8 has not been
satisfied by November 1, 1998). The Buyer acknowledges and agrees that the
Seller's Accountants will perform its normal client acceptance procedures with
regard to any proposed financing or offering document or filing with the SEC.
(d) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. Subject to the provisions of
this Section 17(d), neither party shall issue any press release or make any
public announcement relating to the Contemplated Transactions (including the
existence of this Agreement) before the Closing without the prior written
approval of the other party. The parties expect and desire that the first such
public announcement will occur on September 8, 1998. If, in the reasonable
opinion of a party's counsel, a party becomes legally compelled (including
pursuant to any rule or regulation promulgated by the SEC or any securities
exchange) to disclose any of the Contemplated Transactions (including the
existence of this Agreement), then that party shall provide the other party with
Prompt Notice (as defined below) so that the other party may seek a protective
order or other appropriate remedy or waive compliance with this Agreement. The
term "Prompt Notice" means written notice given by a party to the other party as
soon as reasonably possible after the party receives notice of its legal duty to
disclose such information. If such protective order or other remedy is not
obtained or the other party waives compliance with this Agreement, the party
shall furnish only that portion of such information which it is advised by
opinion of its counsel is legally required to be furnished, and the party shall
exercise its reasonable efforts to obtain assurance from the Person to whom it
furnishes such information that confidential treatment will be accorded such
information.
(e) NOTICES. All notices, consents, requests, claims, demands, instructions
or other communications to be given hereunder by any either party shall be in
writing. All such notices,
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consents, requests, claims, demands, instructions or other communications may be
given personally, by registered or certified mail (with proof of receipt,
postage and expenses prepaid, return receipt requested), express package service
or telefax. All such notices shall be deemed to be received as follows: (i) if
delivered personally, when received; (ii) if mailed, three (3) days after being
mailed; (iii) if sent by express package service, when signed for; and (iv) if
sent by facsimile, when the telefax has been transmitted over the telephone
lines, as evidenced by a telefax confirmation report generated by the
transmitting machine. Notices shall be addressed as follows:
(i) if to the Seller, to:
Rugby USA, Inc.
2575 Westside Parkway
Suite 800
Alpharetta, Georgia 30004
Attention: Vice President-Finance
Telefax No.: (770) 625-1899
with copies to:
The Rugby Group plc
Crown House
Rugby
Warwickshire
CV21 2DT
England
Attention: Company Secretary
Telefax No.: 01788564457
Baker & McKenzie
Suite 3900
One Prudential Plaza
Chicago, Illinois 60601
Attention: Edwin R. Dunn
Telefax No.: (312) 861-2900
(ii) if to the Buyer, to:
PII Third, Inc.
2507 Post Road
2nd Floor
Southport, CT 06490
Attention: President
Telefax No.: (203) 256-3337
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and to:
Genstar Capital LLC
Metro Tower, Suite 1170
950 Tower Lane
Foster City, California 94404
Attention: Andrew J. Gray
Telefax No.:(650) 286-2383
with a copy to:
Brobeck, Phleger & Harrison LLP
Spear Street Tower
One Market
San Francisco, California 94105
Attention: Michael J. Kennedy
Telefax No.: (415) 442-1010
or such other addresses as the parties may have furnished to each other pursuant
to the provisions of this Section 17.
(f) NO THIRD PARTY BENEFICIARIES; SUCCESSORS AND ASSIGNS. This Agreement
shall not confer any rights or remedies upon any Person other than the parties
and their respective successors and permitted assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and permitted assigns. No party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other party; provided, however, that the Seller may assign this
-------- -------
Agreement and the entirety of its rights, interests and obligations hereunder to
Gillingham or Rugby without the prior written consent of the Buyer provided that
Rugby assumes all such obligations; and further provided that the Buyer may
assign this Agreement and the entirety of its rights, interests and obligations
hereunder to any Affiliate of the Buyer without the prior written consent of the
Seller, provided that such Affiliate assumes all such obligations and further
provided that the Buyer shall remain liable for its obligations hereunder.
(g) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one instrument.
(h) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the Laws of the State of New York without giving effect to any
choice or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the Laws of any
jurisdiction other than the State of New York.
(i) SEVERABILITY. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to make such provision valid and enforceable
under Law. Any
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term or provision of this Agreement that is invalid or unenforceable in any
situation in any jurisdiction shall not affect the validity or enforceability of
the remaining terms and provisions hereof or the validity or enforceability of
the offending term or provision in any other situation or in any other
jurisdiction.
(j) HEADINGS. Section or other headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(k) CONSTRUCTION. The parties have participated jointly in the negotiation
and drafting of this Agreement. If an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring either party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local or foreign statute or
Law shall be deemed also to refer to all rules and regulations promulgated
thereunder unless the context requires otherwise.
(l) WAIVER. No breach of any provision hereof may be waived unless in
writing. No waiver by either party of any default, misrepresentation, breach of
warranty or covenant hereunder or any provision hereof, whether intentional or
not, shall be deemed to extend to any prior or subsequent default,
misrepresentation or breach of warranty or covenant hereunder or any provision
hereof or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
(m) AMENDMENT. This Agreement may be amended only by a written agreement
executed by the parties.
(n) PRONOUNS. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural as the identity
of the Person may require.
(o) ENTIRE AGREEMENT. Except as set forth in Section 6(a) with respect to
the Confidentiality Agreement, this Agreement, the Disclosure Schedule and the
exhibits hereto embody the entire understanding of the parties and supersede any
prior written or oral understandings, agreements or representations by or
between the parties to the extent that they relate to the subject matter hereof,
and there are no further or other agreements or understandings, written or oral,
in effect between the parties relating to the subject matter hereof unless
expressly referred to by reference herein or executed concurrently herewith.
(p) INCORPORATION OF DISCLOSURE SCHEDULE AND EXHIBITS. The Disclosure
Schedule and the Exhibits hereto are incorporated and made a part of this
Agreement by reference.
(q) RUGBY COVENANT. Rugby irrevocably undertakes to and covenants with the
Buyer that it will cause its wholly owned subsidiary, Gillingham Portland Cement
Company Limited ("Gillingham"):
----------
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<PAGE>
(i) (A) not to commence a voluntary case or proceeding under any
applicable bankruptcy, insolvency, reorganization or similar law or any other
case or proceeding to be adjudicated a bankrupt or insolvent, or to consent to
the entry of a decree or order for relief in respect of the Seller in an
involuntary case or proceeding under any applicable bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against the Seller, or to file a petition or
answer or consent seeking reorganization or relief under any applicable law, or
to consent to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator
or similar official of the Seller or any substantial part of its property, or to
make an assignment for the benefit of creditors, or to admit in writing its
inability to pay its debts generally as they become due, or to take corporate
action in furtherance of any such action;
(B) procure that the Seller does not pay any dividend or make any
other distribution whatsoever; or
(C) not take any other action or procure that the Seller will not
take any other action,
which may in any such case have the effect of reducing the shareholders' equity
of the Seller below $60 million;
(ii) procure that the Seller does not allow its external borrowings to
exceed $50 million without the prior written consent of the Buyer;
(iii) procure that the Seller does not reduce the total amount of the
subordinated loan notes due to Rugby or its Affiliates below $120 million
without the prior written consent of the Buyer; and
(iv) procure that the Seller remains a direct or indirect wholly owned
subsidiary of Rugby.
In the event that this Agreement is assigned by the Seller to Rugby
pursuant to Section 17(f), the foregoing undertakings and covenants shall
terminate.
(r) ENFORCEMENT. The parties agree that irreparable damage would occur in
the event that any of the provisions of any of the Acquisition Documents or the
Exhibits to this Agreement were not performed in accordance with their specific
terms or were otherwise breached. It is accordingly agreed that the parties
shall be entitled to an injunction or injunctions to prevent breaches of any of
the Acquisition Documents or the Exhibits to this Agreement and to enforce
specifically the terms and provisions of any of the Acquisition Documents or the
Exhibits to this Agreement in any Federal or state court located in New York
City, this being in addition to any other remedy to which they are entitled at
law or equity. In addition, each of the parties hereto (i) consents to submit
itself to the personal jurisdiction of any Federal or state court in New York
City in the event any dispute arises out of any of the Acquisition Documents or
the Exhibits to this Agreement or any aspect of the Contemplated Transactions,
(ii) agrees that it
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will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (iii) agrees that it will not bring
any action relating to any of the Acquisition Documents or the Exhibits to this
Agreement or any aspect of the Contemplated Transactions in any court other than
a Federal or state court sitting in New York City.
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The parties have entered into this Agreement on the date first written above.
RUGBY USA, INC.
/s/ Deryck Michael Tyrrell
---------------------------------------------------
By: Deryck Michael Tyrrell
Its: Vice President
PII THIRD, INC.
/s/ Robert J. Muller
---------------------------------------------------
By: Robert J. Muller
Its: President and Chief Executive Officer
THE RUGBY GROUP PLC
(for the purpose of Sections 17(q) and (s) only)
/s/ Deryck Michael Tyrell
---------------------------------------------------
By: Deryck Michael Tyrell
Its: Attorney in Fact
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Exhibit 2(d)(iv)
Form of Distributor Agreements
PIONEER PLASTICS CORPORATION
PIONITE SOLID SURFACE
DISTRIBUTOR AGREEMENT
---------------------
Effective as of the date set forth below (the "Effective Date"), Pioneer
Plastics Corporation, One Pionite Road, P.O. Box 1014, Auburn, Maine, USA 04211-
1014 ("Pioneer"), and the party whose name appears below under the heading
"DISTRIBUTOR" (the "Distributor"), agree as follows:
1. APPOINTMENT. Pioneer is pleased to appoint the Distributor, and the
Distributor agrees to serve, upon the terms and conditions described in this
Agreement, as a distributor of the Pionite Products, limited to those listed on
Pioneer's stock list for such products, as it may be revised by Pioneer and in
effect from time to time, and, on special order, of custom made Pionite Products
(the "Products"). The distributorship business conducted by the Distributor
under this Agreement is hereinafter referred to as the "Distributorship
Business." A copy of the currently effective stock list for Pionite Products is
attached to this Agreement as Schedule A.
The Distributor will not, while it is a distributor under the terms of this
Agreement, distribute solid surface products, distributed or provided by any
person other than Pioneer, without Pioneer's prior written consent.
2. TERRITORY. The Distributor is authorized to promote and sell the
Products within the geographic area or areas described on Schedule B (the
"Territory"). The Distributor currently maintains and agrees to maintain at all
time while this Agreement is in effect a suitable place or places of business in
the Territory for the promotion and sale of the Products. The Distributor agrees
to maintain a field sales force of adequate size to cover the Territory. The
Distributor agrees to employ a specification representative who will support the
Products.
Notwithstanding anything in this Agreement to the contrary, Pioneer
reserves the right to solicit and sell Products directly to existing and
potential customers in the Territory.
The Distributor shall not solicit orders from any prospective customer with
its principal place of business located outside the Territory. If the
Distributor receives any order from a prospective customer whose principal place
of business is located outside the Territory, the Distributor shall immediately
refer that order to Pioneer. The Distributor shall not accept any
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such orders. The Distributor may not deliver or tender (or cause to be delivered
or tendered) any Product outside of the Territory.
3. INVENTORY. The Distributor will maintain a representative inventory of
Products which is sufficient in quantity and variety to adequately promote and
sell the Products in the Territory. Concurrently with entering into this
Agreement the Distributor will purchase initial inventory costing not less than
the amount set forth in Schedule A next to the caption "Initial Inventory",
consisting of a variety of patterns, colors, and thicknesses as the Distributor
and Pioneer may agree.
4. TERMS OF SALE. Pioneer agrees to sell to the Distributor, and the
Distributor agrees to order, receive and pay for, such quantities of the
Products as the Distributor may reasonably request, at the prices and subject to
the other terms and conditions of sales established by Pioneer from time to
time. Pioneer's terms and conditions of sale in effect on the effective date of
this Agreement are attached to this Agreement as Schedule C and are incorporated
into and made a part of this Agreement.
5. SALES ASSISTANCE. Pioneer will provide, at reasonable charge to the
Distributor, such brochures, samples, displays and other promotional materials
as the parties consider appropriate to adequately promote the sales of the
Products. The Distributor may identify itself in advertising and promotional
materials as an authorized distributor of the Products. All promotional
materials, advertising copy, directory listings and the like that refer or
pertain to Pioneer or the Products must be submitted to Pioneer in advance and
are subject to Pioneer's prior written approval.
Any samples provided by Pioneer to the Distributor in connection with this
Agreement shall be used by the Distributor solely in furtherance of the
performance of its duties hereunder. Such samples remain the property of
Pioneer, except insofar as they are distributed by the Distributor in the course
of the Distributor's performance of its duties under this Agreement. Any samples
in the Distributor's possession at the time of termination of this Agreement
must be promptly destroyed, or returned to Pioneer at Pioneer's option, upon the
expiration or termination of this Agreement for any reason. During the term of
this Agreement and following termination hereof for any reason, Distributor
shall not remove from the field any samples distributed by the Distributor
during the term of this Agreement.
6. PERFORMANCE REQUIREMENTS. The Distributor agrees to maintain, on an
annual basis, its market share within the Territory at a level equal to or
greater than the national distributor's market share average as established by
Pioneer.
7. NO RIGHTS BY IMPLICATION. No rights or licenses with respect to the
Products or Pioneer's trademarks and other intellectual property rights are
granted or deemed granted hereunder or in connection herewith, other than those
rights expressly granted in this Agreement.
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8. NO AGENCY. The Distributor is an independent contractor and not an
agent or employee of Pioneer for any purpose. The Distributor has no right,
power or authority to enter into any agreements or create any obligations,
express or implied, for or on behalf of Pioneer, to bind or commit Pioneer in
any way, to make any representations, warranties or guarantees on behalf of
Pioneer, or use the name of Pioneer in any manner not specifically authorized by
Pioneer.
9. USE AND DISCLOSURE LIMITATION. The Distributor shall not use, for any
purpose other than to perform its obligations under this Agreement, and the
Distributor shall not at any time, either directly or indirectly, divulge,
disclose or communicate to any person, firm or corporation in any manner
whatsoever, any information concerning any matters affecting or relating to the
business of Pioneer, including any of its customers, its prices, its manner of
operation, its plans, processes or other data, without regard to whether any of
the foregoing matters will be deemed confidential, material or important, the
parties hereto stipulating that as between them, the same are important,
material and confidential and gravely affect the effective and successful
conduct of the business of Pioneer and its goodwill and that any breach of the
terms of this paragraph shall be a material breach of this Agreement. All the
terms of this paragraph shall remain in full force and effect for the period of
3 years after the termination of this Agreement.
The Distributor acknowledges that if it were to breach this Section 9, it
would result in damage to Pioneer that cannot be compensated adequately by
damages at law. Therefore, Pioneer shall be entitled, if it so elects, to
immediate injunctive relief and any other equitable relief to restrain the
Distributor or anyone acting through or on behalf of it from any violation of
this Section, in addition to any other remedies to which Pioneer may be entitled
under applicable law.
In any legal action or proceedings arising out of breach of this Section,
Pioneer shall be entitled to recover reasonable attorneys' fees, court costs,
and expenses incurred in such proceedings, in addition to any other relief to
which Pioneer may be entitled.
10. RIGHT OF FIRST REFUSAL. (i) If the Distributor receives a bona fide
offer for the purchase of one or more of its Distributorship Business units as
described in Schedule B of this Agreement which it intends to accept, it shall
give notice to Pioneer of such intention, the name and address of the proposed
purchaser and summary terms and conditions of the proposed transaction (the
"Terms and Conditions"). Distributor shall subsequently provide to Pioneer such
other information as Pioneer may reasonably require. Concurrently with giving
such notice, the Distributor shall offer to sell the Distributorship Business to
Pioneer on the following basis:
(a) With regard to the sale of more than one unit of the
Distributorship Business which sells Pionite Solid Surface
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Products, the lesser of the price stated in the Terms
and Conditions as contained in such outside offer or a
price equal to the net book value plus 1.5 times the
most recent cumulative 12 month PBIT as determined by
generally accepted accounting principles, in accordance
with all of the other Terms and Conditions as contained
in such outside offer; and
(b) With regard to the sale of only one unit of the
Distributorship Business which sells Pionite Solid
Surface Products, the lesser of the price stated in the
Terms and Conditions as contained in such outside offer
or a price equal to the net book value as determined by
generally accepted accounting principles, in accordance
with all of the other Terms and Conditions in such
outside offer.
The giving of such notice shall constitute a warranty and representation by
the Distributor to Pioneer, that the Distributor believes the outside offer to
be bona fide in all respects. Within 20 business days after receipt of such
notice, Pioneer may elect by notice to the Distributor to purchase the
Distributorship Business. If Pioneer elects to purchase the Distributorship
Business, the transaction shall close within 90 days of Pioneer so electing,
failing which Pioneer's right of first refusal under this Section 10 in respect
of the transaction described in the notice given by the Distributor shall lapse
(unless such failure to close shall be attributable to the Distributor's actions
or condition or to factors affecting the national economy or the [solid surface
products] industry generally). If Pioneer shall fail to accept such offer within
the said 20 business days, the Distributor shall be free to sell the
Distributorship Business to the outside offerer on terms and conditions no more
favorable to the outside offerer than the Terms and Conditions. If the
Distributor shall not within 90 days of the expiration of the said period of 20
business days sell the Distributorship Business to the outside offerer, then the
Distributor shall be required to again comply with all of the terms and
provisions of this Section 10 in order to sell the Distributorship Business.
11. TERM AND TERMINATION. This Agreement shall commence on the effective
date set forth below and shall continue in effect for a period of five years,
and shall thereafter be automatically renewed for one year periods, unless
terminated:
(a) by Pioneer, in the event of a breach by the Distributor of any of
its obligations or responsibilities under this Agreement or any
other agreement between Pioneer and the Distributor, after
written notice of such breach is sent to the Distributor unless
such breach is cured within sixty (60) days of receipt of the
notice, or if such breach cannot be cured within the sixty (60)
day period if the Distributor shall not within that period
commence to cure the breach and thereafter proceed diligently to
cure same, provided that any such cure must be complete within
one hundred and twenty (120) days of receipt of the notice;
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(b) by Pioneer, in the event of a change in control of the
Distributor, resulting in the Distributor coming under the
control of any organization which was not in control as of the
date hereof without Pioneer's prior written consent, by written
notice of termination to the Distributor, effective upon the
giving of such notice. For the purposes of this provision,
"control" shall mean (i) when a party is a corporation, where an
organization owns or controls a majority of the voting shares of
such party directly or indirectly; or (ii) when a party is a
partnership, where an organization directly or indirectly owns or
controls a majority-in-interest of such partnership;
(c) by Pioneer, effective immediately and automatically, without any
requirements of notice, upon any attempted transfer or assignment
by the Distributor of this Agreement or of any of the
Distributor's rights or obligations hereunder; or
(d) by Pioneer, effective immediately and without any requirement of
notice, in the event that the Distributor (or any parent entity
of the Distributor) becomes insolvent, files a petition in
bankruptcy, files a petition seeking any reorganization,
arrangement, composition or similar relief under any federal or
state law regarding insolvency or relief for debtors, or makes an
assignment for the benefit of creditors or similar undertaking,
or if a receiver, trustee, or similar officer is appointed for
the business or property of the Distributor.
12. RIGHTS AFTER TERMINATION. After termination of this Agreement in
accordance with Section 11(a) above: (a) all of the Distributor's obligations
under this Agreement shall continue with respect to the Products then owned or
possessed by the Distributor, and the Distributor shall pay Pioneer for all
Products delivered, regardless of time of delivery; (b) the Distributor may
return unsold Products to Pioneer for credit or payment in accordance with the
following terms:
(i) the Distributor shall send Pioneer prior written notice of its
intent to return items listing the items to be returned;
(ii) the Distributor shall return only first quality factory size
sheets of current patterns and colors. Returned items shall be
subject to inspection and acceptance by Pioneer;
(iii) the Distributor shall ship the items to the location(s)
indicated by Pioneer, freight and insurance prepaid; and
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(iv) the value of the returned items shall be calculated based on the
prices of like or similar items on the then current distributor
price list for Products.
(c) all amounts then owed by the Distributor to Pioneer shall become
immediately due and payable and shall bear interest (to the extent permitted by
law) at the rate of 1 1/2% per month until paid; and (d) the Distributor shall
provide Pioneer with such information and materials as Pioneer may request for
the purpose of continuing the promotion and sales of the Products in the
Territory including, but not limited to, customer lists, price lists and sales
history data.
After termination of this Agreement in accordance with Section 11(b) or (c)
above: (a) all of the Distributor's obligations under this Agreement shall
continue with respect to the Products then owned or possessed by the
Distributor, and the Distributor shall pay Pioneer for all Products delivered,
regardless of time of delivery; (b) all amounts then owed by the Distributor to
Pioneer shall become immediately due and payable and shall bear interest (to the
extent permitted by law) at the rate of 1 1/2% per month until paid; and (c) the
Distributor shall provide Pioneer with such information and materials as Pioneer
may request for the purpose of continuing the promotion and sales of the
Products in the Territory including, but not limited to, customer lists, price
lists and sales history data.
After termination of this Agreement in accordance with Section ll(d) above:
(a) the Distributor shall pay Pioneer for all Products delivered, regardless of
time of delivery; (b) all amounts then owed by the Distributor to Pioneer shall
become immediately due and payable and shall bear interest (to the extent
permitted by law) at the rate of 1 1/2% per month until paid; and (c) the
Distributor shall provide Pioneer with such information and materials as Pioneer
may request for the purpose of continuing the promotion and sales of the
Products in the Territory including, but not limited to, customer lists, price
lists and sales history data.
13. CHANGES TO PRODUCTS AND SCHEDULES. Pioneer reserves the right at any
time to discontinue the production, sales or distribution of any of its
Products, to change the design or other aspects of any of its Products, to
change its warranty or other policies, and to change its prices and other terms
and conditions of sales, without notice or obligation to the Distributor of any
kind. Pioneer may, at any time and from time to time, by written notice to the
Distributor, amend any schedule to this Agreement as of any future date
specified in the notice.
14. OTHER AGREEMENTS. The parties acknowledge that there may be other
agreements between the parties hereto. Notwithstanding this fact, and except as
provided for in 1l(a) above, the rights and obligations under this Agreement
shall not affect the rights and obligations under such other agreements.
15. EFFECTIVE SIGNATORY. This Agreement shall be effective only upon its
execution by the President, Vice-President or Treasurer of the parties.
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16. NOTICES. Any notice or communication required or permitted hereunder
shall be in writing and shall be given (a) by hand, (b) by a nationally
recognized courier, (c) by first class mail, postage prepaid registered or
certified mail, return receipt requested or (d) by telecopier (with receipt
confirmed), provided that a copy is promptly mailed thereafter by first class
mail, postage prepaid registered or certified mail, return receipt requested, to
a party at the address specified below or at such other address as either party
may from time to time designate to the other in writing. Such notice or
communication shall be deemed to have been received by the addressee thereof (a)
on the same day of the dispatch thereof if delivered by hand, (b) on the third
(3rd) day after the dispatch thereof if sent by courier, (c) on the fifth (5th)
day after the dispatch thereof if sent by first class mail and (d) on the
following business day after the dispatch thereof if sent by telecopier.
To Pioneer:
President
Pioneer Plastics Corporation
P.O. Box 1014
Auburn, ME 04211-1014
Copies to:
Chief Financial Officer
Pioneer Plastics Corporation
P.O. Box 1014
Auburn, ME 04211-1014
President
Panolam Industries
2507 Post Road
2nd Floor
Southport, CT 06490-1259
To Distributor:
Vice President Industrial Products
Rugby Building Products, Inc.
1440 South Priest
Suite 103
Tempe, AZ 85281
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17. ASSIGNMENT. Distributor may not delegate any duties nor assign any
rights or claims hereunder without our prior written consent, and any such
attempted delegations or assignment shall be void.
18. BINDING EFFECT. Subject to the terms of this Agreement, this Agreement
shall be binding upon and inure to the benefits of the parties and their
respective successors and assigns.
19. SEVERABILITY; REMEDIES; WAIVER. In the event that any one or more
provisions contained herein (other than the provisions obligating Distributor to
pay Pioneer for the Products) shall be held by a court of competent jurisdiction
to be invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not in any
way be affected or impaired thereby. The remedies contained herein are
cumulative and in addition to any other remedies at law or equity. Pioneer's
failure to enforce, or waiver of a breach of, any provision contained herein
shall not constitute a waiver of any other breach of such or any other
provision.
20. ENTIRE AGREEMENT. This is the complete and exclusive statement of the
agreement between Pioneer and Distributor with respect to the subject matter
hereof. No waiver, consent, modification, amendment or change of the terms
contained herein shall be binding unless in writing and signed by us and
Distributor.
21. GOVERNING LAW. The rights and obligations of the parties hereunder
shall be governed by and interpreted, construed and enforced as a sealed
instrument in accordance with the laws of State of New York (other than conflict
of law principles directing the application of any laws other than those of New
York).
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Executed as an instrument under seal as of the day and year set forth below.
PIONEER PLASTICS CORPORATION THE DISTRIBUTOR
_________________________________
Company Name
By: _____________________________ By: _____________________________
Signature Signature
_________________________________ _________________________________
Name (Print or Type) Name (Print or Type)
_________________________________ _________________________________
Title (Print or Type) Title (Print or Type)
_________________________________ _________________________________
Effective Date Effective Date
Initial Inventory: $_____________ _________________________________
Company Mailing Address
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SCHEDULE A
----------
PIONITE PRODUCTS AVAILABLE TO DISTRIBUTOR
-----------------------------------------
COST OF INITIAL INVENTORY
-------------------------
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SCHEDULE B
----------
TERRITORY
---------
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SCHEDULE C
----------
TERMS AND CONDITIONS OF SALES
-----------------------------
PIONEER PLASTICS CORPORATION
----------------------------
UNLESS OTHERWISE EXPRESSLY AGREED IN WRITING, ALL SALES ARE SUBJECT TO THE
FOLLOWING TERMS AND CONDITIONS:
1. Prices. All prices published by us or quoted by our representative may
------
be changed at any time without notice. Written quotations expire automatically
90 days from the date issued and are subject to change or termination by notice
prior to Buyer's acceptance during that period. All prices will be as specified
by us or, if no price has been specified or quoted, will be our price in effect
at the time of delivery. All prices are subject to adjustment on account of
specifications, quantities, shipment arrangements or other terms or conditions
which are not part of our original price quotation. All prices are exclusive of
all excise, sales, use, transfer and other taxes and duties imposed with respect
to the Products or their sale by any federal, state, municipal or other
governmental authority, all of which taxes must be paid by Buyer. Buyer is
responsible for obtaining and providing to us any certificate of exemption or
similar documents required to exempt any sale from sales, use or similar tax
liability. A current price list subject to the provisions stated above is
attached hereto as Schedule C-1.
2. Terms of Payment. If Buyer establishes and maintains open account
----------------
credit with us, payment terms shall be net 10 days after the end of the calendar
month in which the invoice is dated. If credit is not established or maintained,
payment terms shall be net cash on or prior to shipment. We reserve the right,
in our sole discretion, to require payment on a COD basis, to require full or
partial payment in advance or to revoke any credit previously extended. If the
Products are delivered in installments, Buyer will pay for each installment in
accordance with the terms specified above. Payment must be made for the Products
regardless of whether Buyer has made, or plans to make, any inspection of the
Products. To the extent permitted by applicable law, overdue payments will be
subject to finance charges computed at a periodic rate of 1 1/2% per month (18%
per year). Amounts owed by Buyer must be paid without setoff for any amounts
which Buyer may claim are owed by us and regardless of any other controversies
which may exist. Payment is considered made when payment is received by us at
our principal offices or at such other address as we indicate to Buyer. Buyer
shall also pay or reimburse us for all costs and expenses (including reasonable
attorneys' fees) incurred or paid by us in collecting amounts due from Buyer or
in enforcing Buyer's obligations hereunder.
3. Packaging and Shipment. Unless specific instructions to the contrary
----------------------
are supplied by Buyer, all packaging and methods and routes of shipment will be
selected by us, but we will not assume any liability in connection with shipment
nor constitute any carrier as our agent. We reserve the right to ship the
Products in any order and to make partial
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shipments. We reserve the right to stop delivery of Products in transit and to
withhold shipments in whole or in part if Buyer fails to make any payment to us
when due or otherwise fails to perform its obligations hereunder. All shipping
dates are approximate only. All shipments will be made at Buyer's risk, and
Buyer will be responsible for making all claims with carriers, insurers,
warehousemen, and others for misdelivery, nondelivery, loss, damage or delay. We
will use reasonable efforts to assist Buyer in filing such claims.
4. Delivery. All sales are F.O.B. our premises and the date of delivery
--------
is the date when the Products are ready for pickup at that location by Buyer or
by a carrier for delivery to Buyer. We will use reasonable efforts to meet
requested delivery dates, but will not be liable for our failure to do so. When
delivery in installments is chosen by us, the delivery of nonconforming
Products, or a default of any nature, in relation to one or more installments
will not constitute a breach of the Agreement. We will not be liable for any
loss or damage resulting from any delay in delivery or failure to deliver. In
the event of a delay, we may allocate production and deliveries among our
customers, the time for delivery to Buyer will be extended for a period equal to
the duration of the delay, and Buyer will not be entitled to refuse delivery or
otherwise be relieved of any obligations as the result of the delay. If any
scheduled delivery is delayed for a period in excess of 30 days, we may at our
option, by written notice to Buyer, cancel any and all scheduled or future
deliveries without further liability or obligation of any kind. Products for
which delivery is delayed due to any cause within Buyer's control may be placed
in storage by us at Buyer's risk and expense and for its account. Buyer will be
liable for all costs and expenses incurred by us in holding or storing Products
for Buyer.
5. Title and Risk of Loss. Subject to Section 6 and to our right to stop
----------------------
delivery of Products in transit, title to and risk of loss or damage for
Products will pass to Buyer upon the delivery to a carrier for shipment to
Buyer.
6. Security Interest. We reserve and Buyer grants to us a security
-----------------
interest in all Products sold and all proceeds to secure the full payment and
performance by Buyer of its obligations and liabilities to us. Buyer
acknowledges that this document or copies of this document may be filed with the
appropriate authorities as a financing statement and agrees to execute and
deliver such other documents as we may request in order to evidence or perfect
our security interest.
7. Cancellations and Returns. If Buyer cancels an order within five days
-------------------------
before the scheduled shipment date, Buyer agrees to pay a cancellation charge of
75% of the total invoice amount. Thereafter, orders may be canceled by Buyer
only with our prior consent and upon terms that will fully indemnify us against
loss. Products are not in any event to be returned to us without prior written
authorization.
8. Specifications. All Products are subject to our standard tolerances
--------------
for specifications. We reserve the right to make substitutions and modifications
in the
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specifications of any Products, provided that such substitutions or
modifications do not materially affect the performance of the Products or the
purposes for which they can be used.
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9. Warrant; Indemnification.
-------------------------
(a) We warrant solely to the original Buyer that the Products will be
free from defects in materials and workmanship, when given
normal, proper and intended usage, for a period of one year from
the date of sale to the Buyer.
(b) At our expense, we agree to repair or replace at our option all
defective Products not performing substantially in accordance
with applicable Product specifications, provided that Buyer has
given us written notice of such warranty claim within the
warranty period. If we are unable, after reasonable efforts, to
repair or replace such defective Product, Buyer's sole remedy
shall be the refund of an amount not to exceed the actual
payments received by us for such Product. All replaced items
shall become our property.
(c) We shall have no obligation to make repairs, replacements or
corrections which result, in whole or in part, from (i) normal
wear and tear, (ii) catastrophe, fault or negligence of Buyer,
(iii) improper or unauthorized use of the Products, (iv) use of
the Products in a manner for which they were not designed, (v)
modifications of the Products by anyone other than us, (vi)
causes external to the Products such as, but not limited to,
power failure or electric power surges, or (vii) use of the
Products in combination with equipment or materials not supplied
by us.
(d) If notified promptly in writing of any action (and all prior
related claims) brought against Buyer based on a claim that a
Product infringes any valid United States patent, copyright or
trade secret, we shall defend such action at our expenses and pay
all costs and damages finally awarded in such action or
settlement which are attributable to such claim. We shall have
sole control of the defense of any such action and all
negotiations for its settlement or compromise. Buyer shall
cooperate fully with us in the defense, settlement or compromise
of any such action. In the event that a final injunction is
obtained against Buyer's use of a Product by reason of
infringement of a valid United States patent, copyright or trade
secret, or if in our opinion any Product is likely to become the
subject of a successful claim of such infringement, we may, at
our option and expense, (i) procure for Buyer the rights to
continue using the Product, (ii) replace or modify the Product so
that it becomes non-infringing (so long as its functionality is
essentially unchanged), or (iii) accept the return of the Product
and refund the Buyer the purchase price therefor. We may withhold
further shipments of any such Products.
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(e) We shall not have any liability to Buyer to the extent that any
infringement or claim thereof is based upon (i) the use of a
Product in combination with equipment or materials not supplied
by us where the Product would not itself be infringing, (ii)
compliance with Buyer's designs, specifications or instructions,
(iii) use of the Product in an application or environment for
which it was not designed, (iv) modifications of the Product by
anyone other than us, or (v) any claims of infringement of any
patent, copyright or trade secret in which Buyer or any affiliate
or customer of Buyer has an interest or license.
(f) Buyer shall not bring any suit or action against us for any
reason whatsoever more than one year after the related cause of
action has accrued.
EXCEPT AS STATED ABOVE, WE DISCLAIM ALL WARRANTIES, WHETHER EXPRESS OR
IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE PRODUCT, INCLUDING ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. THE FOREGOING
INDEMNIFICATION PROVISIONS STATE OUR ENTIRE LIABILITY WITH RESPECT TO
INFRINGEMENT OR ALLEGED INFRINGEMENT OF PATENTS, COPYRIGHTS, TRADEMARKS, TRADE
SECRETS AND OTHER INTELLECTUAL PROPERTY OR PROPRIETARY RIGHTS BY THE PRODUCTS.
OUR MAXIMUM LIABILITY ARISING OUT OF THE SALE OF THE PRODUCTS OR THEIR USE,
WHETHER BASED UPON WARRANTY, CONTRACT, TORT OR OTHERWISE, SHALL NOT EXCEED THE
ACTUAL PAYMENTS RECEIVED BY US IN CONNECTION THEREWITH. IN NO EVENT SHALL WE BE
LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT
LIMITED TO, LOSS OF PROFITS, LOSS OF DATA OR LOSS OF USE DAMAGES, ARISING
HEREUNDER OR FROM THE SALE OF THE PRODUCTS.
10. Compliance with Laws. Buyer shall comply with all applicable
--------------------
governmental laws, ordinances, codes, rules, regulations and orders in its
performance hereunder, and shall obtain all permits or licenses required in
connection with the purchase, shipment, installation and use of any of the
Products. Buyer warrants to us that it will not cause the Products sold
hereunder to be shipped to, or resold for shipment to, any country the shipment
of goods to which is barred by United States export regulations.
11. Force Majeure. In the event that we are prevented from performing, or
-------------
are unable to perform, any of our obligations hereunder due to any act of
nature, act of God, fire, casualty, flood, war, strike, lock out, failure of
public utilities, injunction or any act, exercise, assertion or requirement of
any governmental authority, epidemic, destruction of productions facilities,
riot, insurrection, sabotage, inability to procure materials, labor, equipment,
transportation or energy sufficient to meet our needs, delay in delivery, or any
other cause beyond our reasonable control, and if we shall have used efforts to
avoid such occurrence and
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minimize its duration and have given prompt written notice to Buyer, then our
failure to perform shall be excused and the time for performance shall be
extended for the period of delay or inability to perform due to such occurrence.
12. Additional or Inconsistent Terms. Any term or condition of Buyer's
--------------------------------
purchase order or any other document provided to us by Buyer which is in any way
different from, inconsistent with or in addition to the terms and conditions set
forth herein will not become a part of the contract between us and Buyer or be
binding upon us without our prior written consent. Our failure to object to
terms contained in any communication from Buyer will not be a waiver of the
terms set forth herein. Buyer shall not condition any acceptance of delivery
upon the abrogation or modification of any of the terms and conditions included
in this Agreement.
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PIONEER PLASTICS CORPORATION
PIONITE DECORATIVE LAMINATES
DISTRIBUTOR AGREEMENT
---------------------
Effective as of the date set forth below (the "Effective Date"), Pioneer
Plastics Corporation, One Pionite Road, P.O. Box 1014, Auburn, Maine, USA 04211-
1014 ("Pioneer"), and the party whose name appears below under the heading
"DISTRIBUTOR" (the "Distributor"), agree as follows:
1. APPOINTMENT. Pioneer is pleased to appoint the Distributor, and the
Distributor agrees to serve, upon the terms and conditions described in this
Agreement, as a distributor of the Pionite Products, limited to those listed on
Pioneer's stock list for such products, as it may be revised by Pioneer and in
effect from time to time, and, on special order, of custom made Pionite Products
(the "Products"). The distributorship business conducted by the Distributor
under this Agreement is hereinafter referred to as the "Distributorship
Business." A copy of the currently effective stock list for Pionite Products is
attached to this Agreement as Schedule A.
The Distributor will not, while it is a distributor under the terms of this
Agreement, distribute high pressure laminates, including cabinet liner, produced
by any manufacturer other than Pioneer, without Pioneer's prior written consent.
2. TERRITORY. The Distributor is authorized to promote and sell the
Products within the geographic area or areas described on Schedule B (the
"Territory"). The Distributor currently maintains and agrees to maintain at all
time while this Agreement is in effect a suitable place or places of business in
the Territory for the promotion and sale of the Products. The Distributor agrees
to maintain a field sales force of adequate size to cover the Territory. The
Distributor agrees to employ a specification representative who will support the
Products.
Notwithstanding anything in this Agreement to the contrary, Pioneer
reserves the right to solicit and sell Products directly to existing and
potential customers in the Territory.
The Distributor shall not solicit orders from any prospective customer with
its principal place of business located outside the Territory. If the
Distributor receives any order from a prospective customer whose principal place
of business is located outside the Territory, the Distributor shall immediately
refer that order to Pioneer. The Distributor shall not accept any such orders.
The Distributor may not deliver or tender (or cause to be delivered or tendered)
any Product outside of the Territory.
3. INVENTORY. The Distributor will maintain a representative inventory of
Products which is sufficient in quantity and variety to adequately promote and
sell the Products in the
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Territory. Concurrently with entering into this Agreement the Distributor will
purchase initial inventory costing not less than the amount set forth in
Schedule A next to the caption "Initial Inventory", consisting of a variety of
patterns, colors, and woodgrains, finishes and grades as the Distributor and
Pioneer may agree. Six months after the effective date of this Agreement and at
eighteen month intervals thereafter, the Distributor may exchange slow-moving
items from its inventory for Products of comparable value, subject to the
following conditions:
a) The Distributor shall send Pioneer a written return request
listing the items to be returned. This request is to be sent
to the Manager of the Re-Distribution Center or the
Inventory Control Manager of the manufacturing facility that
services the Distributor.
b) The Distributor may return only first quality press size
sheets of current patterns, colors, finishes, grades in a
minimum of three sheets per part number. Manufactured
orders, non-stocked items, OEM items, and suede-finished
products designated "S", "T", "A", and "R" are not
returnable.
c) Upon receipt of the Distributor's request, Pioneer will
determine what items are acceptable for return and will
issue a Return Authorization. The Distributor may not send
items for return prior to receiving a Return Authorization.
Items shipped without a Return Authorization will not be
accepted.
d) Returned items shall be subject to inspection and, at its
sole discretion, acceptance by Pioneer. Returned items which
are not accepted for exchange may be disposed of by Pioneer
at its discretion and expense.
e) The Distributor shall ship the items to the location(s)
indicated by Pioneer, freight and insurance prepaid. If
Pioneer carrier is used, charges for freight will be
deducted from the final credit.
f) The value of the returned and accepted items shall be
calculated based on the prices of like or similar items on
the then current Distributor price list for Products.
Damages caused by freight or improper packaging and customer
accommodations will be handled on a case-by-case basis at
the discretion of Pioneer.
g) Upon valuation of returned items, Pioneer shall ship to the
Distributor, freight prepaid, items selected by the
Distributor from the then current stock list for Products
which are equivalent in value (based on the prices set forth
on the then current Distributor's price list) to the items
returned and accepted. The
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Distributor's replacement order must accompany its return
request.
h) The Distributor may not bill Pioneer for returns or make
deductions from current invoices.
4. TERMS OF SALE. Pioneer agrees to sell to the Distributor, and the
Distributor agrees to order, receive and-pay for, such quantities of the
Products as the Distributor may reasonably request, at the prices and subject to
the other terms and conditions of sales established by Pioneer from time to
time. Pioneer's terms and conditions of sale in effect on the effective date of
this Agreement are attached to this Agreement as Schedule C and are incorporated
into and made a part of this Agreement.
5. SALES ASSISTANCE. Pioneer will provide, at reasonable charge to the
Distributor, such brochures, samples, displays and other promotional materials
as the parties consider appropriate to adequately promote the sales of the
Products. The Distributor may identify itself in advertising and promotional
materials as an authorized distributor of the Products. All promotional
materials, advertising copy, directory listings and the like that refer or
pertain to Pioneer or the Products must be submitted to Pioneer in advance and
are subject to Pioneer's prior written approval.
Any samples provided by Pioneer to the Distributor in connection with this
Agreement shall be used by the Distributor solely in furtherance of the
performance of its duties hereunder. Such samples remain the property of
Pioneer, except insofar as they are distributed by the Distributor in the course
of the Distributor's performance of its duties under this Agreement. Any samples
in the Distributor's possession at the time of termination of this Agreement
must be promptly destroyed, or returned to Pioneer at Pioneer's option, upon the
expiration or termination of this Agreement for any reason. During the term of
this Agreement and following termination hereof for any reason, Distributor
shall not remove from the field any samples distributed by the Distributor
during the term of this Agreement.
6. PERFORMANCE REQUIREMENTS. During the term of this Agreement, the
Distributor agrees to the following performance requirements:
(a) The Distributor agrees to maintain, on a calendar year basis, its
market share within the Territory at a level equal to or greater than
the national distributor's market share average as established by
Pioneer.
(b) The Distributor agrees to purchase on a calendar year basis at least
the same amount of Products, measured by square foot, as it purchased
in 1997, provided, however, that this amount may be adjusted downward
by no more than 7.5% in the aggregate:
(1) by the percent decrease in the annual national sales of high
pressure laminate reported by NEMA from the base year of 1997
annual national sales; and
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(2) if the Distributor ceases to operate one or more of its
distribution facilities, by the percent that the closed
distribution facility(ies) 1997 Product purchases bear to the
Distributor's total 1997 Product purchases.
7. NO RIGHTS BY IMPLICATION. No rights or licenses with respect to the
Products or Pioneer's trademarks and other intellectual property rights are
granted or deemed granted hereunder or in connection herewith, other than those
rights expressly granted in this Agreement.
8. NO AGENCY. The Distributor is an independent contractor and not an
agent or employee of Pioneer for any purpose. The Distributor has no right,
power or authority to enter into any agreements or create any obligations,
express or implied, for or on behalf of Pioneer, to bind or commit Pioneer in
any way, to make any representations, warranties or guarantees on behalf of
Pioneer, or use the name of Pioneer in any manner not specifically authorized by
Pioneer.
9. USE AND DISCLOSURE LIMITATION. The Distributor shall not use, for any
purpose other than to perform its obligations under this Agreement, and the
Distributor shall not at any time, either directly or indirectly, divulge,
disclose or communicate to any person, firm or corporation in any manner
whatsoever, any information concerning any matters affecting or relating to the
business of Pioneer, including any of its customers, its prices, its manner of
operation, its plans, processes or other data, without regard to whether any of
the foregoing matters will be deemed confidential, material or important, the
parties hereto stipulating that as between them, the same are important,
material and confidential and gravely affect the effective and successful
conduct of the business of Pioneer and its goodwill and that any breach of the
terms of this paragraph shall be a material breach of this Agreement. All the
terms of this paragraph shall remain in full force and effect for the period of
3 years after the termination of this Agreement.
The Distributor acknowledges that if it were to breach this Section 9, it
would result in damage to Pioneer that cannot be compensated adequately by
damages at law. Therefore, Pioneer shall be entitled, if it so elects, to
immediate injunctive relief and any other equitable relief to restrain the
Distributor or anyone acting through or on behalf of it from any violation of
this Section, in addition to any other remedies to which Pioneer may be entitled
under applicable law.
In any legal action or proceedings arising out of breach of this Section,
Pioneer shall be entitled to recover reasonable attorneys' fees, court costs,
and expenses incurred in such proceedings, in addition to any other relief to
which Pioneer may be entitled.
10. RIGHT OF FIRST REFUSAL; OPTION TO PURCHASE. (i) If the Distributor
receives a bona fide offer for the purchase of one or more of its
Distributorship Business units as described in Schedule B of this Agreement
which it intends to accept, it shall give notice to Pioneer of such intention,
the name and address of the proposed purchaser and summary terms and conditions
of the proposed transaction (the "Terms and Conditions"). Distributor
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shall subsequently provide to Pioneer such other information as Pioneer may
reasonably require. Concurrently with giving such notice, the Distributor shall
offer to sell the Distributorship Business to Pioneer on the following basis:
(a) With regard to the sale of more than one unit of the
Distributorship Business which sells Pioneer Decorative
Laminates, the lesser of the price stated in the Terms and
Conditions as contained in such outside offer or a price equal to
the net book value plus 1.5 times the most recent cumulative 12
month PBIT as determined by generally accepted accounting
principles, in accordance with all of the other Terms and
Conditions as contained in such outside offer;
(b) With regard to the sale of only one unit of the Distributorship
Business which sells Pioneer Decorative Laminates, the lesser of
the price stated in the Terms and Conditions as contained in such
outside offer or a price equal to the net book value as
determined by generally accepted accounting principles, in
accordance with all of the other Terms and Conditions in such
outside offer; and
(c) With regard to the sale of one or more units of the
Distributorship Business which sells Pioneer Decorative Laminates
and DuPont's Corian, the lesser of the price stated in the Terms
and Conditions as contained in such outside offer or a price
equal to (i) the net book value plus three times the most recent
cumulative 12 month PBIT as determined by generally accepted
accounting principles or (ii) in the event that the Distributor
fails to provide all third party consents necessary to allow
Pioneer to sell DuPont's Corian on the same terms and conditions
then available to such Distributor, then the price described in
section (a) modified, however, to remove the effect or book value
and PBIT of the Corian business, in accordance with all of the
other Terms and Conditions as contained in such outside offer.
The giving of such notice shall constitute a warranty and representation by the
Distributor to Pioneer, that the Distributor believes the outside offer to be
bona fide in all respects. Within 20 business days after receipt of such notice,
Pioneer may elect by notice to the Distributor to purchase the Distributorship
Business. If Pioneer elects to purchase the Distributorship Business, the
transaction shall close within 90 days of Pioneer so electing, failing which
Pioneer's right of first refusal under this Section 10 in respect of the
transaction described in the notice given by the Distributor shall lapse (unless
such failure to close shall be attributable to the Distributor's actions or
condition or to factors affecting the national economy or the [decorative
laminate] industry generally). If Pioneer shall fail to accept such offer within
the said 20 business days, the Distributor shall be free to sell the
Distributorship Business to the outside offerer on terms and conditions no more
favorable to the outside
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offerer than the Terms and Conditions. If the Distributor shall not within 90
days of the expiration of the said period of 20 business days sell the
Distributorship Business to the outside offerer, then the Distributor shall be
required to again comply with all of the terms and provisions of this Section 10
in order to sell the Distributorship Business.
(ii) During the term of this Agreement, Pioneer shall have the option to
purchase (by providing 20 business days' notice to the Distributor):
(1) all of the Distributor's Distributorship Business units (except the
units located in Kansas City, MO and Springfield, MO), such units
being described in Schedule B (collectively, the "Units"), at the
price calculated in accordance with Sections 10(i)(a) or 10(i)(c)
(as may be applicable in case of each of the Units); provided,
--------
however, that the Distributor shall have no obligation to sell any of
-------
the Units under the option granted pursuant to this Section 10(ii)(1)
unless and until Pioneer enters into a distribution agreement with
DuPont which agreement will extend to Pioneer the distribution rights
with respect to Corian enjoyed by the Distributor at the time of the
exercise by Pioneer of the option granted pursuant to this Section
10(ii)(1); or
(2) all of the Distributor's Distributorship Business units (except the
units located in Kansas City, MO and Springfield, MO) which do not
sell DuPont's Corian, such units being described in Part I of Schedule
B (collectively, the "Non Corian Units"), at the price calculated in
accordance with Section 10(i)(a); or
(3) all of the Distributor's Distributorship Business units which sell
DuPont's Corian, such units being described in Part II of Schedule B
(collectively, the "Corian Units"), at the price calculated in
accordance with Section 10(i)(c); provided, however, that the
-------- -------
Distributor shall have no obligation to sell any of the Corian Units
under the option granted pursuant to this Section 10(ii)(3) unless and
until both (A) Pioneer enters into a distribution agreement with
DuPont which agreement will extend to Pioneer the distribution rights
with respect to Corian enjoyed by the Distributor at the time of the
exercise of the option granted pursuant to this Section 10(ii)(3) and
(B) Pioneer has purchased the Non Corian Units pursuant to Section
10(ii)(2).
11. TERM AND TERMINATION. This Agreement shall commence on the effective
date set forth below and shall continue in effect for a period of five years,
and shall thereafter be automatically renewed for one year periods, unless
terminated:
(a) by Pioneer, in the event of a breach by the Distributor of any of
its obligations or responsibilities under this Agreement or any
other agreement between Pioneer and the Distributor, after
written notice of such breach is sent to the Distributor unless
such breach is cured within sixty (60) days of receipt of the
notice, or if such breach cannot be cured within the sixty (60)
day period if the Distributor shall not within that period
commence to cure the breach and thereafter proceed diligently to
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cure same, provided that any such must be complete one hundred
and twenty (120) days of receipt of the notice;
(b) by Pioneer, in the event of a change in control of the
Distributor, resulting in the Distributor coming under the
control of any organization which was not in control as of the
date hereof without Pioneer's prior written consent, by written
notice of termination to the Distributor, effective upon the
giving of such notice. For the purposes of this provision,
"control" shall mean (i) when a party is a corporation, where an
organization owns or controls a majority of the voting shares of
such party directly or indirectly; or (ii) when a party is a
partnership, where an organization directly or indirectly owns or
controls a majority-in-interest of such partnership;
(c) by Pioneer, effective immediately and without any requirements of
notice, upon any attempted transfer or assignment by the
Distributor of this Agreement or of any of the Distributor's
rights or obligations hereunder; or
(d) by Pioneer, effective immediately and without any requirement of
notice, in the event that the Distributor or any parent entity of
Distributor becomes insolvent, files a petition in bankruptcy,
files a petition seeking any reorganization, arrangement,
composition or similar relief under any federal or state law
regarding insolvency or relief for debtors, or makes an
assignment for the benefit of creditors or similar undertaking,
or if a receiver, trustee, or similar officer is appointed for
the business or property of the Distributor.
12. RIGHTS AFTER TERMINATION. After termination of this Agreement in
accordance with Section 1l(a) above: (a) all of the Distributor's obligations
under this Agreement shall continue with respect to the Products then owned or
possessed by the Distributor, and the Distributor shall pay Pioneer for all
Products delivered, regardless of time of delivery; (b) the Distributor may
return unsold Products to Pioneer for credit or payment in accordance with the
terms described above in Sections 3(a)-(d); (c) all amounts then owed by the
Distributor to Pioneer shall become immediately due and payable and shall bear
interest (to the extent permitted by law) at the rate of 1 1/2% per month until
paid; and (d) the Distributor shall provide Pioneer with such information and
materials as Pioneer may request for the purpose of continuing the promotion and
sales of the Products in the Territory including, but not limited to, customer
lists, price lists and sales history data.
After termination of this Agreement in accordance with Section 1l(b) or
(c) above: (a) all of the Distributor's obligations under this Agreement shall
continue with respect to the Products then owned or possessed by the
Distributor, and the Distributor shall pay Pioneer for all Products delivered,
regardless of time of delivery; (b) all amounts then owed by the Distributor to
Pioneer shall become immediately due and payable and shall bear interest (to the
extent permitted by law) at the rate of 1 1/2% per month until paid; and (c) the
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Distributor shall provide Pioneer with such information and materials as Pioneer
may request for the purpose of continuing the promotion and sales of the
Products in the Territory including, but not limited to, customer lists, price
lists and sales history data.
After termination of this Agreement in accordance with Section 1l(d)
above: (a) the Distributor shall pay Pioneer for all Products delivered,
regardless of time of delivery; (b) all amounts then owed by the Distributor to
Pioneer shall become immediately due and payable and shall bear interest (to the
extent permitted by law) at the rate of 1 1/2% per month until paid; and (c) the
Distributor shall provide Pioneer with such information and materials as Pioneer
may request for the purpose of continuing the promotion and sales of the
Products in the Territory including, but not limited to, customer lists, price
lists and sales history data.
13. CHANGES TO PRODUCTS AND SCHEDULES. Pioneer reserves the right at any
time to discontinue the production, sales or distribution of any of its
Products, to change the design or other aspects of any of its Products, to
change its warranty or other policies, and to change its prices and other terms
and conditions of sales, without notice or obligation to the Distributor of any
kind. Pioneer may, at any time and from time to time, by written notice to the
Distributor, amend any schedule to this Agreement as of any future date
specified in the notice.
If Pioneer discontinues any distributor line Product less than six months
after notice to the Distributor of such discontinuance, Pioneer will permit the
Distributor, on the date of discontinuance, to return to Pioneer for credit,
such discontinued Product, subject to the conditions in 3 above.
14. OTHER AGREEMENTS. The parties acknowledge that there may be other
agreements between the parties hereto. Notwithstanding this fact, and except as
provided for in 11(a) above, the rights and obligations under this Agreement
shall not affect the rights and obligations under such other agreements.
15. EFFECTIVE SIGNATORY. This Agreement shall be effective only upon its
execution by the President, Vice-President or Treasurer of the parties.
16. NOTICES. Any notice or communication required or permitted hereunder
shall be in writing and shall be given (a) by hand, (b) by a nationally
recognized courier, (c) by first class mail, postage prepaid registered or
certified mail, return receipt requested or (d) by telecopier (with receipt
confirmed), provided that a copy is promptly mailed thereafter by first class
mail, postage prepaid registered or certified mail, return receipt requested, to
a party at the address specified below or at such other address as either party
may from time to time designate to the other in writing. Such notice or
communication shall be deemed to have been received by the addressee thereof (a)
on the same day of the dispatch thereof if delivered by hand, (b) on the third
(3rd) day after the dispatch thereof if sent by courier, (c) on the fifth (5th)
day after the dispatch thereof if sent by first class mail and (d) on the
following business day after the dispatch thereof if sent by telecopier.
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To Pioneer:
President
Pioneer Plastics Corporation
P.O. Box 1014
Auburn, ME 04211-1014
Copies to:
Chief Financial Officer
Pioneer Plastics Corporation
P.O. Box 1014
Auburn, ME 04211-1014
President
Panolam Industries
2507 Post Road
2nd Floor
Southport, CT 06490-1259
To Distributor:
Vice President Industrial Products
Rugby Building Products, Inc.
1440 South Priest
Suite 103
Tempe, AZ 85281
17. ASSIGNMENT. Distributor may not delegate any duties nor assign any
rights or claims hereunder without our prior written consent, and any such
attempted delegations or assignment shall be void.
18. BINDING EFFECT. Subject to the terms of this Agreement, this Agreement
shall be binding upon and inure to the benefits of the parties and their
respective successors and assigns.
19. SEVERABILITY; REMEDIES; WAIVER. In the event that any one or more
provisions contained herein (other than the provisions obligating Distributor to
pay Pioneer for the Products) shall be held by a court of competent jurisdiction
to be invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not in any
way be affected or impaired thereby. The remedies contained herein are
cumulative and in addition to any other remedies at law or equity. Pioneer's
failure to enforce, or waiver of a breach of, any provision contained herein
shall not constitute a waiver of any other breach of such or any other
provision.
20. ENTIRE AGREEMENT. This is the complete and exclusive statement of the
agreement between Pioneer and Distributor with respect to the subject matter
hereof. No
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waiver, consent, modification, amendment or change of the terms contained herein
shall be binding unless in writing and signed by us and Distributor.
21. GOVERNING LAW. The rights and obligations of the parties hereunder
shall be governed by and interpreted, construed and enforced as a sealed
instrument in accordance with the laws of State of New York (other than conflict
of law principles directing the application of any laws other than those of New
York).
Executed as an instrument under seal as of the day and year set forth
below.
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PIONEER PLASTICS CORPORATION THE DISTRIBUTOR
_____________________________
Company Name
By: ______________________________ By: __________________________
Signature Signature
_________________________________ ______________________________
Name (Print or Type) Name (Print or Type)
_________________________________ ______________________________
Title (Print or Type) Title (Print or Type)
_________________________________ ______________________________
Effective Date Effective Date
Initial Inventory: $_____________ ______________________________
Company Mailing Address
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SCHEDULE A
----------
PIONITE PRODUCTS AVAILABLE TO DISTRIBUTOR
-----------------------------------------
COST OF INITIAL INVENTORY
-------------------------
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SCHEDULE B
----------
TERRITORY
---------
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SCHEDULE C
----------
TERMS AND CONDITIONS OF SALES
-----------------------------
PIONEER PLASTICS CORPORATION
----------------------------
UNLESS OTHERWISE EXPRESSLY AGREED IN WRITING, ALL SALES ARE SUBJECT TO THE
FOLLOWING TERMS AND CONDITIONS:
1. Prices. All prices published by us or quoted by our representative
------
may be changed at any time without notice. Written quotations expire
automatically 90 days from the date issued and are subject to change or
termination by notice prior to Buyer's acceptance during that period. All prices
will be as specified by us or, if no price has been specified or quoted, will be
our price in effect at the time of delivery. All prices are subject to
adjustment on account of specifications, quantities, shipment arrangements or
other terms or conditions which are not part of our original price quotation.
All prices are exclusive of all excise, sales, use, transfer and other taxes and
duties imposed with respect to the Products or their sale by any federal, state,
municipal or other governmental authority, all of which taxes must be paid by
Buyer. Buyer is responsible for obtaining and providing to us any certificate of
exemption or similar documents required to exempt any sale from sales, use or
similar tax liability. A current price list subject to the provisions stated
above is attached hereto as Schedule C-1.
2. Terms of Payment. If Buyer establishes and maintains open account
----------------
credit with us, payment terms shall be net 10 days after the end of the calendar
month in which the invoice is dated. If credit is not established or maintained,
payment terms shall be net cash on or prior to shipment. We reserve the right,
in our sole discretion, to require payment on a COD basis, to require full or
partial payment in advance or to revoke any credit previously extended. If the
Products are delivered in installments, Buyer will pay for each installment in
accordance with the terms specified above. Payment must be made for the Products
regardless of whether Buyer has made, or plans to make, any inspection of the
Products. To the extent permitted by applicable law, overdue payments will be
subject to finance charges computed at a periodic rate of 1 1/2 % per month
(18% per year). Amounts owed by Buyer must be paid without setoff for any
amounts which Buyer may claim are owed by us and regardless of any other
controversies which may exist. Payment is considered made when payment is
received by us at our principal offices or at such other address as we indicate
to Buyer. Buyer shall also pay or reimburse us for all costs and expenses
(including reasonable attorneys' fees) incurred or paid by us in collecting
amounts due from Buyer or in enforcing Buyer's obligations hereunder.
3. Packaging and Shipment. Unless specific instructions to the contrary
----------------------
are supplied by Buyer, all packaging and methods and routes of shipment will be
selected by us, but we will not assume any liability in connection with shipment
nor constitute any carrier as our agent. We reserve the right to ship the
Products in any order and to make partial shipments. We reserve the right to
stop delivery of Products in transit and to withhold shipments in whole or in
part if Buyer fails to make any payment to us when due or
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otherwise fails to perform its obligations hereunder. All shipping dates are
approximate only. All shipments will be made at Buyer's risk, and Buyer will be
responsible for making all claims with carriers, insurers, warehousemen, and
others for misdelivery, nondelivery, loss, damage or delay. We will use
reasonable efforts to assist Buyer in filing such claims.
4. Delivery. All sales are F.O.B. our premises and the date of delivery
--------
is the date when the Products are ready for pickup at that location by Buyer or
by a carrier for delivery to Buyer. We will use reasonable efforts to meet
requested delivery dates, but will not be liable for our failure to do so. When
delivery in installments is chosen by us, the delivery of non-conforming
Products, or a default of any nature, in relation to one or more installments
will not constitute a breach of the Agreement. We will not be liable for any
loss or damage resulting from any delay in delivery or failure to deliver. In
the event of a delay, we may allocate production and deliveries among our
customers, the time for delivery to Buyer will be extended for a period equal to
the duration of the delay, and Buyer will not be entitled to refuse delivery or
otherwise be relieved of any obligations as the result of the delay. If any
scheduled delivery is delayed for a period in excess of 30 days, we may at our
option, by written notice to Buyer, cancel any and all scheduled or future
deliveries without further liability or obligation of any kind. Products for
which delivery is delayed due to any cause within Buyer's control may be placed
in storage by us at Buyer's risk and expense and for its account. Buyer will be
liable for all costs and expenses incurred by us in holding or storing Products
for Buyer.
5. Title and Risk of Loss. Subject to Section 6 and to our right to stop
----------------------
delivery of Products in transit, title to and risk of loss or damage for
Products will pass to Buyer upon the delivery to a carrier for shipment to
Buyer.
6. Security Interest. We reserve and Buyer grants to us a security
-----------------
interest in all Products sold and all proceeds to secure the full payment and
performance by Buyer of its obligations and liabilities to us. Buyer
acknowledges that this document or copies of this document may be filed with the
appropriate authorities as a financing statement and agrees to execute and
deliver such other documents as we may request in order to evidence or perfect
our security interest.
7. Cancellations and Returns. If Buyer cancels an order within 24 hours
-------------------------
before the commencement of manufacture of the items in the order, Buyer agrees
to pay a cancellation charge of 100% of the total invoice amount. Products are
not in any event to be returned to us without prior written authorization.
8. Specifications. All Products are subject to our standard tolerances
--------------
for specifications. We reserve the right to make substitutions and modifications
in the specifications of any Products, provided that such substitutions or
modifications do not materially affect the performance of the Products or the
purposes for which they can be used.
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9. Warranty; Indemnification.
--------------------------
(a) We warrant solely to the original Buyer that the Products will be
free from defects in materials and workmanship, when given
normal, proper and intended usage, for a period of one year from
the date of sale to the Buyer.
(b) At our expense, we agree to repair or replace at our option all
defective Products not performing substantially in accordance
with applicable Product specifications, provided that Buyer has
given us written notice of such warranty claim within the
warranty period. If we are unable, after reasonable efforts, to
repair or replace such defective Product, Buyer's sole remedy
shall be the refund of an amount not to exceed the actual
payments received by us for such Product. All replaced items
shall become our property.
(c) We shall have no obligation to make repairs, replacements or
corrections which result, in whole or in part, from (i) normal
wear and tear, (ii) catastrophe, fault or negligence of Buyer,
(iii) improper or unauthorized use of the Products, (iv) use of
the Products in a manner for which they were not designed, (v)
modifications of the Products by anyone other than us, (vi)
causes external to the Products such as, but not limited to,
power failure or electric power surges, or (vii) use of the
Products in combination with equipment or materials not supplied
by us.
(d) If notified promptly in writing of any action (and all prior
related claims) brought against Buyer based on a claim that a
Product infringes any valid United States patent, copyright or
trade secret, we shall defend such action at our expenses and pay
all costs and damages finally awarded in such action or
settlement which are attributable to such claim. We shall have
sole control of the defense of any such action and all
negotiations for its settlement or compromise. Buyer shall
cooperate fully with us in the defense, settlement or compromise
of any such action. In the event that a final injunction is
obtained against Buyer's use of a Product by reason of
infringement of a valid United States patent, copyright or trade
secret, or if in our opinion any Product is likely to become the
subject of a successful claim of such infringement, we may, at
our option and expense, (i) procure for Buyer the rights to
continue using the Product, (ii) replace or modify the Product so
that it becomes non-infringing (so long as its functionality is
essentially unchanged), or (iii) accept the return of the Product
and refund the Buyer the purchase price therefor. We may withhold
further shipments of any such Products.
(e) We shall not have any liability to Buyer to the extent that any
infringement or claim thereof is based upon (i) the use of a
Product in combination with equipment or materials not supplied
by us where the Product would not itself be infringing, (ii)
compliance with Buyer's
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designs, specifications or instructions, (iii) use of the Product
in an application or environment for which it was not designed,
(iv) modifications of the Product by anyone other than us, or (v)
any claims of infringement of any patent, copyright or trade
secret in which Buyer or any affiliate or customer of Buyer has
an interest or license.
(f) Buyer shall not bring any suit or action against us for any
reason whatsoever more than one year after the related cause of
action has accrued.
EXCEPT AS STATED ABOVE, WE DISCLAIM ALL WARRANTIES, WHETHER EXPRESS OR
IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE PRODUCT, INCLUDING ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. THE FOREGOING
INDEMNIFICATION PROVISIONS STATE OUR ENTIRE LIABILITY WITH RESPECT TO
INFRINGEMENT OR ALLEGED INFRINGEMENT OF PATENTS, COPYRIGHTS, TRADEMARKS, TRADE
SECRETS AND OTHER INTELLECTUAL PROPERTY OR PROPRIETARY RIGHTS BY THE PRODUCTS.
OUR MAXIMUM LIABILITY ARISING OUT OF THE SALE OF THE PRODUCTS OR THEIR USE,
WHETHER BASED UPON WARRANTY, CONTRACT, TORT OR OTHERWISE, SHALL NOT EXCEED THE
ACTUAL PAYMENTS RECEIVED BY US IN CONNECTION THEREWITH. IN NO EVENT SHALL WE BE
LIABLE FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT
LIMITED TO, LOSS OF PROFITS, LOSS OF DATA OR LOSS OF USE DAMAGES, ARISING
HEREUNDER OR FROM THE SALE OF THE PRODUCTS.
10. Compliance with Laws. Buyer shall comply with all applicable
--------------------
governmental laws, ordinances, codes, rules, regulations and orders in its
performance hereunder, and shall obtain all permits or licenses required in
connection with the purchase, shipment, installation and use of any of the
Products. Buyer warrants to us that it will not cause the Products sold
hereunder to be shipped to, or resold for shipment to, any country the shipment
of goods to which is barred by United States export regulations.
11. Force Majeure. In the event that we are prevented from performing, or
-------------
are unable to perform, any of our obligations hereunder due to any act of
nature, act of God, fire, casualty, flood, war, strike, lock out, failure of
public utilities, injunction or any act, exercise, assertion or requirement of
any governmental authority, epidemic, destruction of productions facilities,
riot, insurrection, sabotage, inability to procure materials, labor, equipment,
transportation or energy sufficient to meet our needs, delay in delivery, or any
other cause beyond our reasonable control, and if we shall have used efforts to
avoid such occurrence and minimize its duration and have given prompt written
notice to Buyer, then our failure to perform shall be excused and the time for
performance shall be extended for the period of delay or inability to perform
due to such occurrence.
12. Additional or Inconsistent Terms. Any term or condition of Buyer's
--------------------------------
purchase order or any other document provided to us by Buyer which is in any way
different from, inconsistent with or in addition to the terms and conditions set
forth herein will not become a
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part of the contract between us and Buyer or be binding upon us without our
prior written consent. Our failure to object to terms contained in any
communication from Buyer will not be a waiver of the terms set forth herein.
Buyer shall not condition any acceptance of delivery upon the abrogation or
modification of any of the terms and conditions included in this Agreement.
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EXHIBIT 8(a)
------------
[PROPOSED FORM OF BRING DOWN HIGHLY CONFIDENT LETTER]
August ____, 1998
Panolam Industries International, Inc.
2057 Post Road, 2nd Floor
Southport, Connecticut 06490-1259
Dear Sirs:
We understand that Panolam Industries International, Inc. (the "Company")
intends to acquire all of the issued and outstanding common stock of Pioneer
Plastics Corporation (the "Acquired Business") from the Rugby Group PLC ("Rugby"
or the "Seller") (the "Acquisition"). You have advised us that the total
purchase price for the Acquisition (including the refinancing of all existing
debt of the Company, the "Refinancing") will be approximately $ million and
that the Acquisition and Refinancing will be financed with approximately
$ million of borrowings by the Company under a Credit Facility between the
Company and DLJ Capital Funding, Inc., consisting of a $ million Revolving
Credit Facility (of which $ million will be drawn at closing), a
$ million of Senior Term Loan A and a $ million of Senior Term Loan B and
the issuance of $175.0 million in aggregate principal amount of high yield
securities, which may include Senior Subordinated Notes due 2008 issued by the
Company and Senior Notes issued by an intermediate holding company (the
"Securities"). You have asked Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") to act as underwriter or placement agent in connection with
the sale of the Securities.
Based on the information you have provided to us to date and our analysis
of the current market for securities issued by entities engaged in the building
products industry, we are pleased to inform you that we are highly confident of
our ability to sell the Securities to finance a portion of the purchase price of
the Acquisition as described above, subject to the matters set forth in the
following paragraph. The structure, covenants and terms of the Securities,
including the cost of capital, will be determined by DLJ in consultation with
the Company based on market conditions at the time of the sale or placement and
on the structure and documentation of the Acquisition.
Our ability to consummate the sale or placement of the Securities is
subject to: (i) no material change to the terms and conditions of the Securities
and all other debt and equity financing for the Acquisition (including any debt
to be assumed) as outlined in the draft Offering Memorandum, dated August ,
1998, and all related documentation being satisfactory in form and substance to
DLJ; (ii) the purchase price and other terms and conditions of the Acquisition
being substantially the same as represented to DLJ on the date of this letter;
(iii) the execution and delivery of documentation with respect to the
Acquisition and all related transactions in form and substance satisfactory to
DLJ; (iv) the absence of any material adverse change in the business, condition
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(financial or otherwise), results of operations, assets, liabilities or
prospects of the Company or the Acquired Business; (v) the receipt of all
necessary governmental, regulatory and third party approvals and consents in
connection with the acquisition; (vi) the execution and delivery of
documentation with respect to the Securities and the offering and sale thereof
(including, but not limited to, the underwriting agreement, purchase agreement
or placement agreement) that is satisfactory in form and substance to DLJ; (vii)
our continuing due diligence investigation not disclosing any facts that would
alter our current view with respect to any aspects of the Acquired Business with
an understanding that a substantial amount of due diligence has been completed
to DLJ's satisfaction as of the date of this letter, (viii) satisfactory market
conditions for new issuances of high yield debt securities and in the securities
markets in general; and (ix) our having reasonable time to market the Securities
with the assistance of management of the Company and the Acquired Business,
based on our experience in comparable transactions sold in comparable markets.
This letter shall be treated as confidential and is being provided to the
Company solely in connection with the Company's proposed acquisition of the
Acquired Business and may not be used, circulated, quoted or otherwise referred
to in any document, except with DLJ's prior written consent. Notwithstanding the
foregoing, this letter may be shown to the Seller provided that the Seller
agrees to treat the letter as confidential. Please note that this letter is not
commitment to purchase or place the Securities or any other securities of the
Company.
We look forward to working with you toward the successful completion of the
proposed financing.
Sincerely,
Thomas M. Benninger
Managing Director
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EXHIBIT 8(b)
------------
PII Third, Inc. (date)
2507 Post Road ------------------
2nd Floor
Southport, CT 06490-1259
Ladies and Gentlemen:
By this letter Rugby USA, Inc. (the "Seller") acknowledges receipt from
PII Third, Inc. (the "Buyer") of copies of the Updated Finance Letter and
certain memoranda as delivered to the Seller pursuant to Section 8 of that
certain Stock Purchase Agreement, dated as of July 17, 1998, by and between the
Seller and the Buyer. The Seller confirms that it is satisfied with the
aforesaid copies and, therefore, that the conditions set forth in Section 8 of
the Stock Purchase Agreement have been met.
Very truly yours,
RUGBY USA, INC.
By:_______________________________
Its:______________________________
cc: The Rugby Group plc
Baker & McKenzie
Brobeck, Phleger & Harrison LLP
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EXHIBIT 10(j)
TERMS AND CONDITIONS OF NON-COMPETITION AGREEMENT (THE RUGBY GROUP PLC)
(i) For a period of five (5) years after the Closing (the "Restricted
----------
Period"), Rugby shall not, and shall cause its Affiliates not to, engage,
- ------ -
directly or indirectly, in any business anywhere in the world that manufactures,
produces or supplies products or services of the kind manufactured, produced or
supplied by the Business or the Company as of the Closing Date or, without the
prior written consent of the Buyer, directly or indirectly, own an interest in,
manage, operate, join, control, lend money or render financial or other
assistance to or participate in or be connected with, as an officer, employee,
partner, stockholder, consultant or otherwise, any Person that competes with the
Buyer, the Business or the Company in manufacturing, producing or supplying
products or services of the kind manufactured, produced or supplied by the
Business or the Company as of the Closing Date; provided, however, that, for
-------- -------
the purposes of this Agreement, ownership of securities having no more than five
percent (5%) of the outstanding voting power of any competitor which are listed
on any national securities exchange or traded actively in the national over-the-
counter market shall not be deemed to be in violation of this Agreement so long
as the Person owning such securities has no other connection or relationship
with such competitor; and further provided, however, that RBP's distribution of
-------- -------
the Company's products pursuant to the distribution agreements in the forms of
Exhibit 2(d)(iv) shall not be deemed to be a violation of this Agreement.
(ii) As a separate and independent covenant, Rugby agrees with the
Buyer that, for a period of two (2) years following the Closing, it will not,
and shall cause its Affiliates not to, in any way, directly or indirectly, for
the purpose of conducting or engaging in any business that manufactures,
produces or supplies products or services of the kind manufactured, produced or
supplied by the Business, or the Company as of the Closing, call upon, solicit,
advise or otherwise do, or attempt to do, business with any customers of the
Business or the Company with whom the Business or the Company or the Seller had
any dealings during the period of time in which the Company was an Affiliate of
the Seller, or take away or interfere or attempt to interfere with any custom,
trade, business or patronage of the Business or the Company or any Subsidiary;
provided, however, that RBP's distribution of the Company's products pursuant to
- -------- -------
the distribution agreements in the forms of Exhibit 2(d)(iv) shall not be deemed
to be a violation of this Agreement; or interfere with or attempt to interfere
with any officers, employees, representatives or agents of the Business or the
Company or any Subsidiary, or induce or attempt to induce any of them to leave
the employ of the Company or any Subsidiary or violate the terms of their
contracts, or any employment arrangements, with the Company or any Subsidiary.
(iii) The Restricted Period shall be extended by the length of any
period during which Rugby is in breach of the terms of this Agreement. Rugby
acknowledges that this Agreement constitutes an independent covenant and shall
not be affected by performance or nonperformance of any other provision of this
Agreement by the Buyer. Rugby has independently consulted with its counsel and
after such consultation agrees that the covenants set forth in this Section
14(a) are reasonable and proper.
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<PAGE>
EXHIBITS 10 (K)
FORM OF NON-COMPETITION AGREEMENT
This Non-Competition Agreement (this "Agreement") is made as of July 17, 1998
("Execution Date"), by and between PIONEER PLASTICS CORPORATION, a Delaware
corporation (the "Company"), and [None] an individual currently employed by the
Company ("Executive").
The parties, intending to be legally bound, agree as follows:
1. DEFINITIONS
"Business" means the high pressure decorative laminating business (including the
manufacture, distribution, marketing and sale of related products).
"Person" means any individual, partnership, limited liability company,
corporation, association, joint stock company, estate, trust, joint venture,
organization, labor union or other entity or governmental body.
2. ACKNOWLEDGEMENTS BY EXECUTIVE
Executive acknowledges that:
(a) Executive has occupied a position of trust and confidence with the
Company prior to the date hereof and has become familiar with the following, any
and all of which constitute confidential information of the Company
(collectively, the "Confidential Information"):
(i) any and all trade secrets concerning the Business of the Company,
product specifications, data, know-how, formulae, compositions, processes,
designs, sketches, photographs, graphs, drawings, samples, inventions and ideas,
past, current and planned research and development,
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current and planned manufacturing and distribution methods and processes,
customer lists, current and anticipated customer requirements, price lists,
market studies, business plans, computer software and programs (including object
code and source code), computer software and data-base technologies, systems,
structures and architectures (and related processes), formulae, compositions,
improvements, devices, know-how, inventions, discoveries, concepts, ideas,
designs, methods and information, of the Company related to the Business and any
other information, however documented, of the Company that is a Business-related
trade secret within the meaning of the Maine Uniform Trade Secrets Act ME. REV.
STAT. ANN. tit. 10, (S) 1541 et. seq;
(ii) any and all information, knowledge or data concerning the
Business of the Company (which includes without limitation historical financial
statements, financial projections and budgets, historical and projected sales,
capital spending budgets and plans, the names and backgrounds of key personnel,
and personnel training and techniques and materials), however documented;
(iii) any and all information, knowledge or data concerning costs,
purchasing, profits, markets, sales, organization structures, surveys, client
research, site analysis, proposal preparation and presentation, site planning
visits, contracting, client meetings, client account records, sales records,
training and servicing materials, programs and techniques, Company manuals and
policies, computer programs, software and disks, financial statements and
projections, business plans, budgets, supplier lists, contracts, compensation
schedules and pricing information; and
(iv) any and all notes, analysis, compilations, studies, summaries,
and other material prepared by or for the Company containing or based, in whole
or in part, on any information included in the foregoing;
(b) Executive has acquired (i) an in depth knowledge of the Business and
(ii) extensive customer contacts in the Business as a result of his employment
with the Company;
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<PAGE>
(c) the Business of the Company is national in scope;
(d) the products and services of the Business are marketed throughout North
America;
(e) the Company competes with other high pressure decorative laminating
businesses that are or could be located in any part of North America;
(f) the Company has required that Executive make the covenants set forth in
Sections 3 and 4 of this Agreement as a condition to the Company's payment to
the Executive of compensation under Section 5 of this Agreement;
(g) the provisions of Sections 3 and 4 of this Agreement are reasonable and
necessary to protect and preserve the Business of the Company;
(h) the Business of the Company would be irreparably damaged if Executive
were to breach the covenants set forth in Sections 3 and 4 of this Agreement;
and
(i) Executive does not have any ownership interest in the Company.
3. CONFIDENTIAL INFORMATION
Executive acknowledges and agrees that all Confidential Information known
or obtained by Executive, whether before or after the Execution Date is the
property of the Company. Therefore, Executive agrees that he will not, at any
time during the "Restricted Period" (as defined below), directly or indirectly
disclose to any unauthorized Person or use for his own purposes or those of any
other Person any Confidential Information.
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<PAGE>
4. NON-COMPETITION
(a) For a period of three (3) years after the Execution Date (the
"Restricted Period"), Executive shall not engage, directly or indirectly, in any
business anywhere in North America that manufactures, produces, distributes or
supplies products or services of the kind manufactured, produced or supplied by
the Business of the Company as of the Execution Date or, without the prior
written consent of the Company, directly or indirectly, own an interest in,
manage, operate, join, control, lend money or render financial or other
assistance to or participate in or be connected with, as an officer, employee,
partner, stockholder, consultant or otherwise, any Person that competes with the
Business of the Company in manufacturing, producing, distributing or supplying
the same or substantially similar products or services of the kind manufactured,
produced, distributed or supplied by the Business of the Company as of the
Execution Date; provided, however, that, for the purposes of this Agreement,
-------- -------
ownership of securities having no more than five percent (5%) of the outstanding
voting power of any competitor to the Business of the Company which is listed on
any national securities exchange or traded actively in the national over-the-
counter market shall not be deemed to be in violation of this Agreement so long
as Executive has no other connection or relationship with such competitor.
(b) In the event of a breach by Executive of Subsection 4(a) of this
Agreement, the term of such covenant will be extended by the longer of (i) the
period of the duration of such breach or (ii) the remaining Restricted Period
determined as of the date of such breach beginning from the date of a court
order enforcing this Agreement.
(c) Executive will not, for the three (3) year period after the Execution
Date, disparage the Company or any of its shareholders, directors, officers,
employees or agents.
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<PAGE>
(d) Executive will, for a period of three (3) years after the Execution
Date, within ten (10) days after accepting any employment, advise the Company of
the identity of any employer of Executive. The Company may serve notice upon
each such employer that Executive is bound by this Agreement and furnish each
such employer with a copy of this Agreement or relevant portions thereof.
(e) Executive will not for a period of three (3) years immediately
following the Execution Date, howsoever arising, either on his own account or in
conjunction with or on behalf of any other Person directly or indirectly induce,
solicit or entice any person who is a key employee of the Company to leave such
employment. As used in this subsection, "key employee of the Company" shall mean
any (1) executive; (2) managerial employee; or (3) any other employee who has a
written employment agreement with the Company.
(f) Executive agrees that the provisions of this Section 4 are necessary
and reasonable to protect the Company in the conduct of its Business. If any
restriction contained in this Section 4 shall be deemed to be invalid or
unenforceable by reason of the extent, duration or geographic scope thereof,
then the extent, duration and geographic scope of such restriction shall be
deemed to be reduced to the fullest extent, duration and geographic scope
permitted by law and enforceable.
5. COMPENSATION
As additional consideration for the covenants in Section 4 of this Agreement,
the Company will pay Executive the sum of [Salary] (the "Compensation") payable
with the execution of this Agreement.
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<PAGE>
6. REMEDIES
If Executive breaches the covenants in any material respect set forth in
Sections 3 or 4 of the Agreement ("Breach"), the Company will be entitled to the
following remedies:
(a) if Breach occurs before the first anniversary of the Execution Date,
Executive shall immediately pay to the Company an amount equal to all of the
Compensation paid to Executive;
(b) if Breach occurs after the first anniversary of the Execution Date but
on or before the second anniversary of the Execution Date, Executive immediately
shall pay to the Company an amount equal to fifty percent (50%) of the
Compensation paid to Executive;
(c) if Breach occurs after the second anniversary of the Execution Date,
the Executive shall immediately pay to the Company an amount equal to twenty-
five percent (25%) of the Compensation paid to Executive; and
(d) in addition to its right to damages and any other rights it may have,
the Company may obtain injunctive or other equitable relief to restrain any
breach or threatened breach or otherwise to specifically enforce the provisions
of Sections 3 and 4 of this Agreement, it being agreed that money damages alone
would be inadequate to compensate the Company and would be an inadequate remedy
for such breach. The rights and remedies of the parties to this Agreement are
cumulative and not alternative.
7. MISCELLANEOUS
(a) All notices, consents, requests, claims, demands, instructions or other
communications to be given hereunder by either party shall be in writing. All
such notices, consents, requests, claims, demands, instructions or other
communications may be given personally, by registered or certified mail
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(with proof of receipt, postage and expenses prepaid, return receipt requested),
express package service or telefax. All such notices shall be deemed to be
received as follows:
(i) if delivered personally, when received; (ii) if mailed, three (3)
days after being mailed; (iii) if sent by express package service, when signed
for; and (iv) if sent by facsimile, when the telefax has been transmitted over
the telephone lines, as evidenced by a telefax confirmation report generated by
the transmitting machine. Notices shall be addressed as follows:
(i) if to the Company, to:
Pioneer Plastics Corporation
P.O. Box 1014
Auburn, ME 04211-1014
(ii) if to Executive, to:
[Address]
or such other addresses as the parties may have furnished to each other pursuant
to the provisions of this Section 7.
(b) This Agreement shall not confer any rights or remedies upon any Person
other than the parties and their respective successors and permitted assigns.
This Agreement shall be binding upon and inure to the benefit of the parties and
their respective successors and permitted assigns. Executive may not assign
either this Agreement or any of its rights, interests, or obligations hereunder
without the prior written approval of the Company. The Company may assign this
Agreement and any of its rights, interests, or obligations hereunder without the
prior written approval of the Executive.
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<PAGE>
(c) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one instrument.
(d) This Agreement shall be governed by and construed in accordance with
the laws of the State of Maine without giving effect to any choice or conflict
of law provision or rule (whether of the State of Maine or any other
jurisdiction) that would cause the application of the laws of any jurisdiction
other than the State of Maine.
(e) Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to make such provision valid and enforceable under
law or as modified by any court order. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(f) Section headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. The parties have participated jointly in the negotiation and drafting
of this Agreement. If an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties
and no presumption or burden of proof shall arise favoring or disfavoring either
party by virtue of the authorship of any of the provisions of this Agreement.
(g) No breach of any provision hereof may be waived unless in writing. No
waiver by either party of any default or breach of covenant hereunder or any
provision hereof, whether intentional or not, shall be deemed to extend to any
prior or subsequent default or breach of covenant hereunder or any provision
hereof or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
(h) This Agreement may be amended only by a written agreement executed by
the parties.
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<PAGE>
(i) This Agreement, embodies the entire Understanding of the parties and
supersedes any prior written or oral understandings, agreements or
representations by or between the parties to the extent that they relate to the
subject matter hereof, and there are no further or other agreements or
understandings, written or oral, in effect between the parties relating to the
subject matter hereof unless expressly referred to by reference herein or
executed concurrently herewith.
(j) Each of the parties hereto (i) consents to submit itself to the
personal jurisdiction of any Federal or state court in Maine in the event any
dispute arises out of any of the provisions of this Agreement, (ii) agrees that
it will not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court, (iii) agrees that it will not
bring any action relating to any of the provisions to this Agreement in any
court other than a Federal or state court sitting in Maine, and (iv) agrees to
accept service of process via certified mail at its or his last known address.
(k) Notwithstanding anything herein to the contrary, in the event that the
closing of a sale of all or substantially all of the Company's assets or common
stock has not occurred on or prior to November 30, 1998 (or such later closing
date as the parties to such sale may mutually agree), this Agreement shall be
null and void.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement on the
date first written above.
PIONEER PLASTICS CORPORATION
By:_________________________
Its:________________________
EXECUTIVE
____________________________
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<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
PII THIRD, INC.
PII THIRD, INC., a Delaware corporation, HEREBY CERTIFIES AS FOLLOWS:
1. The name of the corporation is PII THIRD, Inc. (the "Corporation").
2. This certificate of incorporation of the Corporation is hereby amended
by striking out Article I thereof and by substituting in lieu of said Article
the following new Article:
"ARTICLE I
NAME
The name of the corporation is Panolam Industries International, Inc. (the
"Corporation")."
3. The amendment of the certificate of incorporation herein certified has
been duly adopted in accordance with the provisions of Sections 228 and 242 of
the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, PII THIRD, INC. has caused this certificate to be
signed by Dan McDevitt, its Secretary, and attested by Robert J. Muller, Jr.,
its President, 22 day of December, 1998.
PII THIRD, INC.
By: /s/ Dan McDevitt
-------------------------
SECRETARY
Dan McDevitt
ATTEST:
/s/ Robert J. Muller, Jr.
- --------------------------------
PRESIDENT
Robert J. Muller, Jr.
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
PII THIRD, INC.
PII THIRD, INC., a Delaware corporation, HEREBY CERTIFIES AS FOLLOWS:
1. The name of the Corporation is PII THIRD, Inc. The date of filing
of its original Certificate of Incorporation with the Secretary of State of the
State of Delaware was October 28, 1997.
2. This Certificate of Amendment sets forth an amendment to the
Certificate of Incorporation of the Corporation which was duly adopted by the
written consent of the sole stockholder of the Corporation entitled to vote
thereon in accordance with the provisions of Sections 242 and 228 of the General
Corporation Law of the State of Delaware:
3. Article IV of the Certificate of Incorporation is hereby amended
in full to be and read as follows:
"ARTICLE IV
The total number of shares of all classes of stock that the
Corporation shall have authority to issue is 200, all of which shall be shares
Common Stock, par value $0.01 per share."
IN WITNESS WHEREOF, PII THIRD, INC. has caused this certificate to be
signed by Claude P. Arcand, its president, and attested by Jacques Gauthier, its
Secretary, this 18th day of December, 1997.
PII THIRD, INC.
By: /s/ Claude P. Arcand
-------------------------------
Title: President
ATTEST:
/s/ Jacques Gauthier
- --------------------------
Secretary
<PAGE>
CERTIFICATE OF INCORPORATION
OF
PII THIRD, INC.
ARTICLE I
NAME
The name of the corporation is PII THIRD, INC. (the "Corporation").
-----------
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The address of the registered office of the Corporation in the State
of Delaware, is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
ARTICLE III
CORPORATE PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "General Corporation Law").
-----------------------
ARTICLE IV
CAPITAL STOCK
The total number of shares of all classes of stock that the
Corporation shall have authority to issue is 1,000, all of which shall be shares
of Common Stock, par value $0.01 per share.
<PAGE>
2
ARTICLE V
DIRECTORS
(1) Elections of directors of the Corporation need not be by written
ballot, except and to the extent provided in the By-laws of the Corporation.
(2) To the fullest extent permitted by the General Corporation Law as
it now exists and as it may hereafter be amended, no director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
(1) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party 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 the Corporation) by
reason of the fact that he or she 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, partnership,
joint venture, trust or other enterprise, against 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 if
such person acted in good faith and in a manner such person reasonably believed
to be in, or not opposed to, the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
----
contendere or its equivalent, shall not, of itself, create a presumption that
- ----------
the person seeking indemnification did not act in good faith and in a manner
which such reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(2) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he or she 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,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the
<PAGE>
3
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(3) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections (1) and (2) of this Article
VI, or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith.
(4) Any indemnification under Sections (1) and (2) of this Article VI
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because such person
met the applicable standard of conduct set forth in such Sections (1) and (2).
Such determination shall be made (a) by the Board of Directors of the
Corporation by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (b) if such a quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (c) by the
stockholders of the Corporation.
(5) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation authorized in this Article VI. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors of the Corporation deems
appropriate.
(6) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other sections of this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
(7) The Corporation may 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, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
<PAGE>
4
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of Section 145 of the General Corporation
Law.
(8) For purposes of this Article VI, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article VI with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(9) For purposes of this Article VI, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves service by, such director,
officer, employee or agent with respect to any employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article VI.
(10) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VI shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE VII
BY-LAWS
The directors of the Corporation shall have the power to adopt, amend
or repeal by-laws.
<PAGE>
5
ARTICLE VIII
REORGANIZATION
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
ARTICLE IX
AMENDMENT
The Corporation reserves the right to amend, alter, change or repeal
any provision of this Certificate of Incorporation, in the manner now or
hereafter prescribed by law, and all rights conferred on stockholders in this
Certificate of Incorporation are subject to this reservation.
ARTICLE X
INCORPORATOR
The name and mailing address of the sole incorporator is as follows:
Name Mailing Address
--------------------- ---------------
JONATHAN STUART BROWN Shearman & Sterling
555 California Street
San Francisco, CA 94104
<PAGE>
6
I, THE UNDERSIGNED, being the sole incorporator hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this Certificate of Incorporation, hereby
declaring and certifying that this is my act and deed and the facts herein
stated are true, and accordingly have hereunto set my hand this 28th day of
October, 1997.
/s/ Jonathan Stuart Brown
------------------------------
JONATHAN STUART BROWN
<PAGE>
==============================
BY-LAWS
OF
PII THIRD, INC.
==============================
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I
OFFICES
-------
SECTION 1.01. Registered Office..................................... 1
SECTION 1.02. Other Offices......................................... 1
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
SECTION 2.01. Annual Meetings....................................... 1
SECTION 2.02. Special Meetings...................................... 1
SECTION 2.03. Notice of Meetings.................................... 2
SECTION 2.04. Waiver of Notice...................................... 2
SECTION 2.05. Adjournments.......................................... 2
SECTION 2.06. Quorum................................................ 3
SECTION 2.07. Voting................................................ 3
SECTION 2.08. Proxies............................................... 3
SECTION 2.09. Stockholders' Consent in Lieu of Meeting.............. 3
ARTICLE III
BOARD OF DIRECTORS
------------------
SECTION 3.01. General Powers........................................ 3
SECTION 3.02. Number and Term of Office............................. 4
SECTION 3.03. Resignation........................................... 4
SECTION 3.04. Removal............................................... 4
SECTION 3.05. Vacancies............................................. 4
SECTION 3.06. Meetings.............................................. 4
SECTION 3.07. Committees of the Board............................... 6
SECTION 3.08. Directors' Consent in Lieu of Meeting................. 6
SECTION 3.09. Action by Means of Telephone or Similar Communications
Equipment............................................. 6
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 3.10. Compensation.......................................... 7
ARTICLE IV
OFFICERS
--------
SECTION 4.01. Officers.............................................. 7
SECTION 4.02. Authority and Duties.................................. 7
SECTION 4.03. Term of Office, Resignation and Removal............... 7
SECTION 4.04. Vacancies............................................. 7
SECTION 4.05. The Chairman.......................................... 8
SECTION 4.06. The President......................................... 8
SECTION 4.07. Vice Presidents....................................... 8
SECTION 4.08. The Secretary......................................... 8
SECTION 4.09. Assistant Secretaries................................. 8
SECTION 4.10. The Treasurer......................................... 9
SECTION 4.11. Assistant Treasurers.................................. 9
ARTICLE V
CHECKS, DRAFTS, NOTES, AND PROXIES
----------------------------------
SECTION 5.01. Checks, Drafts and Notes.............................. 9
SECTION 5.02. Execution of Proxies.................................. 9
ARTICLE VI
SHARES AND TRANSFERS OF SHARES
------------------------------
SECTION 6.01. Certificates Evidencing Shares......................... 10
SECTION 6.02. Stock Ledger........................................... 10
SECTION 6.03. Transfers of Shares.................................... 10
SECTION 6.04. Addresses of Stockholders.............................. 11
SECTION 6.05. Lost, Destroyed and Mutilated Certificates............. 11
SECTION 6.06. Regulations............................................ 11
SECTION 6.07. Fixing Date for Determination of Stockholders
of Record.............................................. 11
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE VII
SEAL
----
SECTION 7.01. Seal.................................................. 12
ARTICLE VIII
FISCAL YEAR
-----------
SECTION 8.01. Fiscal Year........................................... 12
ARTICLE IX
INDEMNIFICATION AND INSURANCE
-----------------------------
SECTION 9.01. Indemnification....................................... 12
SECTION 9.02. Insurance for Indemnification......................... 15
ARTICLE X
AMENDMENTS
----------
SECTION 10.01. Amendments............................................ 15
</TABLE>
iii
<PAGE>
BY-LAWS
OF
PII THIRD, INC.
ARTICLE I
OFFICES
-------
SECTION 1.01. Registered Office. The registered office of PII Third,
-----------------
Inc. (the "Corporation") in the State of Delaware shall be at the principal
-----------
office of The Corporation Trust Company in the City of Wilmington, County of New
Castle, and the registered agent in charge thereof shall be The Corporation
Trust Company.
SECTION 1.02. Other Offices. The Corporation may also have an office
-------------
or offices at any other place or places within or without the State of Delaware
as the Board of-Directors of the Corporation (the "Board") may from time to time
-----
determine or the business of the Corporation may from time to time require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
SECTION 2.01. Annual Meetings. The annual meeting of stockholders of
---------------
the Corporation for the election of directors of the Corporation ("Directors"),
and for the transaction of such other business as may properly come before such
meeting, shall be held at such place, date and time as shall be fixed by the
Board and designated in the notice or waiver of notice of such annual-meeting;
provided, however, that no annual meeting of stockholders need be held if all
- -------- -------
actions, including the election of Directors, required by the General
Corporation Law of the State of Delaware (the "General Corporation Law") to be
-----------------------
taken at such annual meeting are taken by written consent in lieu of meeting
pursuant to Section 2.09 hereof.
SECTION 2.02. Special Meetings. Special meetings of stockholders for
----------------
any purpose or purposes may be called by the Board or the Chairman of the Board,
the President or the Secretary of the Corporation or by the recordholders of at
least a majority of the shares of common stock of the Corporation issued and
outstanding ("Shares") and entitled to
------
<PAGE>
2
vote thereat, to be held at such place, date and time as shall be designated in
the notice or waiver of notice thereof.
SECTION 2.03. Notice of Meetings. (a) Except as otherwise provided by
------------------
law, written notice of each annual or special meeting of stockholders stating
the place, date and time of such meeting and, in the case of a special meeting,
the purpose or purposes for which such meeting is to be held, shall be given
personally or by first-class mail (airmail in the case of international
communications) to each recordholder of Shares (a "Stockholder") entitled to
-----------
vote thereat, not less than 10 nor more than 60 days before the date of such
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, directed to the Stockholder at such
Stockholder's address as it appears on the records of the Corporation. If, prior
to the time of mailing, the Secretary of the Corporation (the "Secretary") shall
have received from any Stockholder a written request that notices intended for
such Stockholder are to be mailed to some address other than the address that
appears on the records of the Corporation, notices intended for such Stockholder
shall be mailed to the address designated in such request.
(b) Notice of a special meeting of Stockholders may be given by the
person or persons calling the meeting, or, upon the written request of such
person or persons, such notice shall be given by the Secretary on behalf of such
person or persons. If the person or persons calling a special meeting of
Stockholders give notice thereof, such person or persons shall deliver a copy of
such notice to the Secretary. Each request to the Secretary for the giving of
notice of a special meeting of Stockholders shall state the purpose or purposes
of such meeting.
SECTION 2.04. Waiver of Notice. Notice of any annual or special
----------------
meeting of Stockholders need not be given to any Stockholder who files a written
waiver of notice with the Secretary, signed by the person entitled to notice,
whether before or after such meeting. Neither the business to be transacted at,
nor the purpose of, any meeting of Stockholders need be specified in any written
waiver of notice thereof. Attendance of a Stockholder at a meeting, in person or
by proxy, shall constitute a waiver of notice of such meeting, except when such
Stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the grounds that
the notice of such meeting was inadequate or improperly given.
SECTION 2.05. Adjournments. Whenever a meeting of Stockholders, annual
------------
or special, is adjourned to another date, time or place, notice need not be
given of the adjourned meeting if the date, time and place thereof are announced
at the meeting at which the adjournment is taken. If the adjournment is for more
than 30 days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
Stockholder entitled to vote thereat. At the adjourned
<PAGE>
3
meeting, any business may be transacted which might have been transacted at the
original meeting.
SECTION 2.06. Quorum. Except as otherwise provided by law or the
------
Certificate of Incorporation of the Corporation (the "Certificate of
--------------
Incorporation"), the recordholders of a majority of the Shares entitled to vote
- -------------
thereat, present in person or by proxy, shall constitute a quorum for the
transaction of business at all meetings of Stockholders, whether annual or
special. If, however, such quorum shall not be present in person or by proxy at
any meeting of Stockholders, the Stockholders entitled to vote thereat may
adjourn the meeting from time to time in accordance with Section 2.05 hereof
until a quorum shall be present in person or by proxy.
SECTION 2.07. Voting. Each Stockholder shall be entitled to one vote
------
for each Share held of record by such Stockholder. Except as otherwise provided
by law or the Certificate of Incorporation, when a quorum is present at any
meeting of Stockholders, the vote of the recordholders of a majority of the
Shares constituting such quorum shall decide any question brought before such
meeting.
SECTION 2.08. Proxies. Each Stockholder entitled to vote at a meeting
-------
of Stockholders or to express, in writing, consent to or dissent from any action
of Stockholders without a meeting may authorize another person or persons to act
for such Stockholder by proxy. Such proxy shall be filed with the Secretary
before such meeting of Stockholders or such action of Stockholders without a
meeting, at such time as the Board may require. No proxy shall be voted or acted
upon more than three years from its date, unless the proxy provides for a longer
period.
SECTION 2.09. Stockholders' Consent in Lieu of Meeting. Any action
----------------------------------------
required by the General Corporation Law to be taken at any annual or special
meeting of Stockholders, and any action which may be taken at any annual or
special meeting of Stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the recordholders of Shares having not less than the
minimum number of votes necessary to authorize or take such action at a meeting
at which the recordholders of all Shares entitled to vote thereon were present
and voted.
ARTICLE III
BOARD OF DIRECTORS
------------------
SECTION 3.01. General Powers. The business and affairs of the
--------------
Corporation shall be managed by the Board, which may exercise all such powers of
the
<PAGE>
4
Corporation and do all such lawful acts and things as are not by law, the
Certificate of Incorporation or these By-laws directed or required to be
exercised or done by Stockholders.
SECTION 3.02. Number and Term of Office. The number of Directors shall
-------------------------
be two or such other number as shall be fixed from time to time by the Board.
Directors need not be Stockholders. Directors shall be elected at the annual
meeting of Stockholders or, if, in accordance with Section 2.01 hereof, no such
annual meeting is held, by written consent in lieu of meeting pursuant to
Section 2.09 hereof, and each Director shall hold office until his successor is
elected and qualified, or until his earlier death or resignation or removal in
the manner hereinafter provided.
SECTION 3.03. Resignation. Any Director may resign at any time by
-----------
giving written notice to the Board, the Chairman of the Board of the Corporation
(the "Chairman") or the Secretary. Such resignation shall take effect at the
time specified in such notice or, if the time be not specified, upon receipt
thereof by the Board, the Chairman or the Secretary, as the case may be. Unless
otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective.
SECTION 3.04. Removal. Any or all of the Directors may be removed,
-------
with or without cause, at any time by vote of the recordholders of a majority of
the Shares then entitled to vote at an election of Directors, or by written
consent of the recordholders of Shares pursuant to Section 2.09 hereof.
SECTION 3.05. Vacancies. Vacancies occurring on the Board as a result
---------
of the removal of Directors without cause may be filled only by vote of the
recordholders of a majority of the Shares then entitled to vote at an election
of Directors, or by written consent of such recordholders pursuant to Section
2.09 hereof. Vacancies occurring on the Board for any other reason, including,
without limitation, vacancies occurring as a result of the creation of new
directorships that increase the number of Directors, may be filled by such vote
or written consent or by vote of the Board or by written consent of the
Directors pursuant to Section 3.08 hereof. If the number of Directors then in
office is less than a quorum, such other vacancies may be filled by vote of a
majority of the Directors then in office or by written consent of all such
Directors pursuant to Section 3.08 hereof. Unless earlier removed pursuant to
Section 3.04 hereof, each Director chosen in accordance with this Section 3.05
shall hold office until the next annual election of Directors by the
Stockholders and until his successor shall be elected and qualified.
SECTION 3.06. Meetings. (a) Annual Meetings. As soon as practicable
-------- ---------------
after each annual election of Directors by the Stockholders, the Board shall
meet for the purpose of organization and the transaction of other business,
unless it shall have transacted all such business by written consent pursuant to
Section 3.08 hereof.
<PAGE>
5
(b) Other Meetings. Other meetings of the Board shall be held at such
--------------
times as the Chairman, the President of the Corporation (the "President"), the
---------
Secretary or a majority of the Board shall from time to time determine.
(c) Notice of Meetings. The Secretary shall give written notice to
------------------
each Director of each meeting of the Board, which notice shall state the place,
date, time and purpose of such meeting. Notice of each such meeting shall be
given to each Director, if by mail, addressed to him at his residence or usual
place of business, at least two days before the day on which such meeting is to
be held, or shall be sent to him at such place by telecopy, telegraph, cable, or
other form of recorded communication, or be delivered personally or by telephone
not later than the day before the day on which such meeting is to be held. A
written waiver of notice, signed by the Director entitled to notice, whether
before or after the time of the meeting referred to in such waiver, shall be
deemed equivalent to notice. Neither the business to be transacted at, nor the
purpose of any meeting of the Board need be specified in any written waiver of
notice thereof. Attendance of a Director at a meeting of the Board shall
constitute a waiver of notice of such meeting, except as provided by law.
(d) Place of Meetings. The Board may hold its meetings at such place
-----------------
or places within or without the State of Delaware as the Board or the Chairman
may from time to time determine, or as shall be designated in the respective
notices or waivers of notice of such meetings.
(e) Quorum and Manner of Acting. One-third of the total number of
---------------------------
Directors then in office (but in no event less than two if the total number of
directorships, including vacancies, is greater than one and in no event a number
less than one-third of the total number of directorships, including vacancies)
shall be present in person at any meeting of the Board in order to constitute a
quorum for the transaction of business at such meeting, and the vote of a
majority of those Directors present at any such meeting at which a quorum is
present shall be necessary for the passage of any resolution or act of the
Board, except as otherwise expressly required by law, the Certificate of
Incorporation or these By-laws. In the absence of a quorum for any such meeting,
a majority of the Directors present thereat may adjourn such meeting from time
to time until a quorum shall be present.
(f) Organization. At each meeting of the Board, one of the following
------------
shall act as chairman of the meeting and preside, in the following order of
precedence:
(i) the Chairman;
(ii) the President;
(iii) any Director chosen by a majority of the Directors present.
<PAGE>
6
The Secretary or, in the case of his absence, any person (who shall be an
Assistant Secretary, if an Assistant Secretary is present) whom the chairman of
the meeting shall appoint shall act as secretary of such meeting and keep the
minutes thereof.
SECTION 3.07. Committees of the Board. The Board may, by resolution
-----------------------
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more Directors. The Board may designate one or
more Directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of such committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another Director to act at the
meeting in the place of any such absent or disqualified member. Any committee of
the Board, to the extent provided in the resolution of the Board designating
such committee, shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; provided, however, that no such committee shall have such power or
-------- -------
authority in reference to amending the Certificate of Incorporation (except that
such a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board as provided
in Section 151(a) of the General Corporation Law, fix the designations and any
of the preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
of stock of the Corporation or fix the number of shares of any series of stock
or authorize the increase or decrease of the shares of any series), adopting an
agreement of merger or consolidation under Section 251 or 252 of the General
Corporation Law, recommending to the Stockholders the sale, lease or exchange of
all or substantially all the Corporation's property and assets, recommending to
the Stockholders a dissolution of the Corporation or the revocation of a
dissolution, or amending these By-laws; provided further, however, that, unless
---------------- -------
expressly so provided in the resolution of the Board designating such committee,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law. Each committee of
the Board shall keep regular minutes of its proceedings and report the same to
the Board when so requested by the Board.
SECTION 3.08. Directors' Consent in Lieu of Meeting. Any action
-------------------------------------
required or permitted to be taken at any meeting of the Board or of any
committee thereof may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by all the members of the Board or such committee and such
consent is filed with the minutes of the proceedings of the Board or such
committee.
<PAGE>
7
SECTION 3.09. Action by Means of Telephone or Similar Communications
------------------------------------------------------
Equipment. Any one or more members of the Board, or of any committee thereof,
- ---------
may participate in a meeting of the Board or such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.
SECTION 3.10. Compensation. Unless otherwise restricted by the
------------
Certificate of Incorporation, the Board may determine the compensation of
Directors. In addition, as determined by the Board, Directors may be reimbursed
by the Corporation for their expenses, if any, in the performance of their
duties as Directors. No such compensation or reimbursement shall preclude any
Director from serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV
OFFICERS
--------
SECTION 4.01. Officers. The officers of the Corporation shall be the
--------
Chairman, the President, the Secretary and a Treasurer and may include one or
more Vice Presidents and one or more Assistant Secretaries and one or more
Assistant Treasurers. Any two or more offices may be held by the same person.
SECTION 4.02. Authority and Duties. All officers shall have such
--------------------
authority and perform such duties in the management of the Corporation as may be
provided in these By-laws or, to the extent not so provided, by resolution of
the Board.
SECTION 4.03. Term of Office, Resignation and Removal. (a) Each
---------------------------------------
officer shall be appointed by the Board and shall hold office for such term as
may be determined by the Board. Each officer shall hold office until his
successor has been appointed and qualified or his earlier death or resignation
or removal in the manner hereinafter provided. The Board may require any officer
to give security for the faithful performance of his duties.
(b) Any Officer may resign at any time by giving written notice to the
Board, the Chairman, the President or the Secretary. Such resignation shall take
effect at the time specified in such notice or, if the time be not specified,
upon receipt thereof by the Board, the Chairman, the President or the Secretary,
as the case may be. Unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective.
<PAGE>
8
(c) All officers and agents appointed by the Board shall be subject to
removal, with or without cause, at any time by the Board or by the action of the
recordholders of a majority of the Shares entitled to vote thereon.
SECTION 4.04. Vacancies. Any vacancy occurring in any office of the
---------
Corporation, for any reason, shall be filled by action of the Board. Unless
earlier removed pursuant to Section 4.03 hereof, any officer appointed by the
Board to fill any such vacancy shall serve only until such time as the unexpired
term of his predecessor expires unless reappointed by the Board.
SECTION 4.05. The Chairman. The Chairman shall have the power to call
------------
special meetings of Stockholders, to call special meetings of the Board and, if
present, to preside at all meetings of Stockholders and all meetings of the
Board. The Chairman shall perform all duties incident to the office of Chairman
of the Board and all such other duties as may from time to time be assigned to
him by the Board or these By-laws.
SECTION 4.06. The President. The President shall be the chief
-------------
executive officer of the Corporation and shall have general and active
management and control of the business and affairs of the Corporation, subject
to the control of the Board, and shall see that all orders and resolutions of
the Board are carried into effect. The President shall perform all duties
incident to the office of President and all such other duties as may from time
to time be assigned to him by the Board or these By-laws.
SECTION 4.07. Vice Presidents. Vice Presidents, if any, in order of
---------------
their seniority or in any other order determined by the Board, shall generally
assist the President and perform such other duties as the Board or the President
shall prescribe, and in the absence or disability of the President, shall
perform the duties and exercise the powers of the President.
SECTION 4.08. The Secretary. The Secretary shall, to the extent
-------------
practicable, attend all meetings of the Board and all meetings of Stockholders
and shall record all votes and the minutes of all proceedings in a book to be
kept for that purpose, and shall perform the same duties for any committee of
the Board when so requested by such committee. He shall give or cause to be
given notice of all meetings of Stockholders and of the Board, shall perform
such other duties as may be prescribed by the Board, the Chairman or the
President and shall act under the supervision of the Chairman. He shall keep in
safe custody the seal of the Corporation and affix the same to any instrument
that requires that the seal be affixed to it and which shall have been duly
authorized for signature in the name of the Corporation and, when so affixed,
the seal shall be attested by his signature or by the signature of the Treasurer
of the Corporation (the "Treasurer") or an Assistant Secretary or Assistant
---------
Treasurer of the Corporation. He shall keep in safe custody the certificate
books and stockholder records and such other books and records of the
Corporation as the Board,
<PAGE>
9
the Chairman or the President may direct and shall perform all other duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the Board, the Chairman or the President.
SECTION 4.09. Assistant Secretaries. Assistant Secretaries of the
---------------------
Corporation ("Assistant Secretaries"), if any, in order of their seniority or in
---------------------
any other order determined by the Board, shall generally assist the Secretary
and perform such other duties as the Board or the Secretary shall prescribe,
and, in the absence or disability of the Secretary, shall perform the duties and
exercise the powers of the Secretary.
SECTION 4.10. The Treasurer. The Treasurer shall have the care and
-------------
custody of all the funds of the Corporation and shall deposit such funds in such
banks or other depositories as the Board, or any officer or officers, or any
officer and agent jointly, duly authorized by the Board, shall, from time to
time, direct or approve. He shall disburse the funds of the Corporation under
the direction of the Board and the President. He shall keep a full and accurate
account of all moneys received and paid on account of the Corporation and shall
render a statement of his accounts whenever the Board, the Chairman or the
President shall so request. He shall perform all other necessary actions and
duties in connection with the administration of the financial affairs of the
Corporation and shall generally perform all the duties usually appertaining to
the office of treasurer of a corporation. When required by the Board, he shall
give bonds for the faithful discharge of his duties in such sums and with such
sureties as the Board shall approve.
SECTION 4.11. Assistant Treasurers. Assistant Treasurers of the
--------------------
Corporation ("Assistant Treasurers"), if any, in order of their seniority or in
--------------------
any other order determined by the Board, shall generally assist the Treasurer
and perform such other duties as the Board or the Treasurer shall prescribe,
and, in the absence or disability of the Treasurer, shall perform the duties and
exercise the powers of the Treasurer.
ARTICLE V
CHECKS, DRAFTS, NOTES, AND PROXIES
----------------------------------
SECTION 5.01. Checks, Drafts and Notes. All checks, drafts and other
------------------------
orders for the payment of money, notes and other evidences of indebtedness
issued in the name of the Corporation shall be signed by such officer or
officers, agent or agents of the Corporation and in such manner as shall be
determined, from time to time, by resolution of the Board.
SECTION 5.02. Execution of Proxies. The Chairman or the President, or,
--------------------
in the absence or disability of both of them, any Vice President, may authorize,
from time to
<PAGE>
10
time, the execution and issuance of proxies to vote shares of stock or other
securities of other corporations held of record by the Corporation and the
execution of consents to action taken or to be taken by any such corporation.
All such proxies and consents, unless otherwise authorized by the Board, shall
be signed in the name of the Corporation by the Chairman, the President or any
Vice President.
ARTICLE VI
SHARES AND TRANSFERS OF SHARES
------------------------------
SECTION 6.01. Certificates Evidencing Shares. Shares shall be
------------------------------
evidenced by certificates in such form or forms as shall be approved by the
Board. Certificates shall be issued in consecutive order and shall be numbered
in the order of their issue, and shall be signed by the Chairman, the President
or any Vice President and by the Secretary, any Assistant Secretary, the
Treasurer or any Assistant Treasurer. If such a certificate is manually signed
by one such officer, any other signature on the certificate may be a facsimile.
In the event any such officer who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to hold such office or to be
employed by the Corporation before such certificate is issued, such certificate
may be issued by the Corporation with the same effect as if such officer had
held such office on the date of issue.
SECTION 6.02. Stock Ledger. A stock ledger in one or more counterparts
------------
shall be kept by the Secretary, in which shall be recorded the name and address
of each person, firm or corporation owning the Shares evidenced by each
certificate evidencing Shares issued by the Corporation, the number of Shares
evidenced by each such certificate, the date of issuance thereof and, in the
case of cancellation, the date of cancellation. Except as otherwise expressly
required by law, the person in whose name Shares stand on the stock ledger of
the Corporation shall be deemed the owner and recordholder thereof for all
purposes.
SECTION 6.03. Transfers of Shares. Registration of transfers of Shares
-------------------
shall be made only in the stock ledger of the Corporation upon request of the
registered holder of such shares, or of his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary, and upon the
surrender of the certificate or certificates evidencing such Shares properly
endorsed or accompanied by a stock power duly executed, together with such proof
of the authenticity of signatures as the Corporation may reasonably require.
SECTION 6.04. Addresses of Stockholders. Each Stockholder shall
-------------------------
designate to the Secretary an address at which notices of meetings and all other
corporate notices may be served or mailed to such Stockholder, and, if any
Stockholder shall fail to so designate such an address, corporate notices may be
served upon such Stockholder by mail directed to
<PAGE>
11
the mailing address, if any, as the same appears in the stock ledger of the
Corporation or at the last known mailing address of such Stockholder.
SECTION 6.05. Lost, Destroyed and Mutilated Certificates. Each
------------------------------------------
recordholder of Shares shall promptly notify the Corporation of any loss,
destruction or mutilation of any certificate or certificates evidencing any
Share or Shares of which he is the recordholder. The Board may, in its
discretion, cause the Corporation to issue a new certificate in place of any
certificate theretofore issued by it and alleged to have been mutilated, lost,
stolen or destroyed, upon the surrender of the mutilated certificate or, in the
case of loss, theft or destruction of the certificate, upon satisfactory proof
of such loss, theft or destruction, and the Board may, in its discretion,
require the recordholder of the Shares evidenced by the lost, stolen or
destroyed certificate or his legal representative to give the Corporation a bond
sufficient to indemnify the Corporation against any claim made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
SECTION 6.06. Regulations. The Board may make such other rules and
-----------
regulations as it may deem expedient, not inconsistent with these By-laws,
concerning the issue, transfer and registration of certificates evidencing
Shares.
SECTION 6.07. Fixing Date for Determination of Stockholders of Record.
-------------------------------------------------------
In order that the Corporation may determine the Stockholders entitled to notice
of or to vote at any meeting of Stockholders or any adjournment thereof, or to
express consent to, or to dissent from, corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which shall not be more
than 60 nor less than 10 days before the date of such meeting, nor more than 60
days prior to any other such action. A determination of the Stockholders
entitled to notice of or to vote at a meeting of Stockholders shall apply to any
adjournment of such meeting; provided, however, that the Board may fix a new
-------- -------
record date for the adjourned meeting.
ARTICLE VII
SEAL
----
SECTION 7.01. Seal. The Board may approve and adopt a corporate seal,
----
which shall be in the form of a circle and shall bear the full name of the
Corporation, the year of its incorporation and the words "Corporate Seal
Delaware".
<PAGE>
12
ARTICLE VIII
FISCAL YEAR
-----------
SECTION 8.01. Fiscal Year. The fiscal year of the Corporation shall
-----------
end on the thirty-first day of December of each year unless changed by
resolution of the Board.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
-----------------------------
SECTION 9.01. Indemnification. (a) The Corporation shall indemnify any
---------------
person who was or is a party or is threatened to be made a party 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 the Corporation) by reason of the fact that he 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, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
---- ----------
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he or she 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, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation
<PAGE>
13
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 9.01(a) and (b) of these By-
laws, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under Section 9.01(a) and (b) of these By-laws
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 9.01(a) and (b) of these
By-laws. Such determination shall be made (i) by the Board by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable,
a quorum of disinterested directors so directs, by independent legal counsel in
a written opinion, or (iii) by the stockholders of the Corporation.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation pursuant to this Article IX. Such expenses (including attorneys'
fees) incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, other Sections of this Article IX shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
(g) For purposes of this Article IX, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors,
<PAGE>
14
officers, employees or agents so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was serving
at the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article IX with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(h) For purposes of this Article IX, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves service by, such director, officer, employee or
agent with respect to any employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
IX.
(i) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article IX shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 9.02. Insurance for Indemnification. The Corporation may
-----------------------------
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, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of Section 145 of the General Corporation Law.
ARTICLE X
AMENDMENTS
----------
SECTION 10.01. Amendments. Any By-law (including these By-laws) may be
----------
adopted, amended or repealed by the vote of the recordholders of a majority of
the Shares then entitled to vote at an election of Directors or by written
consent of Stockholders
<PAGE>
15
pursuant to Section 2.09 hereof, or by vote of the Board or by a written consent
of Directors pursuant to Section 3.08 hereof.
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
PANOLAM INDUSTRIES INTERNATIONAL, INC.
PANOLAM INDUSTRIES INTERNATIONAL, INC., a Delaware corporation, HEREBY
CERTIFIES AS FOLLOWS:
1. The name of the corporation is Panolam Industries International, Inc.
(the "Corporation").
2. This Certificate of Incorporation of the Corporation is hereby amended
by striking out Article I thereof and by substituting in lieu of said Article
the following new Article:
"ARTICLE I
Name
The name of the corporation is Panolam Group, Inc. (the "Corporation")."
3. The amendment of the certificate of incorporation herein certified has
been duly adopted in accordance with the provisions of Sections 228 and 242 of
the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, PANOLAM INDUSTRIES INTERNATIONAL, INC. has caused this
certificate to be signed by Dan McDevitt its secretary, and attested by Robert
J. Muller, Jr., its President, 22 day of December, 1998.
PANOLAM INDUSTRIES
INTERNATIONAL, INC.
By: /s/ Dan McDevitt
-------------------------------
Secretary
Dan McDevitt
ATTEST:
/s/ Robert J. Muller, Jr.
- -----------------------------
President
Robert J. Muller, Jr.
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
PANOLAM INDUSTRIES INTERNATIONAL, INC.
PANOLAM INDUSTRIES INTERNATIONAL, INC., a Delaware corporation, HEREBY
CERTIFIES AS FOLLOWS:
1. The name of the corporation is Panolam Industries International,
Inc. The date of filing of its original Certificate of Incorporation with the
Secretary of State of the State of Delaware was May 16, 1996.
2. This Certificate of Amendment sets forth an amendment to the
Certificate of Incorporation of the Corporation which was duly adopted by the
written consent of the sole stockholder of the Corporation entitled to vote
thereon in accordance with the provisions of Sections 242 and 228 of the General
Corporation Law of the State of Delaware:
3. Article III of the Certificate of Incorporation is hereby amended
in full to be and read as follows:
"ARTICLE III
CORPORATE PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of the State of Delaware."
IN WITNESS WHEREOF, PANOLAM INDUSTRIES INTERNATIONAL, INC. has caused
this certificate to be signed by Jacques Gauthier, its secretary, and attested
by Claude P. Arcand, its President, this 17th day of November, 1997.
PANOLAM INDUSTRIES INTERNATIONAL, INC.
By: /s/ Jacques Gauthier
---------------------------
Title: Secretary
ATTEST:
/s/ Claude P. Arcand
- ---------------------
Title: President CEO
<PAGE>
CERTIFICATE OF INCORPORATION
OF
PANOLAM INDUSTRIES INTERNATIONAL, INC.
ARTICLE I
Name
The name of the corporation is PANOLAM INDUSTRIES INTERNATIONAL, INC.
(the "Corporation").
-------------
ARTICLE II
Registered Office And Registered Agent
The address of the registered office of the Corporation in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
ARTICLE III
Corporate Purpose
The purpose of the Corporation is to serve as a holding company for
shares of Panolam Industries, Inc. (formerly known as PAN Acquisition, Inc., a
Delaware corporation) and Panolam Industries Ltd. (formerly known as 1166923
Ontario Inc., an Ontario corporation).
ARTICLE IV
Capital Stock
(1) The total number of shares of all classes of stock that the
Corporation shall have authority to issue is 1000, all of which shall be shares
of Common Stock, par value $.01 per share.
<PAGE>
2
(2) The right to transfer shares of the Corporation shall be
restricted in that no shareholder shall be entitled to transfer any share or
shares in the capital of the Corporation without either:
(i) the express sanction of the holders of more than 50% of the
common shares of the Corporation for the time being outstanding
expressed by a resolution passed at a meeting of the shareholders or
by an instrument or instruments in writing signed by the holders of
more than 50% of such shares; or
(ii) the express sanction of the directors of the Corporation
expressed by a resolution passed by the votes of a majority of the
directors of the Corporation at a meeting of the board of directors or
by an instrument or instruments in writing signed by a majority of the
directors.
(3) The number of shareholders of the Corporation, exclusive of
persons who are in its employment and exclusive of persons who, having been
formerly in the employment of the Corporation were, while in that employment,
and have continued after the termination of that employment to be, shareholders
of the Corporation, is limited to not more than 50, two or more persons who are
the joint registered owners of one or more shares being counted as one
shareholder.
(4) Any invitation to the public to subscribe for securities of the
Corporation is prohibited.
ARTICLE V
Directors
(1) Elections of directors of the Corporation need not be by written
ballot, except and to the extent provided in the By-laws of the Corporation.
(2) To the fullest extent permitted by the General Corporation Law as
it now exists and as it may hereafter be amended, no director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director.
<PAGE>
3
ARTICLE VI
Indemnification of Directors, Officers and Others
(1) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party 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 the Corporation) by
reason of the fact that he 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, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and mounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interest of the Corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
---- ----------
shall not, of itself, create a presumption that the person seeking
indemnification did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(2) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he 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,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
(3) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections (1) and (2) of this Article
VI, or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
<PAGE>
4
(4) Any indemnification under Sections (1) and (2) of this Article VI
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in such Sections (1) and (2). Such
determination shall be made (a) by the Board of Directors of the Corporation by
a majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even
if obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (c) by the stockholders of the
Corporation.
(5) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation authorized in this Article. Such expenses (including attorneys'
fees) incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors of the Corporation deems
appropriate.
(6) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other sections of this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
(7) The Corporation may 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, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of Section 145 of the General Corporation
Law.
(8) For purposes of this Article VI, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article VI with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
<PAGE>
5
(9) For purposes of this Article VI, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves service by, such director,
officer, employee or agent with respect to any employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article VI.
(10) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VI shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE VII
By-laws
The directors of the Corporation shall have the power to adopt, amend
or repeal by-laws.
ARTICLE VIII
Reorganization
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said
<PAGE>
6
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of this
Corporation, as the case may be, and also on this Corporation.
ARTICLE IX
Amendment
The Corporation reserves the right to amend, alter, change or repeal
any provision of this Certificate of Incorporation, in the manner now or
hereafter prescribed by law, and all rights conferred on stockholders in this
Certificate of Incorporation are subject to this reservation.
ARTICLE X
Incorporator
The name and mailing address of the sole incorporator is as follows:
Name Mailing Address
------------------------- ------------------------------
Marshall Jensen Shearman & Sterling
555 California Street
San Francisco, CA 94104
I, THE UNDERSIGNED, being the sole incorporator hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this Certificate of Incorporation, hereby
declaring and certifying that this is my act and deed and the facts herein
stated are true, and accordingly have hereunto set my hand this 15th day of May,
1996.
/s/ Marshall Jensen
------------------------------
Marshall Jensen
<PAGE>
EXHIBIT A
---------
=====================================
BY-LAWS
OF
PANOLAM INDUSTRIES INTERNATIONAL, INC.
=====================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE I
OFFICES
-------
<S> <C>
SECTION 1.01. Registered Office..................................... 1
SECTION 1.02. Other Offices......................................... 1
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
SECTION 2.01. Annual Meetings....................................... 1
SECTION 2.02. Special Meetings...................................... 1
SECTION 2.03. Notice of Meetings.................................... 2
SECTION 2.04. Waiver of Notice...................................... 2
SECTION 2.05. Adjournments.......................................... 2
SECTION 2.06. Quorum................................................ 3
SECTION 2.07. Voting................................................ 3
SECTION 2.08. Proxies............................................... 3
SECTION 2.09. Stockholders' Consent in Lieu of Meeting.............. 3
ARTICLE III
BOARD OF DIRECTORS
------------------
SECTION 3.01. General Powers........................................ 3
SECTION 3.02. Number and Term of Office............................. 4
SECTION 3.03. Resignation........................................... 4
SECTION 3.04. Removal............................................... 4
SECTION 3.05. Vacancies............................................. 4
SECTION 3.06. Meetings.............................................. 4
SECTION 3.07. Committees of the Board............................... 6
SECTION 3.08. Directors' Consent in Lieu of Meeting................. 6
SECTION 3.09. Action by Means of Telephone or Similar
Communications Equipment......................... 6
SECTION 3.10. Compensation.......................................... 7
</TABLE>
i
<PAGE>
<TABLE>
ARTICLE IV
OFFICERS
--------
<S> <C>
SECTION 4.01. Officers.............................................. 7
SECTION 4.02. Authority and Duties.................................. 7
SECTION 4.03. Term of Office, Resignation and Removal............... 7
SECTION 4.04. Vacancies............................................. 7
SECTION 4.05. The Chairman.......................................... 8
SECTION 4.06. The President......................................... 8
SECTION 4.07. Vice Presidents....................................... 8
SECTION 4.08. The Secretary......................................... 8
SECTION 4.09. Assistant Secretaries................................. 8
SECTION 4.10. The Treasurer......................................... 9
SECTION 4.11. Assistant Treasurers.................................. 9
ARTICLE V
CHECKS, DRAFTS, NOTES, AND PROXIES
----------------------------------
SECTION 5.01. Checks, Drafts and Notes.............................. 9
SECTION 5.02. Execution of Proxies.................................. 9
ARTICLE VI
SHARES AND TRANSFERS OF SHARES
------------------------------
SECTION 6.01. Certificates Evidencing Shares........................ 10
SECTION 6.02. Stock Ledger.......................................... 10
SECTION 6.03. Transfers of Shares................................... 10
SECTION 6.04. Addresses of Stockholders............................. 11
SECTION 6.05. Lost, Destroyed and Mutilated Certificates............ 11
SECTION 6.06. Regulations........................................... 11
SECTION 6.07. Fixing Date for Determination of Stockholders of
Record........................................... 11
ARTICLE VII
SEAL
----
SECTION 7.01. Seal.................................................. 12
</TABLE>
ii
<PAGE>
<TABLE>
ARTICLE VIII
FISCAL YEAR
-----------
<S> <C>
SECTION 8.01. Fiscal Year........................................... 12
ARTICLE IX
INDEMNIFICATION AND INSURANCE
-----------------------------
SECTION 9.01. Indemnification....................................... 12
SECTION 9.02. Insurance for Indemnification......................... 15
ARTICLE X
AMENDMENTS
----------
SECTION 10.01. Amendments............................................ 15
</TABLE>
iii
<PAGE>
BY-LAWS
OF
PANOLAM INDUSTRIES INTERNATIONAL, INC.
ARTICLE I
OFFICES
-------
SECTION 1.01. Registered Office. The registered office of Panolam
-----------------
Industries International, Inc. (the "Corporation") in the State of Delaware
-----------
shall be at the principal office of The Corporation Trust Company in the City of
Wilmington, County of New Castle, and the registered agent in charge thereof
shall be The Corporation Trust Company.
SECTION 1.02. Other Offices. The Corporation may also have an office
-------------
or offices at any other place or places within or without the State of Delaware
as the Board of Directors of the Corporation (the "Board") may from time to time
-----
determine or the business of the Corporation may from time to time require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
SECTION 2.01. Annual Meetings. The annual meeting of stockholders of the
---------------
Corporation for the election of directors of the Corporation ("Directors"), and
---------
for the transaction of such other business as may properly come before such
meeting, shall be held at such place, date and time as shall be fixed by the
Board and designated in the notice or waiver of notice of such annual meeting;
provided, however, that no annual meeting of stockholders need be held if all
- -------- -------
actions, including the election of Directors, required by the General
Corporation Law of the State of Delaware (the "General Corporation Law") to be
-----------------------
taken at such annual meeting are taken by written consent in lieu of meeting
pursuant to Section 2.09 hereof.
SECTION 2.02. Special Meetings. Special meetings of stockholders for any
----------------
purpose or purposes may be called by the Board or the Chairman of the Board, the
President or the Secretary of the Corporation or by the recordholders of at
least a majority of the shares of common stock of the Corporation issued and
outstanding ("Shares") and entitled to
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2
vote thereat, to be held at such place, date and time as shall be designated in
the notice or waiver of notice thereof.
SECTION 2.03. Notice of Meetings. (a) Except as otherwise provided by law,
------------------
written notice of each annual or special meeting of stockholders stating the
place, date and time of such meeting and, in the case of a special meeting, the
purpose or purposes for which such meeting is to be held, shall be given
personally or by first-class mail (airmail in the case of international
communications) to each recordholder of Shares (a "Stockholder") entitled to
-----------
vote thereat, not less than 10 nor more than 60 days before the date of such
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, directed to the Stockholder at such
Stockholder's address as it appears on the records of the Corporation. If, prior
to the time of mailing, the Secretary of the Corporation (the "Secretary") shall
---------
have received from any Stockholder a written request that notices intended for
such Stockholder are to be mailed to some address other than the address that
appears on the records of the Corporation, notices intended for such Stockholder
shall be mailed to the address designated in such request.
(b) Notice of a special meeting of Stockholders may be given by the person
or persons calling the meeting, or, upon the written request of such person or
persons, such notice shall be given by the Secretary on behalf of such person or
persons. If the person or persons calling a special meeting of Stockholders give
notice thereof, such person or persons shall deliver a copy of such notice to
the Secretary. Each request to the Secretary for the giving of notice of a
special meeting of Stockholders shall state the purpose or purposes of such
meeting.
SECTION 2.04. Waiver of Notice. Notice of any annual or special meeting of
----------------
Stockholders need not be given to any Stockholder who files a written waiver of
notice with the Secretary, signed by the person entitled to notice, whether
before or after such meeting. Neither the business to be transacted at, nor the
purpose of, any meeting of Stockholders need be specified in any written waiver
of notice thereof. Attendance of a Stockholder at a meeting, in person or by
proxy, shall constitute a waiver of notice of such meeting, except when such
Stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the grounds that
the notice of such meeting was inadequate or improperly given.
SECTION 2.05. Adjournments. Whenever a meeting of Stockholders, annual or
------------
special, is adjourned to another date, time or place, notice need not be given
of the adjourned meeting if the date, time and place thereof are announced at
the meeting at which the adjournment is taken. If the adjournment is for more
than 30 days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
Stockholder entitled to vote thereat. At the adjourned
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3
meeting, any business may be transacted which might have been transacted at the
original meeting.
SECTION 2.06. Quorum. Except as otherwise provided by law or the
------
Certificate of Incorporation of the Corporation (the "Certificate of
--------------
Incorporation"), the recordholders of a majority of the Shares entitled to vote
- -------------
thereat, present in person or by proxy, shall constitute a quorum for the
transaction of business at all meetings of Stockholders, whether annual or
special. If, however, such quorum shall not be present in person or by proxy at
any meeting of Stockholders, the Stockholders entitled to vote thereat may
adjourn the meeting from time to time in accordance with Section 2.05 hereof
until a quorum shall be present in person or by proxy.
SECTION 2.07. Voting. Each Stockholder shall be entitled to one vote for
------
each Share held of record by such Stockholder.Except as otherwise provided by
law or the Certificate of Incorporation, when a quorum is present at any meeting
of Stockholders, the vote of the recordholders of a majority of the Shares
constituting, such quorum shall decide any question brought before such meeting.
SECTION 2.08. Proxies. Each Stockholder entitled to vote at a meeting of
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Stockholders or to express, in writing, consent to or dissent from any action of
Stockholders without a meeting may authorize another person or persons to act
for such Stockholder by proxy. Such proxy shall be filed with the Secretary
before such meeting of Stockholders or such action of Stockholders without a
meeting, at such time as the Board may require. No proxy shall be voted or
acted upon more than three years from its date, unless the proxy provides for a
longer period.
SECTION 2.09 Stockholders' Consent in Lieu of Meeting. Any action
----------------------------------------
required by the General Corporation Law to be taken at any annual or special
meeting of Stockholders, and any action which may be taken at any annual or
special meeting of Stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the recordholders of Shares having not less than the
minimum number of votes necessary to authorize or take such action at a meeting
at which the recordholders of all Shares entitled to vote thereon were present
and voted.
ARTICLE III
BOARD OF DIRECTORS
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SECTION 3.01. General Powers. The business and affairs of the Corporation
--------------
shall be managed by the Board, which may exercise all such powers of the
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4
Corporation and do all such lawful acts and things as are not by law, the
Certificate of Incorporation or these By-laws directed or required to be
exercised or done by Stockholders.
SECTION 3.02. Number and Term of Office. The number of Directors shall be
-------------------------
two or such other number as shall be fixed from time to time by the Board.
Directors need not be Stockholders. Directors shall be elected at the annual
meeting of Stockholders or, if, in accordance with Section 2.01 hereof, no such
annual meeting is held, by written consent in lieu of meeting pursuant to
Section 2.09 hereof, and each Director shall hold office until his successor is
elected and qualified, or until his earlier death or resignation or removal in
the manner hereinafter provided.
SECTION 3.03. Resignation. Any Director may resign at any time by giving
-----------
written notice to the Board, the Chairman of the Board of the Corporation (the
"Chairman") or the Secretary. Such resignation shall take effect at the time
--------
specified in such notice or, if the time be not specified, upon receipt thereof
by the Board, the Chairman or the Secretary, as the case may be. Unless
otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective.
SECTION 3.04. Removal. Any or all of the Directors may be removed, with or
-------
without cause, at any time by vote of the recordholders of a majority of the
Shares then entitled to vote at an election of Directors, or by written consent
of the recordholders of Shares pursuant to Section 2.09 hereof.
SECTION 3.05. Vacancies. Vacancies occurring on the Board as a result of
---------
the removal of Directors without cause may be filled only by vote of the
recordholders of a majority of the Shares then entitled to vote at an election
of Directors, or by written consent of such recordholders pursuant to Section
2.09 hereof. Vacancies occurring on the Board for any other reason, including,
without limitation, vacancies occurring as a result of the creation of new
directorships that increase the number of Directors, may be filled by such vote
or written consent or by vote of the Board or by written consent of the
Directors pursuant to Section 3.08 hereof. If the number of Directors then in
office is less than a quorum, such other vacancies may be filled by vote of a
majority of the Directors then in office or by written consent of all such
Directors pursuant to Section 3.08 hereof. Unless earlier removed pursuant to
Section 3.04 hereof, each Director chosen in accordance with this Section 3.05
shall hold office until the next annual election of Directors by the
Stockholders and until his successor shall be elected and qualified.
SECTION 3.06. Meetings. (a) Annual Meetings. As soon as practicable after
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each annual election of Directors by the Stockholders, the Board shall meet for
the purpose of organization and the transaction of other business, unless it
shall have transacted all such business by written consent pursuant to Section
3.08 hereof.
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5
(b) Other Meetings. Other meetings of the Board shall be held at such
--------------
times as the Chairman, the President of the Corporation (the "President"), the
---------
Secretary or a majority of the Board shall from time to time determine.
(c) Notice of Meetings. The Secretary shall give written notice to each
------------------
Director of each meeting of the Board, which notice shall state the place, date,
time and purpose of such meeting. Notice of each such meeting shall be given to
each Director, if by mail, addressed to him at his residence or usual place of
business, at least two days before the day on which such meeting is to be held,
or shall be sent to him at such place by telecopy, telegraph, cable, or other
form of recorded communication, or be delivered personally or by telephone not
later than the day before the day on which such meeting is to be held. A written
waiver of notice, signed by the Director entitled to notice, whether before or
after the time of the meeting referred to in such waiver, shall be deemed
equivalent to notice. Neither the business to be transacted at, nor the purpose
of any meeting of the Board need be specified in any written waiver of notice
thereof. Attendance of a Director at a meeting of the Board shall constitute a
waiver of notice of such meeting, except as provided by law.
(d) Place of Meetings. The Board may hold its meetings at such place or
-----------------
places within or without the State of Delaware as the Board or the Chairman may
from time to time determine, or as shall be designated in the respective notices
or waivers of notice of such meetings.
(e) Ouorum and Manner of Acting. One-third of the total number of
---------------------------
Directors then in office (but in no event less than two if the total number of
directorships, including vacancies, is greater than one and in no event a number
less than one-third of the total number of directorships, including vacancies)
shall be present in person at any meeting of the Board in order to constitute a
quorum for the transaction of business at such meeting, and the vote of a
majority of those Directors present at any such meeting at which a quorum is
present shall be necessary for the passage of any resolution or act of the
Board, except as otherwise expressly required by law, the Certificate of
Incorporation or these By-laws. In the absence of a quorum for any such meeting,
a majority of the Directors present thereat may adjourn such meeting from time
to time until a quorum shall be present.
(f) Organization. At each meeting of the Board, one of the following shall
------------
act as chairman of the meeting and preside, in the following order of
precedence:
(i) the Chairman;
(ii) the President;
(iii) any Director chosen by a majority of the Directors present.
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6
The Secretary or, in the case of his absence, any person (who shall be an
Assistant Secretary, if an Assistant Secretary is present) whom the chairman of
the meeting shall appoint shall act as secretary of such meeting and keep the
minutes thereof.
SECTION 3.07. Committees of the Board. The Board may, by resolution passed
-----------------------
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more Directors. The Board may designate one or
more Directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of such committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another Director to act at the
meeting in the place of any such absent or disqualified member. Any committee of
the Board, to the extent provided in the resolution of the Board designating
such committee, shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; provided, however, that no such committee shall have such power or
-------- --------
authority in reference to amending the Certificate of Incorporation (except that
such a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board as provided
in Section 151 (a) of the General Corporation Law, fix the designations and any
of the preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
of stock of the Corporation or fix the number of shares of any series of stock
or authorize the increase or decrease of the shares of any series), adopting an
agreement of merger or consolidation under Section 251 or 252 of the General
Corporation Law, recommending to the Stockholders the sale, lease or exchange of
all or substantially all the Corporation's property and assets, recommending to
the Stockholders a dissolution of the Corporation or the revocation of a
dissolution, or amending these By-laws; provided further, however, that, unless
---------------- -------
expressly so provided in the resolution of the Board designating such committee,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law. Each committee of
the Board shall keep regular minutes of its proceedings and report the same to
the Board when so requested by the Board.
SECTION 3.08. Directors' Consent in Lieu of Meeting. Any action required
-------------------------------------
or permitted to be taken at any meeting of the Board or of any committee thereof
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by all
the members of the Board or such committee and such consent is filed with the
minutes of the proceedings of the Board or such committee.
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7
SECTION 3.09. Action by Means of Telephone or Similar Communications
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Equipment. Any one or more members of the Board, or of any committee thereof,
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may participate in a meeting of the Board or such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.
SECTION 3.10. Compensation. Unless otherwise restricted by the Certificate
------------
of Incorporation, the Board may determine the compensation of Directors. In
addition, as determined by the Board, Directors may be reimbursed by the
Corporation for their expenses, if any, in the performance of their duties as
Directors. No such compensation or reimbursement shall preclude any Director
from serving the Corporation in any other capacity and receiving compensation
therefor.
ARTICLE IV
OFFICERS
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SECTION 4.01. Officers. The officers of the Corporation shall be the
--------
Chairman, the President, the Secretary and a Treasurer and may include one or
more Vice Presidents and one or more Assistant Secretaries and one or more
Assistant Treasurers. Any two or more offices may be held by the same person.
SECTION 4.02. Authority and Duties. All officers shall have such authority
--------------------
and perform such duties in the management of the Corporation as may be provided
in these By-laws or, to the extent not so provided, by resolution of the Board.
SECTION 4.03. Term of Office, Resignation and Removal. (a) Each officer
---------------------------------------
shall be appointed by the Board and shall hold office for such term as may be
determined by the Board. Each officer shall hold office until his successor has
been appointed and qualified or his earlier death or resignation or removal in
the manner hereinafter provided. The Board may require any officer to give
security for the faithful performance of his duties.
(b) Any officer may resign at any time by giving written notice to the
Board, the Chairman, the President or the Secretary. Such resignation shall take
effect at the time specified in such notice or, if the time be not specified,
upon receipt thereof by the Board, the Chairman, the President or the Secretary,
as the case may be. Unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective.
<PAGE>
8
(c) All officers and agents appointed by the Board shall be subject to
removal, with or without cause, at any time by the Board or by the action of the
recordholders of a majority of the Shares entitled to vote thereon.
SECTION 4.04. Vacancies. Any vacancy occurring in any office of the
---------
Corporation, for any reason, shall be filled by action of the Board. Unless
earlier removed pursuant to Section 4.03 hereof, any officer appointed by the
Board to fill any such vacancy shall serve only until such time as the unexpired
term of his predecessor expires unless reappointed by the Board.
SECTION 4.05. The Chairman. The Chairman shall have the power to call
------------
special meetings of Stockholders, to call special meetings of the Board and, if
present, to preside at all meetings of Stockholders and all meetings of the
Board. The Chairman shall perform all duties incident to the office of Chairman
of the Board and all such other duties as may from time to time be assigned to
him by the Board or these By-laws.
SECTION 4.06. The President. The President shall be the chief
-------------
executive officer of the Corporation and shall have general and active
management and control of the business and affairs of the Corporation, subject
to the control of the Board, and shall see that all orders and resolutions of
the Board are carried into effect. The President shall perform all duties
incident to the office of President and all such other duties as may from time
to time be assigned to him by the Board or these By-laws.
SECTION 4.07. Vice Presidents. Vice Presidents, if any, in order of
---------------
their seniority or in any other order determined by the Board, shall generally
assist the President and perform such other duties as the Board or the President
shall prescribe, and in the absence or disability of the President, shall
perform the duties and exercise the powers of the President.
SECTION 4.08. The Secretary. The Secretary shall, to the extent
-------------
practicable, attend all meetings of the Board and all meetings of Stockholders
and shall record all votes and the minutes of all proceedings in a book to be
kept for that purpose, and shall perform the same duties for any committee of
the Board when so requested by such committee. He shall give or cause to be
given notice of all meetings of Stockholders and of the Board, shall perform
such other duties as may be prescribed by the Board, the Chairman or the
President and shall act under the supervision of the Chairman. He shall keep in
safe custody the seal of the Corporation and affix the same to any instrument
that requires that the seal be affixed to it and which shall have been duly
authorized for signature in the name of the Corporation and, when so affixed,
the seal shall be attested by his signature or by the signature of the Treasurer
of the Corporation (the "Treasurer") or an Assistant Secretary or
---------
Assistant Treasurer of the Corporation. He shall keep in safe custody the
certificate books and stockholder records and such other books and records of
the Corporation as the Board,
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9
the Chairman or the President may direct and shall perform all other duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the Board, the Chairman or the President.
SECTION 4.09. Assistant Secretaries. Assistant Secretaries of the
---------------------
Corporation ("Assistant Secretaries"), if any, in order of their seniority or in
---------------------
any other order determined by the Board, shall generally assist the Secretary
and perform such other duties as the Board or the Secretary shall prescribe,
and, in the absence or disability of the Secretary, shall perform the duties and
exercise the powers of the Secretary.
SECTION 4.10. The Treasurer. The Treasurer shall have the care and
-------------
custody of all the funds of the Corporation and shall deposit such funds in such
banks or other depositories as the Board, or any officer or officers, or any
officer and agent jointly, duly authorized by the Board, shall, from time to
time, direct or approve. He shall disburse the funds of the Corporation under
the direction of the Board and the President. He shall keep a full and accurate
account of all moneys received and paid on account of the Corporation and shall
render a statement of his accounts whenever the Board, the Chairman or the
President shall so request. He shall perform all other necessary actions and
duties in connection with the administration of the financial affairs of the
Corporation and shall generally perform all the duties usually appertaining to
the office of treasurer of a corporation. When required by the Board, he shall
give bonds for the faithful discharge of his duties in such sums and with such
sureties as the Board shall approve.
SECTION 4.11. Assistant Treasurers. Assistant Treasurers of the
--------------------
Corporation ("Assistant Treasurers"), if any, in order of their seniority or in
--------------------
any other order determined by the Board, shall generally assist the Treasurer
and perform such other duties as the Board or the Treasurer shall prescribe,
and, in the absence or disability of the Treasurer, shall perform the duties and
exercise the powers of the Treasurer.
ARTICLE V
CHECKS, DRAFTS, NOTES, AND PROXIES
----------------------------------
SECTION 5.01. Checks, Drafts and Notes. All checks, drafts and other
------------------------
orders for the payment of money, notes and other evidences of indebtedness
issued in the name of the Corporation shall be signed by such officer or
officers, agent or agents of the Corporation and in such manner as shall be
determined, from time to time, by resolution of the Board.
SECTION 5.02. Execution of Proxies. The Chairman or the President,
--------------------
or, in the absence or disability of both of them, any Vice President, may
authorize, from time to
<PAGE>
10
time, the execution and issuance of proxies to vote shares of stock or other
securities of other corporations held of record by the Corporation and the
execution of consents to action taken or to be taken by any such Corporation.
All such proxies and consents, unless otherwise authorized by the Board, shall
be signed in the name of the Corporation by the Chairman, the President or any
Vice President.
ARTICLE VI
SHARES AND TRANSFERS OF SHARES
------------------------------
SECTION 6.01. Certificates Evidencing Shares. Shares shall be
------------------------------
evidenced by certificates in such form or forms as shall be approved by the
Board. Certificates shall be issued in consecutive order and shall be numbered
in the order of their issue, and shall be signed by the Chairman, the President
or any Vice President and by the Secretary, any Assistant Secretary, the
Treasurer or any Assistant Treasurer. If such a certificate is manually signed
by one such officer, any other signature on the certificate may be a facsimile.
In the event any such officer who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to hold such office or to be
employed by the Corporation before such certificate is issued, such certificate
may be issued by the Corporation with the same effect as if such officer had
held such office on the date of issue.
SECTION 6.02. Stock Ledger. A stock ledger in one or more
------------
counterparts shall be kept by the Secretary, in which shall be recorded the name
and address of each person, firm or corporation owning the Shares evidenced by
each certificate evidencing Shares issued by the Corporation, the number of
Shares evidenced by each such certificate, the date of issuance thereof and, in
the case of cancellation, the date of cancellation. Except as otherwise
expressly required by law, the person in whose name Shares stand on the stock
ledger of the Corporation shall be deemed the owner and recordholder thereof for
all purposes.
SECTION 6.03. Transfers of Shares. (a) Registration of transfers of
-------------------
Shares shall be made only in the stock ledger of the Corporation upon request of
the registered holder of such shares, or of his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary, and upon the
surrender of the certificate or certificates evidencing such Shares properly
endorsed or accompanied by a stock power duly executed, together with such proof
of the authenticity of signatures as the Corporation may reasonably require.
(b) The right to transfer shares of the Corporation shall be
restricted in that no shareholder shall be entitled to transfer any share or
shares in the capital of the Corporation without either:
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11
(i) the express sanction of the holders of more than 50% of the
common shares of the Corporation for the time being outstanding
expressed by a resolution passed at a meeting of the shareholders or
by an instrument or instruments in writing signed by the holders of
more than 50% of such shares; or
(ii) the express sanction of the directors of the Corporation
expressed by a resolution passed by the votes of a majority of the
directors of the Corporation at a meeting of the board of directors or
by an instrument or instruments in writing signed by a majority of the
directors.
(c) The number of shareholders of the Corporation, exclusive of
persons who are in its employment and exclusive of persons who, having been
formerly in the employment of the Corporation were, while in that employment,
and have continued after the termination of that employment to be, shareholders
of the Corporation, is limited to not more than 50, two or more persons who are
the joint registered owners of one or more shares being counted as one
shareholder.
(d) Any invitation to the public to subscribe for securities of the
Corporation is prohibited.
SECTION 6.04. Addresses of Stockholders. Each Stockholder shall
-------------------------
designate to the Secretary an address at which notices of meetings and all other
corporate notices may be served or mailed to such Stockholder, and, if any
Stockholder shall fail to so designate such an address, corporate notices may be
served upon such Stockholder by mail directed to the mailing address, if any, as
the same appears in the stock ledger of the Corporation or at the last known
mailing address of such Stockholder.
SECTION 6.05. Lost, Destroyed and Mutilated Certificates. Each
------------------------------------------
recordholder of Shares shall promptly notify the Corporation of any loss,
destruction or mutilation of any certificate or certificates evidencing any
Share or Shares of which he is the recordholder. The Board may, in its
discretion, cause the Corporation to issue a new certificate in place of any
certificate theretofore issued by it and alleged to have been mutilated, lost,
stolen or destroyed, upon the surrender of the mutilated certificate or, in the
case of loss, theft or destruction of the certificate, upon satisfactory proof
of such loss, theft or destruction, and the Board may, in its discretion,
require the recordholder of the Shares evidenced by the lost, stolen or
destroyed certificate or his legal representative to give the Corporation a bond
sufficient to indemnify the Corporation against any claim made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
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12
SECTION 6.06. Regulations. The Board may make such other rules and
-----------
regulations as it may deem expedient, not inconsistent with these By-laws,
concerning the issue, transfer and registration of certificates evidencing
Shares.
SECTION 6.07. Fixing Date for Determination of Stockholders of
------------------------------------------------
Record. In order that the Corporation may determine the Stockholders entitled to
- ------
notice of or to vote at any meeting of Stockholders or any adjournment thereof,
or to express consent to, or to dissent from, corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board may fix in advance, a record date, which
shall not be more than 60 nor less than 10 days before the date of such meeting,
nor more than 60 days prior to any other such action. A determination of the
Stockholders entitled to notice of or to vote at a meeting of Stockholders shall
apply to any adjournment of such meeting; provided, however, that the Board may
-------- -------
fix a new record date for the adjourned meeting.
ARTICLE VII
SEAL
----
SECTION 7.01. Seal. The Board may approve and adopt a corporate seal,
----
which shall be in the form of a circle and shall bear the full name of the
Corporation, the year of its incorporation and the words "Corporate Seal
Delaware".
ARTICLE VIII
FISCAL YEAR
-----------
SECTION 8.01. Fiscal Year. The fiscal year of the Corporation shall
-----------
end on the thirty-first day of December of each year unless changed by
resolution of the Board.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
-----------------------------
SECTION 9.01. Indemnification. (a) The Corporation shall indemnify
---------------
any person who was or is a party or is threatened to be made a party 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 the Corporation) by reason of the fact
<PAGE>
13
that he 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, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in, or not opposed to, the best interests
of the Corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
---- ----------
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he 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,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 9.01(a) and (b) of these By-
laws, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under Section 9.01(a) and (b) of these By-laws
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met
the applicable standard of conduct set forth in Section 9.01(a) and (b) of these
By-laws. Such determination shall be made (i) by the Board by a majority vote of
a quorum consisting of directors who were not parties to
<PAGE>
14
such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or,
even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, or (iii) by the stockholders of
the Corporation.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation pursuant to this Article IX. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, other Sections of this Article IX shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
(g) For purposes of this Article IX, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article IX with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(h) For purposes of this Article IX, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves service by, such director, officer, employee or
agent with respect to any employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
IX.
<PAGE>
15
(i) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article IX shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 9.02. Insurance for Indemnification. The Corporation may
-----------------------------
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, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of Section 145 of the General Corporation Law.
ARTICLE X
AMENDMENTS
----------
SECTION 10.01. Amendments. Any By-law (including these By-laws) may
----------
be adopted, amended or repealed by the vote of the recordholders of a majority
of the Shares then entitled to vote at an election of Directors or by written
consent of Stockholders pursuant to Section 2.09 hereof, or by vote of the Board
or by a written consent of Directors pursuant to Section 3.08 hereof.
<PAGE>
EXHIBIT 3.5
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
PAN ACQUISITION, INC.
PAN ACQUISITION, INC., a Delaware corporation HEREBY CERTIFIES AS
FOLLOWS:
1. The name of the Corporation is PAN Acquisition, Inc. The date of
filing of its Certificate of Incorporation with the Secretary of State of the
State of Delaware was January 25, 1996.
2. This Certificate of Amendment sets forth an amendment to the
Certificate of Incorporation of the Corporation which was duly adopted by the
written consent of the sole stockholder holder of the Corporation in accordance
with the provisions of Sections 242 and 228 of the General Corporation Law of
the State of Delaware.
3. Article I of the Certificate of Incorporation is hereby amended in
full to be and read as follows:
"ARTICLE I
NAME
The name of the corporation is Panolam Industries, Inc. (the
"Corporation")."
IN WITNESS WHEREOF, PAN Acquisition, Inc. has caused this certificate
to be signed by Jean-Pierre Conte, its Vice President, and attested by Daniel J.
Boverman, its Secretary, this 13/th/ day of May, 1996.
PAN Acquisition, Inc.
By: /s/ [SIGNATURE ILLEGIBLE]
----------------------------
Vice President
ATTEST:
/s/ [SIGNATURE ILLEGIBLE]
- ----------------------------
Secretary
<PAGE>
CERTIFICATE OF INCORPORATION
OF
PAN ACQUISITION, INC.
ARTICLE I
Name
The name of the corporation is PAN Acquisition, Inc. (the
("Corporation").
-----------
ARTICLE II
Registered Office and Registered Agent
The address of the registered office of the Corporation in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
ARTICLE III
Corporate Purpose
The purpose of the Corporation is to engage in any lawful act or
activity for which corporation may be organized under the General Corporation
Law of the State of Delaware (the "General Corporation Law").
-----------------------
ARTICLE IV
Capital Stock
The total number of shares of all classes of stock that the
Corporation shall have authority to issue is 1000, all of which shall be shares
of Common Stock, par value $.01 per share.
<PAGE>
2
ARTICLE V
Directors
(1) Elections of directors of the Corporation need not be by written
ballot, except and to the extent provided in the By-laws of the Corporation.
(2) To the fullest extent permitted by the General Corporation Law as
it now exists and as it may hereafter be amended, no director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director.
ARTICLE VI
Indemnification of Directors, Officers and Others
(1) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party 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 the Corporation) by
reason of the fact that he 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, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
---- ----------
shall not, of itself, create a presumption that the person seeking
indemnification did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
(2) The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he 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, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification
<PAGE>
3
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless and only to the
extent that the Court of Chancery of the State of Delaware or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(3) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections (1) and (2) of this Article
VI, or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
(4) Any indemnification under Sections (1) and (2) of this Article VI
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in such Sections (1) and (2). Such
determination shall be made (a) by the Board of Directors of the Corporation by
a majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even
if obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (c) by the stockholders of the
Corporation.
(5) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation authorized in this Article. Such expenses (including attorneys'
fees) incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board of Directors of the Corporation deems
appropriate.
(6) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other sections of this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
(7) The Corporation may 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, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provision of Section 145 of the General Corporation
Law.
<PAGE>
4
(8) For purposes of this Article VI, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article VI with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(9) For purposes of this Article VI, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves service by, such director,
officer, employee or agent with respect to any employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article VI.
(10) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VI shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE VII
By-laws
The directors of the Corporation shall have the power to adopt, amend
or repeal by-laws.
ARTICLE VIII
Reorganization
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on
<PAGE>
5
the application in a summary way of this Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers appointed
for this Corporation under the provisions of section 291 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this Corporation under the provisions of
section 279 of Title 8 of the Delaware Code order a meeting of the creditors, or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
ARTICLE IX
Amendment
The Corporation reserves the right to amend, alter, change or repeal
any provision of this Certificate of Incorporation, in the manner now or
hereafter prescribed by law, and all rights conferred on stockholders in this
Certificate of Incorporation are subject to this reservation.
ARTICLE
Incorporator
The name and mailing address of the sole incorporator is as follows:
Name Mailing Address
- --------------------- ------------------------
Marshall Jensen Shearman & Sterling
555 California Street
San Francisco, CA 94104
<PAGE>
6
I, THE UNDERSIGNED, being the solo incorporator hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this Certificate of Incorporation, hereby
declaring and certifying that this is my act and deed and the facts herein
stated are true, and accordingly have hereunto set my hand this 24th day of
January, 1996.
/s/ Marshall Jensen
--------------------
Marshall Jensen
<PAGE>
============================
BY-LAWS
OF
PAN ACQUISITION, INC.
============================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
ARTICLE I
OFFICES
<C> <S> <C>
1.01 Registered Office................................................... 1
1.02 Other Offices....................................................... 1
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.01 Annual Meetings..................................................... 1
2.02 Special Meetings.................................................... 1
2.03 Notice of Meetings.................................................. 2
2.04 Waiver of Notice.................................................... 2
2.05 Adjournments........................................................ 2
2.06 Quorum.............................................................. 3
2.07 Voting.............................................................. 3
2.08 Proxies............................................................. 3
2.09 Stockholders' Consent in Lieu of Meeting............................ 3
ARTICLE III
BOARD OF DIRECTORS
3.01 General Powers...................................................... 3
3.02 Number and Term of Office........................................... 4
3.03 Resignation......................................................... 4
3.04 Removal............................................................. 4
3.05 Vacancies........................................................... 4
3.06 Meetings............................................................ 4
3.07 Committees of the Board............................................. 6
3.08 Directors' Consent in Lieu of Meeting............................... 6
3.09 Action by Means of Telephone or Similar Communications Equipment.... 6
3.10 Compensation........................................................ 7
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
ARTICLE IV
OFFICERS
<C> <S> <C>
4.01 Officers............................................................ 7
4.02 Authority and Duties................................................ 7
4.03 Term of Office, Resignation and Removal............................. 7
4.04 Vacancies........................................................... 7
4.05 The Chairman........................................................ 8
4.06 The President....................................................... 8
4.07 Vice Presidents..................................................... 8
4.08 The Secretary....................................................... 8
4.09 Assistant Secretaries............................................... 8
4.10 The Treasurer....................................................... 9
4.11 Assistant Treasurers................................................ 9
ARTICLE V
CHECKS, DRAFTS, NOTES AND PROXIES
5.01 Checks, Drafts and Notes............................................ 9
5.02 Execution of Proxies................................................ 9
ARTICLE VI
SHARES AND TRANSFERS OF SHARES
6.01 Certificates Evidencing Shares...................................... 10
6.02 Stock Ledger........................................................ 10
6.03 Transfers of Shares................................................. 10
6.04 Addresses of Stockholders........................................... 10
6.05 Lost, Destroyed and Mutilated Certificates.......................... 10
6.06 Regulations......................................................... 11
6.07 Fixing Date for Determination of Stockholders of Record............. 11
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
ARTICLE VII
SEAL
<C> <S> <C>
7.01 Seal................................................................ 11
ARTICLE VIII
FISCAL YEAR
8.01 Fiscal Year......................................................... 11
ARTICLE IX
INDEMNIFICATION AND INSURANCE
9.01 Indemnification..................................................... 12
9.02 Insurance for Indemnification....................................... 14
ARTICLE X
AMENDMENTS
10.01 Amendments......................................................... 14
</TABLE>
iii
<PAGE>
BY-LAWS
OF
PAN ACQUISITION, INC.
ARTICLE I
OFFICES
SECTION 1.01. Registered Office. The registered office of PAN
-----------------
Acquisition, Inc. (the "Corporation") in the State of Delaware shall be at the
-----------
principal office of The Corporation Trust Company in the City of Wilmington,
County of New Castle, and the registered agent in charge thereof shall be The
Corporation Trust Company.
SECTION 1.02. Other Offices. The Corporation may also have an office
-------------
or offices at any other place or places within or without the State of Delaware
as the Board of Directors of the Corporation (the "Board") may from time to time
-----
determine or the business of the Corporation may from time to time require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01. Annual Meetings. The annual meeting of stockholders of
---------------
the Corporation for the election of directors of the Corporation ("Directors"),
and for the transaction of such other business as may properly come before such
meeting, shall be held at such place, date and time as shall be fixed by the
Board and designated in the notice or waiver of notice of such annual meeting;
provided, however, that no annual meeting of stockholders need be held if all
- -------- -------
actions, including the election of Directors, required by the General
Corporation Law of the State of Delaware (the "General Corporation Law") to be
-----------------------
taken at such annual meeting are taken by written consent in lieu of meeting
pursuant to Section 2.09 hereof.
SECTION 2.02. Special Meetings. Special meetings of stockholders for
----------------
any purpose or purposes may be called by the Board or the Chairman of the Board,
the President or the Secretary of the Corporation or by the recordholders of at
least a majority of the shares of common stock of the Corporation issued and
outstanding ("Shares") and entitled to vote thereat, to be held at such place,
------
date and time as shall be designated in the notice or waiver of notice thereof.
<PAGE>
2
SECTION 2.03. Notice of Meetings. (a) Except as otherwise provided by
------------------
law, written notice of each annual or special meeting of stockholders stating
the place, date and time of such meeting and, in the case of a special meeting,
the purpose or purposes for which such meeting is to be held, shall be given
personally or by first-class mail (airmail in the case of international
communications) to each recordholder of Shares (a "Stockholder") entitled to
-----------
vote thereat, not less than 10 nor more than 60 days before the date of such
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, directed to the Stockholder at such
Stockholder's address as it appears on the records of the Corporation. If, prior
to the time of mailing, the Secretary of the Corporation (the "Secretary") shall
---------
have received from any Stockholder a written request that notices intended for
such Stockholder are to be mailed to some address other than the address that
appears on the records of the Corporation, notices intended for such Stockholder
shall be mailed to the address designated in such request.
(b) Notice of a special meeting of Stockholders may be given by the
person or persons calling the meeting, or, upon the written request of such
person or persons, such notice shall be given by the Secretary on behalf of such
person or persons. If the person or persons calling a special meeting of
Stockholders give notice thereof, such person or persons shall deliver a copy of
such notice to the Secretary. Each request to the Secretary for the giving of
notice of a special meeting of Stockholders shall state the purpose or purposes
of such meeting.
SECTION 2.04. Waiver of Notice. Notice of any annual or special
----------------
meeting of Stockholders need not be given to any Stockholder who files a written
waiver of notice with the Secretary, signed by the person entitled to notice,
whether before or after such meeting. Neither the business to be transacted at,
nor the purpose of, any meeting of Stockholders need be specified in any written
waiver of notice thereof. Attendance of a Stockholder at a meeting, in person or
by proxy, shall constitute a waiver of notice of such meeting, except when such
Stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the grounds that
the notice of such meeting was inadequate or improperly given.
SECTION 2.05. Adjournments. Whenever a meeting of Stockholders, annual
------------
or special, is adjourned to another date, time or place, notice need not be
given of the adjourned meeting if the date, time and place thereof are announced
at the meeting at which the adjournment is taken. If the adjournment is for more
than 30 days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
Stockholder entitled to vote thereat. At the adjourned meeting, any business may
be transacted which might have been transacted at the original meeting.
<PAGE>
3
SECTION 2.06. Quorum. Except as otherwise provided by law or the
------
Certificate of Incorporation of the Corporation (the "Certificate of
--------------
Incorporation"), the recordholders of a majority of the Shares entitled to vote
- -------------
thereat, present in person or by proxy, shall constitute a quorum for the
transaction of business at all meetings of Stockholders, whether annual or
special. If, however, such quorum shall not be present in person or by proxy at
any meeting of Stockholders, the Stockholders entitled to vote thereat may
adjourn the meeting from time to time in accordance with Section 2.05 hereof
until a quorum shall be present in person or by proxy.
SECTION 2.07. Voting. Each Stockholder shall be entitled to one vote
------
for each Share held of record by such Stockholder. Except as otherwise provided
by law or the Certificate of Incorporation, when a quorum is present at any
meeting of Stockholders, the vote of the recordholders of a majority of the
Shares constituting such quorum shall decide any question brought before such
meeting.
SECTION 2.08. Proxies. Each Stockholder entitled to vote at a meeting
-------
of Stockholders or to express, in writing, consent to or dissent from any action
of Stockholders without a meeting may authorize another person or persons to act
for such Stockholder by proxy. Such proxy shall be filed with the Secretary
before such meeting of Stockholders or such action of Stockholders without a
meeting, at such time as the Board may require. No proxy shall be voted or acted
upon more than three years from its date, unless the proxy provides for a longer
period.
SECTION 2.09. Stockholders' Consent in Lieu of Meeting. Any action
----------------------------------------
required by the General Corporation Law to be taken at any annual or special
meeting of Stockholders, and any action which may be taken at any annual or
special meeting of Stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the recordholders of Shares having not less than the
minimum number of votes necessary to authorize or take such action at a meeting
at which the recordholders of all Shares entitled to vote thereon were present
and voted.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01. General Powers. The business and affairs of the
--------------
Corporation shall be managed by the Board, which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by law, the
Certificate of Incorporation or these By-laws directed or required to be
exercised or done by Stockholders.
<PAGE>
4
SECTION 3.02. Number and Term of Office. The number of Directors shall
-------------------------
be two or such other number as shall be fixed from time to time by the Board.
Directors need not be Stockholders. Directors shall be elected at the annual
meeting of Stockholders or, if, in accordance with Section 2.01 hereof, no such
annual meeting is held, by written consent in lieu of meeting pursuant to
Section 2.09 hereof, and each Director shall hold office until his successor is
elected and qualified, or until his earlier death or resignation or removal in
the manner hereinafter provided.
SECTION 3.03. Resignation. Any Director may resign at any time by
-----------
giving written notice to the Board, the Chairman of the Board of the Corporation
(the "Chairman") or the Secretary. Such resignation shall take effect at the
time specified in such notice or, if the time be not specified, upon receipt
thereof by the Board, the Chairman or the Secretary, as the case may be. Unless
otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective.
SECTION 3.04. Removal. Any or all of the Directors may be removed,
-------
with or without cause, at any time by vote of the recordholders of a majority of
the Shares then entitled to vote at an election of Directors, or by written
consent of the recordholders of Shares pursuant to Section 2.09 hereof.
SECTION 3.05. Vacancies. Vacancies occurring on the Board as a result
---------
of the removal of Directors without cause may be filled only by vote of the
recordholders of a majority of the Shares then entitled to vote at an election
of Directors, or by written consent of such recordholders pursuant to Section
2.09 hereof. Vacancies occurring on the Board for any other reason, including,
without limitation, vacancies occurring as a result of the creation of new
directorships that increase the number of Directors, may be filled by such vote
or written consent or by vote of the Board or by written consent of the
Directors pursuant to Section 3.08 hereof. If the number of Directors then in
office is less than a quorum, such other vacancies may be filled by vote of a
majority of the Directors then in office or by written consent of all such
Directors pursuant to Section 3.08 hereof. Unless earlier removed pursuant to
Section 3.04 hereof, each Director chosen in accordance with this Section 3.05
shall hold office until the next annual election of Directors by the
Stockholders and until his successor shall be elected and qualified.
SECTION 3.06. Meetings. (a) Annual Meetings. As soon as practicable
-------- ---------------
after each annual election of Directors by the Stockholders, the Board shall
meet for the purpose of organization and the transaction of other business,
unless it shall have transacted all such business by written consent pursuant to
Section 3.08 hereof.
(b) Other Meetings. Other meetings of the Board shall be held at such
--------------
times as the Chairman, the President of the Corporation (the "President"), the
---------
Secretary or a majority of the Board shall from time to time determine.
<PAGE>
5
(c) Notice of Meetings. The Secretary shall give written notice to
------------------
each Director of each meeting of the Board, which notice shall state the place,
date, time and purpose of such meeting. Notice of each such meeting shall be
given to each Director, if by mail, addressed to him at his residence or usual
place of business, at least two days before the day on which such meeting is to
be held, or shall be sent to him at such place by telecopy, telegraph, cable, or
other form of recorded communication, or be delivered personally or by telephone
not later than the day before the day on which such meeting is to be held. A
written waiver of notice, signed by the Director entitled to notice, whether
before or after the time of the meeting referred to in such waiver, shall be
deemed equivalent to notice. Neither the business to be transacted at, nor the
purpose of any meeting of the Board need be specified in any written waiver of
notice thereof. Attendance of a Director at a meeting of the Board shall
constitute a waiver of notice of such meeting, except as provided by law.
(d) Place of Meetings. The Board may hold its meetings at such place
-----------------
or places within or without the State of Delaware as the Board or the Chairman
may from time to time determine, or as shall be designated in the respective
notices or waivers of notice of such meetings.
(e) Quorum and Manner of Acting. One-third of the total number of
---------------------------
Directors then in office (but in no event less than two if the total number of
directorships, including vacancies, is greater than one and in no event a number
less than one-third of the total number of directorships, including vacancies)
shall be present in person at any meeting of the Board in order to constitute a
quorum for the transaction of business at such meeting, and the vote of a
majority of those Directors present at any such meeting at which a quorum is
present shall be necessary for the passage of any resolution or act of the
Board, except as otherwise expressly required by law, the Certificate of
Incorporation or these By-laws. In the absence of a quorum for any such meeting,
a majority of the Directors present thereat may adjourn such meeting from time
to time until a quorum shall be present.
(f) Organization. At each meeting of the Board, one of the following
------------
shall act as chairman of the meeting and preside, in the following order of
precedence:
(i) the Chairman;
(ii) the President;
(iii) any Director chosen by a majority of the Directors present.
The Secretary or, in the case of his absence, any person (who shall be an
Assistant Secretary, if an Assistant Secretary is present) whom the chairman of
the meeting shall appoint shall act as secretary of such meeting and keep the
minutes thereof.
<PAGE>
6
SECTION 3.07. Committees of the Board. The Board may, by resolution
-----------------------
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more Directors. The Board may designate one or
more Directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of such committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another Director to act at the
meeting in the place of any such absent or disqualified member. Any committee of
the Board, to the extent provided in the resolution of the Board designating
such committee, shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; provided, however, that no such committee shall have such power or
-------- -------
authority in reference to amending the Certificate of Incorporation (except that
such a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board as provided
in Section 151(a) of the General Corporation Law, fix the designations and any
of the preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
of stock of the Corporation or fix the number of shares of any series of stock
or authorize the increase or decrease of the shares of any series), adopting an
agreement of merger or consolidation under Section 251 or 252 of the General
Corporation Law, recommending to the Stockholders the sale, lease or exchange of
all or substantially all the Corporation's property and assets, recommending to
the Stockholders a dissolution of the Corporation or the revocation of a
dissolution, or amending these By-laws; provided further, however, that, unless
---------------- -------
expressly so provided in the resolution of the Board designating such committee,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law. Each committee of
the Board shall keep regular minutes of its proceedings and report the same to
the Board when so requested by the Board.
SECTION 3.08. Directors' Consent in Lieu of Meeting. Any action
-------------------------------------
required or permitted to be taken at any meeting of the Board or of any
committee thereof may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by all the members of the Board or such committee and such
consent is filed with the minutes of the proceedings of the Board or such
committee.
SECTION 3.09. Action by Means of Telephone or Similar Communications
------------------------------------------------------
Equipment. Any one or more members of the Board, or of any committee thereof,
- ---------
may participate in a meeting of the Board or such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting
<PAGE>
7
can hear each other, and participation in a meeting by such means shall
constitute presence in person at such meeting.
SECTION 3.10. Compensation. Unless otherwise restricted by the
------------
Certificate of Incorporation, the Board may determine the compensation of
Directors. In addition, as determined by the Board, Directors may be reimbursed
by the Corporation for their expenses, if any, in the performance of their
duties as Directors. No such compensation or reimbursement shall preclude any
Director from serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV
OFFICERS
SECTION 4.01. Officers. The officers of the Corporation shall be the
--------
Chairman, the President, the Secretary and a Treasurer and may include one or
more Vice Presidents and one or more Assistant Secretaries and one or more
Assistant Treasurers. Any two or more offices may be held by the same person.
SECTION 4.02. Authority and Duties. All officers shall have such
--------------------
authority and perform such duties in the management of the Corporation as may be
provided in these By-laws or, to the extent not so provided, by resolution of
the Board.
SECTION 4.03. Term of Office, Resignation and Removal. (a) Each
---------------------------------------
officer shall be appointed by the Board and shall hold office for such term as
may be determined by the Board. Each officer shall hold office until his
successor has been appointed and qualified or his earlier death or resignation
or removal in the manner hereinafter provided. The Board may require any officer
to give security for the faithful performance of his duties.
(b) Any Officer may resign at any time by giving written notice to the
Board, the Chairman, the President or the Secretary. Such resignation shall take
effect at the time specified in such notice or, if the time be not specified,
upon receipt thereof by the Board, the Chairman, the President or the Secretary,
as the case may be. Unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective.
(c) All officers and agents appointed by the Board shall be subject to
removal, with or without cause, at any time by the Board or by the action of the
recordholders of a majority of the Shares entitled to vote thereon.
<PAGE>
8
SECTION 4.04. Vacancies. Any vacancy occurring in any office of the
---------
Corporation, for any reason, shall be filled by action of the Board. Unless
earlier removed pursuant to Section 4.03 hereof, any officer appointed by the
Board to fill any such vacancy shall serve only until such time as the unexpired
term of his predecessor expires unless reappointed by the Board.
SECTION 4.05. The Chairman. The Chairman shall have the power to call
------------
special meetings of Stockholders, to call special meetings of the Board and, if
present, to preside at all meetings of Stockholders and all meetings of the
Board. The Chairman shall perform all duties incident to the office of Chairman
of the Board and all such other duties as may from time to time be assigned to
him by the Board or these By-laws.
SECTION 4.06. The President. The President shall be the chief
-------------
executive officer of the Corporation and shall have general and active
management and control of the business and affairs of the Corporation, subject
to the control of the Board, and shall see that all orders and resolutions of
the Board are carried into effect. The President shall perform all duties
incident to the office of President and all such other duties as may from time
to time be assigned to him by the Board or these By-laws.
SECTION 4.07. Vice Presidents. Vice Presidents, if any, in order of
---------------
their seniority or in any other order determined by the Board, shall generally
assist the President and perform such other duties as the Board or the President
shall prescribe, and in the absence or disability of the President, shall
perform the duties and exercise the powers of the President.
SECTION 4.08. The Secretary. The Secretary shall, to the extent
-------------
practicable, attend all meetings of the Board and all meetings of Stockholders
and shall record all votes and the minutes of all proceedings in a book to be
kept for that purpose, and shall perform the same duties for any committee of
the Board when so requested by such committee. He shall give or cause to be
given notice of all meetings of Stockholders and of the Board, shall perform
such other duties as may be prescribed by the Board, the Chairman or the
President and shall act under the supervision of the Chairman. He shall keep in
safe custody the seal of the Corporation and affix the same to any instrument
that requires that the seal be affixed to it and which shall have been duly
authorized for signature in the name of the Corporation and, when so affixed,
the seal shall be attested by his signature or by the signature of the Treasurer
of the Corporation (the "Treasurer") or an Assistant Secretary or Assistant
---------
Treasurer of the Corporation. He shall keep in safe custody the certificate
books and stockholder records and such other books and records of the
Corporation as the Board, the Chairman or the President may direct and shall
perform all other duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Board, the Chairman or
the President.
<PAGE>
9
SECTION 4.09. Assistant Secretaries. Assistant Secretaries of the
---------------------
Corporation ("Assistant Secretaries"), if any, in order of their seniority or in
---------------------
any other order determined by the Board, shall generally assist the Secretary
and perform such other duties as the Board or the Secretary shall prescribe,
and, in the absence or disability of the Secretary, shall perform the duties and
exercise the powers of the Secretary.
SECTION 4.10. The Treasurer. The Treasurer shall have the care and
-------------
custody of all the funds of the Corporation and shall deposit such funds in such
banks or other depositories as the Board, or any officer or officers, or any
officer and agent jointly, duly authorized by the Board, shall, from time to
time, direct or approve. He shall disburse the funds of the Corporation under
the direction of the Board and the President. He shall keep a full and accurate
account of all moneys received and paid on account of the Corporation and shall
render a statement of his accounts whenever the Board, the Chairman or the
President shall so request. He shall perform all other necessary actions and
duties in connection with the administration of the financial affairs of the
Corporation and shall generally perform all the duties usually appertaining to
the office of treasurer of a corporation. When required by the Board, he shall
give bonds for the faithful discharge of his duties in such sums and with such
sureties as the Board shall approve.
SECTION 4.11. Assistant Treasurers. Assistant Treasurers of the
--------------------
Corporation ("Assistant Treasurers"), if any, in order of their seniority or in
--------------------
any other order determined by the Board, shall generally assist the Treasurer
and perform such other duties as the Board or the Treasurer shall prescribe,
and, in the absence or disability of the Treasurer, shall perform the duties and
exercise the powers of the Treasurer.
ARTICLE V
CHECKS, DRAFTS, NOTES, AND PROXIES
SECTION 5.01. Checks, Drafts and Notes. All checks, drafts and other
------------------------
orders for the payment of money, notes and other evidences of indebtedness
issued in the name of the Corporation shall be signed by such officer or
officers, agent or agents of the Corporation and in such manner as shall be
determined, from time to time, by resolution of the Board.
SECTION 5.02. Execution of Proxies. The Chairman or the President,
--------------------
or, in the absence or disability of both of them, any Vice President, may
authorize, from time to time, the execution and issuance of proxies to vote
shares of stock or other securities of other corporations held of record by the
Corporation and the execution of consents to action taken or to be taken by any
such corporation. All such proxies and consents, unless otherwise
<PAGE>
10
authorized by the Board, shall be signed in the name of the Corporation by the
Chairman, the President or any Vice President.
ARTICLE VI
SHARES AND TRANSFERS OF SHARES
SECTION 6.01. Certificates Evidencing Shares. Shares shall be
------------------------------
evidenced by certificates in such form or forms as shall be approved by the
Board. Certificates shall be issued in consecutive order and shall be numbered
in the order of their issue, and shall be signed by the Chairman, the President
or any Vice President and by the Secretary, any Assistant Secretary, the
Treasurer or any Assistant Treasurer. If such a certificate is manually signed
by one such officer, any other signature on the certificate may be a facsimile.
In the event any such officer who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to hold such office or to be
employed by the Corporation before such certificate is issued, such certificate
may be issued by the Corporation with the same effect as if such officer had
held such office on the date of issue.
SECTION 6.02. Stock Ledger. A stock ledger in one or more counterparts
------------
shall be kept by the Secretary, in which shall be recorded the name and address
of each person, firm or corporation owning the Shares evidenced by each
certificate evidencing Shares issued by the Corporation, the number of Shares
evidenced by each such certificate, the date of issuance thereof and, in the
case of cancellation, the date of cancellation. Except as otherwise expressly
required by law, the person in whose name Shares stand on the stock ledger of
the Corporation shall be deemed the owner and recordholder thereof for all
purposes.
SECTION 6.03. Transfers of Shares. Registration of transfers of Shares
-------------------
shall be made only in the stock ledger of the Corporation upon request of the
registered holder of such shares, or of his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary, and upon the
surrender of the certificate or certificates evidencing such Shares properly
endorsed or accompanied by a stock power duly executed, together with such proof
of the authenticity of signatures as the Corporation may reasonably require.
SECTION 6.04. Addresses of Stockholders. Each Stockholder shall
-------------------------
designate to the Secretary an address at which notices of meetings and all other
corporate notices may be served or mailed to such Stockholder, and, if any
Stockholder shall fail to so designate such an address, corporate notices may be
served upon such Stockholder by mail directed to the mailing address, if any, as
the same appears in the stock ledger of the Corporation or at the last known
mailing address of such Stockholder.
<PAGE>
11
SECTION 6.05. Lost, Destroyed and Mutilated Certificates. Each
------------------------------------------
recordholder of Shares shall promptly notify the Corporation of any loss,
destruction or mutilation of any certificate or certificates evidencing any
Share or Shares of which he is the recordholder. The Board may, in its
discretion, cause the Corporation to issue a new certificate in place of any
certificate theretofore issued by it and alleged to have been mutilated, lost,
stolen or destroyed, upon the surrender of the mutilated certificate or, in the
case of loss, theft or destruction of the certificate, upon satisfactory proof
of such loss, theft or destruction, and the Board may, in its discretion,
require the recordholder of the Shares evidenced by the lost, stolen or
destroyed certificate or his legal representative to give the Corporation a bond
sufficient to indemnify the Corporation against any claim made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
SECTION 6.06. Regulations. The Board may make such other rules and
-----------
regulations as it may deem expedient, not inconsistent with these By-laws,
concerning the issue, transfer and registration of certificates evidencing
Shares.
SECTION 6.07. Fixing Date for Determination of Stockholders of Record.
-------------------------------------------------------
In order that the Corporation may determine the Stockholders entitled to notice
of or to vote at any meeting of Stockholders or any adjournment thereof, or to
express consent to, or to dissent from, corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which shall not be more
than 60 nor less than 10 days before the date of such meeting, nor more than 60
days prior to any other such action. A determination of the Stockholders
entitled to notice of or to vote at a meeting of Stockholders shall apply to any
adjournment of such meeting; provided, however, that the Board may fix a new
-------- -------
record date for the adjourned meeting.
ARTICLE VII
SEAL
SECTION 7.01. Seal. The Board may approve and adopt a corporate seal,
----
which shall be in the form of a circle and shall bear the full name of the
Corporation, the year of its incorporation and the words "Corporate Seal
Delaware".
ARTICLE VIII
FISCAL YEAR
<PAGE>
12
SECTION 8.01. Fiscal Year. The fiscal year of the Corporation shall
-----------
end on the thirty-first day of December of each year unless changed by
resolution of the Board.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
SECTION 9.01. Indemnification. (a) The Corporation shall indemnify any
---------------
person who was or is a party or is threatened to be made a party 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 the Corporation) by reason of the fact that he 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, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
---- -----------
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he 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, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
<PAGE>
13
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 9.01(a) and (b) of these By-
laws, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under Section 9.01(a) and (b) of these By-laws
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 9.01(a) and (b) of these
By-laws. Such determination shall be made (i) by the Board by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable,
a quorum of disinterested directors so directs, by independent legal counsel in
a written opinion, or (iii) by the stockholders of the Corporation.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation pursuant to this Article IX. Such expenses (including attorneys'
fees) incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, other Sections of this Article IX shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
(g) For purposes of this Article IX, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article IX with respect to the
resulting or surviving corporation as he
<PAGE>
14
would have with respect to such constituent corporation if its separate
existence had continued.
(h) For purposes of this Article IX, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves service by, such director, officer, employee or
agent with respect to any employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
IX.
(i) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article IX shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 9.02. Insurance for Indemnification. The Corporation may
-----------------------------
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, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of Section 145 of the General Corporation Law.
ARTICLE X
AMENDMENTS
SECTION 10.01. Amendments. Any By-law (including these By-laws) may be
----------
adopted, amended or repealed by the vote of the recordholders of a majority of
the Shares then entitled to vote at an election of Directors or by written
consent of Stockholders pursuant to Section 2.09 hereof, or by vote of the Board
or by a written consent of Directors pursuant to Section 3.08 hereof.
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
PII SECOND, INC.
PII SECOND, INC., a Delaware corporation, HEREBY CERTIFIES AS FOLLOWS:
1. The name of the corporation is PII Second, Inc. The date of
filing of its original Certificate of Incorporation with the Secretary of State
of the State of Delaware was October 28, 1997.
2. This Certificate of Amendment sets forth an amendment to the
Certificate of Incorporation of the Corporation which was duly adopted by the
written consent of the sole stockholder of the Corporation entitled to vote
thereon in accordance with the provisions of Sections 242 and 228 of the General
Corporation Law of the State of Delaware:
3. Article IV of the Certificate of Incorporation is hereby amended
in full to be and read as follows:
"ARTICLE IV
The total number of shares of all classes of stock that the
Corporation shall have authority to issue is 200, all of which shall be shares
Common Stock, par value $0.01 per share."
IN WITNESS WHEREOF, PII SECOND, INC. has caused this certificate to be
signed by Claude P. Arcand, its president, and attested by Jacques Gauthier, its
Secretary, this 18th day of December, 1997.
PII SECOND, INC.
By: /s/ Claude P. Arcand
-------------------------
Title: President
ATTEST:
/s/ Jacques Gauthier
- -------------------------
Secretary
<PAGE>
CERTIFICATE OF INCORPORATION
OF
PII SECOND, INC.
ARTICLE I
NAME
The name of the corporation is PII SECOND, INC. (the "Corporation").
-----------
ARTICLE II
REGISTERED OFFICE AND REGISTERED AGENT
The address of the registered office of the Corporation in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
ARTICLE III
CORPORATE PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporation may be organized under the General Corporation
Law of the State of Delaware (the "General Corporation Law").
-----------------------
ARTICLE IV
CAPITAL STOCK
The total number of shares of all classes of stock that the
Corporation shall have authority to issue is 1,000, all of which shall be shares
of Common Stock, par value $.01 per share.
<PAGE>
2
ARTICLE V
DIRECTORS
(1) Elections of directors of the Corporation need not be by written
ballot, except and to the extent provided in the By-laws of the Corporation.
(2) To the fullest extent permitted by the General Corporation Law as
it now exists and as it may hereafter be amended, no director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
(1) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party 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 the Corporation) by
reason of the fact that he or she 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, partnership,
joint venture, trust or other enterprise, against 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 if
such person acted in good faith and in a manner such person reasonably believed
to be in, or not opposed to, the best interest of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
----
contendere or its equivalent, shall not, of itself, create a presumption that
- ----------
the person seeking indemnification did not act in good faith and in a manner
which such reasonably believed to be in or not opposed to the best interests of
the Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(2) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he or she 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,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the
<PAGE>
3
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
(3) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections (1) and (2) of this Article
VI, or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith.
(4) Any indemnification under Sections (1) end (2) of this Article VI
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because such person
met the applicable standard of conduct set forth in such Sections (1) and (2).
Such determination shall be made (a) by the Board of Directors of the
Corporation by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (b) if such a quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (c) by the
stockholders of the Corporation.
(5) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation authorized in this Article VI. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors of the Corporation deems
appropriate.
(6) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other sections of this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
(7) The Corporation may 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, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of his
or her status as such, whether or not the Corporation would have the power to
indemnify such
<PAGE>
4
person against such liability under the provisions of Section 145 of the General
Corporation Law.
(8) For purposes of this Article VI, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article VI with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued.
(9) For purposes of this Article VI, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves service by, such director,
officer, employee or agent with respect to any employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner such person reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article VI.
(10) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VI shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
ARTICLE VII
BY-LAWS
The directors of the Corporation shall have the power to adopt, amend
or repeal by-laws.
<PAGE>
5
ARTICLE VIII
REORGANIZATION
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
ARTICLE IX
AMENDMENT
The Corporation reserves the right to amend, alter, change or repeal
any provision of this Certificate of Incorporation, in the manner now or
hereafter prescribed by law, and all rights conferred on stockholders on this
Certificate of Incorporation are subject to this reservation.
ARTICLE X
INCORPORATOR
The name and mailing address of the sole incorporator is as follows:
Name Mailing Address
--------------------- ---------------
JONATHAN STUART BROWN Shearman & Sterling
555 California Street
San Francisco, CA 94104
<PAGE>
6
I, THE UNDERSIGNED, being the sole incorporator hereinbefore named,
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Delaware, do make this Certificate of Incorporation, hereby
declaring and certifying that this is my act and deed and the facts herein
stated are true. and accordingly have hereunto set my hand this 28th day of
October, 1997.
/s/ Jonathan Stuart Brown
------------------------------
JONATHAN STUART BROWN
<PAGE>
========================
BY-LAWS
OF
PII SECOND, INC.
========================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
ARTICLE I
OFFICES
-------
SECTION 1.01. Registered Office..................................... 1
SECTION 1.02. Other Offices......................................... 1
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
SECTION 2.01. Annual Meetings....................................... 1
SECTION 2.02. Special Meetings...................................... 1
SECTION 2.03. Notice of Meetings.................................... 2
SECTION 2.04. Waiver of Notice...................................... 2
SECTION 2.05. Adjournments.......................................... 2
SECTION 2.06. Quorum................................................ 3
SECTION 2.07. Voting................................................ 3
SECTION 2.08. Proxies............................................... 3
SECTION 2.09. Stockholders' Consent in Lieu of Meeting.............. 3
ARTICLE III
BOARD OF DIRECTORS
------------------
SECTION 3.01. General Powers........................................ 3
SECTION 3.02. Number and Term of Office............................. 4
SECTION 3.03. Resignation........................................... 4
SECTION 3.04. Removal............................................... 4
SECTION 3.05. Vacancies............................................. 4
SECTION 3.06. Meetings.............................................. 4
SECTION 3.07. Committees of the Board............................... 6
SECTION 3.08. Directors' Consent in Lieu of Meeting................. 6
SECTION 3.09. Action by Means of Telephone or Similar Communications
Equipment............................................ 6
SECTION 3.10. Compensation.......................................... 7
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
ARTICLE IV
OFFICERS
--------
SECTION 4.01. Officers.............................................. 7
SECTION 4.02. Authority and Duties.................................. 7
SECTION 4.03. Term of Office, Resignation and Removal............... 7
SECTION 4.04. Vacancies............................................. 7
SECTION 4.05. The Chairman.......................................... 8
SECTION 4.06. The President......................................... 8
SECTION 4.07. Vice Presidents....................................... 8
SECTION 4.08. The Secretary......................................... 8
SECTION 4.09. Assistant Secretaries................................. 8
SECTION 4.10. The Treasurer......................................... 9
SECTION 4.11. Assistant Treasurers.................................. 9
ARTICLE V
CHECKS, DRAFTS, NOTES, AND PROXIES
----------------------------------
SECTION 5.01. Checks, Drafts and Notes.............................. 9
SECTION 5.02. Execution of Proxies.................................. 9
ARTICLE VI
SHARES AND TRANSFERS OF SHARES
------------------------------
SECTION 6.01. Certificates Evidencing Shares......................... 10
SECTION 6.02. Stock Ledger........................................... 10
SECTION 6.03. Transfers of Shares.................................... 10
SECTION 6.04. Addresses of Stockholders.............................. 11
SECTION 6.05. Lost, Destroyed and Mutilated Certificates............. 11
SECTION 6.06. Regulations............................................ 11
SECTION 6.07. Fixing Date for Determination of Stockholders of Record 11
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
ARTICLE VII
SEAL
----
SECTION 7.01. Seal.................................................. 12
ARTICLE VIII
FISCAL YEAR
-----------
SECTION 8.01. Fiscal Year........................................... 12
ARTICLE IX
INDEMNIFICATION AND INSURANCE
-----------------------------
SECTION 9.01. Indemnification....................................... 12
SECTION 9.02. Insurance for Indemnification......................... 15
ARTICLE X
AMENDMENTS
----------
SECTION 10.01. Amendments............................................ 15
</TABLE>
iii
<PAGE>
1
BY-LAWS
OF
PII SECOND, INC.
ARTICLE I
OFFICES
-------
SECTION 1.01. Registered Office. The registered office of PII Second,
-----------------
Inc. (the "Corporation") in the State of Delaware shall be at the principal
-----------
office of The Corporation Trust Company in the City of Wilmington, County of New
Castle, and the registered agent in charge thereof shall be The Corporation
Trust Company.
SECTION 1.02. Other Offices. The Corporation may also have an office
-------------
or offices at any other place or places within or without the State of Delaware
as the Board of Directors of the Corporation (the "Board") may from time to time
-----
determine or the business of the Corporation may from time to time require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
SECTION 2.01. Annual Meetings. The annual meeting of stockholders of
---------------
the Corporation for the election of directors of the Corporation ("Directors"),
---------
and for the transaction of such other business as may properly come before such
meeting, shall be held at such place, date and time as shall be fixed by the
Board and designated in the notice or waiver of notice of such annual meeting;
provided, however, that no annual meeting of stockholders need be held if all
- -------- -------
actions, including the election of Directors, required by the General
Corporation Law of the State of Delaware (the "General Corporation Law") to be
-----------------------
taken at such annual meeting are taken by written consent in lieu of meeting
pursuant to Section 2.09 hereof.
SECTION 2.02. Special Meetings. Special meetings of stockholders for
----------------
any purpose or purposes may be called by the Board or the Chairman of the Board,
the President or the Secretary of the Corporation or by the recordholders of at
least a majority of the shares of common stock of the Corporation issued and
outstanding ("Shares") and entitled to
------
<PAGE>
2
vote thereat, to be held at such place, date and time as shall be designated in
the notice or waiver of notice thereof.
SECTION 2.03. Notice of Meetings. (a) Except as otherwise provided by
------------------
law, written notice of each annual or special meeting of stockholders stating
the place, date and time of such meeting and, in the case of a special meeting,
the purpose or purposes for which such meeting is to be held, shall be given
personally or by first-class mail (airmail in the case of international
communications) to each recordholder of Shares (a "Stockholder") entitled to
-----------
vote thereat, not less than 10 nor more than 60 days before the date of such
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail, postage prepaid, directed to the Stockholder at such
Stockholder's address as it appears on the records of the Corporation. If, prior
to the time of mailing, the Secretary of the Corporation (the "Secretary") shall
---------
have received from any Stockholder a written request that notices intended for
such Stockholder are to be mailed to some address other than the address that
appears on the records of the Corporation, notices intended for such Stockholder
shall be mailed to the address designated in such request.
(b) Notice of a special meeting of Stockholders may be given by the
person or persons calling the meeting, or, upon the written request of such
person or persons, such notice shall be given by the Secretary on behalf of such
person or persons. If the person or persons calling a special meeting of
Stockholders give notice thereof, such person or persons shall deliver a copy of
such notice to the Secretary. Each request to the Secretary for the giving of
notice of a special meeting of Stockholders shall state the purpose or purposes
of such meeting.
SECTION 2.04. Waiver of Notice. Notice of any annual or special
----------------
meeting of Stockholders need not be given to any Stockholder who files a written
waiver of notice with the Secretary, signed by the person entitled to notice,
whether before or after such meeting. Neither the business to be transacted at,
nor the purpose of, any meeting of Stockholders need be specified in any written
waiver of notice thereof. Attendance of a Stockholder at a meeting, in person or
by proxy, shall constitute a waiver of notice of such meeting, except when such
Stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the grounds that
the notice of such meeting was inadequate or improperly given.
SECTION 2.05. Adjournments. Whenever a meeting of Stockholders, annual
------------
or special, is adjourned to another date, time or place, notice need not be
given of the adjourned meeting if the date, time and place thereof are announced
at the meeting at which the adjournment is taken. If the adjournment is for more
than 30 days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
Stockholder entitled to vote thereat. At the adjourned
<PAGE>
3
meeting, any business may be transacted which might have been transacted at the
original meeting.
SECTION 2.06. Quorum. Except as otherwise provided by law or the
------
Certificate of Incorporation of the Corporation (the "Certificate of
--------------
Incorporation"), the recordholders of a majority of the Shares entitled to vote
- -------------
thereat, present in person or by proxy, shall constitute a quorum for the
transaction of business at all meetings of Stockholders, whether annual or
special. If, however, such quorum shall not be present in person or by proxy at
any meeting of Stockholders, the Stockholders entitled to vote thereat may
adjourn the meeting from time to time in accordance with Section 2.05 hereof
until a quorum shall be present in person or by proxy.
SECTION 2.07. Voting. Each Stockholder shall be entitled to one vote
------
for each Share held of record by such Stockholder. Except as otherwise provided
by law or the Certificate of Incorporation, when a quorum is present at any
meeting of Stockholders, the vote of the recordholders of a majority of the
Shares constituting such quorum shall decide any question brought before such
meeting.
SECTION 2.08. Proxies. Each Stockholder entitled to vote at a meeting
-------
of Stockholders or to express, in writing, consent to or dissent from any action
of Stockholders without a meeting may authorize another person or persons to act
for such Stockholder by proxy. Such proxy shall be filed with the Secretary
before such meeting of Stockholders or such action of Stockholders without a
meeting, at such time as the Board may require. No proxy shall be voted or acted
upon more than three years from its date, unless the proxy provides for a longer
period.
SECTION 2.09. Stockholders' Consent in Lieu of Meeting. Any action
----------------------------------------
required by the General Corporation Law to be taken at any annual or special
meeting of Stockholders, and any action which may be taken at any annual or
special meeting of Stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the recordholders of Shares having not less than the
minimum number of votes necessary to authorize or take such action at a meeting
at which the recordholders of all Shares entitled to vote thereon were present
and voted.
ARTICLE III
BOARD OF DIRECTORS
------------------
SECTION 3.01. General Powers. The business and affairs of the
--------------
Corporation shall be managed by the Board, which may exercise all such powers of
the
<PAGE>
4
Corporation and do all such lawful acts and things as are not by law, the
Certificate of Incorporation or these By-laws directed or required to be
exercised or done by Stockholders.
SECTION 3.02. Number and Term of Office. The number of Directors shall
-------------------------
be six or such other number as shall be fixed from time to time by the Board.
Directors need not be Stockholders. Directors shall be elected at the annual
meeting of Stockholders or, if, in accordance with Section 2.01 hereof, no such
annual meeting is held, by written consent in lieu of meeting pursuant to
Section 2.09 hereof, and each Director shall hold office until his successor is
elected and qualified, or until his earlier death or resignation or removal in
the manner hereinafter provided.
SECTION 3.03. Resignation. Any Director may resign at any time by
-----------
giving written notice to the Board, the Chairman of the Board of the Corporation
(the "Chairman") or the Secretary. Such resignation shall take effect at the
--------
time specified in such notice or, if the time be not specified, upon receipt
thereof by the Board, the Chairman or the Secretary, as the case may be. Unless
otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective.
SECTION 3.04. Removal. Any or all of the Directors may be removed,
-------
with or without cause, at any time by vote of the recordholders of a majority of
the Shares then entitled to vote at an election of Directors, or by written
consent of the recordholders of Shares pursuant to Section 2.09 hereof.
SECTION 3.05. Vacancies. Vacancies occurring on the Board as a result
---------
of the removal of Directors without cause may be filled only by vote of the
recordholders of a majority of the Shares then entitled to vote at an election
of Directors, or by written consent of such recordholders pursuant to Section
2.09 hereof. Vacancies occurring on the Board for any other reason, including,
without limitation, vacancies occurring as a result of the creation of new
directorships that increase the number of Directors, may be filled by such vote
or written consent or by vote of the Board or by written consent of the
Directors pursuant to Section 3.08 hereof. If the number of Directors then in
office is less than a quorum, such other vacancies may be filled by vote of a
majority of the Directors then in office or by written consent of all such
Directors pursuant to Section 3.08 hereof. Unless earlier removed pursuant to
Section 3.04 hereof, each Director chosen in accordance with this Section 3.05
shall hold office until the next annual election of Directors by the
Stockholders and until his successor shall be elected and qualified.
SECTION 3.06. Meetings. (a) Annual Meetings. As soon as practicable
-------- ---------------
after each annual election of Directors by the Stockholders, the Board shall
meet for the purpose of organization and the transaction of other business,
unless it shall have transacted all such business by written consent pursuant to
Section 3.08 hereof.
<PAGE>
5
(b) Other Meetings. Other meetings of the Board shall be held at such
--------------
times as the Chairman, the President of the Corporation (the "President"), the
---------
Secretary or a majority of the Board shall from time to time determine.
(c) Notice of Meetings. The Secretary shall give written notice to
------------------
each Director of each meeting of the Board, which notice shall state the place,
date, time and purpose of such meeting. Notice of each such meeting shall be
given to each Director, if by mail, addressed to him at his residence or usual
place of business, at least two days before the day on which such meeting is to
be held, or shall be sent to him at such place by telecopy, telegraph, cable, or
other form of recorded communication, or be delivered personally or by telephone
not later than the day before the day on which such meeting is to be held. A
written waiver of notice, signed by the Director entitled to notice, whether
before or after the time of the meeting referred to in such waiver, shall be
deemed equivalent to notice. Neither the business to be transacted at, nor the
purpose of any meeting of the Board need be specified in any written waiver of
notice thereof. Attendance of a Director at a meeting of the Board shall
constitute a waiver of notice of such meeting, except as provided by law.
(d) Place of Meetings. The Board may hold its meetings at such place
-----------------
or places within or without the State of Delaware as the Board or the Chairman
may from time to time determine, or as shall be designated in the respective
notices or waivers of notice of such meetings.
(e) Quorum and Manner of Acting. One-third of the total number of
---------------------------
Directors then in office (but in no event less than two if the total number of
directorships, including vacancies, is greater than one and in no event a number
less than one-third of the total number of directorships, including vacancies)
shall be present in person at any meeting of the Board in order to constitute a
quorum for the transaction of business at such meeting, and the vote of a
majority of those Directors present at any such meeting at which a quorum is
present shall be necessary for the passage of any resolution or act of the
Board, except as otherwise expressly required by law, the Certificate of
Incorporation or these By-laws. In the absence of a quorum for any such meeting,
a majority of the Directors present thereat may adjourn such meeting from time
to time until a quorum shall be present.
(f) Organization. At each meeting of the Board, one of the following
------------
shall act as chairman of the meeting and preside, in the following order of
precedence:
(i) the Chairman;
(ii) the President;
(iii) any Director chosen by a majority of the Directors
present.
<PAGE>
6
The Secretary or, in the case of his absence, any person (who shall be an
Assistant Secretary, if an Assistant Secretary is present) whom the chairman of
the meeting shall appoint shall act as secretary of such meeting and keep the
minutes thereof.
SECTION 3.07. Committees of the Board. The Board may, by resolution
-----------------------
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more Directors. The Board may designate one or
more Directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of such committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another Director to act at the
meeting in the place of any such absent or disqualified member. Any committee of
the Board, to the extent provided in the resolution of the Board designating
such committee, shall have and may exercise all the powers and authority of the
Board in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; provided, however, that no such committee shall have such power or
-------- -------
authority in reference to amending the Certificate of Incorporation (except that
such a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board as provided
in Section 151(a) of the General Corporation Law, fix the designations and any
of the preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the Corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
of stock of the Corporation or fix the number of shares of any series of stock
or authorize the increase or decrease of the shares of any series), adopting an
agreement of merger or consolidation under Section 251 or 252 of the General
Corporation Law, recommending to the Stockholders the sale, lease or exchange of
all or substantially all the Corporation's property and assets, recommending to
the Stockholders a dissolution of the Corporation or the revocation of a
dissolution, or amending these By-laws; provided further, however, that, unless
-------- ------- -------
expressly so provided in the resolution of the Board designating such committee,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law. Each committee of
the Board shall keep regular minutes of its proceedings and report the same to
the Board when so requested by the Board.
SECTION 3.08. Directors' Consent in Lieu of Meeting. Any action
-------------------------------------
required or permitted to be taken at any meeting of the Board or of any
committee thereof may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by all the members of the Board or such committee and such
consent is filed with the minutes of the proceedings of the Board or such
committee.
<PAGE>
7
SECTION 3.09. Action by Means of Telephone or Similar Communications
------------------------------------------------------
Equipment. Any one or more members of the Board, or of any committee thereof,
- ---------
may participate in a meeting of the Board or such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.
SECTION 3.10. Compensation. Unless otherwise restricted by the
------------
Certificate of Incorporation, the Board may determine the compensation of
Directors. In addition, as determined by the Board, Directors may be reimbursed
by the Corporation for their expenses, if any, in the performance of their
duties as Directors. No such compensation or reimbursement shall preclude any
Director from serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV
OFFICERS
--------
SECTION 4.01. Officers. The officers of the Corporation shall be the
--------
Chairman, the President, the Secretary and a Treasurer and may include one or
more Vice Presidents and one or more Assistant Secretaries and one or more
Assistant Treasurers. Any two or more offices may be held by the same person.
SECTION 4.02. Authority and Duties. All officers shall have such
--------------------
authority and perform such duties in the management of the Corporation as may be
provided in these By-laws or, to the extent not so provided, by resolution of
the Board.
SECTION 4.03. Term of Office, Resignation and Removal. (a) Each
---------------------------------------
officer shall be appointed by the Board and shall hold office for such term as
may be determined by the Board. Each officer shall hold office until his
successor has been appointed and qualified or his earlier death or resignation
or removal in the manner hereinafter provided. The Board may require any officer
to give security for the faithful performance of his duties.
(b) Any officer may resign at any time by giving written notice to the
Board, the Chairman, the President or the Secretary. Such resignation shall take
effect at the time specified in such notice or, if the time be not specified,
upon receipt thereof by the Board, the Chairman, the President or the Secretary,
as the case may be. Unless otherwise specified therein, acceptance of such
resignation shall not be necessary to make it effective.
<PAGE>
8
(c) All officers and agents appointed by the Board shall be subject to
removal, with or without cause, at any time by the Board or by the action of the
recordholders of a majority of the Shares entitled to vote thereon.
SECTION 4.04. Vacancies. Any vacancy occurring in any office of the
---------
Corporation, for any reason, shall be filled by action of the Board. Unless
earlier removed pursuant to Section 4.03 hereof, any officer appointed by the
Board to fill any such vacancy shall serve only until such time as the unexpired
term of his predecessor expires unless reappointed by the Board.
SECTION 4.05. The Chairman. The Chairman shall have the power to call
------------
special meetings of Stockholders, to call special meetings of the Board and, if
present, to preside at all meetings of Stockholders and all meetings of the
Board. The Chairman shall perform all duties incident to the office of Chairman
of the Board and all such other duties as may from time to time be assigned to
him by the Board or these By-laws.
SECTION 4.06. The President. The President shall be the chief
-------------
executive officer of the Corporation and shall have general and active
management and control of the business and affairs of the Corporation, subject
to the control of the Board, and shall see that all orders and resolutions of
the Board are carried into effect. The President shall perform all duties
incident to the office of President and all such other duties as may from time
to time be assigned to him by the Board or these By-laws.
SECTION 4.07. Vice Presidents. Vice Presidents, if any, in order of
---------------
their seniority or in any other order determined by the Board, shall generally
assist the President and perform such other duties as the Board or the President
shall prescribe, and in the absence or disability of the President, shall
perform the duties and exercise the powers of the President.
SECTION 4.08. The Secretary. The Secretary shall, to the extent
-------------
practicable, attend all meetings of the Board and all meetings of Stockholders
and shall record all votes and the minutes of all proceedings in a book to be
kept for that purpose, and shall perform the same duties for any committee of
the Board when so requested by such committee. He shall give or cause to be
given notice of all meetings of Stockholders and of the Board, shall perform
such other duties as may be prescribed by the Board, the Chairman or the
President and shall act under the supervision of the Chairman. He shall keep in
safe custody the seal of the Corporation and affix the same to any instrument
that requires that the seal be affixed to it and which shall have been duly
authorized for signature in the name of the Corporation and, when so affixed,
the seal shall be attested by his signature or by the signature of the Treasurer
of the Corporation (the "Treasurer") or an Assistant Secretary or Assistant
--------- --
Treasurer of the Corporation. He shall keep in safe custody the certificate
books and stockholder records and such other books and records of the
Corporation as the Board,
<PAGE>
9
the Chairman or the President may direct and shall perform all other duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the Board, the Chairman or the President.
SECTION 4.09. Assistant Secretaries. Assistant Secretaries of the
---------------------
Corporation ("Assistant Secretaries"), if any, in order of their seniority or in
- ---------------------
any other order determined by the Board, shall generally assist the Secretary
and perform such other duties as the Board or the Secretary shall prescribe,
and, in the absence or disability of the Secretary, shall perform the duties and
exercise the powers of the Secretary.
SECTION 4.10. The Treasurer. The Treasurer shall have the care and
-------------
custody of all the funds of the Corporation and shall deposit such funds in such
banks or other depositories as the Board, or any officer or officers, or any
officer and agent jointly, duly authorized by the Board, shall, from time to
time, direct or approve. He shall disburse the funds of the Corporation under
the direction of the Board and the President. He shall keep a full and accurate
account of all moneys received and paid on account of the Corporation and shall
render a statement of his accounts whenever the Board, the Chairman or the
President shall so request. He shall perform all other necessary actions and
duties in connection with the administration of the financial affairs of the
Corporation and shall generally perform all the duties usually appertaining to
the office of treasurer of a corporation. When required by the Board, he shall
give bonds for the faithful discharge of his duties in such sums and with such
sureties as the Board shall approve.
SECTION 4.11. Assistant Treasurers. Assistant Treasurers of the
--------------------
Corporation ("Assistant Treasurers"), if any, in order of their seniority or in
--------------------
any other order determined by the Board, shall generally assist the Treasurer
and perform such other duties as the Board or the Treasurer shall prescribe,
and, in the absence or disability of the Treasurer, shall perform the duties and
exercise the powers of the Treasurer.
ARTICLE V
CHECKS, DRAFTS, NOTES, AND PROXIES
----------------------------------
SECTION 5.01. Checks, Drafts and Notes. All checks, drafts and other
------------------------
orders for the payment of money, notes and other evidences of indebtedness
issued in the name of the Corporation shall be signed by such officer or
officers, agent or agents of the Corporation and in such manner as shall be
determined, from time to time, by resolution of the Board.
SECTION 5.02. Execution of Proxies. The Chairman or the President, or,
--------------------
in the absence or disability of both of them, any Vice President, may authorize,
from time to
<PAGE>
10
time, the execution and issuance of proxies to vote shares of stock or other
securities of other corporations held of record by the Corporation and the
execution of consents to action taken or to be taken by any such corporation.
All such proxies and consents, unless otherwise authorized by the Board, shall
be signed in the name of the Corporation by the Chairman, the President or any
Vice President.
ARTICLE VI
SHARES AND TRANSFERS OF SHARES
------------------------------
SECTION 6.01. Certificates Evidencing Shares. Shares shall be
------------------------------
evidenced by certificates in such form or forms as shall be approved by the
Board. Certificates shall be issued in consecutive order and shall be numbered
in the order of their issue, and shall be signed by the Chairman, the President
or any Vice President and by the Secretary, any Assistant Secretary, the
Treasurer or any Assistant Treasurer. If such a certificate is manually signed
by one such officer, any other signature on the certificate may be a facsimile.
In the event any such officer who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to hold such office or to be
employed by the Corporation before such certificate is issued, such certificate
may be issued by the Corporation with the same effect as if such officer had
held such office on the date of issue.
SECTION 6.02. Stock Ledger. A stock ledger in one or more counterparts
------------
shall be kept by the Secretary, in which shall be recorded the name and address
of each person, firm or corporation owning the Shares evidenced by each
certificate evidencing Shares issued by the Corporation, the number of Shares
evidenced by each such certificate, the date of issuance thereof and, in the
case of cancellation, the date of cancellation. Except as otherwise expressly
required by law, the person in whose name Shares stand on the stock ledger of
the Corporation shall be deemed the owner and recordholder thereof for all
purposes.
SECTION 6.03. Transfers of Shares. Registration of transfers of Shares
-------------------
shall be made only in the stock ledger of the Corporation upon request of the
registered holder of such shares, or of his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary, and upon the
surrender of the certificate or certificates evidencing such Shares properly
endorsed or accompanied by a stock power duly executed, together with such proof
of the authenticity of signatures as the Corporation may reasonably require.
SECTION 6.04. Addresses of Stockholders. Each Stockholder shall
-------------------------
designate to the Secretary an address at which notices of meetings and all other
corporate notices may be served or mailed to such Stockholder, and, if any
Stockholder shall fail to so designate such an address, corporate notices may be
served upon such Stockholder by mail directed to
<PAGE>
11
the mailing address, if any, as the same appears in the stock ledger of the
Corporation or at the last known mailing address of such Stockholder.
SECTION 6.05. Lost, Destroyed and Mutilated Certificates. Each
------------------------------------------
recordholder of Shares shall promptly notify the Corporation of any loss,
destruction or mutilation of any certificate or certificates evidencing any
Share or Shares of which he is the recordholder. The Board may, in its
discretion, cause the Corporation to issue a new certificate in place of any
certificate theretofore issued by it and alleged to have been mutilated, lost,
stolen or destroyed, upon the surrender of the mutilated certificate or, in the
case of loss, theft or destruction of the certificate, upon satisfactory proof
of such loss, theft or destruction, and the Board may, in its discretion,
require the recordholder of the Shares evidenced by the lost, stolen or
destroyed certificate or his legal representative to give the Corporation a bond
sufficient to indemnify the Corporation against any claim made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
SECTION 6.06. Regulations. The Board may make such other rules and
-----------
regulations as it may deem expedient, not inconsistent with these By-laws,
concerning the issue, transfer and registration of certificates evidencing
Shares.
SECTION 6.07. Fixing Date for Determination of Stockholders of Record.
-------------------------------------------------------
In order that the Corporation may determine the Stockholders entitled to notice
of or to vote at any meeting of Stockholders or any adjournment thereof, or to
express consent to, or to dissent from, corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which shall not be more
than 60 nor less than 10 days before the date of such meeting, nor more than 60
days prior to any other such action. A determination of the Stockholders
entitled to notice of or to vote at a meeting of Stockholders shall apply to any
adjournment of such meeting; provided, however, that the Board may fix a new
-------- -------
record date for the adjourned meeting.
ARTICLE VII
SEAL
----
SECTION 7.01. Seal. The Board may approve and adopt a corporate seal,
----
which shall be in the form of a circle and shall bear the full name of the
Corporation, the year of its incorporation and the words "Corporate Seal
Delaware".
<PAGE>
12
ARTICLE VIII
FISCAL YEAR
-----------
SECTION 8.01. Fiscal Year. The fiscal year of the Corporation shall
-----------
end on the thirty-first day of December of each year unless changed by
resolution of the Board.
ARTICLE IX
INDEMNIFICATION AND INSURANCE
-----------------------------
SECTION 9.01. Indemnification. (a) The Corporation shall indemnify any
---------------
person who was or is a party or is threatened to be made a party 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 the Corporation) by reason of the fact that he or she 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, partnership, joint venture, trust or other enterprise,
against 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 if such person acted in good faith and in a
manner such person reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
---- -----------
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he or she 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,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
<PAGE>
13
unless and only to the extent that the Court of Chancery of the State of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 9.01(a) and (b) of these By-
laws, or in defense of any claim, issue or matter therein, he or she shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith.
(d) Any indemnification under Section 9.01(a) and (b) of these By-laws
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in Section 9.01(a) and (b) of
these By-laws. Such determination shall be made (i) by the Board by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if
obtainable, a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (iii) by the stockholders of the Corporation.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he or she is not entitled to be
indemnified by the Corporation pursuant to this Article IX. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, other Sections of this Article IX shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.
(g) For purposes of this Article IX, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors,
<PAGE>
14
officers, employees or agents so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was serving
at the request of such constituent corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article IX with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(h) For purposes of this Article IX, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves service by, such director, officer, employee or
agent with respect to any employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he or she
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this Article
IX.
(i) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article IX shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 9.02. Insurance for Indemnification. The Corporation may
-----------------------------
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, partnership, joint venture, trust or other enterprise,
against any liability asserted against such person and incurred by such person
in any such capacity, or arising out of his or her status as such, whether or
not the Corporation would have the power to indemnify such person against such
liability under the provisions of Section 145 of the General Corporation Law.
ARTICLE X
AMENDMENTS
----------
SECTION 10.01. Amendments. Any By-law (including these By-laws) may be
----------
adopted, amended or repealed by the vote of the recordholders of a majority of
the Shares then entitled to vote at an election of Directors or by written
consent of Stockholders
<PAGE>
15
pursuant to Section 2.09 hereof, or by vote of the Board or by a written consent
of Directors pursuant to Section 3.08 hereof.
<PAGE>
EXHIBIT 3.9
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PPC ACQUISITION CORP.
==============================
Adopted in accordance with Section
242 of the General Corporation
Law of the State of Delaware
PPC Acquisition Corp., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), DOES HEREBY CERTIFY THAT:
1. The Board of Directors of the Corporation, pursuant to unanimous
written consent and in accordance with Sections 141(f) and 242 of the General
Corporation Law of the State of Delaware, adopted a resolution proposing and
declaring advisable the following amendment to the Certificate of Incorporation
of the Corporation:
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by striking out Article I thereof, and inserting in lieu the
following language in lieu thereof, so that, as amended, the text of said
Article shall read as follows:
"The name of the corporation is Pioneer Plastics Corporation."
2. In lieu of a meeting and vote of the sole stockholder, the sole
stockholder, pursuant to unanimous written consent, approved and adopted the
amendment in accordance with the provisions of Section 228 of the General
Corporation Law of the State of Delaware.
3. The foregoing amendment was duly adopted in accordance with the
applicable provisions of Sections 242 and 228 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed as of July 21, 1995, by J. Lyndon Hill, its Vice
President, declaring that the facts herein stated are true.
/s/ J. Lyndon Hill
--------------------------
J. Lyndon Hill
Vice President
<PAGE>
CERTIFICATE OF INCORPORATION
----------------------------
OF
--
PPC ACQUISITION CORP.
---------------------
The undersigned incorporator, desiring to form a corporation (hereinafter
referred to as the "Corporation") pursuant to the provisions of the General
Corporation Law of Delaware, as amended (hereinafter referred to as the
"G.C.L."), certifies the following:
ARTICLE I
---------
Name
----
The name of the Corporation is PPC Acquisition Corp.
ARTICLE II
----------
Registered Office and Registered Agent
--------------------------------------
The street address of the registered office in Delaware of the Corporation
is Corporation Trust Center, 1209 Orange Street, Wilmington, Mew Castle County,
Delaware 19801, and the name of the Corporation's initial registered agent, at
such address, is The Corporation Trust Company.
ARTICLE III
-----------
Purposes and Powers
-------------------
Section 3.1. Purposes. The purpose for which the Corporation is formed is
----------- --------
to engage in any lawful act or activity for which corporations may be organized
under the G.C.L.
Section 3.2. Powers. The Corporation shall have any and all powers which
----------- ------
a corporation incorporated and existing under the G.C.L., as it shall be amended
from time to time, may have.
Section 3.3. Limiting Clause. Nothing contained in this Article shall be
----------- ---------------
construed to authorize the conduct or carrying on by the Corporation of any
business or activities of any nature which are not permitted to be conducted or
carried on by a corporation organized and existing under the G.C.L., as it shall
be amended from time to time.
<PAGE>
ARTICLE IV
----------
Authorized Shares
-----------------
Section 4.1. Number. The total number of authorized shares of the
----------- ------
Corporation is 1,000 shares with a par value of $1.00 per share.
Section 4.2. Designation. The authorized shares of the Corporation shall
----------- -----------
be of one (1) class and kind and shall be designated as common shares. The
shares may be issued by the Corporation originally, and such shares as are
reacquired by the Corporation from time to time and not cancelled may be sold or
otherwise disposed of for such consideration and upon such terms and conditions
as may from time to time be determined and fixed by the Board of Directors.
Section 4.3. Dividends. Such cash or property distributions with respect
----------- ---------
to shares as may be determined by the Board of Directors may be declared from
time to time to the extent that such distributions may be made pursuant the
provisions of the G.C.L., as it shall be amended from time to time, or any
successor thereto.
Section 4.4. Voting Rights. The record holder of each authorized, issued
----------- -------------
and outstanding common share shall be entitled to one (1) vote at all
shareholders' meetings upon all questions.
Sections 4.5. No Pre-emptive Rights. Shareholders shall have no pre-
------------ ---------------------
emptive rights to subscribe to or purchase any shares of common stock or other
securities of the Corporation.
ARTICLE V
---------
Incorporator
------------
Section 5.1. Name and Address. The name and mailing address of the
----------- ----------------
incorporator of the Corporation are as follows:
Name Number and Street City and State
---- ----------------- --------------
Mark A. Bailey 50 South Meridian Indianapolis, Indiana
Street, Suite 700 46204
Section 5.2. Powers. The powers of the incorporator shall not terminate
----------- ------
upon the filing of this Certificate of Incorporation.
ARTICLE VI
----------
Term of Existence
-----------------
The period during which the Corporation shall continue is perpetual.
-2-
<PAGE>
ARTICLE VII
-----------
Indemnification of Officers, Directors and Other Persons
--------------------------------------------------------
Section 7.1. Extent of Indemnification. (a) To the extent not prohibited
----------- -------------------------
by Delaware law, every person (and the heirs and personal representatives of
such person) who is or was a Director, officer, trustee, member of a committee
appointed by the Board of Directors, employee or agent of the Corporation or who
at the request of the Corporation is or was a Director, officer, trustee,
committee member, employee or agent of another corporation or is or was acting
in any capacity in a partnership, joint venture, trust or other enterprise,
shall be indemnified by the Corporation against all liability and reasonable
expense that may be incurred by him in connection with or resulting from any
non-criminal claim, action, suit or proceeding in the following instances:
(i) if such Director, officer, trustee, committee
member, employee or agent is wholly successful with respect
to such claim, action, suit or proceeding, or
(ii) if not wholly successful, then if such Director,
officer, trustee, committee member, employee or agent is
determined, as provided in paragraph (e), to have acted in
good faith, and the individual reasonably believed (A) in
the case of conduct in the individual's official capacity
with the Corporation, that the individual's conduct was in
its best interests and (B) in all other cases, that the
individual's conduct was at least not opposed to the
Corporation's best interests.
(b) With respect to any criminal action or proceeding, every person
described in Subsection 7.1(a) shall be indemnified to the extent provided in
Subsection 7.1(a) if the individual either
(i) had reasonable cause to believe that his or her
conduct was lawful, or
(ii) had no reasonable cause to believe that his or her
conduct was unlawful.
(c) The termination of any claim, action, suit or proceeding, by judgment,
settlement (whether with or without court approval), or conviction or upon a
plea of guilty or of nolo contendere, or its equivalent, shall not create a
---------------
presumption that a Director, officer, trustee, committee member, employee or
agent did not meet the standards of conduct set forth in Subsections 7.1(a) or
7.1(b).
-3-
<PAGE>
Section 7.2. Definitions. (a) The terms "claim, action, suit or
----------- -----------
proceeding" shall include every claim, action, suit or proceeding and all
appeals thereof (whether brought by or in the right of this Corporation or any
other corporation or otherwise), civil, criminal, administrative or
investigative, or threat thereof, in which a Director, officer, trustee,
committee member, employee or agent of the Corporation (or his heirs and
personal representatives) may become involved, as a party or otherwise:
(i) by reason of his being or having been a
Director, officer, trustee, committee member, employee or
agent of this Corporation or of any other corporation where
he served as such at the request of this Corporation, or
(ii) by reason of his acting or having acted in any
capacity in a partnership, joint venture, association,
trust, or other organization or entity where he served as
such at the request of this Corporation, or
(iii) by reason of any action taken or not taken by
him in any such capacity, whether or not he continues in
such capacity at the time such liability or expense shall
have been incurred.
(b) The terms "liability" and "expense" shall include, but shall not be
limited to, counsel fees and disbursements and amounts of judgments, fines or
penalties against, and amounts paid in settlement by or on behalf of, a
Director, officer, trustee, committee member, employee or agent.
(c) The term "wholly successful" shall mean
(i) termination of any action, suit or proceeding
against the person in question without any finding of
liability or guilt against him,
(ii) approval by a court, with knowledge of the
indemnity herein provided, of a settlement of any action,
suit or proceeding, or
(iii) the expiration of a reasonable period of time
after the making of any claim or threat of an action, suit
or proceeding without the institution of the same, without
any payment or promise made to induce a settlement.
-4-
<PAGE>
Section 7.3. Procedure for Claiming Indemnification. Every person
----------- --------------------------------------
claiming indemnification hereunder (other than one who has been wholly
successful with respect to any claim, action, suit or proceeding) shall be
entitled to indemnification if:
(a) special independent legal counsel, which may be regular counsel of the
Corporation or another disinterested person or persons, in either case selected
by the Board of Directors, whether or not a disinterested quorum exists (such
counsel or person or persons being hereinafter referred to as "Referee"), shall
deliver to the Corporation a written finding that such Director, officer,
trustee, committee member, employee or agent has met the standards of conduct
set forth in Section 7.1, and
(b) the Board of Directors, acting upon such written finding, so
determines.
The person claiming indemnification shall, if requested, appear before the
Referee, answer questions which the Referee deems relevant and shall be given
ample opportunity to present to the Referee evidence upon which he relies for
indemnification. The Corporation shall, at the request of the Referee, make
available facts, opinions or other evidence in any way relevant to the Referee's
finding which are within the possession or control of the Corporation.
Section 7.4. No Limit to Other Rights. The rights of indemnification
----------- ------------------------
provided in this Article VII shall be in addition to any rights to which any
such Director, officer, trustee, committee member, employee or agent may
otherwise be entitled. Irrespective of the provisions of this Article VII, the
Board of Directors may, at any time and from time to time:
(a) approve indemnification of Directors, officers, trustees, committee
members, employees, agents or other persons to the full extent permitted by the
provisions of the G.C.L., as it shall be amended from time to time, whether on
account of past or future transactions, and
(b) authorize the Corporation to purchase and maintain insurance on behalf
of any person who is or was a Director, officer, trustee, committee member,
employee or agent of the Corporation, or who, at the request of the Corporation,
is or was a Director, officer, trustee, committee member, employee or agent of
another corporation or is or was acting in any capacity in a partnership, joint
venture, trust or other enterprise, against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability.
-5-
<PAGE>
Section 7.5. Advancement of Expenses. (a) Expenses incurred with respect
----------- -----------------------
to any claim, action, suit or proceeding may be advanced to an individual by the
Corporation (by action of the Board of Directors, whether or not a disinterested
quorum exists) prior to the final disposition thereof if:
(i) the individual furnishes the Corporation a
written affirmation of the individual's good faith belief
that such individual has met the standard of conduct
described in Section 7.1;
(ii) the individual furnishes the Corporation a
written undertaking, executed personally or on the
individual's behalf, to repay the advance if it is
ultimately determined that the individual did not meet the
standard of conduct; and
(iii) a determination is made that the facts then
known to those making the determination would not preclude
indemnification under this Article or under the applicable
provisions of the G.C.L., as it shall be amended from time
to time.
(b) The undertaking required by Subsection 7.5(a) must be an unlimited
general obligation of the individual but need not be secured and may be accepted
without reference to financial ability to make repayment.
(c) Determinations and authorizations of payments under this section shall
be made in the manner specified in Section 7.3.
ARTICLE VIII
------------
Provisions for Regulation of Business
-------------------------------------
and Conduct of Affairs of Corporation
-------------------------------------
Section 8.1. Code of By-Laws. The Board of Directors of the Corporation
----------- ---------------
shall have powers, without the assent or vote of the shareholders, to make,
alter, amend or repeal the Code of By-Laws of the Corporation; provided,
however, the affirmative vote of the majority of the members of the Board of
Directors, for the time being, shall be necessary to make such Code of By-Laws
or to effect any alteration, amendment or repeal thereof.
Section 8.2. Transactions with Directors. Any contract or other
----------- ---------------------------
transaction between the Corporation and one (1) or more of its Directors, or any
firm, corporation or association of which one or more of the Directors of the
Corporation are members, shareholders, directors, officers or employees, or in
which they have an interest, shall be valid for all purposes if such interest
shall be disclosed or known to the Board of Directors of the Corporation and it
shall,
-6-
<PAGE>
nevertheless, authorize, approve and ratify such contract or transaction,
notwithstanding the presence of such Director or Directors at the meeting of the
Board of Directors which acts upon or in reference to, such contract or
transaction and notwithstanding the participation of such interested Director or
Directors in such action, whether counted in determining the presence of a
quorum or voting to authorize such contract or transaction. The vote of a
disinterested majority of the Directors present shall be conclusive as to the
fairness of any such contract or transaction. Any contract or other transaction
between the Corporation and any corporation in which the Corporation owns all of
the shares shall be valid and binding regardless of the fact that the Directors
and/or officers executing the contract on behalf of the Corporation are the same
or a majority of them are the same or the participating Directors or officers
are the same. This section shall not be construed to invalidate any contract or
other transaction which would otherwise be valid, or to create any liability on
the part of any Director of the Corporation which would not otherwise be
imposed, under the common and statutory law applicable thereto.
Section 8.3. Liability of Directors. A Director of the Corporation shall
----------- ----------------------
have no personal liability to the Corporation or its shareholders for monetary
damages for breach of fiduciary duty as a Director; provided, however, that this
provision shall not eliminate or limit the liability of a Director for any of
the following:
(a) Breach of Director's duty of loyalty to the Corporation or
its shareholders; or
(b) Acts or omission not in good faith or which involve
intentional misconduct or a knowing violation of law; or
(c) Causing the Corporation to pay a dividend, or approving a
stock purchase or redemption, in violation of the G.C.L.; or
(d) Any transaction from which the Director derived an improper
benefit.
Section 8.4. Reserved Rights. The Corporation reserves the right to make,
----------- ---------------
alter, amend, change or repeal any provision contained in this Certificate of
Incorporation, or any amendment thereto, or the manner now or hereafter
prescribed or permitted by the provisions of the G.C.L. or any amendment thereto
or by the provisions of any other applicable statute of the State of Delaware,
including but not limited to the right to increase or decrease the number of its
authorized shares, to reclassify, cancel or change the designation, preferences,
limitations or relative rights in connection with such shares or to create a new
class thereof, and all rights conferred by this Certificate of Incorporation, or
any amendment thereto, are granted subject to the reservations stated in this
paragraph.
-7-
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the incorporator designated in
Section 5.1, executes this Certificate of Incorporation of the Corporation on
June 7, 1995.
/s/ Mark A. Bailey
-------------------------------
Mark A. Bailey
-8-
<PAGE>
CODE OF BY-LAWS
---------------
OF
--
PPC ACQUISITION CORP.
---------------------
ARTICLE I
---------
IDENTIFICATION
--------------
SECTION 1.1. NAME. The name of the corporation is PPC Acquisition Corp.
----------- ----
("the Corporation").
SECTION 1.2. SEAL. The Board of Directors may, but is not required to,
----------- ----
adopt a seal of the Corporation and change that seal from time to time.
SECTION 1.3. FISCAL YEAR. The fiscal year of the Corporation will begin as
----------- -----------
of the opening of business on January 1 of each year and will end as of the
close of business on December 31 of that year.
ARTICLE II
----------
SHAREHOLDERS
------------
SECTION 2.1. PLACE OF MEETING. All meetings of shareholders of the
----------- ----------------
Corporation ("Shareholders") will be held at such place, within or outside of
the State of Delaware, as may be determined by the President or the Board of
Directors of the Corporation ("the Board of Directors") and specified in the
notices or waivers of notice of such meetings or proxies to represent
shareholder at such meetings.
SECTION 2.2. ANNUAL MEETINGS. Unless the Board of Directors otherwise
----------- ---------------
establishes from time to time and provides proper notice thereof, the annual
meeting of Shareholders will be held on the third Thursday in March of each
year, if such day is not a legal holiday, or if a legal holiday, then on the
next succeeding business day which is not a legal holiday. Any or all
Shareholders may participate in an annual meeting of Shareholders by, or through
the use of, any means of communication by which all Shareholders participating
simultaneously can hear each other during the meeting. A Shareholder
participating in a meeting by such means is deemed to be present in person at
the meeting.
SECTION 2.3. SPECIAL MEETINGS. The Corporation will hold a special meeting
----------- ----------------
of Shareholders: (i) on the call of the Board of Directors or the President, or
(ii) if the holders of at least twenty-five percent (25%) of all of the votes
entitled to be cast on any issued proposed to be considered at the proposed
special meeting sign, date and deliver to the Secretary one (1) or more written
demands for the meeting describing the purpose or purposes for which it is to be
held. Only business within the purpose or purposes described in the
<PAGE>
meeting notice required by Section 2.5 of this Code of By-Laws may be conducted
at a special Shareholders' meeting. Any or all Shareholders may participate in a
special meeting of shareholders by, or through the use of, any means of
communication by which all Shareholders participating simultaneously can hear
each other during the meeting. A shareholder participating in a meeting by such
means is deemed to be present in person at the meeting.
SECTION 2.4. RECORD DATE. The record date to determine shareholders
----------- -----------
entitled to notice of a meeting of Shareholders, to demand a special meeting of
Shareholders, to vote or to take any other action shall be ten (10) days before
any such meeting or action requiring a determination of Shareholders or, at the
election of the Board of Directors, such other date not exceeding seventy (70)
days before such meeting or action as shall be fixed by the Board of Directors.
SECTION 2.5. NOTICE OF MEETINGS. At least ten (10) and no more than sixty
----------- ------------------
(60) days before the date of a meeting, the Secretary of the Corporation will
mail or deliver a written or printed notice (stating the place, day and hour of
a meeting and, in case of a special meeting, the purpose or purposes for which
the meeting is called) to each Shareholder of record of the Corporation entitled
to vote at the meeting, at the address of that Shareholder which appears on the
records of the Corporation. Notice of any Shareholders' meeting may be waived in
writing by any Shareholder if the waiver sets forth in reasonable detail the
purpose or purposes for which the meeting is called and the time and place
thereof. Attendance at any meeting in person or by proxy shall constitute a
waiver of notice of such meeting.
SECTION 2.6. VOTING AT MEETINGS.
----------- ------------------
(a) VOTING RIGHTS. Every Shareholder will have the right at all
-------------
meetings of the Shareholders to one (1) vote for each share standing in his
or her name on the books of the Corporation.
(b) PROXIES. A Shareholder is entitled to vote either in person or by
-------
proxy, executed in writing by such Shareholder or by his or her duly
authorized attorney-in-fact and delivered to the Secretary of the meeting.
No proxy will be valid longer than eleven (11) months from the date of its
execution unless a longer time is expressly provided in that proxy.
(c) QUORUM AND ADJOURNMENTS. At all meetings of Shareholders, a
-----------------------
majority of the issued and outstanding shares entitled to vote at that
meeting, represented in person or by proxy, will constitute a quorum. Any
meeting of Shareholders, including both annual and special meetings and any
adjournments thereof, may be adjourned to a later date without notice other
than announcement at the meeting even though less than a quorum is present;
however, if the Board of Directors establishes a new record date, which it
must do if a meeting is adjourned to a date more than one hundred twenty
(120) days after the date fixed for
-2-
<PAGE>
the original meeting, notice of the adjourned meeting must be given to
persons who are Shareholders as of the record date.
SECTION 2.7. LIST OF SHAREHOLDERS. At least five (5) days before each
----------- --------------------
meeting of Shareholders, the Secretary will prepare or cause to be prepared a
complete list of the Shareholders of the Corporation entitled to vote at that
meeting arranged in alphabetical order with the address and number of shares
entitled to vote held by each. That list will be on file in the principal office
of the Corporation (or at such other place as is specified in the meeting
notice) throughout that five (5)-day period and at the meeting and will be
subject to inspection by any record Shareholder. The original or duplicate stock
register or transfer book will be the only evidence as to the persons who are
entitled as shareholders to examine those lists, the stock ledger or transfer
book, or to vote at such meeting.
SECTION 2.8. ACTION BY WRITTEN CONSENT.
----------- --------------------------
(a) Action required or permitted by this article to be taken at an
annual or special Shareholders' meeting may be taken without a meeting if
the action is taken by all the Shareholders entitled to vote on the action.
The action must be evidenced by a written consent (which may be executed in
counterparts) describing the action taken, signed by all the Shareholders
entitled to vote on the action, and delivered to the Corporation for
inclusion in the minutes or filing with the corporate records.
(b) Action taken under this section is effective when the last
Shareholder signs the consent unless the consent specifies a different
prior or subsequent date, in which case the action will be effective as of
the date specified in the consent.
ARTICLE III
-----------
DIRECTORS
---------
SECTION 3.1. NUMBER AND TERM OF OFFICE. The Board of Directors will consist
----------- -------------------------
of not less than one (1) nor more than five (5) members. The exact number of
members of the Board of Directors will be as specified from time to time by
resolution of the Shareholders. If not otherwise specified, there will be three
(3) members of the Board of Directors. Each Director will be elected by the
Shareholders at their annual meeting and will hold office until the next annual
meeting of shareholders or until his or her successor has been duly elected and
qualified.
SECTION 3.2. QUALIFICATIONS. Directors need not be Shareholders nor
----------- --------------
residents of the State of Delaware.
-3-
<PAGE>
SECTION 3.3. REMOVAL OF DIRECTORS AND FILLING OF VACANCIES.
----------- ----------------------------------------------
(a) The Shareholders may remove any Director, with or without cause,
and elect a successor at any meeting of Shareholders called expressly for
that purpose.
(b) If a vacancy occurs on the Board of Directors, other than by
reason of the removal of a Director from office by the Shareholders, the
remaining Directors, if any, may fill the vacancy, or, if the Directors
remaining in office constitute fewer than a quorum of the Board of
Directors, they may fill the vacancy by the affirmative vote of a majority
of all the Directors remaining in office. If no Directors remain, any
vacancy may be filled only by vote of the Shareholders at any annual or
special meeting thereof.
(c) Each successor Director will serve until the next annual meeting
of the Shareholders or until his or her successor is duly elected and
qualified.
SECTION 3.4. REGULAR MEETINGS. Regular meetings of the Board of Directors
----------- ----------------
may be held in or outside of Delaware without notice of the date, time, place,
or purpose of the meeting.
SECTION 3.5. SPECIAL MEETINGS. Special meetings of the Board of Directors
----------- ----------------
may be held in or outside of Delaware and must be preceded by at least one (1)
day's notice of the date, time and place of the meeting. The notice does not
need to describe the purpose of the special meeting.
SECTION 3.6. WAIVER OF NOTICE.
----------- -----------------
(a) A Director may waive any notice required by the Article of
Incorporation of the Corporation, this Code of By-laws or (to the extent
permitted by the Delaware General Corporation Law, as it shall be amended
from time to time (the "DGCL")) the DGCL before or after the date and time
stated in the notice. Except as' otherwise provided in subsection (b), the
waiver must be in writing, signed by the Director entitled to the notice
and filed with the minutes or corporate records of the Corporation.
(b) A Director's attendance at or participation in a meeting waives
any required notice to the Director of the meeting unless the Director, at
the beginning of the meeting (or promptly upon the Director's arrival),
objects to holding the meeting or transacting business at the meeting and
does not thereafter vote for or assent to action taken at the meeting.
SECTION 3.7. QUORUM. A quorum of the Board of Directors consists of the
----------- ------
greater of (i) a majority of the number of Directors in office immediately
before the meeting begins or (ii) one-third (1/3) of the number of Directors set
forth in Section 3.1 of this Code of By-Laws.
-4-
<PAGE>
SECTION 3.8. METHOD OF PARTICIPATION. The Board of Directors may permit
----------- -----------------------
any or all Directors to participate in any regular or special meeting by, or
conduct the meeting through the use of, any means of communication by which all
Directors participating simultaneously can hear each other during the meeting. A
Director participating in a meeting by this means is deemed to be present in
person at the meeting.
SECTION 3.9. WRITTEN CONSENTS.
----------- ----------------
(a) Action required or permitted to be taken at a Board of Directors'
meeting may be taken without a meeting if the action is taken by all
members of the Board of Directors. The action must be evidenced by one (1)
or more written consents describing the action taken, signed by each
Director, and included in the minutes or filed with the corporate records
reflecting the action taken.
(b) Action taken under this section is effective when the last
Director signs the consent unless the consent specifies a different prior
or subsequent effective date, in which case the action will be effective as
of the date specified.
SECTION 3.10. COMMITTEES.
------------ ----------
(a) The Board of Directors may create one (1) or more committees and
appoint members of the Board of Directors to serve on them. Each committee
may have one (1) or more members who serve at the pleasure of the Board of
Directors.
(b) The creation of a committee and appointment of members to it must
be approved by the greater of (i) a majority of all the Directors in office
when the action is taken and (ii) the number of Directors required for a
quorum.
(c) Sections 3.4 through 3.9 of this Code of By-Laws, which govern
certain actions of the Board of Directors, apply to committees and their
members as well.
(d) Each committee may exercise such authority as is granted to it by
the Board of Directors to the extent not inconsistent with the DGCL.
ARTICLE IV
----------
OFFICERS
--------
SECTION 4.1. NUMBER OF OFFICERS. The officers of the Corporation will
----------- ------------------
consist of a President, a Secretary, a Treasurer, and such additional officers
or assistant officers as the Board of Directors from time to time elect. Any two
(2) or more offices may simultaneously be held by the same person.
-5-
<PAGE>
Section 4.2. ELECTION AND TERMS. Each officer will be elected by the Board
----------- ------------------
of Directors and will hold office at its pleasure. Any officer may be removed at
any time, with or without cause, by vote of a majority of the whole Board of
Directors, but that removal will be without prejudice to the contract rights, if
any, of the person removed; provided, however, that election as an officer will
not of itself create contract rights.
SECTION 4.3. PRESIDENT. The President will be the chief executive officer
----------- ---------
of the Corporation; will preside at all meetings of shareholders and of the
Board of Directors; will have general and active supervision, control and
management of the affairs and business of the Corporation, subject to the orders
and resolutions of the Board of Directors; will have general supervision and
direction of all officers, agents and employees of the Corporation; will see
that all orders and resolutions of the Board of Directors are carried into
effect, and, in general, will exercise such powers and perform such duties
incident to such office and such other powers and duties as may from time to
time be assigned to him or her by the Board of Directors. The President will
have full authority to execute proxies in behalf of the Corporation, to vote
shares owned by it in any other corporation, and to execute powers of attorney
appointing other corporations, partnerships, or individuals as agents of the
Corporation, all subject to the provisions of the DGCL, the Articles of
Incorporation of the Corporation and this Code of By-Laws.
SECTION 4.4. VICE PRESIDENTS. Each Vice President, if any, will assist the
----------- ---------------
President and will perform such duties as may be assigned to him or her by the
Board of Directors or the President. Unless otherwise provided by the Board of
Directors, in the absence or disability of the President, the Vice President
(or, if more than one, the Vice President first named as such by the Board of
Directors at its most recent meeting at which Vice Presidents were elected) will
execute the powers and perform the duties of the President.
SECTION 4.5. SECRETARY. The Secretary will attend all meetings of the Board
----------- ---------
of Directors and of the Shareholders and will act as secretary of those
meetings, will give or cause to be given all notices provided for in this Code
of By-Laws or required by law; will record all votes and prepare minutes of all
proceedings of the meetings of shareholders and the Board of Directors in a book
or books to be kept for that purpose; will be the custodian of the records and
the seal (if any) of the Corporation; will authenticate records of the
Corporation; will affix the seal of the Corporation, if any, to all documents,
the execution of which under seal is customary or is required by law or is
authorized in accordance with these By-Laws; will have charge of the share
certificate books of the Corporation, and will keep or cause to be kept such
books, share transfer books and share ledgers, and, in general, will exercise
such powers and perform such duties as may be from time to time assigned to him
or her by the Board of Directors or by the President.
-6-
<PAGE>
SECTION 4.6. TREASURER. The Treasurer will keep correct and complete
----------- ---------
records of account showing accurately at all times the financial condition of
the Corporation; will be the custodian of the corporate funds and securities;
will immediately deposit, in the name and to the credit of the Corporation, all
moneys and other valuable effects of the Corporation in such depositories as may
be designated by the Board of Directors; will disburse the funds of the
Corporation as may be ordered by the Board of Directors or by the President,
and, in general, will exercise such powers and perform such duties customarily
incident to that office and such other powers and duties as may from time to
time be assigned to him or her by the Board of Directors or the President.
SECTION 4.7. ASSISTANT SECRETARIES. Each Assistant Secretary, if any, will
----------- ---------------------
assist the Secretary in the performance of his or her duties. Any Assistant
Secretary will, in the absence or disability of the Secretary, exercise the
powers and perform the duties of the Secretary. Each Assistant Secretary will
exercise such other powers and perform such other duties as may from time to
time be assigned to him or her by the Board of Directors, the President or the
Secretary.
SECTION 4.8. ASSISTANT TREASURERS. Each Assistant Treasurer, if any, will
----------- --------------------
assist the Treasurer in the performance of his or her duties. Any Assistant
Treasurer will, in the absence or disability of the Treasurer, exercise the
powers and perform the duties of the Treasurer. Each Assistant Treasurer will
exercise such other powers and perform such other duties as may from time to
time be assigned to him or her by the Board of Directors, the President or the
Treasurer.
SECTION 4.9. DELEGATION OF AUTHORITY. In case of the absence of any officer
----------- -----------------------
of the Corporation, or for any reason the Board of Directors may deem
sufficient, a majority of the entire Board of Directors may transfer or delegate
the powers or duties of any officer to any other officer or officers for such
length of time as the Board of Directors will determine.
ARTICLE V
---------
SHARES
------
SECTION 5.1. CERTIFICATES. Certificates for shares of the Corporation will
----------- ------------
be in such form as is approved by the Board of Directors. Share certificates
will state the name of the Corporation and that the Corporation is organized
under Delaware law; the name of the person to whom issued, and the number and
class of shares and the designation of series, if any, the certificate
represents. Each certificate will be signed by the President or a Vice President
of the Corporation and the Secretary or an Assistant Secretary of the
Corporation.
-7-
<PAGE>
SECTION 5.2. TRANSFER OF SHARES. Except as otherwise provided by law,
----------- ------------------
transfers of shares of the Corporation, whether partially paid or fully paid,
will be made only on the books of the Corporation by the owner thereof in person
or by duly authorized attorney, on payment of all taxes thereon, if any, and
surrender for cancellation of the certificate or certificates for those shares
(except as otherwise provided in Section 5.3 of this Code of By-Laws) properly
endorsed by the holder thereof or accompanied by the proper evidence of
succession, assignment or authority to transfer, and delivered to the Secretary
or an Assistant Secretary. All share transfers will be made in accordance with
the relevant provisions of Delaware law.
SECTION 5.3. LOST, DESTROYED AND MUTILATED CERTIFICATES. The holder of any
----------- ------------------------------------------
of the shares of the Corporation will immediately notify the Corporation of any
loss, destruction or mutilation of the certificate for those shares, and the
Board of Directors may, in its discretion, cause to be issued to him a new
certificate or certificates of shares, upon the surrender of the mutilated
certificate, or, in case of loss or destruction, upon satisfactory proof of loss
or destruction. The Board of Directors may, in its discretion, require the owner
of the lost or destroyed certificate or his legal representative to give the
Corporation a bond in such sum and in such form, and with such surety or
sureties as the Board of Directors may direct, to indemnify the Corporation, its
transfer agents and registrars, if any, against any claim that may be made
against them or any of them with respect to the certificate or certificates
alleged to have been lost or destroyed, but the Board of Directors may, in its
discretion, refuse to issue a new certificate or new certificates, except upon
the order of a court having jurisdiction in such matters.
ARTICLE VI
----------
CORPORATE BOOKS
---------------
Except as otherwise provided by the laws of the State of Delaware, by the
Articles of Incorporation of the Corporation or by this Code of By-Laws, the
books and records of the Corporation may be kept at such place or places, in or
outside of the State of Delaware, as the Board of Directors may from time to
time by resolution determine.
ARTICLE VII
-----------
EXECUTION OF INSTRUMENTS
------------------------
SECTION 7.1. CHECKS, DRAFTS, ETC. All checks, drafts, bills of exchange or
----------- -------------------
other orders for the payment of money, obligations, notes or other evidences of
indebtedness of the Corporation will be signed or endorsed by such officer or
officers, employee or employees of the Corporation as will from time to time be
designated by the Board of Directors.
-8-
<PAGE>
SECTION 7.2. CONTRACTS. All contracts, agreements, deeds, conveyances,
----------- ---------
mortgages and similar instruments authorized by the Board of Directors will be
signed, unless otherwise directed by the Board of Directors or required by law,
by the President or a Vice President of the Corporation and may be attested by
the Secretary or an Assistant Secretary of the Corporation.
ARTICLE VIII
------------
AMENDMENTS TO CODE OF BY-LAWS
-----------------------------
This Code of By-Laws may be altered, amended or repealed from time to time
only by the Board of Directors at any regular or special meeting.
ARTICLE IX
----------
THE DELAWARE GENERAL CORPORATION LAW
------------------------------------
The provisions of the DGCL, as it is amended from time to time, applicable
to any of the matters not specifically covered by this Code of By-Laws are
hereby incorporated by reference in and made a part of this Code of By-Laws.
Adopted: June 8, 1995
-9-
<PAGE>
EXHIBIT 4.2
PANOLAM INDUSTRIES INTERNATIONAL, INC.
(as Issuer)
PANOLAM GROUP, INC.
PII SECOND, INC.
PANOLAM INDUSTRIES, INC.
(each a Guarantor)
$135,000,000
11 1/2 % Series A Senior Subordinated Notes due 2009
Purchase Agreement
February 10, 1999
PIONEER PLASTICS CORPORATION
(a Subsidiary Guarantor party hereto as of February 18, 1999)
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON CORPORATION
<PAGE>
$135,000,000
11 1/2 % Series A Senior Subordinated Notes due 2009
of PANOLAM INDUSTRIES INTERNATIONAL, INC.
PURCHASE AGREEMENT
February 10, 1999
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON CORPORATION
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
PANOLAM INDUSTRIES INTERNATIONAL, INC., a Delaware corporation (the
"COMPANY"), proposes to issue and sell to Donaldson, Lufkin & Jenrette
- --------
Securities Corporation ("DLJ") and Credit Suisse First Boston Corporation (each,
---
an "INITIAL PURCHASER" and, collectively, the "INITIAL PURCHASERS") an aggregate
----------------- ------------------
of $135,000,000 in principal amount of its 11 1/2 % Series A Senior Subordinated
Notes due 2009 (the "SERIES A NOTES"), subject to the terms and conditions set
--------------
forth herein. The Series A Notes are to be issued pursuant to the provisions of
an indenture (the "INDENTURE"), to be dated as of the Closing Date (as defined
---------
below), among the Company, the Guarantors (as defined below) and State Street
Bank and Trust Company, as trustee (the "TRUSTEE"). The Series A Notes and the
-------
Series B Notes (as defined below) issuable in exchange therefor are collectively
referred to herein as the "NOTES." The Notes will be fully and unconditionally
-----
guaranteed (the "GUARANTEES") as to payment of principal, interest, premium, if
----------
any, and Liquidated Damages (as defined in the Indenture), if any, on an
unsecured senior subordinated basis, jointly and severally, by each of the
entities listed on Schedule A hereto (each, a "SUBSIDIARY GUARANTOR," and
--------------------
collectively the "SUBSIDIARY GUARANTORS") and by each of the entities listed on
---------------------
Schedule B hereto (the "PARENT GUARAN-
--------------
1
<PAGE>
TORS" and, together with the Subsidiary Guarantors, each a "GUARANTOR," and
- ---- ---------
collectively the "GUARANTORS") and certain of the Company's future subsidiaries
----------
as more fully set forth in the Indenture. Capitalized terms used but not defined
herein shall have the meanings given to such terms in the Indenture.
Pursuant to the terms of a Stock Purchase Agreement (the "ACQUISITION
-----------
AGREEMENT") dated as of July 17, 1998 and as amended on September 11, 1998,
- ---------
October 16, 1998 and November 30, 1998, between Rugby USA, Inc., a Georgia
corporation ("RUGBY") and the Company, the Company will purchase (the "ACQUISI-
----- -------
TION") all of the equity securities of Pioneer Plastics Corporation, a Delaware
- ----
corporation ("PIONEER"). Upon consummation of the Acquisition, Pioneer will
-------
become a wholly owned direct subsidiary of the Company and a Subsidiary
Guarantor hereunder. In connection with the Acquisition: (i) the shareholders of
Panolam Industries Holdings, Inc., a Delaware corporation ("HOLDINGS") will
--------
purchase shares of Class A Common Stock, par value $0.01 per share, of Holdings
for an aggregate purchase price of $5,000,000, the proceeds of which shall be
contributed to the Qualified Capital Stock (as defined in the Indenture) of the
Company on the Closing Date (collectively, the "CAPITAL CONTRIBUTION"); and (ii)
--------------------
the Company and the guarantors thereunder will enter into a syndicated senior
secured credit agreement (the "CREDIT AGREEMENT") and Panolam Industries Ltd., a
----------------
Canadian corporation (the "CANADIAN SUBSIDIARY") and the guarantors thereunder
-------------------
will enter into a syndicated senior secured credit agreement (the "CANADIAN
--------
CREDIT AGREEMENT" and, together with the Credit Agreement, the "NEW CREDIT
- ---------------- ----------
AGREEMENTS"). The New Credit Agreements shall provide for term loan facilities
- ----------
in an aggregate principal amount of $105.0 million and revolving credit
facilities in an aggregate principal amount of $35.0 million. Concurrently with
the closing of the Acquisition, the Company and the Canadian Subsidiary, as
applicable, will borrow the full amount under the term loan facilities of the
New Credit Agreements (the "INITIAL BORROWINGS") and the Company will issue the
------------------
Series A Notes. The Company will apply the proceeds of the offering of the
Series A Notes, the Initial Borrowings and the Capital Contribution to (i) pay
the purchase price in connection with the Acquisition on the Closing Date, (ii)
repay all outstanding indebtedness under the Existing Credit Facilities (as
defined in the Offering Memorandum (as defined below)) on the Closing Date,
(iii) pay the fees and expenses in connection with the offering of the Series A
Notes, the Acquisition, the New Credit Agreements and the Capital Contribution,
and (iv) for general corporate purposes, all as set forth in the Offering
Memorandum.
The Acquisition, the Capital Contribution, the offering of the Series
A Notes, the execution of the New Credit Agreements and the Initial Borrowings
2
<PAGE>
thereunder, and the application of the proceeds from the Capital Contribution,
the Initial Borrowings and the issuance of the Series A Notes, as indicated in
the preceding paragraph, are referred to collectively herein as the
"TRANSACTIONS". All agreements, representations and warranties of the Company
- -------------
set forth in this agreement are made as of the date of this Agreement but after
giving pro forma effect to the Transactions.
Unless the context otherwise requires, the term "SUBSIDIARIES" shall
------------
be deemed to include all subsidiaries of the Company assuming and after giving
effect to consummation of the Acquisition. As of any time of determination, the
term "PANOLAM PARTIES" shall mean the Company and each Guarantor party to this
---------------
Agreement at such time. Upon consummation of the Acquisition on the Closing
Date, each of Pioneer and its subsidiaries, if any, shall execute a signature
page to this Agreement and shall become a Subsidiary Guarantor party hereto and
a Panolam Party hereunder. All references to "the Company, the Guarantors and
their respective subsidiaries" shall be without duplication of any of them and
shall include Pioneer and its subsidiaries, if any.
1. OFFERING MEMORANDUM. The Series A Notes will be offered and sold
-------------------
to the Initial Purchasers pursuant to one or more exemptions from the
registration requirements under the Securities Act of 1933, as amended (the
"ACT"). The Company and the Guarantors have prepared a preliminary offering
---
memorandum, dated January 6, 1999 and a supplement thereto, dated February 9,
1999 (collectively, the "PRELIMINARY OFFERING MEMORANDUM") and a final offering
-------------------------------
memorandum, dated February 10, 1999 (the "OFFERING MEMORANDUM"), relating to
-------------------
the Series A Notes and the Guarantees.
Upon original issuance thereof, and until such time as the same is no
longer required pursuant to the Indenture, the Series A Notes (and all
securities issued in exchange therefor or in substitution thereof) shall bear
the following legend; provided, that if the Initial Purchasers or their counsel
shall notify the Company in writing that Exempt Resales were made to Accredited
Institutions (as defined below), the Offering Memorandum and the following
legend will be changed and/or supplemented to reflect such Exempt Resales:
"THIS NOTE (OR ITS PREDECESSOR) HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHIN THE
3
<PAGE>
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT
AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST
HEREIN, THE HOLDER:
(1) REPRESENTS THAT, IN CONNECTION WITH EXEMPT RESALES OF THE NOTES
BY DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION AND CREDIT SUISSE
FIRST BOSTON CORPORATION (THE "INITIAL PURCHASERS"), (A) IT IS A "QUALIFIED
INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) (A
"QIB") OR (B) IT IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT;
(2) AGREES THAT, IN CONNECTION WITH RESALES AND TRANSFERS OF THE
NOTES OTHER THAN EXEMPT RESALES OF THE NOTES BY THE INITIAL PURCHASERS, IT
WILL NOT RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE ISSUER OR
ANY GUARANTOR OR ANY OF THEIR RESPECTIVE SUBSIDIARIES, (B) TO A PERSON WHOM
THE SELLER REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE 903
OR 904 OF REGULATION S UNDER THE SECURITIES ACT, (D) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (E) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501 (A)(1), (2),
(3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT) THAT, PRIOR TO SUCH
TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE TRANSFER OF THIS NOTE (THE
FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN
RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS THAN $250,000, AN
OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH TRANSFER IS IN
COMPLIANCE WITH THE SECURITIES ACT, (F) IN ACCORDANCE WITH ANOTHER
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND
BASED UPON AN OPINION OF COUNSEL
4
<PAGE>
ACCEPTABLE TO THE ISSUER), OR (G) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES
LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE
JURISDICTION; AND
(3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE OR
AN INTEREST HEREIN IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "U.S. PERSON" AND
"UNITED STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATIONS
UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A PROVISION REQUIRING THE
TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING."
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the
-------------------------------
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Company agrees to
issue and sell to the Initial Purchasers, and each Initial Purchaser agrees,
severally and not jointly, to purchase from the Company, the principal amounts
of Series A Notes set forth opposite the name of such Initial Purchaser on
Schedule C hereto at a purchase price equal to 97.0 % of the principal amount
thereof (the "PURCHASE PRICE").
--------------
3. TERMS OF OFFERING. The Initial Purchasers have advised the
-----------------
Company that the Initial Purchasers will make offers (the "EXEMPT RESALES") of
--------------
the Series A Notes purchased hereunder on the terms set forth in the Offering
Memorandum, as amended or supplemented, solely to (i) persons whom the Initial
Purchasers reasonably believe to be "qualified institutional buyers" as defined
in Rule 144A under the Act ("QIBS"), (ii) if the Initial Purchasers so notify
----
the Company, institutional "accredited investors," as defined in Rule
501(a)(1), (2), (3) or (7) under the Act, that make certain representations to
and agreement with the Company (each an "ACCREDITED INSTITUTION"), and (iii) to
----------------------
persons permitted to purchase the Series A Notes in offshore transactions in
reliance upon Regulation S under the Act (each, a "REGULATION S PURCHASER")
----------------------
(such persons specified in clauses (i), (ii) and (iii) being referred to herein
as the "ELIGIBLE PURCHASERS"). The Initial Purchasers will offer the Series A
-------------------
Notes to Eligible Purchasers initially at a price equal to 100.0 % of the
principal amount thereof. Such price may be changed at any time without notice.
5
<PAGE>
Holders (including subsequent transferees) of the Series A Notes will
have the registration rights set forth in the registration rights agreement (the
"REGISTRATION RIGHTS AGREEMENT"), to be dated the Closing Date, in
-----------------------------
substantially the form of Exhibit A hereto, for so long as such Series A Notes
constitute "TRANSFER RESTRICTED SECURITIES" (as defined in the Registration
------------------------------
Rights Agreement). Pursuant to the Registration Rights Agreement, the Company
and the Guarantors will agree to file with the Securities and Exchange
Commission (the "COMMISSION") under the circumstances set forth therein, (i) a
----------
registration statement under the Act (the "EXCHANGE OFFER REGISTRATION
---------------------------
STATEMENT") relating to the Company's 11 1/2 % Series B Senior Subordinated
- ---------
Notes due 2009 (the "SERIES B NOTES"), to be offered in exchange for the Series
--------------
A Notes (such offer to exchange being referred to as the "EXCHANGE OFFER") and
--------------
the Guarantees by the Guarantors thereof and (ii) a shelf registration statement
pursuant to Rule 415 under the Act (the "SHELF REGISTRATION STATEMENT" and,
----------------------------
together with the Exchange Offer Registration Statement, the "REGISTRATION
------------
STATEMENTS") relating to the resale by certain holders of the Series A Notes and
- ----------
to use their best efforts to cause such Registration Statements to be declared
and remain effective and usable for the periods specified in the Registration
Rights Agreement and to consummate the Exchange Offer.
This Agreement, the Indenture, the Notes, the Guarantees, the
Registration Rights Agreement, the Acquisition Agreement and the New Credit
Agreements are hereinafter sometimes referred to collectively as the "OPERATIVE
---------
DOCUMENTS."
- ---------
4. DELIVERY AND PAYMENT.
--------------------
(1) Delivery of, and payment of the Purchase Price for, the Series A
Notes shall be made at the offices of Skadden, Arps, Slate, Meagher & Flom, LLP,
919 Third Avenue, New York, New York 10022, or such other location as may be
mutually acceptable. Such delivery and payment shall be made at 9:00 a.m. New
York City time, on February 18, 1999, or at such other time on the same date or
such other date as shall be agreed upon by the Initial Purchasers and the
Company in writing. The time and date of such delivery and the payment for the
Series A Notes are herein called the "CLOSING DATE."
------------
(a) One or more of the Series A Notes in definitive global form,
registered in the name of Cede & Co., as nominee of the Depository Trust Company
("DTC"), having an aggregate principal amount corresponding to the aggregate
---
6
<PAGE>
principal amount of the Series A Notes (collectively, the "GLOBAL NOTE"), shall
-----------
be delivered by the Company to the Initial Purchasers (or as the Initial
Purchasers direct) in each case with any transfer taxes thereon duly paid by the
Company against payment by the Initial Purchasers of the Purchase Price thereof
by wire transfer in same day funds to the order of the Company. The Global Note
shall be made available to the Initial Purchasers for inspection not later than
9:30 a.m., New York City time, on the business day immediately preceding the
Closing Date.
5. AGREEMENTS OF THE PANOLAM PARTIES. Each of the Panolam Parties
---------------------------------
hereby agrees with the Initial Purchasers as follows:
(1) To advise the Initial Purchasers promptly and, if requested by the
Initial Purchasers, confirm such advice in writing, (i) of the issuance by any
state securities commission of any stop order suspending the qualification or
exemption from qualification of any Series A Notes for offering or sale in any
jurisdiction designated by the Initial Purchasers pursuant to Section 5(e)
hereof, or the initiation of any proceeding by any state securities commission
or any other federal or state regulatory authority for such purpose and (ii) of
the happening of any event during the period referred to in Section 5(c) below
that makes any statement of a material fact made in the Preliminary Offering
Memorandum or the Offering Memorandum untrue or that requires any additions to
or changes in the Preliminary Offering Memorandum or the Offering Memorandum in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Panolam Parties shall use their best
efforts to prevent the issuance of any stop order or order suspending the
qualification or exemption of any Series A Notes under any state securities or
Blue Sky laws and, if at any time any state securities commission or other
federal or state regulatory authority shall issue an order suspending the
qualification or exemption of any Series A Notes under any state securities or
Blue Sky laws, the Panolam Parties shall use their best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time.
(2) To furnish the Initial Purchasers and those persons identified by
the Initial Purchasers to the Company as many copies of the Preliminary Offering
Memorandum and the Offering Memorandum, and any amendments or supplements
thereto, as the Initial Purchasers may reasonably request for the time period
specified in Section 5(c). Subject to the Initial Purchasers' compliance with
their representations and warranties and agreements set forth in Section 7
hereof, the Panolam Parties consent to the use of the Preliminary Offering
Memorandum and the Offering
7
<PAGE>
Memorandum, and any amendments and supplements thereto required pursuant hereto,
by the Initial Purchasers in connection with Exempt Resales.
(3) During such period as in the opinion of counsel for the Initial
Purchasers an Offering Memorandum is required by law to be delivered in
connection with Exempt Resales by the Initial Purchasers, (i) not to make any
amendment or supplement to the Offering Memorandum of which the Initial
Purchasers shall not previously have been advised or to which the Initial
Purchasers shall reasonably object after being so advised and (ii) to prepare
promptly upon the Initial Purchasers' reasonable request, any amendment or
supplement to the Offering Memorandum which may be necessary or advisable in
connection with such Exempt Resales.
(4) If, during the period referred to in Section 5(c) above, any event
shall occur or condition shall exist as a result of which, in the opinion of
counsel to the Initial Purchasers, it becomes necessary to amend or supplement
the Offering Memorandum in order to make the statements therein, in the light of
the circumstances when such Offering Memorandum is delivered to an Eligible
Purchaser, not misleading, or if, in the opinion of counsel to the Initial
Purchasers, it is necessary to amend or supplement the Offering Memorandum to
comply with any applicable law, forthwith to prepare an appropriate amendment or
supplement to such Offering Memorandum so that the statements therein, as so
amended or supplemented, will not, in the light of the circumstances when it is
so delivered, be misleading, or so that such Offering Memorandum will comply
with applicable law, and to furnish to the Initial Purchasers and such other
persons as the Initial Purchasers may designate such number of copies thereof
as the Initial Purchasers may reasonably request.
(5) Prior to the sale of all Series A Notes pursuant to Exempt Resales
as contemplated hereby, to cooperate with the Initial Purchasers and counsel to
the Initial Purchasers in connection with the registration or qualification of
the Series A Notes for offer and sale to the Initial Purchasers and pursuant to
Exempt Resales under the securities or Blue Sky laws of such jurisdictions in
the United States as the Initial Purchasers may request and such other
jurisdictions as the Initial Purchasers may reasonably request and to continue
such registration or qualification in effect so long as required for Exempt
Resales and to file such consents to service of process or other documents as
may be necessary in order to effect such registration or qualification;
provided, however, that no Panolam Party shall be required in connection
therewith to qualify as a foreign corporation in any jurisdiction in which it is
not now so qualified or to take any action that would subject it to general
8
<PAGE>
consent to service of process or taxation other than as to matters and
transactions relating to the Preliminary Offering Memorandum, the Offering
Memorandum or Exempt Resales, in any jurisdiction in which it is not now so
subject.
(6) So long as the Notes are outstanding, (i) to mail and make
generally available as soon as practicable after the end of each fiscal year to
the record holders of the Notes a financial report of the Company, the
Guarantors and their respective subsidiaries on a consolidated basis (and a
similar financial report of all unconsolidated subsidiaries, if any), all such
financial reports to include a consolidated balance sheet, a consolidated
statement of operations, a consolidated statement of cash flows and a
consolidated statement of shareholders' equity as of the end of and for such
fiscal year, together with comparable information as of the end of and for the
preceding year, certified by the reporting entity's independent public
accountants and (ii) to mail and make generally available as soon as practicable
after the end of each quarterly period (except for the last quarterly period of
each fiscal year) to such holders, a consolidated balance sheet, a consolidated
statement of operations and a consolidated statement of cash flows (and similar
financial reports of all unconsolidated subsidiaries, if any) as of the end of
and for such period, and for the period from the beginning of such year to the
close of such quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(7) So long as the Notes are outstanding, to furnish to the Initial
Purchasers as soon as available copies of all reports or other communications
furnished by the Company or any of the Guarantors to its security holders or
furnished to or filed with the Commission or any national securities exchange on
which any class of securities of the Company or any of the Guarantors is listed
and such other publicly available information concerning the Company, the
Guarantors and/or their respective subsidiaries published, issued, created or
filed by the Company, the Guarantors or their respective subsidiaries as the
Initial Purchasers may reasonably request.
(8) So long as any of the Series A Notes remain outstanding and during
any period in which the Company and the Guarantors are not subject to Section 13
or 15(d) of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
---------
ACT"), to make available to any holder of Series A Notes in connection with any
- ---
sale thereof and any prospective purchaser of such Series A Notes from such
holder, the information ("RULE 144A INFORMATION") required by Rule 144A(d)(4)
---------------------
under the Act.
9
<PAGE>
(9) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the obligations of the Company and the
Guarantors under this Agreement, including: (i) the fees, disbursements and ex-
penses of counsel to the Company and the Guarantors and accountants of the
Company and the Guarantors in connection with the sale and delivery of the
Series A Notes to the Initial Purchasers and pursuant to Exempt Resales, and all
other fees and expenses in connection with the preparation, printing, filing and
distribution of the Preliminary Offering Memorandum, the Offering Memorandum and
all amendments and supplements to any of the foregoing (including financial
statements), including the mailing and delivering of copies thereof to the
Initial Purchasers and persons designated by them in the quantities specified
herein, (ii) all costs and expenses related to the transfer and delivery of the
Series A Notes to the Initial Purchasers and pursuant to Exempt Resales,
including any transfer or other taxes payable thereon, (iii) all costs of
printing or producing this Agreement, the other Operative Documents and any
other agreements or documents in connection with the offering, purchase, sale or
delivery of the Series A Notes, (iv) all expenses in connection with the
registration or qualification of the Series A Notes and the Guarantees for offer
and sale under the securities or Blue Sky laws of the several states and all
costs of printing or producing any preliminary and supplemental Blue Sky
memoranda in connection therewith (including the filing fees and reasonable fees
and disbursements of counsel for the Initial Purchasers in connection with such
registration or qualification and memoranda relating thereto), (v) the cost of
printing certificates representing the Series A Notes and the Guarantees, (vi)
all expenses and listing fees in connection with the application for quotation
of the Series A Notes in the National Association of Securities Dealers, Inc.
("NASD") Automated Quotation System -PORTAL ("PORTAL"), (vii) the fees and
---- ------
expenses of the Trustee and the Trustee's counsel in connection with the
Indenture, the Notes and the Guarantees, (viii) the costs and charges of any
transfer agent, registrar and/or depositary (including DTC), (ix) any fees
charged by rating agencies for the rating of the Notes, (x) all costs and
expenses of the Exchange Offer and any Registration Statement, as set forth in
the Registration Rights Agreement, and (xi) all other costs and expenses
incident to the performance of the obligations of the Company and the Guarantors
hereunder for which provision is not otherwise made in this Section.
(10) To use its best efforts to effect the inclusion of the Series A
Notes in PORTAL and to maintain the listing of the Series A Notes on PORTAL for
so long as the Series A Notes are outstanding.
10
<PAGE>
(11) To obtain the approval of DTC for "book-entry" transfer of the
Notes, and to comply with all of its agreements set forth in the representation
letters of the Company and the Guarantors to DTC relating to the approval of the
Notes by DTC for "book-entry" transfer.
(12) During the period beginning on the date hereof and continuing to
and including the Closing Date, not to offer, sell, contract to sell or
otherwise transfer or dispose of any debt securities of the Company or any
Guarantor or any warrants, rights or options to purchase or otherwise acquire
debt securities of the Company or any Guarantor substantially similar to the
Notes and the Guarantees (other than (i) the Notes and the Guarantees, (ii)
commercial paper issued in the ordinary course of business and (iii) the Initial
Borrowings), without the prior written consent of the Initial Purchasers, which
consent shall not be unreasonably withheld.
(13) Not to sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Act) that
would be integrated with the sale of the Series A Notes to the Initial
Purchasers or pursuant to Exempt Resales in a manner that would require the
registration of any such sale of the Series A Notes under the Act.
(14) Not to voluntarily claim, and to actively resist any attempts to
claim, the benefit of any usury laws against the holders of any Notes and the
related Guarantees.
(15) To cause the Exchange Offer to be made in the appropriate form
to permit Series B Notes and Guarantees thereof by the Guarantors registered
pursuant to the Act to be offered in exchange for the Series A Notes and the
Guarantees thereof and to comply with all applicable federal and state
securities laws in connection with the Exchange Offer.
(16) To comply with all of its agreements set forth in the
Registration Rights Agreement.
(17) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by it prior to the
Closing Date and to satisfy all conditions precedent to the delivery of the
Series A Notes and the Guarantees .
11
<PAGE>
(18) If at any time after the date hereof the Company shall
designate any Melamine Subsidiary (as defined below) as a "Subsidiary" under the
Indenture, such Melamine Subsidiary shall (i) become a Subsidiary Guarantor
under the Indenture as required by the covenant "Subsidiary Guarantors"
contained in Section 4.16 therein, (ii) duly and validly execute this Agreement
and assume all of the rights and obligations as a Panolam Party and Subsidiary
Guarantor hereunder and (iii) deliver to the Initial Purchasers a counterpart
signature page to this Agreement executed by such Melamine Subsidiary as a
party hereto.
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE PANOLAM
---------------------------------------------------------
PARTIES. As of the date hereof, each Panolam Party represents and warrants to,
and agrees with, the Initial Purchasers that:
(1) The Preliminary Offering Memorandum and the Offering Memorandum
do not, and any supplement or amendment to them will not, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties contained in this paragraph (a) shall not apply
to statements in or omissions from the Preliminary Offering Memorandum or the
Offering Memorandum (or any supplement or amendment thereto) based upon
information relating to the Initial Purchasers furnished to the Company in
writing by the Initial Purchasers expressly for use therein. The parties hereto
acknowledge that for purposes of this Agreement, including this Section 6(a) and
Section 8 hereof, the only information furnished to the Company and the
Guarantors in writing by the Initial Purchasers expressly for use in the
Offering Memorandum is the information set forth (i) on the cover page of the
Offering Memorandum with respect to the price of the Notes, (ii) the first
paragraph on page (i) of the Offering Memorandum, concerning stabilization by
the Initial Purchasers, and (iii) the third, eighth, ninth, eleventh and twelfth
paragraphs under the caption "Plan of Distribution" concerning offering the
Notes for resale by the Initial Purchasers, market-making by the Initial
Purchasers, stabilization by the Initial Purchasers, the affiliation of the
Initial Purchasers and their affiliates with the Company and its affiliates and
certain other matters. No stop order preventing the use of the Preliminary
Offering Memorandum or the Offering Memorandum, or any amendment or supplement
thereto, or any order asserting that any of the transactions contemplated by
this Agreement are subject to the registration requirements of the Act, has
been issued.
12
<PAGE>
(2) Each of the Company, the Guarantors and their respective
subsidiaries has been duly incorporated, is validly existing as a corporation in
good standing under the laws of its jurisdiction of incorporation and has the
corporate power and authority to carry on its business as described in the
Preliminary Offering Memorandum and the Offering Memorandum and to own, lease
and operate its properties, and each is duly qualified and is in good standing
as a foreign corporation authorized to do business in each jurisdiction in which
the nature of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not (x) have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company, the Subsidiary Guarantors and their
respective subsidiaries, taken as a whole, (y) adversely affect the ability of
the Company and the Guarantors to issue the Notes or the Guarantees or (z)
adversely affect the validity of this Agreement or the other Operative
Documents or otherwise adversely affect the consummation of any of the
Transactions (any of the events set forth in clauses (x), (y) or (z), a
"MATERIAL ADVERSE EFFECT").
-----------------------
(3) All outstanding shares of capital stock of Holdings, the
Company, the Guarantors and their respective subsidiaries have been duly
authorized and validly issued and are fully paid, non-assessable and not subject
to any preemptive similar rights, except as described in the Offering
Memorandum.
(4) The entities listed on Schedule D hereto are the only
subsidiaries, direct or indirect, of the Company. All of the outstanding shares
of capital stock of each of the Company's subsidiaries are owned directly or
indirectly by the Company free and clear of any security interest, claim, lien,
encumbrance or adverse interest of any nature (each, a "LIEN"), other than the
----
pledge of such shares to secure the obligations under the New Credit Agreements.
All of the outstanding shares of capital stock of the Company are owned directly
by PII Second, Inc., a Delaware corporation ("PII SECOND"), free and clear of
----------
any Lien, other than the pledge of such shares to secure the obligations under
the New Credit Agreements. All of the outstanding shares of capital stock of PII
Second are owned directly by Panolam Group, Inc., a Delaware corporation
"PANOLAM"), free and clear of any Lien, other than the pledge of such shares to
- ---------
secure the obligations under the New Credit Agreements. All of the outstanding
shares of capital stock of Panolam are owned directly by Holdings free and clear
of any Lien, other than the pledge of such shares to secure the obligations
under the New Credit Agreements.
(5) Except as disclosed in the Offering Memorandum, and after giving
effect to the Transactions, there are not outstanding (i) securities or obliga-
13
<PAGE>
tions of Holdings or any of its subsidiaries convertible into or exchangeable
for any capital stock of Holdings or any of its subsidiaries, (ii) warrants,
right or options to subscribe for or purchase from Holdings or any of its
subsidiaries any such capital stock or any such convertible or exchangeable
securities or obligations, or (iii) obligations of Holdings or any of its
subsidiaries to issue any share of capital stock, any such convertible or
exchangeable securities or obligations, or any such warrants, rights or options,
other than with respect to 6,250 shares of Class A Common Stock of Holdings that
may be issued in connection with the Capital Contribution.
(6) This Agreement has been duly authorized and validly executed and
delivered by each Panolam Party, and, on the Closing Date, will have been duly
authorized and validly executed and delivered by Pioneer and its subsidiaries,
if any.
(7) The Indenture has been duly authorized by each Panolam Party
and, on the Closing Date, will have been duly authorized by Pioneer and its
subsidiaries, if any, and will have been validly executed and delivered by the
Company and each of the Guarantors. When the Indenture has been duly executed
and delivered by the Company and each of the Guarantors, and assuming the due
authorization, execution and delivery of the Indenture by the Trustee, the
Indenture will be a valid and binding agreement of the Company and each
Guarantor, enforceable against the Company and each Guarantor in accordance
with its terms except as the enforceability thereof may be limited by (i)
bankruptcy, fraudulent transfer, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and (ii) equitable principles
of general applicability (regardless of whether enforceability is considered at
equity or in law). On the Closing Date, the Indenture will conform in all
material respect s to the requirements of the Trust Indenture Act of 1939, as
amended (the "TIA" or "TRUST INDENTURE ACT"), and the rules and regulations of
--- -------------------
the Commission applicable to an indenture which is qualified thereunder.
(8) The Series A Notes have been duly authorized and, on the Closing
Date, will have been validly executed and delivered by the Company. When the
Series A Notes have been issued, executed and authenticated in accordance with
the provisions of the Indenture and delivered to and paid for by the Initial
Purchasers in accordance with the terms of this Agreement, the Series A Notes
will be entitled to the benefits of the Indenture and will be valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms except as the enforceability thereof may be limited by (i)
bankruptcy, fraudulent transfer, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and (ii) equitable principles
of general applicability (regardless of whether
14
<PAGE>
enforceability is considered at equity or in law). On the Closing Date, the
Series A Notes will conform in all material respects to the description of the
Series A Notes contained in the Offering Memorandum.
(9) The Series B Notes have been duly authorized by the Company.
When the Series B Notes are issued, executed and authenticated in accordance
with the terms of the Exchange Offer and the Indenture, the Series B Notes will
be entitled to the benefits of the Indenture and will be the valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except as the enforceability thereof may be limited by (i)
bankruptcy, fraudulent transfer, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and (ii) equitable principles
of general applicability (regardless of whether enforceability is considered at
equity or in law).
(10) The Guarantee to be endorsed on the Series A Notes by each
Guarantor has been duly authorized by each such Guarantor other than Pioneer
and, on the Closing Date, will have been duly authorized by Pioneer and its
subsidiaries, if any, and will have been executed and delivered by each
Guarantor. When the Series A Notes have been issued, executed and authenticated
in accordance with the Indenture and delivered to and paid for by the Initial
Purchasers in accordance with the terms of this Agreement, the Guarantee of each
Guarantor endorsed thereon will be entitled to the benefits of the Indenture and
will be the valid and binding obligation of such Guarantor, enforceable against
such Guarantor in accordance with its terms, except as the enforceability
thereof may be limited by (i) bankruptcy, fraudulent transfer, reorganization,
insolvency, moratorium or similar laws affecting creditors' rights generally and
(ii) equitable principles of general applicability (regardless of whether
enforceability is considered at equity or in law). On the Closing Date, the
Guarantees to be endorsed on the Series A Notes will conform in all material
respects to the description of the Guarantees to be endorsed on the Series A
Notes contained in the Offering Memorandum.
(11) The Guarantee to be endorsed on the Series B Notes by each
Guarantor has been duly authorized by each such Guarantor other than Pioneer
and, on the Closing Date, will have been duly authorized by Pioneer and its
subsidiaries, and, when issued, will have been duly executed and delivered by
each Guarantor. When the Series B Notes have been issued, executed and
authenticated in accordance with the terms of the Exchange Offer and the
Indenture, the Guarantee of each Guarantor endorsed thereon will be entitled to
the benefits of the Indenture and will be the valid and binding obligation of
such Guarantor, enforceable against such
15
<PAGE>
Guarantor in accordance with its terms, except as the enforceability thereof may
be limited by (i) bankruptcy, fraudulent transfer, reorganization, insolvency,
moratorium or similar laws affecting creditors' rights generally and (ii)
equitable principles of general applicability (regardless of whether
enforceability is considered at equity or in law).
(l2) The Registration Rights Agreement has been duly authorized by
the Company and each of the Guarantors other than Pioneer and, on the Closing
Date, will have been duly authorized by Pioneer and its subsidiaries, if any,
and will have been duly executed and delivered by the Company and each of the
Guarantors. When the Registration Rights Agreement has been duly executed and
delivered by the Company and the Guarantors, assuming the due authorization,
execution and delivery thereof by the Initial Purchasers, the Registration
Rights Agreement will be a valid and binding agreement of the Company and each
of the Guarantors, enforceable against the Company and each Guarantor in
accordance with its terms except as the enforceability thereof may be limited by
(i) bankruptcy, fraudulent transfer, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and (ii) equitable principles
of general applicability (regardless of whether enforceability is considered at
equity or in law), and any rights to indemnity or contribution thereunder may be
limited by federal and state securities laws and public policy considerations.
On the Closing Date, the Registration Rights Agreement will conform in all
material respects to the description of the Registration Rights Agreement
contained in the Offering Memorandum.
(13) The Acquisition Agreement has been duly authorized, executed
and delivered by the Company and, assuming the due authorization, execution and
delivery thereof by Rugby, constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, except as
the enforceability thereof may be limited by (i) bankruptcy, fraudulent
transfer, reorganization, insolvency, moratorium or similar laws affecting
creditors' rights generally and (ii) equitable principles of general
applicability (regardless of whether enforceability is considered at equity or
in law), and any rights to indemnity or contribution thereunder may be limited
by federal and state securities laws and public policy considerations. The
Company has delivered to the Initial Purchasers true and correct copies of the
Acquisition Agreement and all documents and agreements related thereto,
including all amendments, alterations, modifications or waivers thereto and all
exhibits and schedules thereto. The Offering Memorandum contains a summary of
the transactions contemplated by the Acquisition Agreement, which summary is
accurate in all material respects.
16
<PAGE>
(14) On the Closing Date, the New Credit Agreements will have been
duly authorized by the Company, the Canadian Subsidiary and the guarantors
thereunder, as applicable, and will have been validly executed and delivered by
the Company, the Canadian Subsidiary and the guarantors thereunder, as
applicable. When the New Credit Agreements have been duly executed and delivered
by the Company, the Canadian Subsidiary and the guarantors thereunder, as
applicable, and assuming the due authorization, execution and delivery thereof
by the parties thereto (other than the Company, the Canadian Subsidiary and the
guarantors thereunder), the New Credit Agreements will be valid and binding
agreements of the Company, the Canadian Subsidiary and the guarantors
thereunder, as applicable, enforceable against the Company, the Canadian
Subsidiary and the guarantors thereunder, as applicable, in accordance with
their respective terms except as the enforceability thereof may be limited by
(i) bankruptcy, fraudulent transfer, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and (ii) equitable principles
of general applicability (regardless of whether enforceability is considered at
equity or in law). On the Closing Date, the New Credit Agreements will conform
in all material respects to the description of the New Credit Agreements
contained in the Offering Memorandum. On or prior to the Closing Date, the
Company will make available to the Initial Purchasers true and correct copies of
the New Credit Agreements and all documents and agreements related thereto,
including all amendments, alterations, modifications or waivers thereto and all
exhibits and schedules thereto.
(15) On the Closing Date, the Capital Contribution will conform in
all material respects to the description of the Capital Contribution contained
in the Offering Memorandum.
(16) None of Holdings, the Company, the Guarantors or any of their
respective subsidiaries is (i) in violation of its respective charter or by-laws
or other organizational documents or (ii) in default in the performance of any
obligation, agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is material to
the Company, the Subsidiary Guarantors and their respective subsidiaries, taken
as a whole, to which Holdings, the Company, any Guarantor or any of their
respective subsidiaries is a party or by which Holdings, the Company, any
Guarantor or any of their respective subsidiaries or their respective property
is bound, which default in the case of (ii) would have a Material Adverse
Effect.
17
<PAGE>
(17) The execution and delivery of that certain Amended and Restated
Management Advisory and Consulting Services Agreement, dated as of January 24,
1999, among Panolam Industries, Inc., Panolam Industries Ltd. and Genstar
Capital, L.L.C. and that certain Engagement Letter between the Company and
Genstar Capital, L.L.C., dated as of January 24, 1999 (including the
indemnification side letter agreement attached thereto) (collectively, the
"GENSTAR AGREEMENTS by the respective parties thereto (other than Genstar
------------------
Capital, L.L.C.), and the execution, delivery and performance of this Agreement
and the other Operative Documents by the Company, each of the Guarantors and, to
the extent a party thereto, the Canadian Subsidiary, compliance by the Company,
each of the Guarantors and, to the extent a party thereto, the Canadian
Subsidiary with all provisions of the Operative Documents and the consummation
of the transactions contemplated by the Operative Documents will not (i) require
any consent, approval, authorization or other order of, or qualification with,
any court or governmental body or agency (except such as may be required under
the securities or Blue Sky laws of the various states or as have been obtained),
(ii) conflict with or constitute a breach of any of the terms or provisions of,
or a default under, the charter or by-laws or other organizational documents of
Holdings, the Company, any Guarantor or any of their respective subsidiaries or
any indenture, loan agreement, mortgage, lease or other agreement or instrument
that is material to the Company, the Subsidiary Guarantors and their respective
subsidiaries, taken as a whole, to which Holdings, the Company, any Guarantor or
any of their respective subsidiaries is a party or by which Holdings, the
Company, any Guarantor or any of their respective subsidiaries or their
respective property is bound, (iii) violate or conflict with any applicable law
or any rule, regulation, judgment, order or decree of any court or any
governmental body or agency having jurisdiction over the Company, any Guarantor
or any of their respective subsidiaries or their respective property, (iv)
result in the imposition or creation of (or the obligation to create or impose)
a Lien under, any agreement or instrument to which Holdings, the Company, any
Guarantor or any of their respective subsidiaries is a party or by which
Holdings, the Company, any Guarantor or any of their respective subsidiaries or
their respective property is bound, other than Liens created or imposed to
secure the obligations under the New Credit Agreements, or (v) result in the
termination, suspension or revocation of any Authorization (as defined below) of
the Company, any Guarantor or any of their respective subsidiaries or result in
any other impairment of the rights of the holder of any such Authorization.
(18) Except as described in the Preliminary Offering Memorandum and
the Offering Memorandum, there are no legal or governmental proceedings pending
to which the Company, any Guarantor or any of their respective subsidiaries
18
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is a party or to which any of their respective property is subject, or, to the
Company's and each of the Guarantor's knowledge, threatened to which the
Company, any Guarantor or any of their respective subsidiaries could be a party
or to which any of their respective property could be subject, which might
result, singly or in the aggregate, in a Material Adverse Effect.
(19) Except as described in the Preliminary Offering Memorandum and
the Offering Memorandum, none of the Company, the Guarantors or any of their
respective subsidiaries has violated or has received any communication, whether
from a governmental authority, citizens group, employee or otherwise, that
alleges any violation of any foreign, federal, state or local law or regulation
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
"ENVIRONMENTAL LAWS"), any provisions of the Employee Retirement Income Security
------------------
Act of 1974, as amended ("ERISA"), or any provisions of the Foreign Corrupt
-----
Practices Act or the rules and regulations promulgated thereunder, except for
such violations which, singly or in the aggregate, would not have a Material
Adverse Effect.
(20) Except as described in the Preliminary Offering Memorandum and
the Offering Memorandum, there are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any Authorization, or any related constraints on operating
activities) which would, singly or in the aggregate, have a Material Adverse
Effect.
(21) Each of the Company, the Guarantors and their respective
subsidiaries has such permits, licenses, consents, exemptions, franchises,
authorizations and other approvals (each, an "AUTHORIZATION") of, and has made
-------------
all filings with and notices to, all governmental or regulatory authorities and
self-regulatory organizations and all courts and other tribunals, including
without limitation, under any applicable Environmental Laws, as are necessary to
own, lease, license and operate its respective properties and to conduct its
business, except where the failure to have any such Authorization or to make any
such filing or notice would not, singly or in the aggregate, have a Material
Adverse Effect. Each such Authorization is valid and in full force and effect
and each of the Company, the Guarantors and their respective subsidiaries is in
compliance with all the terms and conditions thereof and with the rules and
regulations of the authorities and governing bodies having jurisdiction with
respect thereto; and no event has occurred (including, without limitation, the
receipt of any notice from any authority or governing body) which
19
<PAGE>
allows or, after notice or lapse of time or both, would allow, revocation,
suspension or termination of any such Authorization or results or, after notice
or lapse of time or both, would result in any other impairment of the rights of
the holder of any such Authorization; and such Authorizations contain no
restrictions that are burdensome to the Company, the Guarantors or any of their
respective subsidiaries; except where such failure to be valid and in full force
and effect or to be in compliance, the occurrence of any such event or the
presence of any such restriction would not, singly or in the aggregate, have a
Material Adverse Effect.
(22) The accountants, PricewaterhouseCoopers, LLP, that have
certified the financial statements and supporting schedules included in the
Preliminary Offering Memorandum and the Offering Memorandum are independent
public accountants with respect to Panolam and its subsidiaries (other than
Pioneer), Domtar Decorative Panels (a division of Domtar, Inc.) and Pioneer, as
applicable, as required by the Act and the Exchange Act. The historical
financial statements, together with related schedules and notes, set forth in
the Preliminary Offering Memorandum and the Offering Memorandum comply as to
form in all material respects with the requirements applicable to registration
statements on Form S-1 under the Act, except that with respect to Pioneer, the
audited statements of income and cash flows for 1995 are for a period that is
less than twelve months.
(23) The historical financial statements, together with the related
notes forming part of the Offering Memorandum (and any amendment or supplement
thereto), present fairly in all material respects the consolidated financial
position, results of operations and changes in financial position of the
Company, the Guarantors and their respective subsidiaries on the basis stated
in the Offering Memorandum at the respective dates or for the respective periods
to which they apply; such statements and related notes have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein; and the other
financial and statistical information and data set forth in the Offering
Memorandum (and any amendment or supplement thereto) are, in all material
respects, accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the Company.
(24) The pro forma financial statements included in the Preliminary
Offering Memorandum and the Offering Memorandum have been prepared on a basis
consistent with the historical financial statements of the Company, the
Guarantors and their respective subsidiaries and give effect to assumptions used
in the preparation thereof on a reasonable basis and in good faith and present
fairly the
20
<PAGE>
historical and proposed transactions contemplated by the Preliminary Offering
Memorandum and the Offering Memorandum; and such pro forma financial state ments
comply as to form in all material respects with the requirements applicable to
pro forma financial statements included in registration statements on Form S-1
under the Act, except that Regulation S-X of the Act does not require
presentation in the pro forma financial statements of Adjusted EBITDA (as
defined in the Offering Memorandum), EBITDA (as defined in the Offering
Memorandum) and financial statements for the last twelve months ended September
30, 1998. The other pro forma financial and statistical information and data
included in the Offering Memo randum are, in all material respects, accurately
presented and prepared on a basis consistent with the pro forma financial
statements.
(25) Subject to the risks and limitations described in the Prelimi
nary Offering Memorandum and the Offering Memorandum, the industry, statistical
and market-related data included in the Offering Memorandum, to the best knowl
edge of the Company and each of the Guarantors, is true and accurate in all
material respects and is based on or derived from sources which the Company and
the Guarantors believe to be reliable and accurate.
(26) None of the Company or any of its subsidiaries is and, after
giving effect to the offering and sale of the Series A Notes and the application
of the net proceeds thereof as described in the Offering Memorandum, will be, an
"invest ment company," as such term is defined in the Investment Company Act of
1940, as amended.
(27) Except for the Registration Rights Agreement, there are no
contracts, agreements or understandings between the Company or any Guarantor and
any person granting such person the right to require the Company or such
Guarantor to file a registration statement under the Act with respect to any
securities of the Company or such Guarantor or to require the Company or such
Guarantor to include such securities with the Notes and Guarantees registered
pursuant to any Registration Statement.
(28) None of the Company, the Guarantors, any of their respective
subsidiaries or any agent thereof acting on the behalf of them has taken, and
none of them will take, any action that might cause this Agreement or the
issuance or sale of the Series A Notes to violate Regulation G (12 C.F.R. Part
207), Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or
Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal
Reserve System.
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<PAGE>
(29) No "nationally recognized statistical rating organization" as
such term is defined for purposes of Rule 436(g)(2) under the Act (i) has
imposed (or has informed the Company or any Guarantor that it is considering
imposing) any condition (financial or otherwise) on the Company's or any
Guarantor's retaining any rating assigned to the Company or any Guarantor, or
any securities of the Company or any Guarantor or (ii) has indicated to the
Company or any Guarantor that it is considering (a) the downgrading, suspension,
or withdrawal of, or any review for a possible change that does not indicate the
direction of the possible change in, any rating so assigned or (b) any change in
the outlook for any rating of the Company, any Guarantor or any securities of
the Company or any Guarantor.
(30) Since the respective dates as of which information is given in
the Offering Memorandum other than as set forth in the Offering Memorandum
(exclusive of any amendments or supplements thereto), (i) there has not occurred
any material adverse change or any development involving a prospective material
adverse change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company, the Subsidiary Guarantors and
their respective subsidiaries, taken as a whole, (ii) there has not been any
material adverse change or any development involving a prospective material
adverse change in the capital stock or in the long-term debt of the Company, the
Guarantors or any of their respective subsidiaries and (iii) none of the
Company, the Guarantors or any of their respective subsidiaries has incurred any
material liability or obligation, direct or contingent.
(31) Each of the Preliminary Offering Memorandum and the Offering
Memorandum, as of its respective date, contains all the information specified
in, and meeting the requirements of, Rule 144A(d)(4) under the Act.
(32) There is no claim, cause of action, investigation or notice by
any person or entity alleging potential liability (including, without
limitation, liability or investigatory costs, cleanup costs, governmental
response costs, natural resource damages, property damages, personal injuries or
penalties), the Company, any Guarantor or any of their respective subsidiaries
arising out of, based on or resulting from (A) the presence or release into the
environment of any Hazardous Material (as defined) at any location, whether or
not owned by the Company, the Guarantors or such subsidiary, as the case may be,
or (B) any violation or alleged violation of any Environmental Law, other than
as disclosed in the Preliminary Offering Memorandum and the Offering Memorandum,
or which could not reason-
22
<PAGE>
ably be expected to have a Material Adverse Effect. The term "HAZARDOUS
---------
MATERIAL" means (i) any "hazardous substance" as defined by the Comprehensive
- --------
Environmental Response, Compensation and Liability Act of 1980, as amended, (ii)
any "hazardous waste" as defined by the Resource Conservation and Recovery Act,
as amended, (iii) any petroleum or petroleum product, (iv) any polychlorinated
biphenyl, and (v) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material, waste or substance regulated under or within the meaning of
any other law relating to protection of human health or the environment or
imposing liability or standards of conduct concerning any such chemical
material, waste or substance.
(33) Immediately before and after giving effect to the issuance of the
Series A Notes and consummation of the Transactions, the Company and each of the
Guarantors, individually and together with its subsidiaries, will be Solvent.
As used herein, "SOLVENT" shall mean, with respect to any person on a particular
-------
date, that on such date (i) the fair value of the property of such person is
greater than the total amount of liabilities, including, without limitation,
contingent or unliquidated liabilities, of such person, (ii) the present fair
salable value of the assets of such person is not less than the amount that will
be required to pay the probable liability of such person on its debts as they
become absolute and matured, (iii) such person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such person's ability to
pay such debts and liabilities as they mature, and (iv) such person is not
engaged in a business or transaction, and is not about to engage in a business
or a transaction, for which such person's property would constitute an
unreasonably small capital. The amount of contingent or unliquidated
liabilities at any time shall be computed as the amount that, in light of all
the facts and circumstances existing at such time, represents the amount that
can reasonably be expected to become an actual or matured liability.
(34) The Company, the Guarantors and their respective subsidiaries
have good and marketable title to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company, the Guarantors and their respective subsidiaries, in each case
free and clear of all Liens and defects, except such as are described in the
Preliminary Offering Memorandum and the Offering Memorandum and such as would
not have a Material Adverse Effect; and any real property and buildings held
under lease by the Company, the Guarantors or their respective subsidiaries
are held by them under valid, subsisting and enforceable leases with such
exceptions as would not have a Material
23
<PAGE>
Adverse Effect and except as described in the Preliminary Offering Memorandum
and the Offering Memorandum.
(35) The Company, the Guarantors and each of their respective
subsidiaries own or possess, or can acquire on reasonable terms, all patents,
patent rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and trade names
("INTELLECTUAL PROPERTY") currently employed by them in connection with the
---------------------
business now operated by them except where the failure to own or possess or
otherwise be able to acquire such intellectual property would not, singly or in
the aggregate, have a Material Adverse Effect; and none of the Company, the
Guarantors or any of their respective subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to any
of such intellectual property which, singly or in the aggregate, if the subject
of any unfavorable decision, ruling or finding, would have a Material Adverse
Effect.
(36) The Company, the Guarantors and each of their respective
subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as are prudent and customary
in the businesses in which they are engaged; and none of the Company, the
Guarantors or any of their respective subsidiaries (i) has received notice from
any insurer or agent of such insurer that substantial capital improvements or
other material expenditures will have to be made in order to continue such
insurance or (ii) has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers at a cost that would not have a Material
Adverse Effect.
(37) Except as disclosed in the Offering Memorandum, no relationship,
direct or indirect, exists between or among the Company, the Guarantors or any
of their respective subsidiaries on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company, the Guarantors or any of
their respective subsidiaries on the other hand, which would be required by the
Act to be described in the Offering Memorandum if the Offering Memorandum were a
prospectus included in a registration statement on Form S-1 filed with the
Commission.
(38) There is no (i) significant unfair labor practice complaint,
grievance or arbitration proceeding pending or, to the knowledge of the Company
and each of the Guarantors, threatened against the Company, any Guarantor or any
of
24
<PAGE>
their respective subsidiaries before the National Labor Relations Board or
any state or local labor relations board, (ii) strike, labor dispute, slowdown
or stoppage pending or, to the knowledge of the Company and each of the
Guarantors, threatened against the Company, any Guarantor or any of their
respective subsidiaries or (iii) union representation question existing with
respect to the employees of the Company, the Guarantors or any of their
respective subsidiaries, except in the case of clauses (i), (ii) and (iii) for
such actions which, singly or in the aggregate, would not have a Material
Adverse Effect. To the best knowledge of the Company and the Guarantors, no
collective bargaining organizing activities are taking place with respect to the
Company, the Guarantors, or any of their respective subsidiaries.
(39) The Company, the Guarantors and each of their respective
subsidiaries maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(40) All material tax returns required to be filed by the Company, the
Guarantors and each of their respective subsidiaries in any jurisdiction have
been filed, other than those filings being contested in good faith, and all
material taxes, including withholding taxes, penalties and interest,
assessments, fees and other charges due pursuant to such returns or pursuant to
any assessment received by the Company, the Guarantors or any of their
respective subsidiaries have been paid, other than those being contested in good
faith and for which adequate reserves have been provided.
(41) No action has been taken and no law, statute, rule or regulation
or order has been enacted, adopted or issued by any governmental agency or body
which prevents the execution, delivery and performance of any of the Operative
Documents or the issuance of the Series A Notes, or suspends the sale of the
Series A Notes in any jurisdiction referred to in Section 5(e); and no
injunction, restraining order or other order or relief of any nature by a
federal or state court or other tribunal of competent jurisdiction has been
issued with respect to the Company, any Guarantor or any of their respective
subsidiaries which would prevent or suspend the issuance or sale of the Series A
Notes in any jurisdiction referred to in Section 5(e).
25
<PAGE>
(42) Each certificate signed by any officer of the Company or any
Guarantor and delivered to the Initial Purchasers or counsel for the Initial
Purchasers shall be deemed to be a representation and warranty by the Company or
such Guarantor to the Initial Purchasers as to the matters covered thereby.
(43) When the Series A Notes and the Guarantees are issued and
delivered pursuant to this Agreement, neither the Series A Notes nor the
Guarantees will be of the same class (within the meaning of Rule 144A under the
Act) as any security of the Company or the Guarantors that is listed on a
national securities exchange registered under Section 6 of the Exchange Act or
that is quoted in a United States automated inter-dealer quotation system.
(44) No form of general solicitation or general advertising (as
defined in Regulation D under the Act) was used by the Company, the Guarantors
or any of their respective representatives (other than the Initial Purchasers,
as to whom the Company and the Guarantors make no representation) in connection
with the offer and sale of the Series A Notes contemplated hereby, including,
but not limited to, articles, notices or other communications published in any
newspaper, magazine, or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. No securities of the same class as the
Series A Notes have been issued and sold by the Company within the six-month
period immediately prior to the date hereof.
(45) Prior to the effectiveness of any Registration Statement, the
Indenture is not required to be qualified under the TIA.
(46) None of the Company, the Guarantors or any of their respective
affiliates or any person acting on its or their behalf (other than the Initial
Purchasers, as to whom the Company and the Guarantors make no representation)
has engaged or will engage in any directed selling efforts within the meaning of
Regulation S under the Act ("Regulation S") with respect to the Series A Notes
------------
or the Guarantees.
(47) All Series A Notes offered and sold in reliance on Regulation S
by the Company, the Guarantors and their affiliates and all persons acting on
their behalf (other than the Initial Purchasers, as to whom the Company and the
Guarantors make no representation) have been and will be offered and sold only
in offshore transactions.
26
<PAGE>
(48) The sale of the Series A Notes pursuant to Regulation S is not
part of a plan or scheme to evade the registration provisions of the Act.
(49) The Company, the Guarantors and their respective affiliates and
all persons acting on their behalf (other than the Initial Purchasers, as to
whom the Company and the Guarantors make no representation) have complied with
and will comply with the offering restriction requirements of Regulation S in
connection with the offering of the Series A Notes outside the United States
and, in connection therewith, the Offering Memorandum will contain the
disclosure required in Rule 902(h).
(50) The Series A Notes sold in reliance on Regulation S will be
represented upon issuance by a temporary global security that may not be
exchanged for definitive securities until the expiration of the 40-day
restricted period referred to in Rule 903(c)(3) of the Act and only upon
certification of beneficial ownership of such Series A Notes by non-U.S. persons
or U.S. persons who purchased such Series A Notes in transactions that were
exempt from the registration requirements of the Act.
(51) No registration under the Act of the Series A Notes or the
Guarantees is required for the sale of the Series A Notes and the Guarantees to
the Initial Purchasers as contemplated hereby or for the Exempt Resales assuming
the accuracy of the Initial Purchasers' representations and warranties and
agreements set forth in Section 7 hereof.
(52) The Company has designated each of The Melamine Group, Inc.. and
Melamine Decorative Laminates, Inc. (the "Melamine Subsidiaries") as
"Unrestricted Subsidiaries" under the Indenture. No Melamine Subsidiary has any
material assets or liabilities or conducts any operations.
Each of the Panolam Parties hereby acknowledges that the Initial
Purchasers and, for purposes of the opinions to be delivered to the Initial
Purchasers pursuant to Section 9 hereof, counsel to the Company and the
Guarantors and counsel to the Initial Purchasers will rely upon the accuracy and
truth of the foregoing representations and warranties and hereby consent to
such reliance.
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7. INITIAL PURCHASERS' REPRESENTATIONS AND WARRANTIES. Each of the
--------------------------------------------------
Initial Purchasers, severally and not jointly, represents and warrants to the
Company and the Guarantors, and agrees that:
(1) Such Initial Purchaser is either a QIB or an Accredited
Institution, in either case, with such knowledge and experience in financial and
business matters as is necessary in order to evaluate the merits and risks of an
investment in the Series A Notes.
(2) Such Initial Purchaser (A) is not acquiring the Series A Notes
with a view to any distribution thereof or with any present intention of
offering or selling any of the Series A Notes in a transaction that would
violate the Act or the securities laws of any state of the United States or any
other applicable jurisdiction and (B) will be reoffering and reselling the
Series A Notes only to (x) QIBs in reliance on the exemption from the
registration requirements of the Act provided by Rule 144A, (y) if the Initial
Purchasers so notify the Company, Accredited Institutions that execute and
deliver a letter containing certain representations and agreements, the form
of which can be obtained from the Trustee, and (z) in offshore transactions in
reliance upon Regulation S under the Act.
(3) Such Initial Purchaser agrees that no form of general solicita-
tion or general advertising (within the meaning of Regulation D under the Act)
has been or will be used by such Initial Purchaser or any of its representatives
in connection with the offer and sale of the Series A Notes pursuant hereto,
including, but not limited to, articles, notices or other communications
published in any newspaper, magazine or similar medium or broadcast over
television or radio, or any seminar or meeting whose attendees have been invited
by any general solicitation or general advertising.
(4) Such Initial Purchaser agrees that, in connection with Exempt
Resales, such Initial Purchaser will solicit offers to buy the Series A Notes
only from, and will offer to sell the Series A Notes only to, Eligible
Purchasers. Each Initial Purchaser further agrees that it will offer to sell
the Series A Notes only to, and will solicit offers to buy the Series A Notes
only from (A) Eligible Purchasers that the Initial Purchaser reasonably believes
are QIBs, (B) if the Initial Purchaser so notifies the Company, Accredited
Institutions that execute and deliver a letter containing certain
representations and agreements, the form of which can be obtained from the
Trustee, and (C) Regulation S Purchasers.
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(5) Such Initial Purchaser and its affiliates or any person acting on
its or their behalf have not engaged and will not engage in any directed selling
efforts, during the prohibited period, within the meaning of Regulation S with
respect to the Series A Notes or the Guarantees.
(6) The Series A Notes offered and sold by such Initial Purchaser
pursuant hereto in reliance on Regulation S have been and will be offered and
sold only in offshore transactions.
(7) The sale of the Series A Notes offered and sold by such Initial
Purchaser pursuant hereto in reliance on Regulation S is not part of a plan or
scheme to evade the registration provisions of the Act.
(8) Such Initial Purchaser agrees that it has not offered or sold and
will not offer or sell the Series A Notes in the United States or to, or for the
benefit or account of, a U.S. Person (other than a distributor), in each case,
as defined in Rule 902 under the Act (i) as part of its distribution at any time
and (ii) otherwise until 40 days after the later of the commencement of the
offering of the Series A Notes pursuant hereto and the Closing Date, other than
in accordance with Regulation S of the Act or another exemption from the
registration requirements of the Act. Such Initial Purchaser agrees that, during
such 40-day restricted period, it will not cause any advertisement with respect
to the Series A Notes (including any "tomb stone" advertisement) to be
published in any newspaper or periodical or posted in any public place and will
not issue any circular relating to the Series A Notes, except such
advertisements as permitted by, and that include the statements required by,
Regulation S.
(9) Such Initial Purchaser agrees that, at or prior to confirmation
of a sale of Series A Notes by it to any distributor, dealer or person receiving
a selling concession, fee or other remuneration during the 40-day restricted
period referred to in Rule 903(c)(3) under the Act, it will send to such
distributor, dealer or person receiving a selling concession, fee or other
remuneration a confirmation or notice to substantially the following effect:
"The Series A Notes covered hereby have not been registered under the
U.S. Securities Act of 1933, as amended (the "SECURITIES ACT"), and may not be
offered and sold within the United States or to, or for the account or benefit
of, U.S. persons (i) as part of your distribution at any time or (ii) otherwise
until 40 days after the later of the commencement of the Offering and the
Closing Date, except in either
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case in accordance with Regulation S under the Securities Act (or Rule 144A or
to Accredited Institutions in transactions that are exempt from the registration
requirements of the Securities Act), and in connection with any subsequent sale
by you of the Series A Notes covered hereby in reliance on Regulation S during
the period referred to above to any distributor, dealer or person receiving a
selling concession, fee or other remuneration, you must deliver a notice to
substantially the foregoing effect. Terms used above have the meanings assigned
to them in Regulation S."
Each of the Initial Purchasers acknowledge that the Company and the
Guarantors and, for purposes of the opinions to be delivered to each Initial
Purchaser pursuant to Section 9 hereof, counsel to the Company and the
Guarantors and counsel to the Initial Purchasers will rely upon the accuracy and
truth of the foregoing representations and such Initial Purchasers hereby
consent to such reliance.
8. INDEMNIFICATION.
---------------
(1) Each of the Panolam Parties agrees, jointly and severally, to
indemnify and hold harmless each of the Initial Purchasers, their directors,
their officers and each person, if any, who controls any such Initial Purchaser
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
from and against any and all losses, claims, damages, liabilities and judgments
(including, without limitation, any legal or other expenses incurred in
connection with investi gating or defending any matter, including any action,
that could give rise to any such losses, claims, damages, liabilities or
judgments) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Offering Memorandum (or any amendment or
supplement thereto), the Preliminary Offering Memorandum or any Rule 144A
Information provided by the Company or any Guarantor to any holder or
prospective purchaser of Series A Notes or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information that
such Initial Purchaser furnished in writing to any Panolam Party relating to
such Initial Pur chaser; provided, however, that the foregoing indemnity
agreement with respect to any Preliminary Offering Memorandum shall not inure to
the benefit of any Initial Purchaser who failed to deliver a Final Offering
Memorandum (as then amended or supplemented, provided by any Panolam Party to
the several Initial Purchasers in the requisite quantity and on a timely basis
to permit proper delivery on or prior to the
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Closing Date) to the person asserting any losses, claims, damages and
liabilities and judgements caused by any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Offering Memorandum,
or caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, if such material misstatement or omission or alleged material
misstatement or omission was cured in the Final Offering Memorandum.
(2) Each of the Initial Purchasers, severally and not jointly, agrees
to indemnify and hold harmless the Panolam Parties, and their respective
directors and officers and each person, if any, who controls (within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act) each Panolam Party,
to the same extent as the foregoing indemnity from the Panolam Parties to the
Initial Purchasers but only with reference to information that such Initial
Purchaser provides to the Company in writing expressly relating to such Initial
Purchaser for use in the Preliminary Offering Memorandum or the Offering
Memorandum, and not with respect to the information provided by any other
Initial Purchasers.
(3) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
-----------------
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing
------------------
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), the Initial Purchasers shall not be required to
assume the defense of such action pursuant to this Section 8(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
the Initial Purchasers). Any indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the indemnified
party unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are
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different from or additional to those available to the indemnifying party (in
which case the indemnifying party shall not have the right to assume the defense
of such action on behalf of the indemnified party). In any such case, the
indemnifying party shall not, in connection with any one action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all indemnified parties and all such fees and expenses shall be
reimbursed as they are incurred. Such firm shall be designated in writing by
DLJ, in the case of parties indemnified pursuant to Section 8(a), and by the
Company, in the case of parties indemnified pursuant to Section 8(b). The
indemnifying party shall indemnify and hold harmless the indemnified party from
and against any and all losses, claims, damages, liabilities and judgments by
reason of any settlement of any action (i) effected with its written consent or
(ii) effected without its written consent if the settlement is entered into more
than twenty business days after the indemnifying party shall have received a
request from the indemnified party for reimbursement for the fees and expenses
of counsel (in any case where such fees and expenses are at the expense of the
indemnifying party) and, prior to the date of such settlement, the indemnifying
party shall have failed to comply with such reimbursement request. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims that
are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(4) To the extent the indemnification provided for in this Section 8
is unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, dam ages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Panolam Parties, on the one hand, and the Initial Purchasers, severally and not
jointly, on the other hand, from the offering of the Series A Notes or (ii) if
the allocation provided by clause 8(d)(i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only
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the relative benefits referred to in clause 8(d)(i) above but also the relative
fault of the Panolam Parties, on the one hand, and the Initial Purchasers,
severally and not jointly, on the other hand, in connection with the statements
or omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
benefits received by the Panolam Parties, on the one hand, and the Initial
Purchasers, severally and not jointly, on the other hand, shall be deemed to be
in the same proportion as the total net proceeds from the offering of the Series
A Notes (after underwriting discounts and commissions, but before deducting
expenses) received by the Company, and the total discounts and commissions
received by each particular Initial Purchaser bear to the total price to
investors of the Series A Notes, in each case as set forth in the table on the
cover page of the Offering Memorandum. The relative fault of the Panolam
Parties, on the one hand, and the Initial Purchasers, severally and not jointly,
on the other hand, shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Panolam Parties, on the one hand, or such Initial Purchaser, but
only with reference to the information that such Initial Purchaser furnished, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Panolam Parties and the Initial Purchasers agree that it would not
be just and equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Initial Purchasers were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such
indemnified party in connection with investigating or defending any matter,
including any action, that could have given rise to such losses, claims,
damages, liabilities or judgments. Notwithstanding the provisions of this
Section 8, the Initial Purchasers shall not be required to contribute any amount
in excess of the amount by which the total discounts and commissions received by
such Initial Purchasers exceeds the amount of any damages which the Initial
Purchasers have otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
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fraudulent misrepresentation. The Initial Purchasers' obligations to contribute
pursuant to this Section 8(d) are several in proportion to the respective
principal amount of Series A Notes purchased by each of the Initial Purchasers
hereunder and not joint.
(5) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
9. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The obligations
---------------------------------------------
of the Initial Purchasers to purchase the Series A Notes under this Agreement
are subject to the satisfaction of each of the following conditions:
(1) All the representations and warranties of the Panolam Parties
contained in this Agreement shall be true and correct on the date hereof and on
the Closing Date with the same force and effect as if made on and as of the
Closing Date.
(2) On or after the date hereof, (i) there shall not have occurred
any downgrading, suspension or withdrawal of, nor shall any notice have been
given of any potential or intended downgrading, suspension or withdrawal of, or
of any review (or of any potential or intended review) for a possible change
that does not indicate the direction of the possible change in, any rating of
the Company or any Guarantor or any securities of the Company or any Guarantor
(including, without limitation, the placing of any of the foregoing ratings on
credit watch with negative or developing implications or under review with an
uncertain direction) by any "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2) under the
Act, (ii) there shall not have occurred any change, nor shall any notice have
been given of any potential or intended change, in the outlook for any rating of
the Company or any Guarantor or any securities of the Company or any Guarantor
by any such rating organization and (iii) no such rating organization shall have
given notice that it has assigned (or is considering assigning) a lower rating
to the Notes than that on which the Notes were marketed.
(3) Since the respective dates as of which information is given in
the Offering Memorandum other than as set forth in the Offering Memorandum
(exclusive of any amendments or supplements thereto), (i) there shall not have
occurred any change or any development involving a prospective change in the
condition, financial or otherwise, or the earnings, business, management or
opera-
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tions of the Company, the Subsidiary Guarantors and their respective
subsidiaries, taken as a whole, (ii) there shall not have been any change or any
development involving a prospective change in the capital stock or in the long-
term debt of the Company, any Guarantor or any of their respective subsidiaries
and (iii) none of the Company, the Guarantors or any of their respective
subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 9(c)(i),
9(c)(ii) or 9(c)(iii), in the Initial Purchasers' judgment, is material and
adverse and, in the Initial Purchasers' judgment, makes it impracticable to
market the Series A Notes on the terms and in the manner contemplated in the
Offering Memorandum.
(4) The Initial Purchasers shall have received on the Closing Date
(i) a certificate dated the Closing Date, signed by the President (or Chief
Executive Officer) and the Chief Financial Officer (or principal financial or
accounting officer) of the Company and each of the Guarantors, confirming the
matters set forth in Sections 6(dd), 9(a) and 9(b) and stating that the Company
and each of the Guarantors has complied with all the agreements and satisfied
all of the conditions herein contained and required to be complied with or
satisfied on or prior to the Closing Date; and (ii) a certificate dated the
Closing Date, signed by the President (or Chief Executive Officer) and Chief
Financial Officer (or principal financial or accounting officer) of the Company
and each of the Guarantors, stating that the industry, statistical and market-
related data included in the Offering Memorandum has been reviewed by such
persons and, to the best knowledge of such persons, subject to the risks and
limitations described in the Preliminary Offering Memorandum and the Offering
Memorandum, is true and accurate in all material respects and is based on or
derived from sources which the Company and the Guarantors believe to be reliable
and accurate, which certificate shall be in form and substance satisfactory to
counsel for the Initial Purchasers.
(5) The Initial Purchasers shall have received on the Closing Date an
opinion (satisfactory to the Initial Purchasers and counsel for the Initial
Purchasers), dated the Closing Date, of Brobeck, Phleger & Harrison, LLP,
counsel for the Company and the Guarantors, to the effect that:
(1) each of the Company, the Guarantors and their respective
subsidiaries, other than the Canadian Subsidiary, is validly
existing as a corporation in good standing under the laws of the
State of Delaware and has the corporate power and corporate
authority to carry on its business as described in the
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Offering Memorandum and to own, lease and operate its properties
as described in the Offering Memorandum;
(2) each of the Company and the Guarantors is duly
qualified and is in good standing as a foreign corporation
authorized to do business as follows: (a) the Company in
Connecticut; (b) Panolam in Connecticut; (c) PII Second, Inc. in
Connecticut; (d) Panolam Industries, Inc. in Connecticut, Oregon
and Georgia; and (e) Pioneer in California, Georgia, Indiana,
Maine and Tennessee.
(3) all the outstanding shares of capital stock of
Holdings, the Company, the Guarantors and their respective
subsidiaries, other than the Canadian Subsidiary, have been duly
authorized and validly issued and are fully paid, non-assessable
and not subject to any preemptive or similar rights, other than
as described in the Offering Memorandum;
(4) the entities listed on Schedule D hereto are the only
subsidiaries, direct or indirect, of the Company. All of the
outstanding shares of capital stock of each of the Company's
subsidiaries are owned directly or indirectly by the Company free
and clear of any Lien, other than the pledge of such shares to
secure the obligations under the New Credit Agreements. All of
the outstanding shares of capital stock of the Company are owned
directly by PII Second free and clear of any Lien, other than the
pledge of such shares to secure the obligations under the New
Credit Agreements. All of the outstanding shares of capital
stock of PII Second are owned directly by Panolam free and clear
of any Lien, other than the pledge of such shares to secure the
obligations under the New Credit Agreements. All of the
outstanding shares of capital stock of Panolam are owned directly
by Holdings free and clear of any Lien, other than the pledge of
such shares to secure the obligations under the New Credit
Agreements.
(5) the issuance and sale of the Series A Notes by the
Company have been duly authorized and, when executed and
authenticated in accordance with the provisions of the
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<PAGE>
Indenture and delivered to and paid for by the Initial Purchasers
in accordance with the terms of this Agreement, will be entitled
to the benefits of the Indenture and will be valid and binding
obligations of the Company, enforceable against the Company in
accordance with their terms except as the enforceability thereof
may be limited by (x) bankruptcy, fraudulent transfer,
insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and (y) equitable principles of
general applicability (regardless of whether enforceability is
considered at equity or in law);
(6) the issuance and sale of the Guarantees have been duly
authorized by the Guarantors and, when the Series A Notes are
executed and authenticated in accordance with the provisions of
the Indenture and delivered to and paid for by the Initial
Purchasers in accordance with the terms of this Agreement, the
Guarantees endorsed thereon will be entitled to the benefits of
the Indenture and will be valid and binding obligations of the
Guarantors, enforceable against the Guarantors in accordance with
their terms except as the enforceability thereof may be limited
by (x) bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or similar laws affecting creditors'
rights generally and (y) equitable principles of general
applicability (regardless of whether enforceability is considered
at equity or in law);
(7) the Indenture has been duly authorized, executed and
delivered by the Company and each Guarantor and, assuming the due
authorization, execution and delivery by the Trustee, is a valid
and binding agreement of the Company and each Guarantor,
enforceable against the Company and each Guarantor in accordance
with its terms except as the enforceability thereof may be
limited by (x) bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or similar laws affecting creditors'
rights generally and (y) equitable principles of general
applicability (regardless of whether enforceability is considered
at equity or in law);
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(8) this Agreement has been duly authorized, executed and
delivered by the Company and the Guarantors;
(9) the Registration Rights Agreement has been duly
authorized, executed and delivered by the Company and the
Guarantors and, assuming the due authorization, execution and
delivery by the Initial Purchasers, is a valid and binding
agreement of the Company and each Guarantor, enforceable against
the Company and each Guarantor in accordance with its terms,
except (A) as the enforceability thereof may be limited by (x)
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium or similar laws affecting creditors' rights generally
and (y) equitable principles of general applicability (regardless
of whether enforceability is considered at equity or in law) (B)
any rights to indemnity or contribution thereunder may be limited
by federal and state securities laws and public policy
considerations, and (C) such counsel need express no opinion with
respect to Section 5 of the Registration Rights Agreement;
(10) the Series B Senior Notes have been duly authorized by
the Company;
(11) the statements under the captions "The Transactions,"
"Management-Employment Agreements," "-1996 Option Plan," "Certain
Transactions," "Description of Certain Indebtedness,"
"Description of Notes" and "Plan of Distribution" (not including
any portion of this section provided by the Initial Purchasers
pursuant to Section 6(a)) in the Offering Memorandum, insofar as
such statements constitute a summary of the provisions of such
documents described therein, fairly summarize the provisions of
such documents. The statements under the caption "Certain United
States Federal Income Tax Considerations to Non-U.S. Holders,"
insofar as they purport to describe the provisions of the Federal
income tax laws described therein, fairly summarize such laws in
all material respects;
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(12) to the best of such counsel's knowledge after due
inquiry, (A) none of Holdings, the Company, the Guarantors or any
of their respective subsidiaries, other than the Canadian
Subsidiary, is in violation of its respective charter or by-laws
or other organizational documents and (B) none of Holdings, the
Company, the Guarantors or any of their respective subsidiaries,
other than the Canadian Subsidiary, is in default in the
performance of any obligation, agreement, covenant or condition
contained in any indenture, loan agreement, mortgage, lease or
other agreement or instrument identified by Holdings, the Company
and the Guarantors to such counsel in a certificate to be
attached to such opinion as material to the Company, the
Subsidiary Guarantors and their respective subsidiaries, taken as
a whole, to which Holdings, the Company, any Guarantor or any of
their respective subsidiaries, other than the Canadian
Subsidiary, is a party or by which Holdings, the Company, any
Guarantor or any of their respective subsidiaries, other than the
Canadian Subsidiary, or their respective property is bound
(collectively, the "REVIEWED AGREEMENTS"), which default in the
-------------------
case of (B) would have a Material Adverse Effect;
(13) the execution and deliver of the Genstar Agreements by
the Company, Panolam Industries, Inc. and the Canadian
Subsidiary, as applicable, and the execution, delivery and
performance of this Agreement and the other Operative Documents
by the Company, each of the Guarantors and, to the extent a party
thereto, the Canadian Subsidiary, the compliance by the Company,
each of the Guarantors and, to the extent a party thereto, the
Canadian Subsidiary, with all provisions of the Operative
Documents and the consummation of the transactions contemplated
by the Operative Documents will not (i) require any consent,
approval, authorization or other order of, or qualification with,
any court or governmental body or agency (except such as may be
required under the securities or Blue Sky laws of the various
states, as to which such counsel expresses no opinion, or that
have been obtained prior to the Closing Date), (ii) conflict with
or constitute a breach of any of the terms or provisions of, or a
default under,
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the charter or by-laws or other organizational documents of
Holdings, the Company, any Guarantor or any of their respective
subsidiaries, other than the Canadian Subsidiary, or any Reviewed
Agreements, (iii) violate or conflict with any applicable law or
any rule or regulation (assuming compliance with the securities
or Blue Sky laws of the various states and the accuracy of the
Initial Purchasers' representations contained in section 7 of
this Agreement), or, to such counsel's knowledge, any judgment,
order or decree of any court or any governmental body or agency
having jurisdiction over Holdings, the Company, any Guarantor,
any of their respective subsidiaries, other than the Canadian
Subsidiary, or their respective property, (iv) result in the
imposition or creation of (or the obligation to create or impose)
a Lien (other than Liens to secure the obligations under the New
Credit Agreements) under, any Reviewed Agreement, and (v) to the
best of such counsel's knowledge, result in the termination,
suspension or revocation of any Authorization that is disclosed
in the Schedules to the Credit Agreement of the Company, any
Guarantor or any of their respective subsidiaries or result in
any other impairment of the rights of the holder of any such
Authorization. Such counsel need express no opinion, however, as
to whether execution, delivery or performance by the Company and
the Guarantors of their respective obligations under each of the
Operative Documents and the Genstar Agreements in accordance with
their terms will constitute a violation of or default under any
covenant, restriction or provisions with respect to financial
ratios or tests or any aspect of the financial condition or
results of operations of the Company, the Guarantors and their
respective subsidiaries;
(14) after due inquiry, other than as set forth in the
Offering Memorandum, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the
Company, any Guarantor or any of their respective subsidiaries,
other than the Canadian Subsidiary, is or could be a party or to
which any of their respective property is or could be subject,
which might result, singly or in the aggregate, in a Material
Adverse Effect;
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(15) none of the Company or any of its subsidiaries is and,
after giving effect to the offering and sale of the Series A
Notes and the application of the net proceeds thereof as
described in the Offering Memorandum, will be, an "investment
company" as such term is defined in the Investment Company Act of
1940, as amended;
(16) to the best of such counsel's knowledge after due
inquiry, except for the Registration Rights Agreement, there are
no contracts, agreements or understandings between the Company or
any Guarantor and any person granting such person the right to
require the Company or such Guarantor to file a registration
statement under the Act with respect to any securities of the
Company or such Guarantor or to require the Company or such
Guarantor to include such securities with the Notes and
Guarantees registered pursuant to any Registration Statement;
(17) the Indenture is in such form that it may be qualified
under the TIA, and the rules and regulations of the Commission
applicable to an indenture which is qualified thereunder, without
material modification or modification required to be disclosed.
It is not necessary in connection with the offer, sale and
delivery of the Series A Notes to the Initial Purchasers or in
connection with Exempt Resales, in each case, in the manner
contemplated by this Agreement and the Offering Memorandum, to
qualify the Indenture under the TIA.
(18) no registration under the Act of the Series A Notes is
required for the sale of the Series A Notes to the Initial
Purchasers or for the Exempt Resales, in each case, in the manner
contemplated by this Agreement and the Offering Memorandum,
assuming that (i) each Initial Purchaser and each purchaser
pursuant to each Exempt Resale is either a QIB, an Accredited
Institution or a Regulation S Purchaser, (ii) the accuracy of,
and compliance with, the Initial Purchasers' representations
and agreements contained in Section 7 of
41
<PAGE>
this Agreement, and (iii) the accuracy of the representations of
the Company and the Guarantors set forth in Sections 5(h) and
6(tt), (uu), (vv), (ww) and (xx) of this Agreement, it being
understood that such counsel need express no opinion as to any
subsequent resale of any Series A Note;
In addition, such counsel shall state that it has participated in
conferences with officers and other representatives of the Company, the
Guarantors and the Canadian Subsidiary, representatives of the independent
accountants of the Company, the Guarantors and the Canadian Subsidiary, and the
Initial Purchasers and the Initial Purchasers' counsel, at which the contents of
the Offering Memorandum and related matters were discussed and, although such
counsel need not pass upon, and shall not assume any responsibility for, the
accuracy, completeness or fairness of the statements contained in the Offering
Memorandum and need make no independent check or verification thereof, on the
basis of the foregoing, no facts have come to such counsel's attention that have
led such counsel to believe that the Offering Memorandum, as of its date and as
of the Closing Date, contained or contains an untrue statement of a material
fact or omitted or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except that such counsel need express no opinion or belief with
respect to the financial statements and other financial and statistical data
included therein or excluded therefrom.
The opinion of Brobeck, Phleger & Harrison, LLP described in Section
9(e) above shall be rendered to the Initial Purchasers at the request of the
Company and the Guarantors and shall so state therein.
(6) The Initial Purchasers shall have received on the Closing Date an
opinion (satisfactory to the Initial Purchasers and counsel for the Initial
Purchaser), dated the Closing Date, of Davies, Ward & Beck, local Canadian
counsel for the Company and the Guarantors, limited to the rules having the
force of law, laws, statutes and regulations of the Province of Ontario and the
federal laws of Canada applicable in such provinces (collectively, "Applicable
Laws"), substantially to the effect that:
(1) the Canadian Subsidiary has been duly incorporated, is
validly existing as a corporation under the Business Corporations
Act (Ontario) and has the corporate power
42
<PAGE>
and authority to carry on its business as described in the
Offering Memorandum and to own, lease and operate its properties;
(2) all of the outstanding shares of capital stock of the
Canadian Subsidiary have been duly authorized and validly
issued and are fully paid and non-assessable;
(3) to the actual knowledge of those lawyers of such
counsel who have been primarily involved in the representation
of the Canadian Subsidiary and its affiliates (the "Primary
Lawyer Group"), the Canadian Subsidiary (a) is not in violation
of its articles of incorporation, as amended, or by-laws or other
organizational documents (collectively, the "Canadian Subsidiary
Corporate Documents") and (b) is not in default in the
performance of any obligation, agreement, covenant or condition
contained in any indenture, loan agreement, mortgage, lease or
other agreement or instrument to which the Canadian Subsidiary is
a party or by which its property is bound that is disclosed in
the Schedules to the Canadian Credit Agreement and that is
governed by the Applicable Laws (collectively, the "Canadian
Material Agreements"), which default in the case of (ii) would
have a Material Adverse Effect;
(4) the execution, delivery and performance of this
Agreement and the other Operative Documents by the Company,
each of the Guarantors and, to the extent a party thereto, the
Canadian Subsidiary, the compliance by the Company, each of the
Guarantors and, to the extent a party thereto, the Canadian
Subsidiary with all provisions of the Operative Documents and the
consummation of the transactions contemplated by the Operative
Documents will not (A) require any consent, approval,
authorization or other order of, or qualification with, any
court or governmental body or agency under Applicable Laws
(except as may be required under the securities laws of the
Province of Ontario), (B) conflict with or constitute a breach of
any of the terms or provisions of, or a default under, the
Canadian Subsidiary Corporate Documents or any Canadian Material
Agreement, (C) violate or conflict
43
<PAGE>
with any Applicable Laws, or, to the actual knowledge of the
Primary Lawyer Group, violate or conflict with any judgment,
order or decree of any court or any governmental body or agency
having jurisdiction over the Canadian Subsidiary or its property,
(D) result in the imposition or creation of (or the obligation to
create or impose) a Lien (other than Liens to secure the
obligations under the New Credit Agreements) under any Canadian
Material Agreement, or (E) to the actual knowledge of the Primary
Lawyer Group, result in the termination, suspension or
revocation of any Authorization of the Canadian Subsidiary that
is disclosed in the Schedules to the Canadian Credit Agreement,
or result in any other impairment of the rights of the holder of
any such Authorization; and
(5) to the actual knowledge of the Primary Lawyer Group,
other than as set forth in the Offering Memorandum, there are no
legal or governmental proceedings pending or threatened to which
the Canadian Subsidiary is or could be a party or to which any of
its property is or could be subject, which might result, singly
or in the aggregate, in a Material Adverse Effect.
The opinion of Davies, Ward & Beck described in Section 9(f) above
shall be rendered to the Initial Purchasers at the request of the Company and
the Guarantors and shall so state therein.
(7) On the Closing Date, counsel (which shall include local counsel)
for the Company shall have delivered to the Initial Purchasers copies of all
opinions issued by them in connection with the Acquisition Agreement and the New
Credit Agreements and the transactions contemplated thereby, along with executed
letters entitling the Initial Purchasers to rely on such opinions as if
originally addressed to the Initial Purchasers.
(8) The Initial Purchaser shall have received on the Closing Date an
opinion, dated the Closing Date, of Skadden, Arps, Slate, Meagher & Flom, LLP,
counsel for the Initial Purchasers, in form and substance reasonably
satisfactory to the Initial Purchasers.
44
<PAGE>
(9) Skadden, Arps, Slate, Meagher & Flom, LLP shall have been
furnished with such documents, in addition to those set forth above, as they may
reasonably require for the purpose of enabling them to review or pass upon the
matters referred to in this Section 9 and in order to evidence the accuracy,
completeness or satisfaction in all material respects of any of the
representations, warranties or conditions herein contained, which request shall
be made in writing within a reasonable period of time prior to the Closing Date.
(10) The Initial Purchasers shall have received, at the time this
Agreement is executed and at the Closing Date, letters dated the date hereof or
the Closing Date, as the case may be, in form and substance satisfactory to the
Initial Purchasers from PricewaterhouseCoopers, LLP and KPMG Peat Marwick LLP,
both independent public accountants, containing the information and statements
of the type ordinarily included in accountants' "comfort letters" to the Initial
Purchaser with respect to the financial statements and certain financial
information contained in the Offering Memorandum.
(11) The Series A Notes shall have been approved by the NASD for
trading and duly listed in PORTAL.
(12) The Company, the Guarantors and the Trustee shall have executed
the Indenture and the Initial Purchasers shall have received an original copy
thereof, duly executed by the Company, the Guarantors and the Trustee.
(13) The Company and the Guarantors shall have executed the
Registration Rights Agreement and the Initial Purchasers shall have received an
original copy thereof, duly executed by the Company and the Guarantors.
(14) On the Closing Date, the Acquisition shall have been consummated
on terms that conform in all material respects to the description thereof in the
Offering Memorandum and the Initial Purchasers shall have received evidence
satisfactory to them of the consummation thereof.
(15) The New Credit Agreements shall have been executed by the parties
thereto and, on the Closing Date, the closing under the New Credit Agreements
(including, without limitation, the Initial Borrowings) shall have been
consummated on terms that conform in all material respects to the description
thereof in the Offering Memorandum, and the Initial Purchasers shall have had
made
45
<PAGE>
available to them for review counterparts, conformed as executed, of the New
Credit Agreements and any and all other ancillary documents related thereto.
(16) On the Closing Date, each of the Operative Documents shall have
been entered into on terms that conform in all material respects to the
description thereof in the Offering Memorandum and the Initial Purchasers shall
have received evidence satisfactory to them of the execution thereof and the
consummation of the transactions contemplated thereby.
(17) As of the Closing Date, the Company shall have received the
proceeds of the Capital Contribution.
(18) Neither the Company nor the Guarantors shall have failed at or
prior to the Closing Date to perform or comply with any of the agreements herein
contained and required to be performed or complied with by the Company or the
Guarantors, as the case may be, at or prior to the Closing Date.
(19) On the Closing Date, as of the effective time of the Acquisition,
Pioneer shall have duly authorized and validly executed this Agreement and shall
have assumed all of the rights and obligations as a Panolam Party hereunder and
a Subsidiary Guarantor party hereto, and the Initial Purchasers shall have
received a counterpart to this Agreement executed by Pioneer as a party hereto.
10. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This Agreement
------------------------------------------
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the
Closing Date by the Initial Purchasers by written notice to the Company if any
of the following has occurred: (i) any outbreak or escalation of hostilities or
other national or international calamity or crisis or change in economic
conditions or in the financial markets of the United States or elsewhere that,
in the Initial Purchasers' judgment, is material and adverse and, in the Initial
Purchasers' judgment, makes it impracticable to market the Series A Notes on the
terms and in the manner contemplated in the Offering Memorandum, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or
46
<PAGE>
limitation on prices for securities or other instruments on any such exchange or
the Nasdaq National Market, (iii) the suspension of trading of any securities of
the Company or any Guarantor on any exchange or in the over-the-counter market,
(iv) the enactment, publication, decree or other promulgation of any federal or
state statute, regulation, rule or order of any court or other governmental
authority which in the Initial Purchasers' opinion materially and adversely
affects, or will materially and adversely affect, the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by
either federal or New York State authorities or (vi) the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in the Initial Purchasers' opinion has a material adverse
effect on the financial markets in the United States.
If on the Closing Date any one or more of the Initial Purchasers shall
fail or refuse to purchase the Series A Notes which it or they have agreed to
purchase hereunder on such date and the aggregate principal amount of the Series
A Notes which such defaulting Initial Purchaser or Initial Purchasers, as the
case may be, agreed but failed or refused to purchase is not more than one-tenth
of the aggregate principal amount of the Series A Notes to be purchased on such
date by all Initial Purchasers, each non-defaulting Initial Purchaser shall be
obligated severally, in the proportion which the principal amount of the Series
A Notes set forth opposite its name in Schedule C bears to the aggregate
principal amount of the Series A Notes which all the non-defaulting Initial
Purchasers, as the case may be, have agreed to purchase, or in such other
proportion as the Initial Purchasers may specify, to purchase the Series A Notes
which such defaulting Initial Purchaser or Initial Purchasers, as the case may
be, agreed but failed or refused to purchase on such date; provided that in no
event shall the aggregate principal amount of the Series A Notes which any
Initial Purchaser has agreed to purchase pursuant to Section 2 hereof be
increased pursuant to this Section 10 by an amount in excess of one-ninth of
such principal amount of the Series A Notes without the written consent of such
Initial Purchaser. If on the Closing Date any Initial Purchaser or Initial
Purchasers shall fail or refuse to purchase the Series A Notes and the aggregate
principal amount of the Series A Notes with respect to which such default occurs
is more than one-tenth of the aggregate principal amount of the Series A Notes
to be purchased by all Initial Purchasers and arrangements satisfactory to the
Initial Purchasers and the Company for purchase of such the Series A Notes are
not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Initial Purchaser and the
Company. In any such case which does not result in termination of this
Agreement, either the Initial Purchasers or the Company
47
<PAGE>
shall have the right to postpone the Closing Date, but in no event for longer
than seven days, in order that the required changes, if any, in the Offering
Memorandum or any other documents or arrangements may be effected. Any action
taken under this paragraph shall not relieve any defaulting Initial Purchaser
from liability in respect of any default of any such Initial Purchaser under
this Agreement.
11. MISCELLANEOUS. Notices given pursuant to any provision of this
-------------
Agreement shall be addressed as follows: (i) if to the Company or any
Guarantor, to Panolam Industries International, Inc., 20 Progress Drive,
Shelton, Connecticut 06484, Attention: President, and (ii) if to the Initial
Purchasers, Donaldson, Lufkin & Jenrette Securities Corporation, 277 Park
Avenue, New York, New York 10172, Attention: Syndicate Department, or in any
case to such other address as the person to be notified may have requested in
writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Guarantors and the Initial
Purchasers set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and payment
for the Series A Notes, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of the Initial Purchasers, the
officers or directors of the Initial Purchasers, any person controlling any
Initial Purchaser, the Company, any Guarantor, the officers or directors of the
Company or any Guarantor, or any person controlling the Company or any
Guarantor, (ii) acceptance of the Series A Notes and payment for them hereunder
and (iii) termination of this Agreement.
If for any reason the Series A Notes are not delivered by or on behalf
of the Company as provided herein (other than as a result of any termination of
this Agreement pursuant to Section 10), the Company and each Guarantor, jointly
and severally, agree to reimburse the Initial Purchasers for all out-of-pocket
expenses (including the fees and disbursements of counsel) incurred by them.
Notwithstanding any termination of this Agreement, the Company shall be liable
for all expenses which it has agreed to pay pursuant to Section 5(i) hereof.
The Company and each Guarantor also agree, jointly and severally, to reimburse
the Initial Purchasers and their officers, directors and each person, if any,
who controls such Initial Purchasers within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act for any and all fees and expenses (including
without limitation the fees and expenses of counsel) incurred by them in
connection with enforcing their rights under this Agreement (including without
limitation its rights under Section 8).
48
<PAGE>
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the Guarantors,
the Initial Purchasers, the Initial Purchasers' directors and officers, any
controlling persons referred to herein, the directors of the Company and the
Guarantors and their respective successors and assigns, all as and to the extent
provided in this Agreement, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include a purchaser of any of the Series A Notes from the Initial Purchasers
merely because of such purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York (including, without limitation, Section 5-1401 of
the New York General Obligations Law).
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
49
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Guarantors and the Initial Purchasers as of the date
first written above.
Very truly yours,
THE COMPANY:
PANOLAM INDUSTRIES INTERNATIONAL, INC.
By: _________________________________
Name:
Title:
THE GUARANTORS:
PANOLAM GROUP, INC.
By: _________________________________
Name:
Title:
PII SECOND, INC.
By: _________________________________
Name:
Title:
PANOLAM INDUSTRIES, INC.
By: _________________________________
Name:
Title:
50
<PAGE>
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON CORPORATION
By: Donaldson, Lufkin & Jenrette
Securities Corporation
By: ________________________________
Name:
Title:
<PAGE>
The undersigned hereby agrees to be bound by the foregoing Purchase Agreement
and assumes all of the rights and obligations as a Panolam Party and Subsidiary
Guarantor hereunder, as of the effective time of the Acquisition on February ,
1999.
PIONEER PLASTICS CORPORATION
By: _________________________
Name:
Title:
<PAGE>
SCHEDULE A
SUBSIDIARY GUARANTORS
Panolam Industries, Inc.
Pioneer Plastics Corporation
<PAGE>
SCHEDULE B
PARENT GUARANTORS
Panolam Group, Inc.
PII Second, Inc.
<PAGE>
SCHEDULE C
INITIAL PURCHASERS
Principal Amount
of Notes
----------------
Donaldson, Lufkin & Jenrette Securities Corporation $ 81,000,000
Credit Suisse First Boston Corporation $ 54,000,000
----------------
TOTAL $135,000,000
================
<PAGE>
SCHEDULE D
SUBSIDIARIES
Panolam Industries, Ltd.
Panolam Industries, Inc.
Pioneer Plastics Corporation
Melamine Decorative Laminates, Inc. (*)
The Melamine Group, Inc. (*)
________________________________
(*) Indicates an immaterial subsidiary that is inactive and has been designated
as an Unrestricted Subsidiary.
<PAGE>
EXHIBIT 4.3
A/B EXCHANGE
REGISTRATION RIGHTS AGREEMENT
Dated as of February 18, 1999
by and among
PANOLAM INDUSTRIES INTERNATIONAL, INC.
(as Issuer)
PANOLAM GROUP, INC.
PII SECOND, INC.
PANOLAM INDUSTRIES, INC.
PIONEER PLASTICS CORPORATION
(each a Guarantor)
and
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON CORPORATION
<PAGE>
This Registration Rights Agreement (this "AGREEMENT") is made and
---------
entered into as of February 18, 1999, by and among Panolam Industries
International, Inc., a Delaware corporation (the "COMPANY"), 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"), and Donaldson, Lufkin &
----------
Jenrette Securities Corporation and Credit Suisse First Boston Corporation (each
an "INITIAL PURCHASER" and, collectively, the "INITIAL PURCHASERS"), each of
----------------- ------------------
whom has agreed to purchase the Company's 11 1/2% Series A Senior Notes due 2009
(the "SERIES A NOTES") pursuant to the Purchase Agreement (as defined below).
--------------
This Agreement is made pursuant to the Purchase Agreement, dated
February 10, 1999, (the "PURCHASE AGREEMENT"), by and among the Company, the
------------------
Guarantors and the Initial Purchasers. In order to induce the Initial
Purchasers to purchase the Series A Notes, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution and delivery of
this Agreement is a condition to the obligations of the Initial Purchasers set
forth in Sections 2 and 3 of the Purchase Agreement. Capitalized terms used
herein and not otherwise defined shall have the meaning assigned to them the
Indenture, dated February 18, 1999, between the Company and State Street Bank
and Trust Company, as Trustee, relating to the Series A Notes and the Series B
Notes (the "INDENTURE").
---------
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
ACT: The Securities Act of 1933, as amended.
---
AFFILIATE: As defined in Rule 144 of the Act.
---------
BROKER-DEALER: Any broker or dealer registered under the Exchange
-------------
Act.
CERTIFICATED SECURITIES: Definitive Notes, as defined in the
-----------------------
Indenture.
CLOSING DATE: The date hereof.
------------
COMMISSION: The Securities and Exchange Commission.
----------
CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for
----------
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously
effective and the keeping of the Exchange Offer open for a period not less than
the period required pursuant to Section 3(b) hereof
1
<PAGE>
and (c) the delivery by the Company to the Registrar under the Indenture of
Series B Notes in the same aggregate principal amount as the aggregate principal
amount of Series A Notes tendered by Holders thereof pursuant to the Exchange
Offer.
CONSUMMATION DEADLINE: As defined in Section 3(b) hereof.
---------------------
EFFECTIVENESS DEADLINE: As defined in Section 3(a) and 4(a) hereof.
----------------------
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
------------
EXCHANGE OFFER: The exchange and issuance by the Company of a
--------------
principal amount of Series B Notes (which shall be registered pursuant to the
Exchange Offer Registration Statement) equal to the outstanding principal amount
of Series A Notes that are tendered by such Holders in connection with such
exchange and issuance.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement
-------------------------------------
relating to the Exchange Offer, including the related Prospectus.
EXEMPT RESALES: The transactions in which the Initial Purchasers
--------------
propose to sell the Series A Notes to certain "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act, and pursuant to Regulation S
under the Act.
FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof.
---------------
HOLDERS: As defined in Section 2 hereof.
-------
PROSPECTUS: The prospectus included in a Registration Statement at
----------
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
RECOMMENCEMENT DATE: As defined in Section 6(d) hereof.
-------------------
REGISTRATION DEFAULT: As defined in Section 5 hereof.
--------------------
REGISTRATION STATEMENT: Any registration statement of the Company and
----------------------
the Guarantors relating to (a) an offering of Series B Notes pursuant to an
Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i) that
is filed pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
REGULATION S: Regulation S promulgated under the Act.
------------
RULE 144: Rule 144 promulgated under the Act.
--------
2
<PAGE>
SERIES B NOTES: The Company's 11 1/2% Series B Senior Notes due
--------------
2009 to be issued pursuant to the Indenture: (i) in the Exchange Offer or (ii)
as contemplated by Section 4 hereof.
SHELF REGISTRATION STATEMENT: As defined in Section 4 hereof.
----------------------------
SUSPENSION NOTICE: As defined in Section 6(d) hereof.
-----------------
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-
---
77bbbb) as in effect on the date of the Indenture.
TRANSFER RESTRICTED SECURITIES: (x) Each Series A Note, until the
------------------------------
earliest to occur of (a) the date on which such Series A Note is exchanged in
the Exchange Offer for a Series B Note which is entitled to be resold to the
public by the Holder thereof without complying with the prospectus delivery
requirements of the Act (other than as a result of such Holder's status as an
Affiliate of the Company), (b) the date on which such Series A Note has been
disposed of in accordance with a Shelf Registration Statement (and the
purchasers thereof have been issued Notes that do not bear the Private Placement
Legend set forth in the Indenture), or (c) the date on which such Series A Note
is distributed to the public pursuant to Rule 144 under the Act or may be sold
under Rule 144(k) under the Act (and purchasers thereof have been issued Notes
that do not bear the Private Placement Legend set forth in the Indenture) and
(y) each Series B Note until the date on which such Series B Note is disposed of
by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including the delivery of the Prospectus
contained therein).
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "HOLDER") whenever such Person owns Transfer Restricted Securities.
------
SECTION 3. REGISTERED EXCHANGE OFFER
(1) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company and the Guarantors shall (i) cause the Exchange
Offer Registration Statement to be filed with the Commission as soon as
practicable after the Closing Date, but in no event later than 75 days after the
Closing Date (such 75/th/ day being the "FILING DEADLINE"), (ii) use its best
---------------
efforts to cause such Exchange Offer Registration Statement to become effective
at the earliest possible time, but in no event later than 150 days after the
Closing Date (such 150th day being the "EFFECTIVENESS DEADLINE"), (iii) in
----------------------
connection with the foregoing, (A) file all pre-effective amendments to such
Exchange Offer Registration Statement as may be necessary in order to cause it
to become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) cause all necessary filings, if any, in connection with the registration and
qualification of the Series B Notes to be made under the Blue Sky laws of such
jurisdictions in the United States and such other reason able jurisdictions
requested by a Holder as are necessary to permit Consummation of the Exchange
Offer, provided, however, that the Company shall not be required in connection
therewith to register or qualify as a foreign corporation in any jurisdiction
where it is not now so registered or qualified or to take any action that would
subject it to service of process in suits or to taxation, other than as to
matters and
3
<PAGE>
transactions relating to the Exchange Offer Registration Statement, in any
jurisdiction where it is not now so subject, and (iv) upon the effectiveness of
such Exchange Offer Registration Statement, commence and Consummate the Exchange
Offer. The Exchange Offer shall be on the appropriate form permitting (i)
registration of the Series B Notes to be offered in exchange for the Series A
Notes that are Transfer Restricted Securities and (ii) resales of Series B Notes
by Broker-Dealers that tendered into the Exchange Offer Series A Notes that such
Broker-Dealer acquired for its own account as a result of market making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) as contemplated by Section
3(c) below.
(2) The Company and the Guarantors shall use their respective best
efforts to cause the Exchange Offer Registration Statement to be effective
continuously, and shall keep the Exchange Offer open for a period of not less
than the minimum period required under applicable federal and state securities
laws to Consummate the Exchange Offer; provided, however, that in no event shall
such period be less than 20 Business Days. The Company and the Guarantors shall
cause the Exchange Offer to comply with all applicable federal and state
securities laws. No securities other than the Series B Notes shall be included
in the Exchange Offer Registration Statement. The Company and the Guarantors
shall use their respective best efforts to cause the Exchange Offer to be
Consummated on or prior to 30 Business Days after the Exchange Offer
Registration Statement has become effective (such 30/th/ day being the
"CONSUMMATION DEADLINE").
---------------------
(3) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any Affiliate of the Company), may exchange such
Transfer Restricted Securities pursuant to the Exchange Offer. Such "Plan of
Distribution" section shall also contain all other information with respect to
such sales by such Broker-Dealers that the Commission may require in order to
permit such sales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Transfer Restricted
Securities held by any such Broker-Dealer, except to the extent required by the
Commission as a result of a change in policy, rules or regulations after the
date of this Agreement. See the Shearman & Sterling no-action letter (available
July 2, 1993).
Because such Broker-Dealer may be deemed to be an "underwriter" within
the meaning of the Act and must, therefore, deliver a prospectus meeting the
requirements of the Act in connection with its initial sale of any Series B
Notes received by such Broker-Dealer in the Exchange Offer, the Company and
Guarantors shall permit the use of the Prospectus contained in the Exchange
Offer Registration Statement by such Broker-Dealer to satisfy such prospectus
delivery requirement. To the extent necessary to ensure that the prospectus
contained in the Exchange Offer Registration Statement is available for sales of
Series B Notes by Broker-Dealers, the Company and the Guarantors agree to use
their respective best efforts to keep the Exchange Offer Registration Statement
continuously effective, supplemented, amended and current as required by and
subject to the provisions of Section 6(a) and (c) hereof and in conformity with
the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of
one year from the Consummation Deadline or such shorter period as will terminate
when all Transfer Restricted Securities covered by such Registration Statement
have been sold pursuant thereto. The Company and the Guarantors shall provide
sufficient copies of the latest version of such Prospectus to such Broker-
4
<PAGE>
Dealers, promptly upon request, and in no event later than one day after such
request, at any time during such period.
SECTION 4. SHELF REGISTRATION
(1) Shelf Registration. If (i) the Exchange Offer is not permitted
------------------
by applicable law (after the Company and the Guarantors have complied with the
procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of Transfer
Restricted Securities shall notify the Company within 20 Business Days following
the Consummation of the Exchange Offer that (A) such Holder was prohibited by
law or Commission policy from participating in the Exchange Offer or (B) such
Holder may not resell the Series B 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 such Holder or (C) such Holder is a Broker-Dealer and holds Series A
Notes acquired directly from the Company or any of its Affiliates, then the
Company and the Guarantors shall:
(x) cause to be filed, on or prior to 30 days after the earlier of
(i) the date on which the Company determines that the Exchange Offer
Registration Statement cannot be filed as a result of clause (a)(i) above and
(ii) the date on which the Company receives the notice specified in clause
(a)(ii) above, (such earlier date, the "FILING DEADLINE"), a shelf registration
---------------
statement pursuant to Rule 415 under the Act (which may be an amendment to the
Exchange Offer Registration Statement (the "SHELF REGISTRATION STATEMENT")),
----------------------------
relating to all Transfer Restricted Securities; provided, that in no event shall
the Filing Deadline for the Shelf Registration Statement be prior to the 75/th/
day following the Closing Date, and
(y) shall use their respective best efforts to cause such Shelf
Registration Statement to become effective on or prior to 60 days after the
Filing Deadline for the Shelf Registration Statement (such 60/th/ day the
"EFFECTIVENESS DEADLINE").
----------------------
If, after the Company has filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable federal law (i.e.,
clause (a)(i) above), then the filing of the Exchange Offer Registration
Statement shall be deemed to satisfy the requirements of clause (x) above;
provided that, in such event, the Company shall remain obligated to meet the
Effectiveness Deadline set forth in clause (y).
To the extent necessary to ensure that the Shelf Registration
Statement is available for sales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a) and the other
securities required to be registered therein pursuant to Section 6(b)(ii)
hereof, the Company and the Guarantors shall use their respective best efforts
to keep any Shelf Registration Statement required by this Section 4(a)
continuously effective, supplemented, amended and current as required by and
subject to the provisions of Sections 6(b) and (c) hereof and in conformity with
the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of at
least two years (as extended pursuant to Section 6(c)(i)) following the Closing
Date, or such shorter period as will terminate when all Transfer Restricted
Securities covered by such Shelf Registration Statement have been sold pursuant
thereto.
5
<PAGE>
(2) Provision by Holders of Certain Information in Connection with
--------------------------------------------------------------
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
- --------------------------------
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 20 days after receipt of a request therefor, the
information specified in Item 507 or 508 of Regulation S-K, as applicable, of
the Act for use in connection with any Shelf Registration Statement or
Prospectus or preliminary Prospectus included therein. No Holder of Transfer
Restricted Securities shall be entitled to liquidated damages pursuant to
Section 5 hereof unless and until such Holder shall have provided all such
information. Each selling Holder agrees to promptly furnish additional
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading.
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is
not filed with the Commission on or prior to the applicable Filing Deadline,
(ii) any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated on or prior to the Consummation Deadline
(except in the situation described in Section 4(a)(i) above when Section
4(a)(x)(i) has been satisfied) or (iv) any Registration Statement required by
this 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
within two Business Days by a post-effective amendment to such Registration
Statement that cures such failure and that is itself declared effective within
five Business Days of filing such post-effective amendment to such Registration
Statement (each such event referred to in clauses (i) through (iv), a
"REGISTRATION DEFAULT"), then the Company and the Guarantors hereby jointly and
--------------------
severally agree to pay to each Holder of Transfer Restricted Securities
affected thereby liquidated damages in an amount equal to $.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
$.05 per week per $1,000 in principal amount of Transfer Restricted Securities
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 Transfer Restricted Securities; provided that
the Company and the Guarantors shall in no event be required to pay liquidated
damages for more than one Registration Default at any given time.
Notwithstanding anything to the contrary set forth herein, (1) upon filing of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (i) above, (2) upon the effectiveness of
the Exchange Offer Registration Statement (and/or, if applicable, the Shelf
Registration Statement), in the case of (ii) above, (3) upon Consummation of the
Exchange Offer, in the case of (iii) above, or (4) upon the filing of a post-
effective amendment to the Registration Statement or an additional Registration
Statement that causes the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement) to again be declared effective or
made usable in the case of (iv) above, the liquidated damages
6
<PAGE>
payable with respect to the Transfer Restricted Securities as a result of such
clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. Notwithstanding the fact that any securities for which liquidated
damages are due cease to be Transfer Restricted Securities, all obligations of
the Company and the Guarantors to pay liquidated damages with respect to
securities shall survive until such time as such obligations with respect to
such securities shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(1) Exchange Offer Registration Statement. In connection with the
-------------------------------------
Exchange Offer, the Company and the Guarantors shall (x) comply with all
applicable provisions of Section 6(c) below, (y) use their respective best
efforts to effect such exchange and to permit the resale of Series B Notes by
Broker-Dealers that tendered in the Exchange Offer Series A Notes that such
Broker-Dealer acquired for its own account as a result of its market making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) being sold in accordance
with the intended method or methods of distribution thereof, and (z) comply with
all of the following provisions:
(1) If, following the date hereof there has been announced a
change in Commission policy with respect to exchange offers such as the Exchange
Offer, that in the reasonable opinion of counsel to the Company raises a
substantial question as to whether the Exchange Offer is permitted by applicable
federal law, the Company and the Guarantors hereby agree to seek a no-action
letter or other favorable decision from the Commission allowing the Company and
the Guarantors to Consummate an Exchange Offer for such Transfer Restricted
Securities. The Company and the Guarantors hereby agree to pursue the issuance
of such a decision to the Commission staff level. In connection with the
foregoing, the Company and the Guarantors hereby agree to take all such other
actions as may be requested by the Commission or otherwise required in
connection with the issuance of such decision, including without limitation (A)
participating in telephonic conferences with the Commission, (B) delivering to
the Commission staff an analysis prepared by counsel to the Company setting
forth the legal bases, if any, upon which such counsel has concluded that such
an Exchange Offer should be permitted and (C) diligently pursuing a resolution
(which need not be favorable) by the Commission staff. Notwithstanding the
foregoing, the Company shall not be required to take commercially unreasonable
action to comply with the requests of the Commission referred to in the previous
sentence in order to secure a favorable resolution.
(2) As a condition to its participation in the Exchange Offer,
each Holder of Transfer Restricted Securities (including, without limitation,
any Holder who is a Broker Dealer) shall furnish, upon the request of the
Company, prior to the Consummation of the Exchange Offer, a written
representation to the Company and the Guarantors (which may be contained in the
letter of transmittal contemplated by the Exchange Offer Registration Statement)
to the effect that (A) it is not an Affiliate of the Company, (B) it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the Series B
Notes to be issued in the
7
<PAGE>
Exchange Offer and (C) it is acquiring the Series B Notes in its ordinary course
of business. As a condition to its participation in the Exchange Offer each
Holder using the Exchange Offer to participate in a distribution of the Series B
Notes shall acknowledge and agree that, if the resales are of Series B Notes
obtained by such Holder in exchange for Series A Notes acquired directly from
the Company or an Affiliate thereof, it (1) could not, under Commission policy
as in effect on the date of this Agreement, rely on the position of the
Commission enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991)
----------------------------
and Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted
----------------------------------
in the Commission's letter to Shearman & Sterling dated July 2, 1993, and
-------------------
similar no-action letters (including, if applicable, any no-action letter
obtained pursuant to clause (i) above), and (2) must comply with the
registration and prospectus delivery requirements of the Act in connection with
a secondary resale transaction and that such a secondary resale 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.
(3) Prior to effectiveness of the Exchange Offer Registration
Statement, the Company and the Guarantors shall provide a supplemental letter to
the Commission (A) stating that the Company and the Guarantors are registering
the Exchange Offer in reliance on the position of the Commission enunciated in
Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley and
- ---------------------------------- ------------------
Co., Inc. (available June 5, 1991) as interpreted in the Commission's letter to
- ---------
Shearman & Sterling dated July 2, 1993, and, if applicable, any no-action letter
- -------------------
obtained pursuant to clause (i) above, (B) including a representation that
neither the Company nor any Guarantor has entered into any arrangement or
understanding with any Person to distribute the Series B Notes to be received in
the Exchange Offer and that, to the best of the Company's and each Guarantor's
information and belief, each Holder participating in the Exchange Offer is
acquiring the Series B Notes in its ordinary course of business and has no
arrangement or understanding with any Person to participate in the distribution
of the Series B Notes received in the Exchange Offer and (C) any other
undertaking or representation required by the Commission as set forth in any no-
action letter obtained pursuant to clause (i) above, if applicable.
(2) Shelf Registration Statement. In connection with the Shelf
----------------------------
Registration Statement, the Company and the Guarantors shall (i) comply with all
the provisions of Section 6(c) below and use their respective best efforts to
effect such registration to permit the sale of the Transfer Restricted
Securities being sold in accordance with the intended method or methods of
distribution thereof (as indicated in the information furnished to the Company
pursuant to Section 4(b) hereof), and pursuant thereto the Company and the
Guarantors will prepare and file with the Commission a Registration Statement
relating to the registration on any appropriate form under the Act, which form
shall be available for the sale of the Transfer Restricted Securities in
accordance with the intended method or methods of distribution thereof within
the time periods and otherwise in accordance with the provisions hereof.
(ii) issue, upon the request of any Holder or purchaser of
Series A Notes covered by any Shelf Registration Statement contemplated by this
Agreement, Series B Notes having an aggregate principal amount equal to the
aggregate principal amount of Series A Notes sold pursuant to the Shelf
Registration Statement and surrendered to the Company for cancellation; the
Company shall register Series B Notes on the Shelf Registration Statement for
this purpose and issue the Series B Notes to the purchaser(s) of securities
subject to the Shelf Registration Statement in the names as such purchaser(s)
shall designate.
8
<PAGE>
(3) General Provisions. In connection with any Registration
------------------
Statement and any related Prospectus required by this Agreement, the Company and
the Guarantors shall:
(1) use their respective best efforts to keep such Registration
Statement continuously effective and provide all requisite financial statements
for the period specified in Section 3 or 4 of this Agreement, as applicable.
Upon the occurrence of any event that would cause any such Registration
Statement or the Prospectus contained therein (A) to contain an untrue statement
of material fact or omit to state any material fact necessary to make the
statements therein not misleading or (B) not to be effective and usable for
resale of Transfer Restricted Securities during the period required by this
Agreement, the Company and the Guarantors shall file promptly an appropriate
amendment to such Registration Statement curing such defect, and, if Commission
review is required, use their respective best efforts to cause such amendment to
be declared effective as soon as practicable.
(2) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as may be
necessary to keep such Registration Statement effective for the applicable
period set forth in Section 3 or 4 hereof, as the case may be; cause the
Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully
with Rules 424, 430A and 462, as applicable, under the Act in a timely manner;
and comply with the provisions of the Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable period
in accordance with the intended method or methods of distribution by the sellers
thereof set forth in such Registration Statement or supplement to the
Prospectus;
(3) advise each Holder promptly and, if requested by such
Holder, confirm such advice in writing, (A) when the Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to any applicable Registration Statement or any post-effective amendment
thereto, when the same has become effective, (B) of any request by the
Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating thereto,
(C) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement under the Act or of the suspension
by any state securities commission of the qualification of the Transfer
Restricted Securities for offering or sale in any jurisdiction, or the
initiation of any proceeding for any of the preceding purposes, (D) of the
existence of any fact or the happening of any event that makes any statement of
a material fact made in the Registration Statement, the Prospectus, any
amendment or supplement thereto or any document incorporated by reference
therein untrue, or that requires the making of any additions to or changes in
the Registration Statement in order to make the statements therein not
misleading, or that requires the making of any additions to or changes in the
Prospectus in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If at any time the
Commission shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other regulatory
authority shall issue an order suspending the qualification or exemption from
qualification of the Transfer Restricted Securities under state securities or
Blue Sky laws, the Company and the Guarantors shall use their respective best
efforts to obtain the withdrawal or lifting of such order at the earliest
possible time;
9
<PAGE>
(4) subject to Section 6(c)(i), if any fact or event
contemplated by Section 6(c)(iii)(D) above shall exist or have occurred, prepare
a supplement or post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
Transfer Restricted Securities, the Prospectus will not contain an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading;
(5) furnish to each Holder in connection with such exchange or
sale, if any, before filing with the Commission, copies of any Registration
Statement or any Prospectus included therein or any amendments or supplements to
any such Registration Statement or Prospectus (including all documents
incorporated by reference after the initial filing of such Registration
Statement), which documents will be subject to the review and comment of such
Holders in connection with such sale, if any, for a period of at least five
Business Days, and the Company will not file any such Registration Statement or
Prospectus or any amendment or supplement to any such Registration Statement or
Prospectus (including all such documents incorporated by reference) to which
such Holders shall reasonably object within five Business Days after the receipt
thereof. A Holder shall be deemed to have reasonably objected to such filing if
such Registration Statement, amendment, Prospectus or supplement, as applicable,
as proposed to be filed, contains an untrue statement of a material fact or
omits to state any material fact necessary to make the statements therein not
misleading or fails to comply with the applicable requirements of the Act;
(6) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus, provide
copies of such document to each Holder in connection with such exchange or sale,
if any, make the Company's and the Guarantors' representatives available for
discussion of such document and other customary due diligence matters, and
include such information in such document prior to the filing thereof as such
Holders may reasonably request;
(7) subject to reasonable confidentiality procedures, make
available, at reasonable times, for inspection by each Holder and any attorney
or accountant retained by such Holders, all financial and other records,
pertinent corporate documents of the Company and the Guarantors and cause the
Company's and the Guarantors' officers, directors and employees to supply all
information reasonably requested by any such Holder, attorney or accountant in
connection with such Registration Statement or any post-effective amendment
thereto subsequent to the filing thereof and prior to its effectiveness;
provided that the Company shall reasonably and in good faith designate in
writing such information that is confidential;
(8) if requested by any Holders in connection with such exchange
or sale, promptly include in any Registration Statement or Prospectus, pursuant
to a supplement or post-effective amendment if necessary, such information as
such Holders may reasonably request to have included therein, including, without
limitation, information relating to the "Plan of Distribution" of the Transfer
Restricted Securities; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after the Company
is notified of the matters to be included in such Prospectus supplement or post-
effective amendment;
10
<PAGE>
(9) furnish to each Holder in connection with such exchange or
sale, without charge, at least one copy of the Registration Statement, as first
filed with the Commission, and of each amendment thereto, including all
documents incorporated by reference therein and all exhibits (including exhibits
incorporated therein by reference);
(10) deliver to each Holder without charge, as many copies of the
Prospectus (including each preliminary prospectus) and any amendment or
supplement thereto as such Persons reasonably may request; the Company and the
Guarantors hereby consent to the use (in accordance with law) of the Prospectus
and any amendment or supplement thereto by each selling Holder in connection
with the offering and the sale of the Transfer Restricted Securities covered by
the Prospectus or any amendment or supplement thereto;
(11) upon the request of any Holder, enter into such agreements
(including underwriting agreements) and make such representations and
warranties and take all such other actions in connection therewith in order to
expedite or facilitate the disposition of the Transfer Restricted Securities
pursuant to any applicable Registration Statement contemplated by this Agreement
as may be reasonably requested by any Holder in connection with any sale or
resale pursuant to any applicable Registration Statement. In such connection,
the Company and the Guarantors shall:
(A) upon request of any Holder, furnish (or in the case of
paragraphs (2) and (3), use its best efforts to cause to be furnished) to
each Holder, upon Consummation of the Exchange Offer or upon the
effectiveness of the Shelf Registration Statement, as the case may be:
(1) (i) a certificate, dated such date, signed on behalf of
the Company and each Guarantor by (x) the President (or Chief Executive
Officer) and (y) the Chief Financial Officer (or principal financial or
accounting officer) of the Company and such Guarantor, confirming, as of
the date thereof, the matters set forth in Sections 6(dd), 9(a) and 9(b) of
the Purchase Agreement and such other similar matters as such Holders may
reasonably request, and (ii) a certificate dated such date, signed on
behalf of the Company and each Guarantor by (x) the President (or Chief
Executive Officer) and (y) the Chief Financial Officer (or principal
financial or accounting officer) of the Company and such Guarantor stating
that the industry, statistical and market-related data, if any, included in
the Registration Statement have been reviewed by such persons and, to the
best knowledge of such persons, subject to the risks and limitations de
scribed in the Registration Statement, is true and accurate in all material
respects, which certificate shall be in the same form as the certificate
delivered upon closing of the transactions contemplated by the Purchase
Agreement;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf Registration
Statement, as the case may be, of counsel, and local Canadian counsel, for
the Company and the Guarantors covering, to the extent relevant at such
time (it being understood that opinions related to the Acquisition (as
defined in the Purchase Agreement) and the New Credit Agreements (as
defined in the Purchase Agreement) shall not be relevant), matters similar
to those set forth in paragraphs (e) and (f) of Section 9 of the Purchase
11
<PAGE>
Agreement and such other matter as such Holder may reasonably request, and
in any event including a statement to the effect that such counsel has
participated in conferences with officers and other representatives of the
Company and the Guarantors and representatives of the independent public
accountants for the Company and the Guarantors and have considered the
matters required to be stated therein and the statements contained therein,
although such counsel has not independently verified the accuracy,
completeness or fairness of such statements; and that such counsel advises
that, on the basis of the foregoing (relying as to materiality to the
extent such counsel deems appropriate upon the statements of officers and
other representatives of the Company and the Guarantors) and without
independent check or verification, no facts came to such counsel's
attention that caused such counsel to believe that the applicable
Registration Statement, at the time such Registration Statement or any
post-effective amend ment thereto became effective and, in the case of the
Exchange Offer Registration Statement, as of the date of Consummation of
the Exchange Offer, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading, or that the Prospectus
contained in such Registration Statement as of its date and, in the case of
the opinion dated the date of Consummation of the Exchange Offer, as of the
date of Consummation, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Without limiting the foregoing, such counsel may state further
that such counsel assumes no responsibility for, and has not independently
verified, the accuracy, completeness or fairness of the financial
statements, notes and schedules and other financial data included in any
Registration Statement contemplated by this Agreement or the related
Prospectus; and
(3) a customary comfort letter, dated the date of
Consummation of the Exchange Offer, or as of the date of effectiveness of
the Shelf Registration Statement, as the case may be, from the Company's
independent accountants, in the customary form and covering matters of the
type customarily covered in comfort letters to underwriters in connection
with underwritten offerings, and affirming the matters set forth in the
comfort letters delivered pursuant to Section 9(j) of the Purchase
Agreement; and
(B) deliver such other documents and certificates as may be
reason ably requested by the selling Holders to evidence compliance with
the matters covered in clause (A) above and with any customary conditions
contained in the any agreement entered into by the Company and the
Guarantors pursuant to this clause (xi);
(12) prior to any public offering of Transfer Restricted Securities,
cooperate with the selling Holders and their counsel in connection with the
registration and qualification of the Transfer Restricted Securities under the
securities or Blue Sky laws of such jurisdictions in the United States and such
other reasonable jurisdictions as the selling Holders may request and do any and
all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; provided, however, that neither the Company
nor any Guarantor shall be required to register or qualify as a foreign
12
<PAGE>
corporation where it is not now so qualified or to take any action that would
subject it to the service of process in suits or to taxation, other than as to
matters and transactions relating to the Registration Statement, in any
jurisdiction where it is not now so subject;
(13) in connection with any sale of Transfer Restricted Securities
that will result in such securities no longer being Transfer Restricted
Securities, cooperate with the Holders to facilitate the timely preparation and
delivery of certificates representing Transfer Restricted Securities to be sold
and not bearing any restrictive legends; and to register such Transfer
Restricted Securities in such denominations and such names as the selling
Holders may request at least two Business Days prior to such sale of Transfer
Restricted Securities;
(14) use their respective best efforts to cause the disposition of
the Transfer Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to enable the seller or sellers thereof to consummate the
disposition of such Transfer Restricted Securities, subject to the proviso
contained in clause (xii) above;
(15) provide a CUSIP number for all Transfer Restricted Securities
not later than the effective date of a Registration Statement covering such
Transfer Restricted Securities and provide the Trustee under the Indenture with
printed certificates for the Transfer Restricted Securities which are in a form
eligible for deposit with the Depository Trust Company;
(16) otherwise use their respective best efforts to comply with
all applicable rules and regulations of the Commission, and make generally
available to its security holders with regard to any applicable Registration
Statement, as soon as practicable, a consolidated earnings statement meeting
the requirements of Rule 158 (which need not be audited) covering a twelve-month
period beginning after the effective date of the Registration Statement (as such
term is defined in paragraph (c) of Rule 158 under the Act);
(17) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by this
Agreement and, in connection therewith, cooperate with the Trustee and the
Holders to effect such changes to the Indenture as may be required for such
Indenture to be so qualified in accordance with the terms of the TIA; and
execute and use its best efforts to cause the Trustee to execute, all documents
that may be required to effect such changes and all other forms and documents
required to be filed with the Commission to enable such Indenture to be so
qualified in a timely manner; and
(xviii) until the disposition of all Transfer Restricted Securities
held by any Holder, provide promptly to each Holder, upon request, each document
filed with the Commission pursuant to the requirements of Section 13 or Section
15(d) of the Exchange Act.
(4) Restrictions on Holders. Each Holder agrees by acquisition of a
-----------------------
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iii)(C) or any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(D) hereof (in each case, a
"SUSPENSION NOTICE"), such Holder will forthwith discontinue disposition of
- ------------------
Transfer Restricted
13
<PAGE>
Securities pursuant to the applicable Registration Statement until (i) such
Holder has received copies of the supplemented or amended Prospectus
contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is advised in
writing by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings that are incorporated
by reference in the Prospectus (in each case, the "RECOMMENCEMENT DATE").
--------------------
Each Holder receiving a Suspension Notice hereby agrees that it will either (i)
destroy any Prospectuses, other than permanent file copies, then in such
Holder's possession which have been replaced by the Company with more recently
dated Prospectuses or (ii) deliver to the Company (at the Company's expense) all
copies, other than permanent file copies, then in such Holder's possession of
the Prospectus covering such Transfer Restricted Securities that was current at
the time of receipt of the Suspension Notice. The time period regarding the
effective ness of such Registration Statement set forth in Section 3 or 4
hereof, as applicable, shall be extended by a number of days equal to the number
of days in the period from and including the date of delivery of the Suspension
Notice to the date of delivery of the Recommencement Date.
SECTION 7. REGISTRATION EXPENSES
(1) All expenses incident to the Company's and the Guarantors'
performance of or compliance with this Agreement will be borne by the Company,
regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all registration and filing fees and expenses; (ii) all
fees and expenses of compliance with federal securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including printing certificates
for the Series B Notes to be issued in the Exchange Offer and printing of
Prospectuses), (iv) reasonable messenger and delivery services and telephone
charges; (v) all fees and disbursements of counsel for the Company and the
Guarantors and, in accordance with Section 7(b) below, the Holders of Transfer
Restricted Securities; (vi) all application and filing fees in connection with
listing the Series B Notes on a national securities exchange or automated
quotation system pursuant to the requirements hereof; and (vii) all fees and
disbursements of independent certified public accountants of the Company and the
Guarantors (including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will, in any event, bear its and the Guarantors'
internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), the expenses
of any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantors.
(2) In connection with any Registration Statement required by
this Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Guarantors
will reimburse the Initial Purchasers and the Holders of Transfer Restricted
Securities who are tendering Series A Notes in the Exchange Offer and/or selling
or reselling Series A Notes or Series B Notes pursuant to the "Plan of
Distribution" contained in the Exchange Offer Registration Statement or the
Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who shall be Skadden, Arps, Slate,
Meagher & Flom LLP, unless another firm shall be chosen by the Holders of a
majority in principal amount of the Transfer Restricted Securities for whose
benefit such Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION
14
<PAGE>
(1) The Company and the Guarantors agree, jointly and severally, to
indemnify and hold harmless each Holder, its directors, officers and each
Person, if any, who controls such Holder (within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act), from and against any and all losses,
claims, damages, liabilities, judgments, (including without limitation, any
legal or other expenses incurred in connection with investigating or defending
any matter, including any action that could give rise to any such losses,
claims, damages, liabilities or judgments) caused by any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement, preliminary prospectus or Prospectus (or any amend ment or
supplement thereto) provided by the Company to any Holder or any prospective
purchaser of Series B Notes or registered Series A Notes, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by an untrue statement or omission or alleged untrue statement or
omission that is based upon information relating to any of the Holders furnished
in writing to the Company by any of the Holders.
(2) Each Holder of Transfer Restricted agrees, severally and not
jointly, to indemnify and hold harmless the Company and the Guarantors, and
their respective directors and officers, and each person, if any, who controls
(within the meaning of Section 15 of the Act or Section 20 of the Exchange Act)
the Company or the Guarantors to the same extent as the foregoing indemnity from
the Company and the Guarantors set forth in section (a) above, but only with
reference to information relating to such Holder furnished in writing to the
Company by such Holder expressly for use in any Registration Statement,
preliminary prospectus or Prospectus (or any amendment or supplement thereto).
In no event shall any Holder, its directors, officers or any Person who controls
such Holder be liable or responsible for any amount in excess of the amount by
which the total amount received by such Holder with respect to its sale of
Transfer Restricted Securities pursuant to a Registration Statement exceeds (i)
the amount paid by such Holder for such Transfer Restricted Securities and (ii)
the amount of any damages that such Holder, its directors, officers or any
Person who controls such Holder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission.
(3) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
- ------------------
against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in writing
-------------------
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), a Holder shall not be required to assume the
defense of such action pursuant to this Section 8(c), but may employ separate
counsel and participate in the defense thereof, but the fees and expenses of
such counsel, except as provided below, shall be at the expense of the Holder).
Any indemnified party shall have the right to employ separate counsel in any
such action and participate in the defense thereof, but the fees and expenses of
such counsel shall be at the expense of the indemnified party unless (i) the
employment of such counsel shall have been specifically authorized in writing by
the indemnifying party, (ii) the indemnifying party shall have failed to assume
the defense of such action or employ counsel reasonably satisfactory to the
indemnified party or (iii) the named parties to any such action (including any
impleaded parties) include both the
15
<PAGE>
indemnified party and the indemnifying party, and the indemnified party shall
have been advised by counsel employed by the indemnified party and reasonably
satisfactory to the indemnifying party that there may be one or more legal
defenses available to it which are different from or additional to those
available to the indemnifying party (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of the
indemnified party). In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for all indemnified parties
and all such fees and expenses shall be reimbursed as they are incurred. Such
firm shall be designated in writing by a majority of the Holders, in the case of
the parties indemnified pursuant to Section 8(a), and by the Company and
Guarantors, in the case of parties indemnified pursuant to Section 8(b). The
indemnifying party shall indemnify and hold harmless the indemnified party from
and against any and all losses, claims, damages, liabilities and judgments by
reason of any settlement of any action (i) effected with its written consent or
(ii) effected without its written consent if the settlement is entered into more
than twenty business days after the indemnifying party shall have received a
request from the indemnified party for reimbursement for the fees and expenses
of counsel (in any case where such fees and expenses are at the expense of the
indemnifying party) and, prior to the date of such settlement, the indemnifying
party shall have failed to comply with such reimbursement request. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement or compromise of, or consent to the entry of
judgment with respect to, any pending or threatened action in respect of which
the indemnified party is or could have been a party and indemnity or
contribution may be or could have been sought hereunder by the indemnified
party, unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability on claims that
are or could have been the subject matter of such action and (ii) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(4) To the extent that the indemnification provided for in this
Section 8 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
the Guarantors, on the one hand, and the Holders, on the other hand, from their
sale of Transfer Restricted Securities or (ii) if the allocation provided by
clause 8(d)(i) is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
8(d)(i) above but also the relative fault of the Company and the Guarantors, on
the one hand, and of the Holder, on the other hand, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative fault of the Company and the Guarantors, on the
one hand, and of the Holder, on the other hand, shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or such Guarantor, on the one
hand, or by the Holder, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and judgments referred to above shall be
deemed to include, subject to
16
<PAGE>
the limitations set forth in the second paragraph of Section 8(a), any legal or
other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim.
The Company, the Guarantors and each Holder agree that it would
not be just and equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Holders were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any matter,
including any action that could have given rise to such losses, claims, damages,
liabilities or judgments. Notwithstanding the provisions of this Section 8, no
Holder, its directors, its officers or any Person, if any, who controls such
Holder shall be required to contribute, in the aggregate, any amount in excess
of the amount by which the total received by such Holder with respect to the
sale of Transfer Restricted Securities pursuant to a Registration Statement
exceeds (i) the amount paid by such Holder for such Transfer Restricted
Securities and (ii) the amount of any damages which such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 8(c) are several in proportion to the respective principal amount of
Transfer Restricted Securities held by each Holder hereunder and not joint.
SECTION 9. RULE 144A AND RULE 144
The Company and each Guarantor agree with each Holder, for so
long as any Transfer Restricted Securities remain outstanding and during any
period in which the Company or such Guarantor (i) is not subject to Section 13
or 15(d) of the Exchange Act, to make available, upon request of any Holder, to
such Holder or beneficial owner of Transfer Restricted Securities in connection
with any sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to
Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby
in a timely manner in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144.
SECTION 10. MISCELLANEOUS
(1) Remedies. The Company and the Guarantors acknowledge and
--------
agree that any failure by the Company and/or the Guarantors to comply with their
respective obligations under Sections 3 and 4 hereof may result in material
irreparable injury to the Initial Purchasers or the Holders for which there is
no adequate remedy at law, that it will not be possible to measure damages for
such injuries precisely and that, in the event of any such failure, the Initial
Purchasers or any Holder may obtain such relief as may be required to
specifically enforce the Company's and the Guarantors' obligations under
Sections 3 and 4 hereof. The Company and the Guarantors further agree to waive
the defense in any action for specific performance that a remedy at law would be
adequate.
17
<PAGE>
(2) No Inconsistent Agreements. Neither the Company nor any
--------------------------
Guarantor will, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Neither the Company nor any Guarantor has previously entered into any agreement
granting any registration rights with respect to its securities to any Person.
The rights granted to the Holders hereunder do not in any way conflict with and
are not inconsistent with the rights granted to the holders of the Company's and
the Guarantors' securities under any agreement in effect on the date hereof.
(3) Amendments and Waivers. The provisions of this Agreement may
----------------------
not be amended, modified or supplemented, and waivers or consents to or
departures from the provi sions hereof may not be given unless (i) in the case
of Section 5 hereof and this Section 10(c)(i), the Company has obtained the
written consent of the Holders of at least 66-2/3% of all outstanding Transfer
Restricted Securities and (ii) in the case of all other provisions hereof, the
Company has obtained the written consent of Holders of a majority of the
outstanding principal amount of Transfer Restricted Securities (excluding
Transfer Restricted Securities held by the Company or its Affiliates).
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof that relates exclusively to the rights of Holders whose
Transfer Restricted Securities are being tendered pursuant to the Exchange
Offer, and that does not affect directly or indirectly the rights of other
Holders whose Transfer Restricted Securities are not being tendered pursuant to
such Exchange Offer, may be given by the Holders of a majority of the
outstanding principal amount of Transfer Restricted Securities subject to such
Exchange Offer.
(4) Third Party Beneficiary. The Holders shall be third party
-----------------------
beneficiaries to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect its rights or the rights
of Holders hereunder.
(5) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand-delivery, first-class mail
(registered or certified, return receipt requested), telex, telecopier, or air
courier guaranteeing overnight delivery:
(1) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(2) if to the Company or the Guarantors:
c/o Panolam Industries International, Inc.
20 Progressive Drive
Shelton, CT 06484
Telecopier No.: (203) 225-0051
Attention: Chief Financial Officer
With a copy to:
Brobeck, Plegher & Harrison LLP
18
<PAGE>
Spear Street Tower
One Market Plaza
San Francisco, CA 94105
Telecopier No.: (415) 442-1010
Attention: Michael Kennedy
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concur rently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(6) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders; provided, that nothing herein shall be deemed to permit any
assignment, transfer or other disposition of Transfer Restricted Securities in
violation of the terms hereof or of the Purchase Agreement or the Indenture. If
any transferee of any Holder shall acquire Transfer Restricted Securities in any
manner, whether by operation of law or otherwise, such Transfer Restricted
Securities shall be held subject to all of the terms of this Agreement, and by
taking and holding such Transfer Restricted Securities such Person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement, including the restrictions on resale set
forth in this Agreement and, if applicable, the Purchase Agreement, and such
Person shall be entitled to receive the benefits hereof.
(7) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(8) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(9) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING, WITHOUT
LIMITATION, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.
(10) Severability. In the event that any one or more of the provisions
------------
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(11) Entire Agreement. This Agreement is intended by the parties as a
----------------
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement
19
<PAGE>
and understanding of the parties hereto in respect of the subject matter
contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein with respect to
the registration rights granted with respect to the Transfer Restricted
Securities. This Agreement supersedes all prior agreements and understandings
between the parties with respect to such subject matter.
20
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
THE COMPANY:
PANOLAM INDUSTRIES INTERNATIONAL, INC.
By: ______________________________
Name:
Title:
THE GUARANTORS:
PANOLAM GROUP, INC.
By: ______________________________
Name:
Title:
PII SECOND, INC.
By: ______________________________
Name:
Title:
PANOLAM INDUSTRIES, INC.
By: ______________________________
Name:
Title:
PIONEER PLASTICS CORPORATION
By: ______________________________
Name:
Title:
<PAGE>
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
CREDIT SUISSE FIRST BOSTON CORPORATION
By: Donaldson, Lufkin & Jenrette
Securities Corporation
By: ______________________
Name:
Title:
<PAGE>
PANOLAM INDUSTRIES LTD.
CREDIT AGREEMENT
DATED AS OF FEBRUARY 18, 1999
This CREDIT AGREEMENT (this "AGREEMENT") is dated as of February 18,
---------
1999, and entered into among PANOLAM INDUSTRIES LTD., an Ontario corporation
(the "BORROWER"), the other Loan Parties signatory hereto, the financial
--------
institutions and other entities listed on the signature pages hereof as initial
Lenders (the "INITIAL LENDERS"), CREDIT SUISSE FIRST BOSTON CANADA ("CSFBC"),
--------------- -----
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.
RECITALS
A. The Borrower has requested the Lenders to extend certain credit
facilities to the Borrower of up to US$65,000,000 in the aggregate to provide
funds (i) to refinance certain existing indebtedness of the Borrower, (ii) to
pay fees and expenses in connection with the Transactions (this and the other
capitalized terms used in the recitals without definition are defined in Section
1.01 hereof), (iii) for the Borrower's working capital requirements, (iv) for
Permitted Acquisitions and (v) for other general corporate purposes of the
Borrower and its Subsidiaries.
B. The Borrower has requested, on the terms and conditions set forth
herein, (a) that the Lenders make Revolving Loans to the Borrower from time to
time in an aggregate principal amount not to exceed at any time outstanding the
lesser of (1) the Borrowing Base Amount and (2) the aggregate Revolving
Commitments of the Lenders (less the Letter of Credit Usage at such time and the
Swing Line Loans outstanding at such time), (b) that the Term A Lenders make
Term A Loans to the Borrower on the Closing Date in an aggregate principal
amount not to exceed the aggregate Term A Commitments of the Term A Lenders, (c)
that the Term B Lenders make Term B Loans to the Borrower on the Closing Date in
an aggregate principal amount not to exceed the Term B Commitments of the Term B
Lenders, (d) that the Swing Line Lender make Swing Line Loans to the Borrower
from time to time in an aggregate principal amount not to exceed at any time
outstanding the Swing Line Sublimit and (e) that the Letter of Credit Bank and
the other Issuing Banks issue Letters of Credit for the account of the Borrower
from time to time up to an aggregate Letter of Credit Usage not to exceed the
Letter of Credit Sublimit.
C. The Borrower desires to secure all of its obligations under the
Loan Documents by granting to Administrative Agent, for the benefit of the
Administrative Agent and the Lender Parties, a security interest in and Lien
upon substantially all of its existing and after-acquired personal and real
property.
-1-
<PAGE>
D. Each of the Borrower's Parents and their Subsidiaries (other than
the Borrower) has agreed to guarantee all of the obligations of the Borrower to
the Administrative Agent and the Lender Parties under the Loan Documents and to
grant to the Administrative Agent, for the benefit of the Administrative Agent
and the Lender Parties, a security interest in and Lien upon substantially all
of their respective existing and after-acquired personal and real property to
secure such guarantees, including without limitation, a first priority Lien on
all of the Capital Stock of the Borrower.
E. Subject to the terms and conditions set forth in this Agreement,
(a) the Revolving Lenders have agreed severally to make such Revolving Loans to
the Borrower, (b) the Term A Lenders have agreed severally to make such Term A
Loans to the Borrower, (c) the Term B Lenders have agreed severally to make such
Term B Loans to the Borrower, (d) the Swing Line Lender has agreed to make such
Swing Line Loans to the Borrower and (e) the Letter of Credit Bank has agreed to
issue such Letters of Credit for the account of the Borrower.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
ARTICLE I.
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01 CERTAIN DEFINED TERMS. 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" means a fee payable by the Borrower with respect to
--------------
the acceptance of a Bankers' Acceptance under this Agreement, as set forth in
Section 2.07(c).
"ACQUISITION" means the acquisition, in one transaction or a series
-----------
of transactions, by Holdings or any of its Subsidiaries or the Excluded
Acquisition Sub of all or substantially all the stock, partnership or other
Equity Interests or assets of any other Person or all or substantially all of
the assets of any division or business of any other Person.
"ACQUISITION CONSIDERATION" means the purchase consideration for any
-------------------------
Permitted Acquisition and all other payments made and liabilities incurred by
Holdings or any of its Subsidiaries in exchange for, or as part of, or in
connection with, any Permitted Acquisition, whether paid in cash or in Capital
Stock or by exchange of assets or otherwise and whether payable at or prior to
the consummation of such Permitted Acquisition or deferred for payment at any
future time, whether or not any such future payment is subject to the occurrence
of any contingency, and includes any and all payments and liabilities
representing the purchase price and any assumption of Debt, "earn-outs" and
other Profit Payment Agreements, consulting
-2-
<PAGE>
agreements, services agreements and non-competition agreements and other
liabilities of every type and description.
"ADDITIONAL MORTGAGES" has the meaning specified in Section
--------------------
6.01(n)(i).
"ADMINISTRATIVE AGENT" means Credit Suisse First Boston Canada, as
--------------------
administrative agent under this Agreement, and its successors and assigns in
such capacity.
"ADMINISTRATIVE AGENT'S ACCOUNT" means the US Dollar account of the
------------------------------
Administrative Agent maintained by the Administrative Agent with The Bank of New
York at its office at 48 Wall Street, New York, New York 10286, SWIFT Address:
IRVTUS3N, ABA No.: 021 000 018, Account No. 890 0361 212, Reference: Panolam
Industries Ltd., or the Canadian Dollar account of the Administrative Agent
maintained by the Administrative Agent with Royal Bank of Canada at F-1 Client
Service Centre, 180 Wellington Street West, 6th Floor, Toronto, Ontario, M5J
1J1, SWIFT Address: ROYCCAT 2, Transit No.: 07172, Account No. 000-106-5,
Reference: Panolam Industries Ltd., or such other account or accounts as may be
specified by the Administrative Agent in a written notice to the Borrower and
the Lenders from time to time.
"AFFECTED LENDER" has the meaning specified in Section 2.08(c)
---------------
"AFFILIATE" means, as to any Person, any other Person that, directly
---------
or indirectly, controls, is controlled by or is under common control with such
Person or is a director or officer of such Person. For purposes of this
definition, the term "control" (including the terms "controlling", "controlled
by" and "under common control with") of a Person means the possession, direct or
indirect, of the power either (a) to vote 5% or more (or, in the case of limited
partners or members of Genstar Capital, 25% or more) of the Voting Equity
Interests of such Person or to direct or cause the direction of the management
and policies of such Person, whether through the ownership of Voting Equity
Interests, by contract or otherwise. Notwithstanding the foregoing, no Lender
Party or any Affiliate thereof shall be deemed an "AFFILIATE" of any Loan Party
for any reason.
"AGENTS" means the Syndication Agent, the Administrative Agent and
------
the Documentation Agent.
"APPLICABLE BA ACCEPTANCE RATE" means, as of any date of
-----------------------------
determination, with respect to Revolving Loans, (A) from the Closing Date
through and including the six month anniversary of the Closing Date, a rate per
annum equal to 2.75%, and (B) thereafter, a rate per annum equal to the
percentage set forth in the table below opposite the Applicable Leverage Ratio
in effect as of such date, any change in the Applicable BA Acceptance Rate to be
effective on the date of any corresponding change in the Applicable Leverage
Ratio.
-3-
<PAGE>
<TABLE>
<CAPTION>
APPLICABLE BA ACCEPTANCE RATE WITH
APPLICABLE LEVERAGE RATIO RESPECT TO REVOLVING LOANS
------------------------------------------- ----------------------------------
<S> <C>
4.0: 1.0 or greater 2.75%
3.5: 1.0 or greater, but less than 4.0: 1.0 2.50%
3.0: 1.0 or greater, but less than 3.5: 1.0 2.25%
2.5: 1.0 or greater, but less than 3.0: 1.0 2.00%
less than 2.5: 1.0 1.75%
</TABLE>
"APPLICABLE BASE RATE MARGIN" means, as of any date of
---------------------------
determination, (i) with respect to Revolving Loans, Swing Line Loans and Term A
Loans, (A) from the Closing Date through and including the six-month anniversary
of the Closing Date, a rate per annum equal to 1.75%, and (B) thereafter, with
respect to each such Type of Loan, a rate per annum equal to the percentage set
forth in the table below opposite the Applicable Leverage Ratio in effect as of
such date, any change in the Applicable Base Rate Margin to be effective on the
date of any corresponding change in the Applicable Leverage Ratio; and (ii) with
respect to Term B Loans, a rate per annum equal to 2.50%.
<TABLE>
<CAPTION>
APPLICABLE BASE RATE MARGIN
WITH RESPECT TO REVOLVING
LOANS, SWING LINE LOANS
APPLICABLE LEVERAGE RATIO AND TERM A LOANS
-------------------------------------------------- -----------------------------------------
<S> <C> <C>
4.0 : 1.0 or greater 1.75%
3.5 : 1.0 or greater, but less than 4.0 : 1.0 1.50%
3.0 : 1.0 or greater, but less than 3.5 : 1.0 1.25%
2.5 : 1.0 or greater, but less than 3.0 : 1.0 1.00%
less than 2.5 : 1.0 0.75%
</TABLE>
"APPLICABLE CANADIAN FACILITY PERCENTAGE" means, as of any date
---------------------------------------
of determination, the quotient (expressed as a percentage) obtained by dividing
--------
(a) the sum of (i) the aggregate principal amount of Loans and Letter of Credit
Obligations outstanding at such time, plus (ii) the aggregate Unused Revolving
----
Commitments in effect at such time, by (b) the sum of (i) the amount determined
--
according to the foregoing clause (a), plus (ii) the aggregate principal amount
----
of loans and letter of credit obligations outstanding under the US Credit
Agreement at such time, plus (iii) the aggregate unused revolving commitments in
----
effect under the US Credit Agreement at such time.
"APPLICABLE EURODOLLAR RATE MARGIN" means, as of any date of
---------------------------------
determination, (i) with respect to Revolving Loans and Term A Loans, (A) from
the Closing Date through and including the six-month anniversary of the Closing
Date, a rate per annum equal to 2.75%, and (B) thereafter, with respect to each
such Type of Loan, a rate per annum equal to the percentage set forth in the
table below opposite the Applicable Leverage Ratio in effect as of such date,
any change in the Applicable Eurodollar Rate Margin to be effective on the date
of any
-4-
<PAGE>
corresponding change in the Applicable Leverage Ratio; and (ii) with respect to
Term B Loans, a rate per annum equal to 3.50%.
<TABLE>
<CAPTION>
APPLICABLE EURODOLLAR RATE MARGIN WITH
RESPECT TO REVOLVING LOANS
APPLICABLE LEVERAGE RATIO AND TERM A LOANS
------------------------------------------------ --------------------------------------
<S> <C>
4.0 : 1.0 or greater 2.75%
3.5 : 1.0 or greater, but less than 4.0 : 1.0 2.50%
3.0 : 1.0 or greater, but less than 3.5 : 1.0 2.25%
2.5 : 1.0 or greater, but less than 3.0 : 1.0 2.00%
less than 2.5 : 1.0 1.75%
</TABLE>
"APPLICABLE LEVERAGE RATIO" means, with respect to any date of
-------------------------
determination, the Consolidated Leverage Ratio for Panolam International and its
Subsidiaries set forth in the Effective Quarterly Compliance Certificate (as
defined below) in respect of the Pricing Period (as defined below) in which such
date of determination occurs. For purposes of this definition, (i) "PRICING
-------
PERIOD" means each period commencing on the third Business Day after the
- ------
delivery (or deemed delivery as provided below) to the Administrative Agent of a
Quarterly Compliance Certificate (the "EFFECTIVE QUARTERLY COMPLIANCE
------------------------------
CERTIFICATE" in respect of such Pricing Period) and ending on the second
- -----------
Business Day after the next Quarterly Compliance Certificate is delivered (or
deemed to be delivered as provided below) to the Administrative Agent; provided
--------
that, in the event the Borrower fails to deliver to the Administrative Agent a
- ----
Quarterly Compliance Certificate on or before the 45th day after the end of any
of the first three fiscal quarters of any Fiscal Year or the 90th day after the
end of the fourth fiscal quarter of any Fiscal Year (the "CUTOFF DATE" with
-----------
respect to any such fiscal quarter), the Borrower shall be deemed, for the
purpose of this definition, to have delivered to the Administrative Agent, on
the Cutoff Date, a Quarterly Compliance Certificate which establishes that the
Consolidated Leverage Ratio for Panolam International and its Subsidiaries as of
the last day of such fiscal quarter was 4.0:1.0; and, provided further, that if
-------- -------
the Borrower delivers to the Administrative Agent a Quarterly Compliance
Certificate after the Cutoff Date, then commencing with the third Business Day
after the date of such delivery the Applicable Leverage Ratio shall be the
Consolidated Leverage Ratio set forth in such Quarterly Compliance Certificate.
"APPLICABLE PRIME RATE MARGIN" means, as of any date of
----------------------------
determination, with respect to Revolving Loans and Swing Line Loans, (A) from
the Closing Date through and including the six month anniversary of the Closing
Date, a rate per annum equal to 1.75%, and (B) thereafter, a rate per annum
equal to the percentage set forth in the table below opposite the Applicable
Leverage Ratio in effect as of such date, any change in the Applicable Prime
Rate Margin to be effective on the day of any corresponding change in the
Applicable Leverage Ratio.
-5-
<PAGE>
<TABLE>
<CAPTION>
APPLICABLE PRIME RATE MARGIN
WITH RESPECT TO REVOLVING LOANS AND
APPLICABLE LEVERAGE RATIO SWING LINE LOANS
----------------------------------------------- -----------------------------------
<S> <C>
4.0 : 1.0 or greater 1.75%
3.5 : 1.0 or greater, but less than 4.0 : 1.0 1.50%
3.0 : 1.0 or greater, but less than 3.5 : 1.0 1.25%
2.5 : 1.0 or greater, but less than 3.0 : 1.0 1.00%
less than 2.5 : 1.0 0.75%
</TABLE>
"APPROPRIATE LENDER" means, at any time, (a) with respect to
-------------------
either of the Term Facilities, a Lender that has a Term Loan outstanding under
such Term Facility at such time, (b) with respect to the Revolving Facility, a
Revolving Lender, (c) with respect to the Letter of Credit Subfacility, (i) any
Issuing Bank and (ii) any other Revolving Lender that has paid on any Letter of
Credit Drawings pursuant to Section 3.01 which are outstanding at such time, and
(d) with respect to the Swing Line Facility, (i) the Swing Line Lender and (ii)
any other Revolving Lender that has funded its participation in any Swing Line
Loans pursuant to Section 2.02(f) which are outstanding at such time.
"APPROVED COST ADJUSTMENTS" means, for any period, charges
-------------------------
against the income of any business or Person acquired in a Permitted Acquisition
for the portion of such period prior to the consummation of such Permitted
Acquisition, but only if and to the extent such charges would be adjusted
pursuant to Article 11 of Regulation S-X of the US Securities and Exchange
Commission subject to agreed upon procedures to be performed by Panolam
International's independent accountants, if prior to the consummation of such
Permitted Acquisition Panolam International delivers to the Administrative Agent
and the Lenders a certificate signed by the Chief Financial Officer describing
such adjustments in reasonable detail and stating that such procedures have been
performed by such officer and that such adjustments are permitted under Article
11 of Regulation S-X.
"APPROVED FUND" means, with respect to any Lender that is a fund
-------------
that invests in commercial loans, any other fund that invests in commercial
loans and is managed or advised by the same investment advisor as such Lender or
by an Affiliate of such investment advisor.
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance
-------------------------
entered into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in accordance with Section 9.07 and substantially in the
form of Exhibit I hereto.
---------
"BA EQUIVALENT LOAN" means a loan made by a Non BA Lender
------------------
evidenced by a Discount Note.
"BA LOAN" means a Revolving Loan made by a Revolving Lender by
-------
way of the acceptance and purchase by that Lender of a Bankers' Acceptance drawn
by the Borrower.
-6-
<PAGE>
"BA REFERENCE LENDER" means CSFBC.
-------------------
"BANK HEDGE AGREEMENT" means an Interest Rate Contract or
--------------------
Currency Hedging Agreement entered into between the Borrower and a Lender.
"BANKERS' ACCEPTANCE" and "BA" each means a bill of exchange
------------------- --
denominated in Canadian Dollars substantially in the form of Exhibit VIII-A,
--------------
drawn by the Borrower and accepted by a Lender and includes a Discount Note and
a depository bill issued in accordance with the Depository Bills and Notes Act
(Canada).
"BASE AMOUNT" has the meaning specified in Section 6.04(d).
-----------
"BASE RATE" means a fluctuating interest rate per annum in effect
---------
from time to time, which rate per annum shall at all times be equal to the
higher of: (a) the rate of interest announced publicly by the Administrative
Agent from time to time as the Administrative Agent's reference rate in effect
for determining rates on US Dollar denominated commercial loans made by it in
Canada; and (b) 1/2 of one percent per annum above the Federal Funds Rate. Any
change in the Base Rate due to a change in the Administrative Agent's reference
rate or the Federal Funds Rate shall be effective as of the opening of business
on the effective day of such change in the Administrative Agent's reference rate
or the Federal Funds Rate, as the case may be.
"BASE RATE LOAN" means a Loan that bears interest as provided in
--------------
Section 2.05(a).
"BORROWER" has the meaning set forth in the introduction to this
--------
Agreement.
"BORROWER'S ACCOUNT" means the US Dollar account (number 8631611)
------------------
the Borrower or the Canadian Dollar account (number 178012) of the Borrower, as
applicable, maintained by the Borrower with The Bank of Nova Scotia at its
branch at 1002 Sherbrooke Street West, Montreal, Quebec, or such other account
or accounts as may be specified from time to time by the Administrative Agent
and the Borrower in a written notice to the Lenders.
"BORROWING" means a Term Borrowing, a Revolving Borrowing or a
---------
Swing Line Borrowing.
"BORROWING BASE AMOUNT" means, as at any date of determination,
---------------------
(i) the sum of 60% of Eligible Inventory plus 85% of Eligible Receivables less
(ii) any Reserves. For the purpose of valuing Eligible Inventory and Eligible
Accounts denominated in Canadian Dollars, the amounts thereof shall be converted
into the Equivalent Amounts thereof in US Dollars on the date of each Borrowing
Base Certificate.
"BORROWING BASE CERTIFICATE" means a certificate of the Borrower
--------------------------
in the form attached hereto as Exhibit VI.
----------
-7-
<PAGE>
"BUSINESS DAY" means a day of the year on which banks are not
------------
required or authorized by law to close in Toronto, Ontario and, if the
applicable Business Day relates to any (1) Eurodollar Rate Loans, a day of the
year on which dealings in US Dollars are carried on in the London interbank
market; (2) payment by or to any Lender Party under this Agreement in US
Dollars, a day of the year on which banks are not required or authorized by law
to close in New York, New York; or (3) any Borrowing, conversion or continuation
of any Loan or Issuance of any Letter of Credit, a day of the year on which
banks are not required or authorized by law to close in Montreal, Quebec.
"CANADIAN BENEFIT PLANS" means all material employee benefit
----------------------
plans of any nature or kind whatsoever that are not Canadian Pension Plans and
which are maintained or contributed to by any Loan Party for its employees or
former employees in Canada.
"CANADIAN DOLLARS" and "CDN$" each means lawful currency of
---------------- ----
Canada.
"CANADIAN PENSION PLAN" means each plan which is considered to be
---------------------
a pension plan for the purposes of any applicable pension benefits standards
statute and/or regulation in Canada established, maintained or contributed to by
any Loan Party for its employees or former employees .
"CANADIAN SUBSIDIARY" means a Subsidiary of the Borrower all the
-------------------
shares of which are owned directly or indirectly by the Borrower (recognizing
that, in order to better perfect the Administrative Agent's security therein,
those shares may be registered in the Administrative Agent's or its nominee's
name) that is (i) a corporation incorporated under the laws of Canada (but not
the Province of Quebec) and (ii) a Loan Party.
"CAPITAL EXPENDITURES" means, for any period, the sum of all
--------------------
expenditures during such period by Panolam International and its Subsidiaries
for equipment, fixed assets, real property or improvements, or for replacements
or substitutions therefor or additions thereto, that have a useful life of more
than one year and that are required to be capitalized under generally accepted
accounting principles. For purposes of calculating Capital Expenditures for any
period that includes periods prior to the Closing Date, Capital Expenditures of
Pioneer for such periods shall be included as if Pioneer was a Subsidiary of
Panolam International during such periods.
"CAPITAL LEASE" means, with respect to any Person, any lease of
--------------
any property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, would be required to be classified and accounted for as a
capital lease on a balance sheet of such Person.
"CAPITAL LEASE OBLIGATION" means, with respect to any Capital
------------------------
Lease of any Person, the amount of the obligation of the lessee thereunder that,
in accordance with GAAP, would appear on a balance sheet of such lessee in
respect of such Capital Lease.
-8-
<PAGE>
"CAPITAL STOCK" means, with respect to any corporation, any and
-------------
all shares, interests, rights to purchase (other than convertible or
exchangeable Debt 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 COLLATERAL ACCOUNT" has the meaning specified in a Security
-----------------------
Agreement executed by the Borrower and delivered to the Administrative Agent.
"CASH EQUIVALENTS" means any of the following, to the extent
----------------
owned by a Loan Party free and clear of all Liens: (i) marketable direct
obligations issued or unconditionally guaranteed by the United States of
America, Canada, any province thereof or any agency of any of the foregoing
maturing within one year from the date of acquisition thereof, (ii) commercial
paper maturing no more than nine months from the date of creation thereof and
currently having the highest rating obtainable from either Standard & Poor's
Ratings Services or Moody's Investors Service, Inc.; and (iii) certificates of
deposit or time deposits, maturing no more than one year from the date of
creation thereof, issued by (A) commercial banks incorporated under the laws of
the United States of America or chartered banks incorporated under the laws of
Canada, each having combined capital, surplus and undivided profits of not less
than US$300,000,000 or the Equivalent Amount thereof and having a senior
unsecured rating of "A" or better by a nationally recognized rating agency, (B)
the Administrative Agent or (C) any Lender.
"CDOR RATE" means, on any day, the annual rate of interest which
---------
is the arithmetic average of the "BA/month" rates applicable to Canadian Dollar
bankers' acceptances identified as such on the Reuters Screen CDOR Page at
approximately 10:00 a.m. (Toronto time) on such day (as adjusted by the
Administrative Agent after 10:00 a.m. (Toronto time) to reflect any error in any
posted rate or in the posted average rate).
"CERCLA" means the US Comprehensive Environmental Response,
------
Compensation and Liability Act of 1980, as amended or supplemented from time to
time, and the regulations promulgated pursuant thereto.
"CHANGE OF CONTROL" means:
-----------------
(a) prior to consummation of an Initial Public Equity Offering,
Genstar Capital shall cease beneficially to own, directly or indirectly, at
least 60% of the voting power of the Voting Equity Interests of Holdings;
or
(b) following the consummation of an Initial Public Equity
Offering:
(i) Genstar Capital shall cease beneficially to own at least
40% of the voting power of the Voting Equity Interests of
Holdings;
-9-
<PAGE>
(ii) 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 Genstar Capital) is or becomes the
"beneficial owner", directly or indirectly, of more than 35% of the
total voting power in the aggregate of all classes of Capital Stock of
the Borrower then outstanding normally entitled to vote in elections
of directors; or
(iii) during any period of 12 consecutive months after the
Closing Date, individuals who at the beginning of any such 12-month
period constituted the Board of Directors of the Borrower (together
with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Borrower 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) cease
for any reason to constitute a majority of the Board of Directors of
the Borrower then in office; or
(c) a "CHANGE OF CONTROL" occurs under and as defined in the
Subordinated Note Indenture; or
(d) Holdings shall cease to own, directly or indirectly, 100% of the
Capital Stock of Panolam International or of any Parent; or
(e) Panolam International shall cease to own 100% of the Capital Stock
of the Borrower, Panolam US or Pioneer.
"CHATTEL PAPER" means any "chattel paper", as such term is defined in
-------------
the PPSA, now owned or hereafter acquired by any Loan Party, wherever located.
"CHIEF FINANCIAL OFFICER" means the Chief Financial Officer of Panolam
-----------------------
International or the Borrower, or at any time that there is no chief financial
officer, the director of finance or the treasurer of Panolam International or
the Borrower.
"CLOSING DATE" means the date on or before February 26, 1999, on which
------------
each of the conditions in Section 4.01 is satisfied or waived and the initial
Borrowings are made.
"COLLATERAL" means all "COLLATERAL" referred to in the Collateral
---------- ----------
Documents and all other property that is subject to any Lien in favor of the
Administrative Agent, the Lenders or any Issuing Bank.
"COLLATERAL DOCUMENTS" means the Security Agreements, the Mortgages
--------------------
and any other instrument or agreement purporting to create a Lien to secure the
Obligations under the Loan Documents.
-10-
<PAGE>
"COLLATERAL REPORTS" means the Borrower's reports required as set
------------------
forth in Schedule II.
"COMMITMENT" means a Term A Commitment, a Term B Commitment, a
----------
Revolving Commitment, a Swing Line Commitment or a Letter of Credit Commitment.
"COMPANY" means Holdings together with its direct and indirect
-------
Subsidiaries, including, but not limited to, the Borrower, Panolam International
and Pioneer.
"COMPLIANCE CERTIFICATE" means a certificate of the Chief Financial
----------------------
Officer, substantially in the form attached as Exhibit IX hereto, certifying (i)
----------
the truth, accuracy and completeness in all material respects of all financial
information provided therewith pursuant to Section 6.03(b), or or in
connection with a Permitted Acquisition, (ii) that all financial information
provided therewith has been prepared in accordance with generally accepted
accounting principles and that such information presents fairly in accordance
with generally accepted accounting principles (subject to normal year-end
adjustments) the financial position and results of operations of Panolam
International and its Subsidiaries, on a Consolidated and consolidating basis,
in each case as at the end of the relevant period and for the period then ended,
(iii) that no Default or Event of Default has occurred and is continuing at such
time or, if a Default or Event of Default has occurred and is continuing,
describing the nature thereof and the action that the Borrower has taken and
proposes to take with respect thereto, and (iv) when required, setting forth the
computations used by the Borrower in determining compliance with the covenants
contained in Section 6.04.
"CONFIDENTIAL INFORMATION" means information that a Loan Party
------------------------
furnishes to the Administrative Agent or any Lender in a writing designated as
confidential, but does not include any such information (i) that is or becomes
generally available to the public through no action or inaction by the
Administrative Agent or any Lender in violation of Section 9.11 or (ii) that is
or becomes available to the Administrative Agent or such Lender from a source
other than a Loan Party, which source, to the knowledge of the recipient, is not
bound by and in breach of an obligation of confidentiality to such Loan Party or
any of its Affiliates.
"CONSOLIDATED" refers to the consolidation of accounts in accordance
------------
with GAAP.
"CONSOLIDATED EBITDA" means, for any period, the EBITDA for Panolam
-------------------
International and its Subsidiaries, or, for the purpose of Section 6.04(e)(ii),
the EBITDA for the Borrower and its Subsidiaries, determined, in each case, on a
Consolidated basis in conformity with GAAP for such period. For purposes of
calculating Consolidated EBITDA for Panolam International and its Subsidiaries
for any period that includes periods prior to the Closing Date, the EBITDA of
Pioneer for such prior periods shall be included as if Pioneer was a Subsidiary
of Panolam International during such periods. For purposes of calculating
Consolidated EBITDA for Panolam International and its Subsidiaries or for the
Borrower and its Subsidiaries, as
-11-
<PAGE>
applicable, for any period prior to the end of the fourth full fiscal quarter of
Panolam International or the Borrower, as applicable, ending after the
consummation of any Permitted Acquisition, the pro forma EBITDA (reflecting only
such adjustments to actual EBITDA as would constitute Approved Cost Adjustments)
of or attributable to the Person or assets acquired in such Permitted
Acquisition for periods prior to the date of the consummation of such Permitted
Acquisition shall be included as if such Person was or such assets were held by
a Subsidiary of Panolam International or the Borrower, as applicable, during
such periods.
"CONSOLIDATED FIXED CHARGES" means, for any period, the sum of
--------------------------
Consolidated Interest Expense, Capital Expenditures (excluding any portion
thereof constituting Debt), cash tax expense, principal payments due in respect
of Funded Debt in the period of four consecutive fiscal quarters following the
end of such period, amounts paid or accrued pursuant to any earn-out or similar
provisions in connection with any Acquisition (including without limitation,
pursuant to Section 2(e)(v) of the Pioneer Acquisition Agreement), amounts paid
for any share repurchases by any Loan Party and cash dividends paid, in each
case determined for such period for Panolam International and its Subsidiaries
on a Consolidated basis in conformity with GAAP. Consolidated Fixed Charges for
periods prior to the completion of four full fiscal quarters following the
Closing Date, shall be determined on a pro forma basis by annualizing the cash
tax expense of Panolam International and its Subsidiaries for the period
following the Closing Date. Consolidated Fixed Charges shall be adjusted with
respect to any Person or assets acquired in a Permitted Acquisition for the
period prior to the completion of four fiscal quarters following the
consummation of such Permitted Acquisition by including in the calculation
thereof cash tax expense of such Person or assets determined by annualizing such
cash tax expense for the period following the consummation of such Permitted
Acquisition.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, total cash
-----------------------------
Interest Expense (including the interest component of Capital Leases) of Panolam
International and its Subsidiaries, or for the purpose of Section 6.04(e)(ii),
of the Borrower and its Subsidiaries, in each case, on a Consolidated basis for
such period in conformity with GAAP, including (without duplication) in respect
of Panolam International and its Subsidiaries, interest accrued and/or paid with
respect to the Subordinated Notes. Consolidated Interest Expense for periods
prior to the completion of four full fiscal quarters following the Closing Date,
shall be determined on a pro forma basis by annualizing the actual Consolidated
--- -----
Interest Expense of Panolam International and its Subsidiaries (including
Pioneer) or the Borrower and its Subsidiaries, as applicable, for the period
from the Closing Date through the end of the most recent fiscal quarter.
Consolidated Interest Expense shall be adjusted with respect to any Person or
assets acquired in a Permitted Acquisition for the period prior to the
completion of four fiscal quarters following the consummation of such Permitted
Acquisition by adding to the actual Consolidated Interest Expense of Panolam
International and its Subsidiaries or the Borrower and its Subsidiaries (other
than, in each case, the newly-acquired Person or assets), as applicable, for
such period the annualized amount of Interest Expense on Debt assumed or
otherwise incurred in connection with such Permitted Acquisition with interest
calculated at the average weighted interest rate on
-12-
<PAGE>
the Debt incurred and assumed (including Borrowings hereunder and borrowings
under the US Credit Agreement) for such Permitted Acquisition on the closing
date thereof.
"CONSOLIDATED LEVERAGE RATIO" means, as of any date of determination,
---------------------------
the ratio of (i) Consolidated Total Debt as of the last day of the most recently
completed fiscal quarter in respect of which the Borrower has delivered (or is
then required to have (but has not yet) delivered) to Administrative Agent the
financial statements required to be delivered pursuant to Section 6.03(c) or (in
the case of the last fiscal quarter of any Fiscal Year) Section 6.03(d), to (ii)
Consolidated EBITDA for the four fiscal quarter period ending on the last day of
the applicable fiscal quarter specified under clause (i) above.
"CONSOLIDATED NET INCOME" means, for any period, the net earnings (or
-----------------------
loss) after taxes of Panolam International and its Subsidiaries, or, for the
purpose of Section 6.04(e)(ii), of the Borrower and its Subsidiaries, in each
case, on a Consolidated basis determined for such period in conformity with
GAAP.
"CONSOLIDATED TOTAL DEBT" means, as of any date of determination, the
-----------------------
aggregate stated balance sheet amount of all Debt (excluding the items described
in clauses (b)(ii) and (b)(iii) of the definition of "DEBT" and excluding any
----
Permitted Seller Financing) of Panolam International and its Subsidiaries, as
determined on a Consolidated basis in conformity with GAAP.
"CONTRACT PERIOD" means a period selected by the Borrower consisting
---------------
of approximately 30, 60, 90 or, subject to the Administrative Agent consenting
thereto, acting reasonably, 180 days, and commencing and expiring on a Business
Day; provided that no Contract Period shall extend beyond the Revolving
-------- ----
Commitment Termination Date.
"CONVERSION", "CONVERT" and "CONVERTED" each refer to a conversion of
---------- ------- ---------
Loans of one Interest Type into Loans of another Interest Type pursuant to
Section 2.05 or Section 2.06.
"CURRENCY HEDGING AGREEMENTS" means currency swap agreements, currency
---------------------------
future or option contracts and other similar agreements.
"CURRENT ASSETS" means, with respect to any Person, all current assets
--------------
of such Person as of any date of determination calculated in accordance with
GAAP, but excluding cash, Cash Equivalents and debts due from Affiliates.
"CURRENT LIABILITIES" means, with respect to any Person, all
-------------------
liabilities which should, in accordance with GAAP, be classified as current
liabilities, and in any event shall include all Debt payable on demand or within
one year from any date of determination without any option on the part of the
obligor to extend or renew beyond such year, all accruals for federal or other
taxes based on or measured by income or capital and payable within such year,
but excluding the current portion of long-term debt required to be paid within
one year and, in the
-13-
<PAGE>
case of the Borrower and Panolam International, the aggregate outstanding
principal balances of the Revolving Loans, Swing Line Loans and Letters of
Credit advanced or Issued under this Agreement, and the aggregate outstanding
principal balances of the revolving loans, swing line loans and letters of
credit advanced or issued under the US Credit Agreement.
"DEBT" of any Person means, without duplication, (a) all indebtedness
----
of such Person for borrowed money, (b) all Obligations of such Person for the
deferred purchase price of property or services (other than (i) trade payables
not overdue by more than 90 days incurred in the ordinary course of such
Person's business, (ii) amounts owing under the Genstar Agreements, and (iii)
any earn-outs or similar obligations pursuant to the Pioneer Acquisition
Agreement or arising in connection with any Permitted Acquisition (including,
without limitation, pursuant to any Profit Payment Agreements) but in each case
only for so long as payment thereof is contingent, (c) all Obligations of such
Person evidenced by notes, bonds, debentures or other similar instruments, (d)
all Obligations of such Person created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person
(even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (e) all Obligations of such Person as lessee under Capital Leases,
(f) all Obligations, contingent or otherwise, of such Person under acceptance,
letter of credit or similar facilities, (g) all Obligations of such Person to
purchase, redeem, retire, defease or otherwise make any payment in respect of
any Capital Stock of or other ownership or profit interest in such Person or any
other Person or any warrants, rights or options to acquire such Capital Stock,
valued, in the case of Redeemable Preferred Stock, at the greater of its
voluntary or involuntary liquidation preference plus accrued and unpaid
dividends, (h) all net obligations of such Person in respect of Hedge
Agreements, (i) all Debt of others referred to in clauses (a) through (h) above
guaranteed directly or indirectly in any manner by such Person, or in effect
guaranteed directly or indirectly by such Person through an agreement (i) to pay
or purchase such Debt or to advance or supply funds for the payment or purchase
of such Debt, (ii) to purchase, sell or lease (as lessee or lessor) property, or
to purchase or sell services, primarily for the purpose of enabling the debtor
to make payment of such Debt or to assure the holder of such Debt against loss,
(iii) to supply funds to or in any other manner invest in the debtor (including
any agreement to pay for property or services irrespective of whether such
property is received or such services are rendered) or (iv) otherwise to assure
a creditor against loss, and (j) all Debt referred to in clauses (a) through (h)
above secured by (or for which the holder of such Debt has an existing right,
contingent or otherwise, to be secured by) any Lien on property (including,
without limitation, accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Debt.
"DEFAULT" means any Event of Default or any event that would
-------
constitute an Event of Default but for the requirement that notice be given or
time elapse or both.
-14-
<PAGE>
"DEFAULTING LENDER" means a Lender that has a Revolving Commitment and
-----------------
fails to make all the Revolving Loans required pursuant to Section 2.01(c), or
fails to fully fund the purchase of its participation obligations pursuant to
Section 2.02 or 3.03.
"DISCOUNT NOTE" means a non-interest bearing promissory note
-------------
denominated in Canadian Dollars, substantially in the form of Exhibit VIII-B,
--------------
issued by the Borrower to a Non BA Lender to evidence a BA Equivalent Loan.
"DISCOUNT PROCEEDS" means, for any Bankers' Acceptance issued
-----------------
hereunder, an amount calculated on the applicable date of Borrowing by dividing:
(a) the face amount of the Bankers' Acceptance by
(b) the sum of one plus the product of:
(i) the Discount Rate applicable to the Bankers' Acceptance and
(ii) a fraction, the numerator of which is the applicable
Contract Period and the denominator of which is 365
with the product being rounded up or down to the fifth decimal place and
.000005 being rounded up.
"DISCOUNT RATE" means, with respect to an issue of a Bankers'
-------------
Acceptance, the arithmetic average (rounded upward to the nearest multiple of
0.01% at or about 10:00 a.m. (Toronto time) on the date of issue) of the
discount rates, expressed as a rate per annum and calculated on the basis of a
year of 365 days, applicable to Bankers' Acceptances with the same maturity date
accepted by the BA Reference Lender.
"DISQUALIFIED CAPITAL STOCK" means (a) except as set forth in (b)
--------------------------
below, with respect to any Person, any Equity Interest of such Person that, by
its terms or by the terms of any security into which it is convertible,
exercisable or exchangeable, is, or upon the happening of an event (other than
customary change of control provisions) or the passage of time or both would be,
required to be redeemed or repurchased (including at the option of the holder
thereof) by such Person or any of its Subsidiaries, in whole or in part, other
than solely for Qualified Capital Stock of Panolam International, on or prior to
91 days following the stated maturity of the Subordinated Notes and (b) with
respect to any Subsidiary of such Person (including with respect to any
Subsidiary of Panolam International), any Equity Interests other than any common
equity with no preference, privileges or redemption or repayment provisions.
"DOCUMENTATION AGENT" means Royal Bank of Canada, as documentation
-------------------
agent under this Agreement, and its successors and assigns in such capacity.
-15-
<PAGE>
"DOCUMENTS OF TITLE" means any "documents of title", as such term is
------------------
defined in the PPSA, now owned or hereafter acquired by any Loan Party, wherever
located.
"DOMESTIC SUBSIDIARY" means, with reference to Panolam International,
-------------------
any direct or indirect Subsidiary of Panolam International that is not a Foreign
Subsidiary.
"DOMTAR" means Domtar Inc.
------
"DOMTAR LITIGATION" means the lawsuit commenced by the Borrower
-----------------
against Domtar in the Ontario Court (General Division) in respect of a claim for
breach of warranty pursuant to the Asset Purchase Agreement dated February 15,
1996 between the Borrower and Domtar, as amended.
"DOMTAR NOTE" means the US$8,000,000 Promissory Note due December 10,
-----------
2001, executed by Holdings in favor of Domtar Industries Inc. on June 12, 1996.
"EBITDA" means, with respect to any Person for any fiscal period, an
------
amount equal to (a) Consolidated Net Income of such Person for such period,
minus (b) the sum, without duplication, and to the extent otherwise included in
- -----
determining Consolidated Net Income in accordance with GAAP for such period, of
(i) income tax credits, (ii) interest income, (iii) gain from extraordinary
items for such period, (iv) any aggregate net gain during such period arising
from the sale, exchange or other disposition of capital assets by such Person
(including any fixed assets, all inventory sold in conjunction with the
disposition of fixed assets and all securities), and (v) any other non-cash
gains which have been added in determining Consolidated Net Income, minus (c)
-----
without duplication, and to the extent not otherwise deducted from Consolidated
Net Income in accordance with GAAP for such period, fees paid under any Genstar
Agreement, plus (d) the sum, without duplication, and to the extent deducted in
----
determining Consolidated Net Income in accordance with GAAP for such period, of
(i) any provision for income taxes for such period, (ii) Consolidated Interest
Expense, (iii) loss from extraordinary items for such period, (iv) the amount of
non-cash charges (including depreciation and amortization) for such period, (v)
amortized debt discount for such period, (vi) any aggregate net loss during such
period arising from the sale, exchange or other disposition of capital assets by
such Person (including any fixed assets, all inventory sold in conjunction with
the disposition of fixed assets and all securities), (vii) for the periods
indicated on Schedule 1.01(a) hereto, the amounts indicated on such Schedule
1.01(a) relating to historical restructuring charges and (viii) any applicable
Restructuring Costs, plus (e) without duplication, and to the extent not
----
otherwise included in determining Consolidated Net Income in accordance with
GAAP for such period, the amount of business interruption insurance proceeds
actually received by such Person during such period.
"ELIGIBLE ASSIGNEE" means (a) any Lender and any Affiliate or Approved
-----------------
Fund of any Lender, and the investment advisor of any Approved Fund, or (b) any
commercial or chartered bank, savings and loan association, savings bank,
finance company, insurance
-16-
<PAGE>
company, mutual fund or other financial institution, fund or investor which has
been approved in writing (or, in the case of the Borrower, deemed approved as
provided below) by the Borrower and the Administrative Agent as an Eligible
Assignee for purposes of this Agreement, provided in each such case that (x)
such approval shall not be unreasonably withheld and shall be deemed not to be
unreasonably withheld if the proposed assignment or participation would result
in any material additional cost being incurred by the Borrower, including but
not limited to any gross-up for withholding tax under Section 2.10(a), (y) if
the Borrower is requested in writing at any time to approve any Person as an
Eligible Assignee hereunder and the Administrative Agent has not received
written notice from the Borrower, within three Business Days of such request to
the Borrower, that the Borrower does not approve such Person as an Eligible
Assignee, the Borrower shall be deemed to have approved such Person as an
Eligible Assignee, and (z) such approval of the Borrower shall not be required
if an Event of Default has occurred and is continuing. Neither the Borrower nor
any Affiliate of the Borrower shall qualify as an Eligible Assignee under clause
(a) or (b) of this definition.
"ELIGIBLE INVENTORY" means only such Inventory of the Borrower and its
------------------
Canadian Subsidiaries as the Administrative Agent, in its reasonable credit
judgment and in good faith, shall from time to time elect to consider Eligible
Inventory for purposes of this Agreement. The value of such Inventory shall be
determined by the Administrative Agent in its reasonable credit judgment and in
good faith taking into consideration, among other factors, the lowest of its
cost, its book value determined in accordance with GAAP and its liquidation
value. The Administrative Agent reserves the right, at any time and from time
to time after the Closing Date, to adjust any such criteria, to establish new
criteria or to impose and modify Reserves against the Borrowing Base Amount, in
its reasonable credit judgment and in good faith, based on changes in the
saleability of or access to Inventory or in Prior Claims and, otherwise, in
accordance with this Agreement, subject to the approval of Supermajority Lenders
in the case of adjustments or new criteria which have the effect of making more
credit available (except in the case of any modification of Reserves referred to
in clause (a) of the definition of "RESERVES" in which case no such approval
--------
shall be required). By way of example only, and without limiting the discretion
of the Administrative Agent to consider any Inventory not to be Eligible
Inventory, Eligible Inventory shall not include Inventory:
(a) that is not owned by the Borrower (or a Canadian Subsidiary) free
and clear of all Liens and rights of any other Person (including the rights
of a purchaser that has made progress payments and the rights of a surety
that has issued a bond to assure the Borrower's (or the applicable Canadian
Subsidiary's) performance with respect to that Inventory), except (i) the
Liens in favor of the Administrative Agent, on behalf of itself and the
Lender Parties and (ii) Prior Claims that are unregistered;
(b) that is (i) not located on premises owned, leased or operated by
the Borrower or a Canadian Subsidiary or (ii) stored with a bailee,
warehouseman or similar Person, unless the Administrative Agent has given
its prior written consent thereto and unless (x) a satisfactory bailee
letter or landlord waiver has been delivered to the
-17-
<PAGE>
Administrative Agent, or (y) Reserves satisfactory to the Administrative
Agent have been established with respect thereto;
(c) that is placed on consignment or is in transit unless it meets
the criteria for not being ineligible under (d) below;
(d) that is covered by a negotiable document of title, unless such
document has been delivered to the Administrative Agent with all necessary
endorsements, free and clear of all Liens except Permitted Liens;
(e) that consists of display items or packing or shipping materials,
manufacturing supplies, work-in-process Inventory or replacement parts
(other than 65% of the value of belts and plates used in the finishing
process less the disposal costs thereof);
(f) that consists of goods which have been returned by the buyer;
(g) that is not of a type held for sale in the ordinary course of the
Borrower's or a Canadian Subsidiary's business;
(h) as to which the Administrative Agent's Lien, on behalf of itself
and the Lender Parties, therein is not a first priority perfected Lien,
subject only to Prior Claims that are unregistered;
(i) as to which any of the representations or warranties pertaining
to Inventory set forth in this Agreement or the Security Agreement is
untrue;
(j) that consists of any costs associated with "freight-in" charges;
(k) that consists of Hazardous Materials or goods that can be
transported or sold only with licenses that are not readily available; or
(l) that is not covered by casualty insurance that complies with
Section 6.01(d).
"ELIGIBLE RECEIVABLES" means only such Receivables of the Borrower and
--------------------
its Canadian Subsidiaries as the Administrative Agent, in its reasonable credit
judgment and in good faith, shall from time to time elect to consider Eligible
Receivables for purposes of this Agreement. The value of such Receivables shall
be determined by the Administrative Agent in its reasonable credit judgment and
in good faith taking into consideration, among other factors, their book value
determined in accordance with GAAP. The Administrative Agent reserves the
right, at any time and from time to time after the Closing Date, to adjust any
such criteria, to establish new criteria or to impose and modify Reserves
against the Borrowing Base Amount, in its reasonable credit judgment and in good
faith, based on changes following the Closing Date in
-18-
<PAGE>
the collectability by the Administrative Agent of such Receivables or in Prior
Claims and, otherwise, in accordance with this Agreement, subject to the
approval of Supermajority Lenders in the case of adjustments or new criteria
that have the effect of making more credit available (except in the case of any
modification of Reserves referred to in clause (a)(ii) of the definition of
"RESERVES" in which case no such approval shall be required). By way of example
--------
only, and without limiting the discretion of the Administrative Agent to
consider any Receivables not to be Eligible Receivables, Eligible Receivables
shall not include any Receivable:
(a) that does not arise from the sale of goods or the performance of
services by the Borrower or any of its Canadian Subsidiaries in the
ordinary course of its business;
(b) (i) upon which the Borrower's or the applicable Canadian
Subsidiary's right to receive payment is not absolute or is contingent upon
the fulfilment of any condition whatsoever or (ii) upon which the Borrower
or the applicable Canadian Subsidiary is not able to bring suit or
otherwise enforce its remedies against the Receivables Debtor through
judicial process or binding arbitration, or (iii) if the Receivable
represents a progress billing consisting of an invoice for goods sold or
used or services rendered pursuant to a contract under which the
Receivables Debtor's obligation to pay that invoice is subject to the
Borrower's or the applicable Canadian Subsidiary's completion of further
performance under such contract other than usual ordinary course warranties
or as may be covered by Reserves;
(c) to the extent any defence, counterclaim, setoff or dispute is
asserted as to such Receivable;
(d) that is not a true and correct statement of bona fide
indebtedness incurred in the amount of the Receivable for merchandise sold
and shipped, or services rendered, to the applicable Receivables Debtor;
(e) with respect to which an invoice, acceptable to the
Administrative Agent in form and substance, has not been sent to the
applicable Receivables Debtor;
(f) that (i) is not owned by the Borrower or any of its Canadian
Subsidiaries or (ii) is subject to any right, claim, security interest or
other interest of any other Person, other than (A) Liens in favor of the
Administrative Agent, on behalf of itself and the Lender Parties and (B)
Prior Claims that are unregistered;
(g) that arises from a sale to any director, officer, other employee
or Affiliate of any Loan Party;
(h) that is the obligation of a Receivables Debtor that is the
Canadian government (Her Majesty the Queen in Right of Canada) or a
provincial or territorial government or a political subdivision of any
thereof, or any department, agency or instrumentality of any thereof or
that is the US government or a state government or
-19-
<PAGE>
political subdivision of any thereof, or any department, agency or
instrumentality of any thereof unless the Administrative Agent, in its sole
discretion, has agreed to the contrary in writing, the Receivable is
assignable by way of security and the Borrower or the applicable Canadian
Subsidiary, if necessary or desirable, has complied with the Financial
Administration Act (Canada) and any amendments thereto or the US Federal
Assignment of Claims Act of 1940, and any amendments thereto, as
applicable, or any applicable provincial or state statute or municipal
ordinance or any other analogous law of similar purpose and effect with
respect to such obligation;
(i) that is the obligation of a Receivables Debtor located in the
Province of Newfoundland or in the Northwest Territories (unless a
perfected first priority Lien in favor of the Administrative Agent is
obtained therein under the laws of such jurisdiction) or in a foreign
country other than the United States of America unless payment thereof is
assured by a letter of credit assigned and delivered to the Administrative
Agent, satisfactory to the Administrative Agent as to form, amount and
issuer;
(j) to the extent a Loan Party or any holding company or any
Subsidiary thereof is liable for goods sold or services rendered by the
applicable Receivables Debtor to such Loan Party or holding company or
Subsidiary thereof, but only to the extent of the potential offset;
(k) that arises with respect to goods which are delivered on a bill-
and-hold, cash-on-delivery basis or placed on consignment, guaranteed sale
or other terms by reason of which the payment by the Receivables Debtor is
or may be conditional;
(l) that is in default; provided that, without limiting the
-------- ----
generality of the foregoing, a Receivable shall be deemed in default upon
the occurrence of any of the following:
(i) that is not paid within the earlier of 60 days following its
due date or 90 days following its original invoice date;
(ii) if any Receivables Debtor obligated upon such Receivable
suspends business, makes a general assignment for the benefit of
creditors or fails to pay its debts generally as they come due; or
(iii) if any assignment or petition is filed by or against any
Receivables Debtor obligated upon such Receivable under any Insolvency
Law;
(m) that is the obligation of a Receivables Debtor if 50% or more of
the dollar amount of all Receivables owing by that Receivables Debtor are
ineligible under the criteria set forth in clause (1) above;
-20-
<PAGE>
(n) as to which the Administrative Agent's Lien thereon, on behalf of
itself and the Lender Parties, is not a first priority perfected Lien
subject only to Prior Claims that are unregistered;
(o) as to which any of the representations or warranties pertaining to
Receivables set forth in this Agreement or in any of the Loan Documents is
untrue;
(p) to the extent such Receivable is evidenced by a judgment,
instrument or chattel paper;
(q) of any Receivables Debtor if, when aggregated with all other
Receivables of such Receivables Debtor owed to the Borrower or any of its
Canadian Subsidiaries, the Receivable exceeds 10% in face value of all
Receivables of the Borrower and its Canadian Subsidiaries then outstanding,
to the extent of such excess; or
(r) that is payable in any currency other than Canadian Dollars or US
Dollars.
"ELKHART PROPERTY" has the meaning set forth in Section 6.01(q)(i).
----------------
"ENVIRONMENTAL ACTION" means any administrative, regulatory or
--------------------
judicial action, suit, demand, demand letter, claim, notice of non-compliance or
violation, investigation, proceeding, consent order or consent agreement
relating in any way to any Environmental Law or any Environmental Permit
including, without limitation, (a) any claim by any governmental or regulatory
authority for enforcement, cleanup, removal, response, remedial or other actions
or damages pursuant to any Environmental Law and (b) any claim by any third
party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief resulting from Hazardous Materials or arising
from alleged injury or threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAW" means any domestic or foreign, federal,
-----------------
provincial, state or local law, rule, regulation, order or judgment relating to
the environment, occupational health and safety or Hazardous Materials.
"ENVIRONMENTAL PERMIT" means any permit, approval, identification
--------------------
number, license or other authorization required under any Environmental Law.
"EQUITY INTERESTS" means, with respect to any Person, any Capital
----------------
Stock of such Person or membership interests, partnership interests (whether
general or limited), participations or other equity interests (however
designated) in such Person, regardless of type, class, preference or
designation, and all warrants, options, purchase rights, conversion or exchange
rights, voting rights, calls or claims of any character with respect thereto, in
each case whether outstanding on the date of this Agreement or issued or granted
at any time thereafter.
-21-
<PAGE>
"EQUIVALENT AMOUNT" means, on any date of determination, with respect
-----------------
to obligations or valuations denominated in one currency (the "FIRST
CURRENCY"), the amount of another currency (the "SECOND CURRENCY") which would
result from the conversion of the relevant amount of the first currency into the
second currency at the 12:00 noon rate quoted on the Reuters Monitor Screen Page
BOFC (or such other Page as may replace such Page for the purpose of displaying
such exchange rates) on such date or, if such date is not a Business Day, on the
Business Day immediately preceding such date of determination, or at such other
rate as may have been agreed in writing between the Borrower and the
Administrative Agent.
"ERISA" means the US Employee Retirement Income Security Act of 1974,
-----
as amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"ERISA AFFILIATE" of any Person means any other Person that for
---------------
purposes of Title IV of ERISA is a member of such Person's controlled group, or
under common control with such Person, within the meaning of Section 414(b),
(c), (m) or (o) of the US Internal Revenue Code.
"ERISA EVENT" with respect to any Person means (a) the occurrence of a
-----------
reportable event, within the meaning of Section 4043 of ERISA, with respect to
any Plan of such Person or any of its ERISA Affiliates unless the 30-day notice
requirement with respect to such event has been waived by the PBGC; (b) the
provision by the administrator of any Plan of such Person or any of its ERISA
Affiliates of a notice of intent to terminate such Plan, pursuant to Section
4041(a)(2) of ERISA (including any such notice with respect to a plan amendment
referred to in Section 4041(e) of ERISA); (c) the cessation of operations at a
facility of such Person or any of its ERISA Affiliates in the circumstances
described in Section 4062(e) of ERISA; (d) the withdrawal by such Person or any
of its ERISA Affiliates from a Multiple Employer Plan during a plan year for
which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA;
(e) the failure by such Person or any of its ERISA Affiliates to make a payment
to a Plan required under Section 302(f)(1) of ERISA; (f) the adoption of an
amendment to a Plan of such Person or any of its ERISA Affiliates requiring the
provision of security to such Plan, pursuant to Section 307 of ERISA; or (g) the
institution by the PBGC of proceedings to terminate a Plan of such Person or any
of its ERISA Affiliates, pursuant to Section 4042 of ERISA, or the occurrence of
any event or condition described in Section 4042 of ERISA, other than subsection
(a)(4) thereof, that could constitute grounds for the termination of, or the
appointment of a trustee to administer, such Plan.
"EUROCURRENCY LIABILITIES" has the meaning specified in Regulation D
------------------------
of the Board of Governors of the US Federal Reserve System, as in effect from
time to time.
"EURODOLLAR RATE" means for any Eurodollar Rate Loan for any Interest
---------------
Period therefor, an interest rate per annum (rounded upwards, if necessary, to
the nearest 1/100 of 1%) equal to the rate per annum obtained by dividing (a)
the rate per annum determined by the Administrative Agent at approximately 11:00
a.m. (London time) on the date which is two
-22-
<PAGE>
Business Days prior to the beginning of the relevant Interest Period (as
specified in the applicable Notice of Borrowing or Notice of
Conversion/Continuation) by reference to the British Bankers' Association
Interest Settlement Rates for deposits in US Dollars (as set forth by any
service selected by the Administrative Agent which has been nominated by the
British Bankers' Association as an authorized information vendor for the purpose
of displaying such rates) for a period equal to such Interest Period by (b) a
percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such
Interest Period; provided that, to the extent tha t an interest rate is not
-------- ----
ascertainable pursuant to the foregoing provisions of this definition, the
"EURODOLLAR RATE" shall be an interest rate per annum (rounded upwards, if
---------------
necessary, to the nearest 1/100 of 1%) equal to the rate per annum obtained by
dividing (a) the interest rate per annum determined by the Administrative Agent
- --------
to be the rate per annum at which deposits in US Dollars are offered for such
relevant Interest Period to major banks in the London interbank market in
London, England by the Eurodollar Reference Lender at approximately 11:00 a.m.
(London time) on the date which is two Business Days prior to the beginning of
such Interest Period by (b) a percentage equal to 100% minus the Eurodollar Rate
--
Reserve Percentage for such Interest Period.
"EURODOLLAR RATE LOAN" has the meaning specified in Section 2.05(b).
--------------------
"EURODOLLAR RATE RESERVE PERCENTAGE" means, for any Interest Period
----------------------------------
for any Eurodollar Rate Loan, the reserve percentage applicable two Business
Days before the first day of such Interest Period under regulations issued from
time to time by the Board of Governors of the US Federal Reserve System (or any
successor) for determining the maximum reserve requirement (including, without
limitation, any emergency, supplemental or other marginal reserve requirement)
for a member bank of the Federal Reserve System in New York City with respect to
liabilities or assets consisting of or including Eurocurrency Liabilities (or
with respect to any other category of liabilities that includes deposits by
reference to which the interest rate on Eurodollar Rate Loans is determined)
having a term equal to such Interest Period.
"EURODOLLAR REFERENCE LENDER" means CSFBC.
---------------------------
"EVENTS OF DEFAULT" has the meaning specified in Section 7.01.
-----------------
"EXCESS CASH FLOW" means, without duplication, with respect to any
----------------
Fiscal Year of the Borrower, (a) Consolidated Net Income, plus (b) to the extent
----
deducted from or not otherwise included in Consolidated Net Income in accordance
with GAAP for such period (i) depreciation, amortization and Consolidated
Interest Expense, (ii) the amount of any insurance proceeds received during such
Fiscal Year and not applied (or committed to be applied) to restore or replace
property (but only to the extent not otherwise required to be applied to
prepayments hereunder), (iii) taxes deducted in determining Consolidated Net
Income to the extent not paid for in cash, (iv) settlement amounts received from
Domtar in connection with the final settlement of the Domtar Litigation to the
extent not used to offset or reduce the Domtar Note, and (v) restructuring
reserves minus (c) to the extent not deducted in determining
-----
-23-
<PAGE>
Consolidated Net Income in accordance with GAAP for such period (i) Capital
Expenditures during such Fiscal Year (excluding the portion thereof financed by
third party credit sources and excluding any Capital Expenditures in such Fiscal
Year to the extent in excess of the amount permitted to be made in such Fiscal
Year pursuant to Section 6.04(d) (unless financed with the proceeds of casualty
insurance)), (ii) Consolidated Interest Expense paid or accrued (excluding any
original issue discount, interest paid in kind or amortized debt discount, to
the extent included in determining Interest Expense) and scheduled principal
payments paid or payable in respect of Funded Debt, (iii) voluntary prepayments
paid pursuant to Section 2.04(a) or Section 2.04(b), (iv) earn-out payments made
to Rugby U.S.A., Inc. pursuant to the Pioneer Acquisition Agreement, (v) the
cash portion of restructuring costs incurred and (vi) that portion of the fees
paid under the Genstar Agreements but not deducted in the calculation of
Consolidated Net Income, plus or minus (as the case may be) (d) to the extent
---- -----
otherwise included be), in determining Consolidated Net Income in accordance
with GAAP for such period (i) decreases or increases (as the case may be) in
Working Capital, (ii) extraordinary gains or losses which are cash items, and
(iii) foreign currency unrealized gains or losses. For purposes of this
definition, "WORKING CAPITAL" means Current Assets less Current Liabilities.
--------------- ----
"EXCHANGE ACT" means the US Securities Exchange Act of 1934, as
------------
amended.
"EXCLUDED ACQUISITION" means the Acquisition by the Excluded
--------------------
Acquisition Sub of a Person disclosed to the Lenders prior to the date hereof on
substantially the terms disclosed to the Lenders prior to the date hereof.
"EXCLUDED ACQUISITION SUB" means a wholly owned Domestic Subsidiary of
------------------------
Panolam International that (a) has no Debt other than Non-Recourse Debt, (b) is
not party to any agreement, contract, arrangement or understanding with any Loan
Party unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to such Loan Party than those that might be
obtained at the time from Persons who are not Affiliates of Panolam
International, (c) is a Person with respect to which no Loan Party has any
direct or indirect obligation (i) to subscribe for additional Equity Interests,
or (ii) to maintain or preserve such Person's financial condition or to cause
such Person to achieve any specified levels of operating results, (d) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Debt of a Loan Party, and (e) constitutes an "Unrestricted Subsidiary" as
defined in the Subordinated Note Indenture.
"EXCLUDED FOREIGN SUBSIDIARY" means a Foreign Subsidiary other than
---------------------------
the Borrower and its Subsidiaries.
"EXCLUDED MELAMINE SUBS" means The Melamine Group, Inc., Melamine
----------------------
Decorative Laminate, Inc. and any successor to either of them, provided that,
-------- ----
any such Person shall cease to be one of the "EXCLUDED MELAMINE SUBS" if and to
the extent that the Loan Parties
-24-
<PAGE>
and such Person have complied with all applicable provisions of Section 6.01(n)
as if such Person were a newly acquired Domestic Subsidiary of Panolam
International.
"EXEMPTED AFFILIATE TRANSACTION" means (a) customary employee
------------------------------
compensation arrangements approved by a majority of independent (as to such
transactions) members of the Board of Directors of Panolam International, (b)
dividends permitted by Section 6.02(g) and payable, in form and amount, on a pro
rata basis to all holders of common stock of Panolam International, (c)
transactions solely between Panolam International and any of its Subsidiaries or
solely among Subsidiaries of Panolam International, (d) any issuance of
securities, or other payments, awards or grants in cash, securities or otherwise
pursuant to, or the funding of, employment arrangements, stock options and stock
ownership plans approved by a majority of members of the Board of Directors of
Panolam International and, if any, a majority of the independent members of such
Board consistent with industry practice, (e) the grant of stock options or
similar rights to employees and directors of Panolam International and its
Subsidiaries pursuant to plans approved by a majority of members of the Board of
Directors of Panolam International and, if any, a majority of the independent
members of such Board, (f) loans or advances to employees in the ordinary course
of business in accordance with applicable law and the past practices of Panolam
International or its Subsidiaries, but in any event not to exceed US$1,500,000
or the Equivalent Amount thereof in the aggregate outstanding at any one time,
(g) the payment of reasonable fees and indemnities to directors of Panolam
International and its Subsidiaries who are not employees of Panolam
International or its Subsidiaries and (h) transactions (including, subject to
Section 6.02(r), the payment of fees) pursuant to the Genstar Agreements. For
the avoidance of doubt, no transaction with the Excluded Acquisition Sub shall
constitute an Exempted Affiliate Transaction.
"EXISTING CREDIT AGREEMENT" means the Credit Agreement dated as of
-------------------------
November 19, 1997, by and among Panolam Industries Ltd., as Borrower, the other
credit parties signatory thereto, General Electric Capital Canada Inc., as a
lender and as agent for the lenders thereunder, and the other entities signatory
thereto as lenders, as the same may have been amended or otherwise modified to
date.
"EXISTING CREDIT DOCUMENTATION" means, collectively, the Existing
-----------------------------
Credit Agreement, the Existing US Credit Agreement and all ancillary documents.
"EXISTING DEBT" means all preexisting Debt of Holdings and its
-------------
Subsidiaries set forth on Schedule 5.01(q)(i).
"EXISTING LENDERS" means, collectively, the agent and lenders under
----------------
the Existing Credit Agreement and the agent and lenders under the Existing US
Credit Agreement.
"EXISTING US CREDIT AGREEMENT" means the Credit Agreement dated as of
----------------------------
November 19, 1997, by and among Panolam Industries, Inc., as Borrower, Holdings,
the other credit parties signatory thereto, General Electric Capital
Corporation, as a lender and as agent for
-25-
<PAGE>
the lenders thereunder, and the other financial institutions and entities
signatory thereto as lenders, as the same may have been amended or otherwise
modified to date.
"FACILITY" means either of the Term Facilities, the Revolving
--------
Facility, the Swing Line Facility or the Letter of Credit Subfacility, and
"FACILITIES" means all of them collectively.
- -----------
"FEDERAL FUNDS RATE" means, for any period, a fluctuating interest
------------------
rate per annum equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the US Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day for such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"FEE AGREEMENT" means the agreement dated January 4, 1999 among the
-------------
Lead Arranger, the Syndication Agent, Credit Suisse First Boston, the US
Borrower and the Borrower under which the US Borrower and the Borrower agreed to
pay certain fees in connection with the Facilities and the credit facilities
provided under the US Credit Agreement, as amended, restated, supplemented and
otherwise modified from time to time.
"FISCAL MONTH" shall mean any calendar month.
------------
"FISCAL YEAR" means a fiscal year of Panolam International and its
-----------
Subsidiaries, which currently ends on December 31 of each calendar year.
"FOREIGN ACQUISITION" means any Acquisition of a Person not organized
-------------------
under the laws of the United States of America, Canada or any state or province
of either of them, as applicable.
"FOREIGN SUBSIDIARY" means (i) the Borrower and its Subsidiaries and
------------------
(ii) any "controlled foreign corporation" within the meaning of Section 957(a)
of the Internal Revenue Code as to which Holdings or any of its Subsidiaries is
a "United States shareholder" as defined in Section 951(b) of the US Internal
Revenue Code.
"FUNDED DEBT" means, with respect to any Person, all Debt for borrowed
-----------
money evidenced by notes, bonds, debentures, or similar evidences of Debt and
which by its terms matures more than one year from the date of determination, or
is directly or indirectly renewable or extendible at such Person's option under
a revolving credit or similar agreement obligating the lender or lenders to
extend credit over a period of more than one year from the date of
determination, and specifically including Capital Lease Obligations, current
maturities of long-term debt, revolving credit and short-term debt extendible
beyond one year at the option of the debtor, and also including, in the case of
Panolam International or any of its Subsidiaries, all
-26-
<PAGE>
Debt for borrowed money which is part of the Obligations under the Loan
Documents or the US Loan Documents.
"GAAP" has the meaning specified in Section 1.03.
----
"GENSTAR AGREEMENTS" means the Transaction Fee Agreement and the
------------------
Management Services Agreement.
"GENSTAR CAPITAL" means Genstar Capital Partners II, L.P. and any
---------------
Person who controls, is controlled by or is under common control with Genstar
Capital Partners II, L.P.; 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.
"GRANTING LENDER" has the meaning specified in Section 9.07(h).
---------------
"GROUP" means Panolam Group, Inc., a Delaware corporation.
-----
"GUARANTORS" means Holdings, Group, PII Second, Panolam International,
----------
Panolam US, Pioneer and each other Person, if any, that executes or otherwise
becomes a party to a Guaranty or other similar agreement in favor of the
Administrative Agent, for the benefit of the Administrative Agent and the Lender
Parties, or in favor of the Administrative Agent and the Lender Parties, as
appropriate, in connection with the transactions contemplated by this Agreement
and the other Loan Documents.
"GUARANTY" has the meaning specified in Section 4.01(k)(xvi).
--------
"HAZARDOUS MATERIALS" means (a) petroleum or petroleum products,
-------------------
natural or synthetic gas, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation and radon gas, (b) any substances defined as
or included in the definition of "hazardous substances", "hazardous wastes",
"hazardous materials", "extremely hazardous wastes", "restricted hazardous
wastes", "toxic substances", "toxic pollutants", "dangerous goods",
"contaminants" or "pollutants", or words of similar import, under any
Environmental Law and (c) any other substance exposure to which is regulated
under any Environmental Law.
"HEDGE AGREEMENTS" means Interest Rate Contracts and Currency Hedging
----------------
Agreements.
"HOLDINGS" means Panolam Industries Holdings, Inc., a Delaware
--------
corporation.
"INDEMNIFIED PARTY" has the meaning specified in Section 9.04(b).
-----------------
-27-
<PAGE>
"INFORMATION MEMORANDUM" means the information memorandum dated
----------------------
January 1999 used by the Syndication Agent and the Administrative Agent in
connection with the syndication of the Commitments.
"INITIAL LENDERS" has the meaning specified in the recital of parties
---------------
to this Agreement.
"INITIAL PUBLIC EQUITY OFFERING" means an initial Public Equity
------------------------------
Offering following which the common stock of Panolam International or any of
Panolam International's Parents, as the case may be, is listed on a national
securities exchange or quoted on the national market system of the Nasdaq stock
market. For purposes of this definition, (i) a "PUBLIC EQUITY OFFERING" means
----------------------
an underwritten public offering pursuant to a registration statement filed with
the Securities and Exchange Commission in accordance with the Securities Act of
1933, as amended, of (a) Qualified Capital Stock of Panolam International or (b)
Qualified Capital Stock of any of Panolam International's Parents, to the extent
that the cash proceeds therefrom are used as a Capital Contribution to Panolam
International; (ii) "QUALIFIED CAPITAL STOCK" means any Capital Stock of Panolam
-----------------------
International that is not Disqualified Capital Stock; and (iii) "CAPITAL
-------
CONTRIBUTION" means any contribution to the equity of Panolam International from
- ------------
any of its Parents for which no consideration other than the issuance of
Qualified Capital Stock is given.
"INSOLVENCY LAW" means any of the Bankruptcy and Insolvency Act
--------------
(Canada), the Companies' Creditors Arrangement Act (Canada) and Titles 7 and 11
of the United States Code entitled "BANKRUPTCY", each as now and hereafter in
effect, any successors to such statutes and any other applicable insolvency or
other similar law of any jurisdiction.
"INSTRUMENTS" means any "INSTRUMENTS", as such term is defined in the
-----------
PPSA, now owned or hereafter acquired by any Loan Party, wherever located, and,
in any event, including, without limitation, all certificated securities, all
certificates of deposit, and all notes and other evidences of indebtedness,
other than instruments that constitute, or are a part of a group of writings
that constitute, Chattel Paper.
"INSUFFICIENCY" means, with respect to any Plan, the amount, if any,
-------------
of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of ERISA.
"INSURANCE/CONDEMNATION PROCEEDS" means any cash payments or proceeds
-------------------------------
received by Holdings or its Subsidiaries (i) under any business interruption or
casualty insurance policy in respect of a covered loss thereunder or (ii) as a
result of the taking of any assets of Holdings or any of its Subsidiaries by any
Person pursuant to the power of eminent domain, condemnation or otherwise, or
pursuant to a sale of any such assets to a purchaser with such power under
threat of such a taking, in each case net of any actual and reasonable
documented costs (including commissions and reasonable legal counsel fees)
incurred by Holdings or any of its Subsidiaries in connection with the
adjustment or settlement of any claims of Holdings or such Subsidiary in respect
thereof. Cash payments or proceeds payable in respect of any loss
-28-
<PAGE>
incurred by the Borrower or any of its Subsidiaries or any taking of assets of
the Borrower or any of its Subsidiaries of the nature described above shall be
deemed to be received by the Borrower or its applicable Subsidiary for the
purposes of this Agreement notwithstanding that such cash payments or proceeds
may actually be paid to Holdings or another Subsidiary of Holdings.
"INTERCOMPANY NOTE" means a promissory note in the applicable form of
-----------------
Exhibit XVII evidencing intercompany Debt and pledged to the Administrative
- ------------
Agent and (except where the intercompany Debt evidenced thereby is owing to a
Foreign Subsidiary) the US Administrative Agent pursuant to the Security
Agreements and subject to the Intercreditor Agreement.
"INTERCREDITOR AGREEMENT" has the meaning specified in Section
-----------------------
4.01(k)(xxx).
"INTEREST EXPENSE" means, with respect to any Person for any fiscal
----------------
period, interest expense (whether cash or non-cash) of such Person determined in
accordance with GAAP for the relevant period ended on such date, including, in
any event, interest expense with respect to any Funded Debt of such Person and
interest expense for the relevant period that has been capitalized on the
balance sheet of such Person.
"INTEREST PERIOD" has the meaning specified in Section 2.05(b).
---------------
"INTEREST RATE CONTRACTS" means interest rate swap, cap or collar
-----------------------
agreements, interest rate future or option contracts and other similar
agreements.
"INTEREST TYPE" refers to the distinction among Loans bearing interest
-------------
based on the Prime Rate, Loans bearing interest based on the Base Rate, Loans
bearing interest based on the Eurodollar Rate and Loans discounted by the
Discount Rate and subject to an Acceptance Fee.
"INTERNAL REVENUE CODE" means the US Internal Revenue Code of 1986, as
---------------------
amended from time to time, and the regulations promulgated and rulings issued
thereunder.
"INVENTORY" means any "inventory", as such term is defined in the
---------
PPSA, now or hereafter owned or acquired by any Loan Party, wherever located,
and in any event including inventory, merchandise, goods and other personal
property which are held by or on behalf of any Loan Party for sale or lease or
are furnished or are to be furnished under a contract of service, or which
constitute raw materials, work in process or materials used or consumed or to be
used or consumed in such Loan Party's business or in the processing, production,
packaging, promotion, delivery or shipping of the same, including other
supplies.
"INVESTMENT" in any Person means any loan or advance to such Person,
----------
any purchase or other acquisition of any Capital Stock, warrants, rights,
options, obligations or other securities of such Person, any capital
contribution to such Person or any other investment in such Person, including,
without limitation, any arrangement pursuant to which the investor incurs
-29-
<PAGE>
Debt of the types referred to in clauses (i) and (j) of the definition of "DEBT"
in respect of such Person.
"ISSUE" means, with respect to any Letter of Credit, issue such Letter
-----
of Credit, extend the expiration of such Letter of Credit (other than any such
extension occurring pursuant to the terms of such Letter of Credit), renew such
Letter of Credit (other than any such renewal occurring pursuant to the terms of
such Letter of Credit), or increase the amount of such Letter of Credit, and the
terms "ISSUED", "ISSUING" and "ISSUANCE" shall have corresponding meanings.
"ISSUING BANK" means the Letter of Credit Bank and any other Revolving
------------
Lender that is a chartered bank, as issuer of a Letter of Credit.
"ITA" means the Income Tax Act (Canada), as amended, and any successor
---
thereto.
"LEAD ARRANGER" means Donaldson, Lufkin & Jenrette Securities
-------------
Corporation, as lead arranger under this Agreement.
"LENDER PARTY" means any Lender or any Issuing Bank.
------------
"LENDERS" means the Initial Lenders, the Swing Line Lender and each
-------
Eligible Assignee that shall become a party hereto pursuant to Section 9.07.
"LETTER OF CREDIT" means any letter of credit denominated in US
----------------
Dollars or Canadian Dollars and issued hereunder.
"LETTER OF CREDIT AGREEMENT" has the meaning specified in Section
--------------------------
3.02(a).
"LETTER OF CREDIT BANK" means Royal Bank of Canada, in its capacity as
---------------------
an Issuing Bank.
"LETTER OF CREDIT CASH COLLATERAL ACCOUNT" has the meaning specified
----------------------------------------
in a Security Agreement executed by the Borrower and delivered to the
Administrative Agent.
"LETTER OF CREDIT COMMITMENT" means, with respect to any Issuing Bank
---------------------------
at any time, the amount set forth opposite such Issuing Bank's name on Schedule
I hereto under the caption "Letter of Credit Commitment" or, if such Issuing
Bank has entered into one or more Assignments and Acceptances, set forth for
such Issuing Bank in the Register maintained by the Administrative Agent
pursuant to Section 9.07(c) as such Issuing Bank's "Letter of Credit
Commitment", as such amount may be reduced from time to time pursuant to Section
2.04.
"LETTER OF CREDIT DOCUMENTS" has the meaning specified in Section
--------------------------
3.04(a).
-30-
<PAGE>
"LETTER OF CREDIT DRAWING" means a payment made by an Issuing Bank
------------------------
against a drawing under a Letter of Credit.
"LETTER OF CREDIT OBLIGATIONS" means, as of any date of determination
----------------------------
with respect to any Letter of Credit, the sum of (a) the then outstanding amount
of such Letter of Credit available for drawing plus (b) the aggregate amount of
the Unreimbursed Letter of Credit Liability thereunder.
"LETTER OF CREDIT SUBFACILITY" has the meaning specified in Section
----------------------------
3.01.
"LETTER OF CREDIT SUBLIMIT" has the meaning specified in Section 3.01.
-------------------------
"LETTER OF CREDIT USAGE" means, as at any date of determination, the
----------------------
sum of (i) the maximum aggregate amount which is or at any time thereafter may
become available for drawing under all Letters of Credit then outstanding plus
----
(ii) the aggregate amount of all Letter of Credit Drawings not theretofore
reimbursed by the Borrower.
"LIEN" means any lien, mortgage, pledge, security interest, charge,
----
assignment, hypothecation or encumbrance of any kind (including any conditional
sale or other title retention agreement, any lease in the nature thereof, and
any agreement to give any security interest) and any other agreement intended to
create any of the foregoing.
"LOAN" means a Term Loan, a Revolving Loan, a Swing Line Loan or the
----
Issuance of a Letter of Credit.
"LOAN DOCUMENTS" means this Agreement, the Notes (if any), the
--------------
Bankers' Acceptances, the Discount Notes, each Guaranty, the Collateral
Documents, each Letter of Credit Agreement, the Agreement Respecting
Intellectual Property, the Acknowledgement Respecting Sales Agreements, each
Bank Hedge Agreement, the Intercreditor Agreement, the Fee Agreement and the
share transfer powers in respect of Capital Stock of the Loan Parties that is
required to be pledged to the Administrative Agent pursuant to this Agreement or
any Collateral Document.
"LOAN PARTIES" means the Borrower, each of the Guarantors and each of
------------
their respective present and future Subsidiaries.
"MANAGEMENT SERVICES AGREEMENT" means the Amended and Restated
-----------------------------
Management Advisory and Consulting Agreement dated as of January 24, 1999,
between Panolam US, the Borrower and Genstar Capital, as in effect on the date
hereof and as thereafter amended to the extent permitted by Section 6.02(n).
"MARGIN STOCK" has the meaning specified in Regulation T or
------------
Regulation U, as applicable.
-31-
<PAGE>
"MATERIAL ADVERSE EFFECT" means a material adverse effect on or change
-----------------------
in (a) the business, condition (financial or otherwise), operations, assets,
liabilities, performance, properties or prospects of Holdings and its
Subsidiaries, taken as a whole, (b) the rights and remedies of the
Administrative Agent or any Lender under any Loan Document or Related Document
or (c) the ability of any Loan Party to perform its Obligations under any Loan
Document or Related Document to which it is or is to be a party.
"MATERIAL CONTRACT" means, with respect to any Person, each contract
-----------------
to which such Person is a party involving aggregate consideration payable to or
by such Person of US$1,000,000, or the Equivalent Amount thereof, or more in any
year or otherwise material to the business, condition (financial or otherwise),
operations, performance, properties or prospects of such Person and which is not
cancellable without penalty (or with a penalty of US$50,000 or less or the
Equivalent Amount thereof) on three months or less notice.
"MATERIAL LEASES" means, as of any date of determination, all leases
---------------
of real property that are subject to any Mortgage or Additional Mortgage.
"MORTGAGE POLICIES" has the meaning specified in Section
-----------------
4.01(k)(xv)(B).
"MORTGAGES" has the meaning specified in Section 4.01(k)(xv) and shall
---------
also include any Additional Mortgages.
"MULTIEMPLOYER PLAN" of any Person means a multiemployer plan, as
------------------
defined in Section 4001(a)(3) of ERISA, to which such Person or any of its ERISA
Affiliates is making or accruing an obligation to make contributions, or has
within any of the preceding five plan years made or accrued an obligation to
make contributions.
"MULTIPLE EMPLOYER PLAN" of any Person means a single employer plan,
----------------------
as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees
of such Person or any of its ERISA Affiliates and at least one Person other than
such Person and its ERISA Affiliates or (b) was so maintained and in respect of
which such Person or any of its ERISA Affiliates could have liability under
Section 4064 or 4069 of ERISA in the event such plan has been or were to be
terminated.
"NET BORROWING AVAILABILITY" shall mean, as of any date of
--------------------------
determination (a) the lesser of the amount of the Revolving Facility and the
amount of the Borrowing Base Amount, less (b) the Total Utilization of Revolving
----
Commitments.
"NET CASH PROCEEDS" means, with respect to any sale, lease, transfer
-----------------
or other disposition of any asset or the sale or issuance of any Debt or Capital
Stock, any securities convertible into or exchangeable for Capital Stock or any
warrants, rights or options to acquire Capital Stock by any Person, the
aggregate amount of cash received from time to time by or on behalf of such
Person in connection with such transaction after deducting therefrom only (a)
reasonable and customary brokerage commissions, underwriting fees and discounts,
legal fees,
-32-
<PAGE>
finder's fees and other similar fees and commissions, (b) the amount of taxes
payable in connection with or as a direct result of such transaction and (c) the
amount of any Debt secured by a Lien on such asset that, by the terms of such
transaction, is required to be repaid upon such disposition, in each case with
respect to the foregoing clauses (a) and (c) to the extent, but only to the
extent, that the amounts so deducted are, at the time of receipt of such cash,
actually paid to a Person that is not an Affiliate of Holdings (unless such
payments are permitted hereunder) and are properly attributable to such
transaction or to the asset that is the subject thereof.
"NON BA LENDER" means a Lender that cannot or does not as a matter of
-------------
policy issue bankers' acceptances.
"NON-RECOURSE DEBT" means Debt which satisfies each of the following
-----------------
requirements: (a) no Loan Party (i) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute Debt),
(ii) is directly or indirectly liable as a guarantor or otherwise, or (iii)
constitutes the lender; (b) no default with respect to such Debt (including any
rights that the holders thereof may have to take enforcement action against the
Excluded Acquisition Sub) would permit upon notice, lapse of time or both any
holder of any other Debt (other than the Obligations under this Agreement and
the US Credit Agreement) of any Loan Party to declare a default on such other
Debt or cause the payment thereof to be accelerated or payable prior to its
stated maturity; (c) the lenders with respect to such Debt have been notified,
and have acknowledged in writing or pursuant to the terms of the instruments and
agreements governing such Debt, in each case prior to the incurrence of such
Debt that they will not have any recourse to the stock or assets of any Loan
Party; (d) the Administrative Agent and the Lenders have received notice of the
amount and principal terms of such Debt prior to its incurrence; and (e) such
Debt is otherwise on terms and conditions reasonably satisfactory to the
Syndication Agent and the Administrative Agent.
"NOTE" means a Term A Note, a Term B Note, a Revolving Note or a Swing
----
Line Note.
"NOTICE OF BORROWING" means a notice in substantially the form of
-------------------
Exhibit II hereto.
- ----------
"NOTICE OF CONVERSION/CONTINUATION" means a notice in substantially
---------------------------------
the form of Exhibit III hereto.
-----------
"NOTICE OF ISSUANCE" means a notice in substantially the form of
------------------
Exhibit IV hereto.
- ----------
"NOTICE OF SWING LINE BORROWING" means either (i) a notice
------------------------------
substantially in the form of Exhibit V hereto, or (ii) notice by
---------
teletransmission or telephonic notice of the information required by Exhibit V.
---------
"OBCA" means the Business Corporations Act (Ontario).
----
-33-
<PAGE>
"OBLIGATION" means, with respect to any Person, any obligation of such
----------
Person of any kind, including, without limitation, any liability of such Person
on any claim, whether or not the right of any creditor to payment in respect of
such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, disputed, undisputed, legal, equitable, secured or unsecured, and
whether or not such claim is discharged, stayed or otherwise affected by any
proceeding referred to in Section 7.01(g). Without limiting the generality of
the foregoing, the Obligations of the Loan Parties under the Loan Documents
include (a) the obligation to pay principal, interest, Letter of Credit
commissions, charges, expenses, fees, legal fees and disbursements, indemnities
and other amounts payable by any Loan Party under any Loan Document and (b) the
obligation to reimburse any amount in respect of any of the foregoing that any
Lender, in its sole discretion, may elect to pay or advance on behalf of such
Loan Party.
"OFFICERS' CERTIFICATE" means, as applied to any corporation, a
---------------------
certificate executed on behalf of such corporation by its Chairman of the Board
(if an officer), its President, one of its Vice Presidents, the Chief Financial
Officer, its Director of Finance, its Treasurer, any of its Assistant
Treasurers, its Controller or any of its Assistant Controllers; provided that,
-------- ----
every Officers' Certificate with respect to the compliance with a condition
precedent to the making of any Loans hereunder shall include (a) a statement
that the officer or officers making or giving such Officers' Certificate have
read such condition and any definitions or other provisions contained in this
Agreement relating thereto, (b) a statement that, in the opinion of the signers,
they have made or have caused to be made such examination or investigation as is
necessary to enable them to express an informed opinion as to whether or not
such condition has been complied with, and (c) a statement as to whether, in the
opinion of the signers, such condition has been complied with.
"OPEN YEAR" has the meaning specified in Section 5.01(m)(ii).
---------
"OTHER TAXES" has the meaning specified in Section 2.10(b).
-----------
"PANOLAM INTERNATIONAL" means Panolam Industries International, Inc.,
---------------------
a Delaware corporation.
"PANOLAM US" means Panolam Industries, Inc., a Delaware corporation.
----------
"PARENT" means each of Holdings, Group, PII Second and any other
------
direct or indirect parent company of Panolam International now or hereafter
existing and, when used with reference to the Borrower, means Panolam
International and any other direct or indirect parent company of the Borrower
now or hereafter existing.
"PBGC" means the Pension Benefit Guaranty Corporation.
----
"PERMITTED ACQUISITION" means any non-hostile Acquisition made after
---------------------
the date hereof by Panolam International or any of its Subsidiaries if all of
the following conditions are met:
-34-
<PAGE>
(a) before and immediately after giving effect thereto, (i) no Default
has occurred and is continuing or would result therefrom and (ii) the
representations and warranties of each Loan Party set forth in the Loan
Documents shall be true and correct in all material respects on and as of
the date of such Acquisition, as though made on and as of such date, other
than any such representations or warranties that by their terms refer to a
date other than the date of such Acquisition, in which case such
representations and warranties shall be true and correct as of such other
date;
(b) such Acquisition has not been preceded by an unsolicited tender
offer or take-over bid for such Person by Panolam International or any of
its Affiliates;
(c) all transactions related thereto shall be consummated in
accordance with applicable laws;
(d) in the case of any Acquisition of shares or other Equity Interests
in any Person, such Acquisition is an Acquisition of 100% of the Equity
Interests (less directors qualifying and similar shares) in such Person
and, if Panolam International or any of its Subsidiaries is making such
Acquisition, after giving effect to such Acquisition, such Person becomes a
wholly-owned direct or indirect Subsidiary of Panolam International;
(e) all actions required to be taken, if any, with respect to any
acquired or newly formed Subsidiary under Section 6.01(n) shall have been
taken;
(f) such assets are used for, or such Person is engaged in, a line of
business permitted under Section 6.02(h);
(g) at least (i) 30 days prior to entering into such Acquisition, or
any agreement therefor, the Borrower delivers notice thereof to the
Administrative Agent and (ii) 15 days prior to the consummation of such
Acquisition, the Borrower delivers to the Administrative Agent and the
Lenders a Compliance Certificate containing the computations used to
determine compliance with the covenants in Section 6.04 on a pro forma
basis so as to give effect to such Acquisition (including any deferred
Acquisition consideration therefor) and all Debt assumed or incurred by any
Loan Party in connection therewith, and attaching the Borrower's then-
current good faith and reasonable financial projections for the first
fiscal quarter ending after the consummation of such Acquisition and the
succeeding three fiscal quarters, demonstrating (to the reasonable
satisfaction of the Administrative Agent) that, after giving effect to such
Acquisition, (A) Panolam International and its Subsidiaries and the
Borrower and its Subsidiaries would have been in compliance with the
covenants set forth in Section 6.04 as of the last day of the fiscal
quarter most recently ended prior to the consummation of such Acquisition
and there would have been no increase in the Consolidated Leverage Ratio,
or if there is an increase, not above 3.0:1 and (B) Panolam International
and the Borrower can reasonably be expected to remain in compliance with
such covenants, with no increase in the
-35-
<PAGE>
Consolidated Leverage Ratio, or if there is an increase, not above 3.0:1,
for the 12-month period following the consummation of such Acquisition, and
to have sufficient cash liquidity to conduct its business, to support
working capital requirements and to make required income tax distributions
and pay its debts and other liabilities as they become due;
(h) no Loan Party shall incur, assume or otherwise become liable for
or subject to (i) any Debt in connection with such Acquisition (except for
Debt permitted by Section 6.02(b)), or (ii) any material contingent
liabilities, except for those constituting Debt permitted by Section
6.02(b);
(i) the aggregate Acquisition Consideration payable by the Loan
Parties in connection with all such Acquisitions does not exceed
US$25,000,000 or the Equivalent Amount thereof in the aggregate plus up to
----
an additional US$5,000,000, or the Equivalent Amount thereof, in the
aggregate, of Permitted Seller Financing and Holdings common stock (valued,
prior to an Initial Public Equity Offering, at fair market value as
determined in good faith by the Board of Directors of Holdings);
(j) the Net Borrowing Availability after giving effect to the
Acquisition shall be at least US$3,000,000;
(k) except for Acquisitions consummated when the Applicable Leverage
Ratio is 3.0:1 or less, such business or Person being acquired shall have
had a positive pro forma operating cash flow (reflecting only such
adjustments to actual operating cash flow as would constitute Approved Cost
Adjustments) for the 12-month period prior to the proposed Acquisition;
(l) the aggregate Acquisition Consideration payable by the Loan
Parties in connection with all Foreign Acquisitions does not exceed
US$5,000,000 or the Equivalent Amount thereof in the aggregate; and
(m) in the case of an Acquisition of an entity organized under the
laws of Canada or any political subdivision thereof, the acquiror shall be
the Borrower or any of its Subsidiaries.
"PERMITTED LIENS" means such of the following as to which no
---------------
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced: (a) Liens for taxes, assessments and governmental charges or
levies to the extent not required to be paid under Section 6.01(b) hereof; (b)
Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's
and repairmen's Liens and other similar possessory Liens arising in the ordinary
course of business securing obligations that are not overdue for a period of
more than 30 days except to the extent contested in good faith and properly
reserved against; (c) Liens in favor of depository banks arising in the ordinary
course of business in connection with the maintenance
-36-
<PAGE>
and administration of depository and disbursement accounts; (d) pledges or
deposits to secure obligations under workers' compensation, unemployment
insurance, social security or public liability laws or similar legislation; (e)
zoning restrictions, easements, rights of way and other minor irregularities in
title to real property (including encroachments and leasehold title) that do not
render title to the property encumbered thereby unmarketable or materially
impair the use, value, or marketability of such property or that would adversely
affect the Administrative Agent's and the Lenders' abilities to exercise their
rights and remedies under the Loan Documents; (f) pledges or deposits of money
securing bids, tenders, contracts (other than contracts for the payment of
money) or leases to which any Loan Party is a party as lessee made in the
ordinary course of business; (g) deposits of money securing statutory
obligations of any Loan Party for workers compensation, unemployment
compensation and similar costs (excluding Liens under ERISA); (h) deposits
securing, or in lieu of, surety, appeal or customs bonds in proceedings to which
any Loan Party is a party; (i) any attachment or judgment lien not constituting
an Event of Default under Section 7.01, so long as such Lien does not attach to
any Inventory or Receivables; and (j) presently existing or hereafter created
Liens in favor of the Administrative Agent, on behalf of the Administrative
Agent and the Lender Parties, or in favor of the Administrative Agent and the
Lender Parties.
"PERMITTED RESTRICTIONS", with respect to any consensual restriction
----------------------
on the ability of any Subsidiary of Panolam International to pay dividends or
make other distributions to or on behalf of, or to pay any obligation to or on
behalf of, or otherwise to transfer assets or property to or on behalf of, or
make or pay loans or advances to or on behalf of, Panolam International or any
of its Subsidiaries, means:
(a) restrictions imposed pursuant to this Agreement, the US Credit
Agreement, any of the other Loan Documents or any of the other US Loan
Documents;
(b) restrictions imposed by the Subordinated Notes or the Subordinated
Note Indenture or by other Debt of Panolam International or any of its
Subsidiaries permitted hereunder; provided that, such restrictions are no
-------- ----
more restrictive taken as a whole than those imposed by this Agreement or
the US Credit Agreement or by the Subordinated Notes or the Subordinated
Note Indenture as in effect on the Closing Date;
(c) restrictions imposed by applicable law;
(d) existing restrictions under any Debt of Panolam International or
its Subsidiaries existing on the date hereof;
(e) restrictions under any Debt or Disqualified Capital Stock of any
Person existing at the time such Person becomes a Subsidiary of Panolam
International or is amalgamated, merged or consolidated with or into
Panolam International or one of its Subsidiaries, and which is not incurred
in violation of this Agreement, the US Credit Agreement, the Subordinated
Note Indenture or any agreement relating to any property,
-37-
<PAGE>
asset, or business acquired by Panolam International or any of its
Subsidiaries, which restrictions in each case existed at the time of
acquisition, were not put in place in connection with or in anticipation of
such acquisition and are not applicable to any Person, other than the
Person acquired, or to any property, asset or business, other than the
property, assets and business so acquired;
(f) restrictions solely with respect to a Subsidiary of Panolam
International 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 (to the extent such sale or
disposition is permitted hereunder); 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 Capital Leases and purchase
money Debt permitted by Section 6.02(b); provided that, such restrictions
-------- ----
relate only to the transfer of the property acquired with the proceeds of
such purchase money Debt or subject to such Capital Leases; and
(h) in connection with and pursuant to permitted refinancings,
replacements of restrictions imposed pursuant to paragraphs (a), (b), (d),
(e) or (g) of this definition 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
Debt so refinanced.
"PERMITTED SELLER FINANCING" means Debt of Panolam International owing
--------------------------
to a seller in a Permitted Acquisition in respect of Acquisition Consideration
so long as (i) such Debt is expressly subordinated in right of payment to the
prior payment in full in cash of all Obligations under the Loan Documents and
under the US Loan Documents on terms and conditions reasonably satisfactory to
the Administrative Agent and the Required Lenders, and (ii) such Debt requires
no payment of principal or interest (other than payments in kind) prior to six
months after the last to occur of (A) the Revolving Commitment Termination Date,
(B) the Term A Termination Date and (C) the Term B Termination Date.
"PERSON" means an individual, partnership, limited liability company,
------
corporation (including a business trust), joint stock company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof
"PII SECOND" means PII Second, Inc., a Delaware corporation.
----------
"PIONEER" means Pioneer Plastics Corporation, a Delaware corporation.
-------
"PIONEER ACQUISITION" means the acquisition by Panolam International
-------------------
of 100% of the equity securities of Pioneer pursuant to the Pioneer Acquisition
Agreement.
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<PAGE>
"PIONEER ACQUISITION AGREEMENT" means the Stock Purchase Agreement
-----------------------------
dated as of July 17, 1998 by and between Rugby U.S.A., Inc. and Panolam
International, as in effect on July 17, 1998, and as subsequently amended by (i)
the Amendment No. 1 to Stock Purchase Agreement dated as of September 11, 1998,
(ii) the Amendment No. 2 to Stock Purchase Agreement dated as of October 16,
1998, and (iii) the Amendment No. 3 to Stock Purchase Agreement dated as of
November 30, 1998, and as such agreement may have been further amended,
supplemented or otherwise modified from time to time on or prior to the Closing
Date as permitted hereunder.
"PIONEER ACQUISITION CONSIDERATION" means the aggregate purchase price
---------------------------------
set forth in the Pioneer Acquisition Agreement, subject to adjustment as
provided therein.
"PIONEER ACQUISITION DOCUMENTS" means the Pioneer Acquisition
-----------------------------
Agreement, any non-competition agreements delivered thereunder and each non-
competition agreement and each other material document and agreement entered
into in connection therewith.
"PLAN" means a Single Employer Plan (excluding a Canadian Pension
----
Plan) or a Multiple Employer Plan.
"PPSA" means the Personal Property Security Act (Ontario) and the
----
Regulations thereunder, as from time to time in effect, provided, however, if
-------- -------
attachment, perfection or priority of the Administrative Agent's or the Lenders'
security interests (or the applicable equivalent thereof) in any Collateral is
governed by the personal property security laws of any jurisdiction other than
Ontario, PPSA means those personal property security laws in such other
jurisdiction for the purposes of the provisions hereof relating to such
attachment, perfection or priority and for the definitions related to such
provisions.
"PREFERRED STOCK" means, with respect to any corporation, capital
---------------
stock issued by such corporation that is entitled to a preference or priority
over any other capital stock issued by such corporation upon any distribution of
such corporation's assets, whether by dividend or upon liquidation.
"PRIME RATE" means a fluctuating interest rate per annum in effect
----------
from time to time, which rate per annum shall at all times be equal to the
higher of (a) the rate of interest announced publicly by the Administrative
Agent from time to time as the Administrative Agent's reference rate in effect
for determining interest rates on Canadian Dollar denominated commercial loans
made by it in Canada and (b) the CDOR Rate in effect from time to time plus 1/2
of one percent per annum. Any change in the Prime Rate shall be effective as of
the opening of business on the effective day of such change in the
Administrative Agent's reference rate or CDOR Rate, as the case may be.
"PRIME RATE LOAN" means a Loan that bears interest as provided in
---------------
Section 2.05(d).
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<PAGE>
"PRIOR CLAIMS" means all Liens created by applicable law (in contrast
------------
with Liens voluntarily granted) which rank or are capable of ranking prior to or
pari passu with the Administrative Agent's or the Lenders' security interests
(or the applicable equivalent thereof) against all or part of the Collateral,
including for amounts owing (to the extent that such amounts may be secured by
such a Lien) for employee deductions, goods and services taxes, sales taxes,
employer health taxes, municipal taxes, workers' compensation, pension fund
obligations and overdue rents.
"PROFIT PAYMENT AGREEMENT" means any agreement to make any payment the
------------------------
amount of which is, or the terms of payment of which are, in any respect subject
to or contingent upon the revenues, income, cash flow or profits (or the like)
of any Person or business.
"PROJECTIONS" means Panolam International's forecasted Consolidated
-----------
and consolidating: (a) balance sheets; (b) profit and loss statements; (c) cash
flow statements; and (d) capitalization statements, all prepared on a Subsidiary
by Subsidiary or division by division basis, if applicable, and otherwise
consistent with the historical financial statements of Panolam International,
together with appropriate supporting details and a statement of underlying
assumptions.
"QUARTERLY COMPLIANCE CERTIFICATE" means a Compliance Certificate of
--------------------------------
the Borrower, substantially in the form attached as Exhibit IX hereto and
----------
otherwise satisfactory to the Administrative Agent, including all of the
certifications required in the Compliance Certificate and also setting forth the
computations used by the Borrower in determining compliance with the covenants
contained in Section 6.04.
"RECEIVABLES" means all "accounts", as such term is defined in the
-----------
PPSA, now owned or hereafter acquired by any Loan Party and, in any event,
including (a) all accounts receivable, other receivables, book debts, claims and
other forms of obligations (other than forms of obligations evidenced by Chattel
Paper, securities or Instruments) now owned or hereafter received or acquired by
or belonging or owing to any Loan Party, whether arising out of goods sold or
services rendered by it or from any other transaction (including any such
obligations which may be characterized as an account or contract right under the
PPSA), (b) all of each Loan Party's rights in, to and under all purchase orders
or receipts now owned or hereafter acquired by it for goods sold or services
rendered, (c) all of each Loan Party's rights to any goods represented by any of
the foregoing (including unpaid sellers' rights of rescission, replevin,
reclamation and stoppage in transit and rights to returned, reclaimed or
repossessed goods), (d) all monies due or to become due to any Loan Party, under
all purchase orders and contracts for the sale of goods or the performance of
services or both by such Loan Party or in connection with any other transaction
(whether or not yet earned by performance on the part of such Loan Party) now or
hereafter in existence, including the right to receive the proceeds of said
purchase orders and contracts, and (e) all collateral security and guarantees of
any kind, now or hereafter in existence, given by any Person with respect to any
of the foregoing.
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<PAGE>
"RECEIVABLES DEBTOR" means any Person who may become obligated to any
------------------
Loan Party under, with respect to, or on account of, a Receivable.
"REDEEMABLE" means, with respect to any Capital Stock, Debt or other
----------
right or Obligation, any such right or Obligation that (a) the issuer has
undertaken to redeem at a fixed or determinable date or dates, whether by
operation of a sinking fund or otherwise, or upon the occurrence of a condition
not solely within the control of the issuer or (b) is redeemable at the option
of the holder.
"REGISTER" has the meaning specified in Section 9.07(c).
--------
"REGULATION T" means Regulation T of the Board of Governors of the US
------------
Federal Reserve System, as in effect from time to time.
"REGULATION U" means Regulation U of the Board of Governors of the US
------------
Federal Reserve System, as in effect from time to time.
"RELATED DOCUMENTS" means the Pioneer Acquisition Documents, the
-----------------
Subordinated Debt Documents and the US Loan Documents.
"REPLACEMENT LENDER" has the meaning specified in Section 2.08(c).
------------------
"REQUIRED LENDERS" means at any time Lenders owed or holding at least
----------------
51% of the sum of (a) the aggregate principal amount of the Loans outstanding at
such time, (b) the aggregate Letter of Credit Usage at such time and (c) the
aggregate unused Commitments under the Term Facilities plus the aggregate Unused
Revolving Commitments at such time, without duplication. For purposes of this
definition, the amount of the Letter of Credit Usage and the aggregate principal
amount of all outstanding Swing Line Loans shall be considered to be owed to the
Revolving Lenders ratably in accordance with their respective Revolving Pro Rata
Shares.
"RESERVES" means, with respect to the Borrowing Base Amount of the
--------
Borrower, (a) reserves for (i) Inventory that is excess, obsolete, unsaleable,
shopworn, seconds, damaged or unfit for sale; and (ii) Prior Claims (including,
without limitation, the rights of unpaid suppliers under Section 81.1 of the
Bankruptcy and Insolvency Act (Canada), the reserve for which initially shall be
15% of raw material Inventory) and (b) reserves established and modified by the
Administrative Agent from time to time against Eligible Inventory and/or
Eligible Receivables in accordance with this Agreement.
"RESTRUCTURING COSTS" means non-recurring charges up to the maximum
-------------------
amount and meeting the criteria set forth on Schedule 1.01(b), properly
characterized as "restructuring" charges under generally accepted accounting
principles in connection with the Pioneer Acquisition and related to the closure
of plants, related severance costs and integration, provided that, such costs
-------- ----
occur within two years after the closing of the Pioneer Acquisition.
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<PAGE>
"REVOLVING BORROWING" means a borrowing consisting of simultaneous
-------------------
Revolving Loans of the same Interest Type made by the Revolving Lenders.
"REVOLVING COMMITMENT" means (i) with respect to any Revolving Lender
--------------------
listed on Schedule I, the amount set forth opposite such Lender's name on
Schedule I under the caption "REVOLVING COMMITMENT", (ii) with respect to any
--------------------
Revolving Lender not listed on Schedule I hereto, the amount set forth in the
Assignment and Acceptance pursuant to which such Person became a Lender
hereunder, or (iii) if any of such Lenders has entered into one or more
Assignments and Acceptances, the amount set forth for such Lender in the
Register maintained by the Administrative Agent pursuant to Section 9.07(c) as
such Lender's "REVOLVING COMMITMENT", in the case of each of the foregoing
clauses (i), (ii) and (iii), as such amount may be reduced at or prior to such
time pursuant to Section 2.04.
"REVOLVING COMMITMENT TERMINATION DATE" means the earlier of (i) the
-------------------------------------
fifth anniversary of the Closing Date and (ii) the date of termination in whole
of the Total Commitments pursuant to Section 2.04 or 701.
"REVOLVING FACILITY" means, at any time, the aggregate amount of the
------------------
Revolving Lenders' Revolving Commitments at such time.
"REVOLVING LENDER" means any Lender that has a Revolving Commitment.
----------------
"REVOLVING LOAN" has the meaning specified in Section 2.01(c).
--------------
"REVOLVING NOTE" means a promissory note of the Borrower denominated
--------------
in Canadian Dollars or US Dollars payable to the order of any Revolving Lender,
in substantially the form of Exhibit VII-A-1 or Exhibit VII-A-2 hereto,
--------------- ---------------
respectively, evidencing the aggregate indebtedness of the Borrower to such
Lender resulting from the Revolving Loans made by such Lender in Canadian
Dollars or US Dollars, respectively.
"REVOLVING PRO RATA SHARE" means, with respect to any Revolving Lender
------------------------
at any time, a fraction, the numerator of which is such Revolving Lender's
Revolving Commitment (without giving effect to any termination thereof pursuant
to 701) at such time and the denominator of which is the amount of the total
Revolving Facility (without giving effect to any termination of Commitments
pursuant to 701) at such time.
"SECURED OBLIGATIONS" has the meaning specified in the applicable
-------------------
Security Agreement.
"SECURITIES" means any stock, shares, partnership interests, voting
----------
trust certificates, certificates of interest or participation in any profit-
sharing agreement or arrangement, options, warrants, bonds, debentures, notes,
or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as
"securities" or any certificates of interest, shares or participations in
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<PAGE>
temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire, any of the foregoing.
"SECURITY AGREEMENT" has the meaning specified in Section
------------------
4.01(k)(xiv).
"SINGLE EMPLOYER PLAN" of any Person means a single employer plan, as
--------------------
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of
such Person or any of its ERISA Affiliates and no Person other than such Person
and its ERISA Affiliates or (b) was so maintained and in respect of which such
Person or any of its ERISA Affiliates could have liability under Section 4069 of
ERISA in the event such plan has been or were to be terminated.
"SOLVENCY" and "SOLVENT" mean (1) with respect to any Person on a
-------- -------
particular date that is subject to Canadian Insolvency Law, that on such date
(a) the property of such Person is sufficient, if disposed of at a fairly
conducted sale under legal process, to enable payment of all its obligations,
due and accruing due, (b) the property of such Person is, at a fair valuation,
greater than the total amount of liabilities, including contingent liabilities,
of such Person to enable payment of all its obligations due and accruing due,
(c) such Person has not ceased paying its current obligations in the ordinary
course of business as they generally become due and (d) such Person is not for
any reason unable to meet its obligations as they generally become due; and (2)
with respect to any Person on a particular date that is subject to US Insolvency
Law, that on such date (a) the fair value of the property of such Person is
greater than the total amount of liabilities, including, without limitation,
contingent liabilities, of such Person, (b) the present fair saleable value of
the assets of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured, (c) such Person does not intend to, and does not believe that it
will, incur debts or liabilities beyond such Person's ability to pay as such
debts and liabilities mature and (d) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person's property would constitute an unreasonably small capital. The
amount of contingent liabilities at any time shall be computed as the amount
that, in the light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual or
matured liability.
"SPV" has the meaning specified in Section 9.07(h).
---
"STANDBY LETTER OF CREDIT" means any Letter of Credit issued under the
------------------------
Letter of Credit Subfacility, other than a Trade Letter of Credit.
"SUBORDINATED DEBT" means the Debt evidenced by the Subordinated Notes
-----------------
and any Permitted Seller Financing.
"SUBORDINATED DEBT DOCUMENTS" means the Subordinated Note Indenture,
---------------------------
the Subordinated Notes, and all other agreements, indentures and instruments
pursuant to which Subordinated Debt is issued.
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<PAGE>
"SUBORDINATED NOTE INDENTURE" means the Subordinated Note Indenture
---------------------------
dated as of February 18, 1999, between Panolam International and State Street
Bank and Trust Company of Connecticut, N.A., as trustee, as amended from time to
time, pursuant to which the Subordinated Notes are being issued.
"SUBORDINATED NOTES" means the Series A 11?% Senior Subordinated Notes
------------------
due 2009 of Panolam International issued pursuant to the Subordinated Note
Indenture and the Series B 11?% Senior Subordinated Notes due 2009 issued in
exchange therefor pursuant to the Exchange Offer (as defined in the Subordinated
Note Indenture), in the aggregate principal amount of US$135,000,000.
"SUBSIDIARY" of any Person means any corporation, partnership, limited
----------
liability company, joint venture, trust or estate of which (or in which) more
than 50% of (a) the issued and outstanding capital stock having ordinary voting
power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such partnership,
limited liability company or joint venture or (c) the beneficial interest in
such trust or estate is at the time directly or indirectly owned or controlled
by such Person, by such Person and one or more of its other Subsidiaries or by
one or more of such Person's other Subsidiaries. Notwithstanding the foregoing,
the Excluded Acquisition Sub and the Excluded Melamine Subs shall not be
Subsidiaries of any Loan Party for purposes hereof or of any of the other Loan
Documents.
"SUPERMAJORITY LENDERS" means, at any time, Lenders owed or holding at
---------------------
least 66% of the sum of (a) the aggregate principal amount of the Loans
outstanding at such time, (b) the aggregate Letter of Credit Usage at such time
and (c) the aggregate unused Commitments under the Term Facilities plus the
aggregate Unused Revolving Commitments at such time, without duplication. For
purposes of this definition, the amount of the Letter of Credit Usage and the
aggregate principal amount of all outstanding Swing Line Loans shall be
considered to be owed to the Revolving Lenders ratably in accordance with their
respective Revolving Pro Rata Shares.
"SURVIVING DEBT" has the meaning specified in Section 4.01(g).
--------------
"SWING LINE BORROWING" means a borrowing of Swing Line Loans made by
--------------------
the Swing Line Lender.
"SWING LINE COMMITMENT" means, with respect to the Swing Line Lender
---------------------
at any time, the amount set forth opposite such Lender's name on Schedule I
hereto under the caption "SWING LINE COMMITMENT" or, if the Swing Line Lender
has entered into one or more Assignments and Acceptances with respect to the
Swing Line Commitment, the amount set forth for the Swing Line Lender in the
Register maintained by the Administrative Agent pursuant to
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<PAGE>
Section 9.07 as such Lender's "SWING LINE COMMITMENT", in each case as such
amount may be reduced at or prior to such time pursuant to Section 2.04.
"SWING LINE FACILITY" means, at any time, the aggregate amount of the
-------------------
Swing Line Lender's Swing Line Commitment at such time.
"SWING LINE LENDER" means CSFBC and any assignee of the Swing Line
-----------------
Commitment that assumes such Swing Line Commitment in accordance with the terms
of Section 9.07.
"SWING LINE LOAN" means a Loan by the Swing Line Lender to the
---------------
Borrower pursuant to Section 2.01(d).
"SWING LINE NOTE" means a promissory note of the Borrower denominated
---------------
in Canadian Dollars or US Dollars payable to the order of the Swing Line Lender,
in substantially the form of Exhibit VII-D-1 hereto or Exhibit VII-D-2 hereto,
--------------- ---------------
evidencing the aggregate indebtedness of the Borrower to such Lender under the
Swing Line Facility.
"SWING LINE SUBLIMIT" means US$5,000,000 or the Equivalent Amount
-------------------
thereof in Canadian Dollars.
"SYNDICATION AGENT" means DLJ Capital Funding, Inc., as syndication
-----------------
agent for the Facilities and its successors and assigns in such capacity.
"TAXES" means any and all present or future taxes, levies,
-----
assessments, imposts, duties, deductions, fees, withholdings or similar charges,
and all liabilities with respect thereto, excluding, in the case of each Lender
Party, the Administrative Agent, each participant under a participation and each
SPV, respectively, taxes that are imposed on or measured by its net income or
capital by the jurisdiction under the laws of which it is organized or resident
or carries on business through a permanent establishment located therein or any
political subdivision thereof.
"TERM A COMMITMENT" means, with respect to any Term A Lender, the
-----------------
amount set forth opposite such Lender's name on Schedule I hereto under the
caption "TERM A COMMITMENT"; provided that upon making of the Term A Loans on
-------- ----
the Closing Date, the Term A Commitment of each Term A Lender shall thereafter
be zero.
"TERM A FACILITY" means, at any time, the aggregate amount of the Term
---------------
A Loans outstanding at such time.
"TERM A LENDER" means any Lender that has a Term A Loan outstanding.
-------------
"TERM A LOAN" has the meaning specified in Section 2.01(a).
-----------
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<PAGE>
"TERM A LOAN PAYMENT DATE" has the meaning specified in Section
------------------------
2.03(a).
"TERM A NOTE" means a promissory note of the Borrower payable to the
-----------
order of any Term A Lender, in substantially the form of Exhibit VII-B hereto,
-------------
evidencing the indebtedness of the Borrower to such Lender resulting from the
Term A Loan made by such Lender.
"TERM A PRO RATA SHARE" means, with respect to any Term A Lender at
---------------------
any time, a fraction the numerator of which is the principal amount of Term A
Loans made by such Lender and outstanding at such time and the denominator of
which is the aggregate principal amount of Term A Loans made by all Term A
Lenders and outstanding at such time.
"TERM A TERMINATION DATE" means the earlier of (i) December 31, 2003
-----------------------
and (ii) the date of termination in whole of the Total Commitments pursuant to
Section 2.04 or 701.
"TERM B COMMITMENT" means, with respect to any Term B Lender at any
-----------------
time, the amount set forth opposite such Lender's name on Schedule I hereto
under the caption "Term B Commitment"; provided, that upon the making of Term B
--------- ----
Loans on the Closing Date, the Term B Commitment of each Term B Lender shall
thereafter be zero.
"TERM B FACILITY" means, at any time, the aggregate amount of the Term
---------------
B Loans outstanding at such time.
"TERM B LENDER" means any Lender that has a Term B Loan outstanding.
-------------
"TERM B LOAN" has the meaning specified in Section 2.01(b).
-----------
"TERM B LOAN PAYMENT DATE" has the meaning specified in Section
------------------------
2.03(b).
"TERM B NOTE" means a promissory note of the Borrower payable to the
-----------
order of any Term B Lender, in substantially the form of Exhibit VII-C hereto,
-------------
evidencing the indebtedness of the Borrower to such Lender resulting from the
Term B Loan made by such Lender.
"TERM B PRO RATA SHARE" means, with respect to any Term B Lender at
---------------------
any time, a fraction the numerator of which is the principal amount of Term B
Loans made by such Lender and outstanding at such time and the denominator of
which is the aggregate principal amount of Term B Loans made by all Term B
Lenders and outstanding at such time.
"TERM B TERMINATION DATE" means the earlier of (i) December 31, 2005
-----------------------
and (ii) the date of termination in whole of the Total Commitments pursuant to
Section 2.04 or 701.
"TERM BORROWING" means a borrowing consisting of simultaneous Term
--------------
Loans of the same Interest Type made by the Term Lenders.
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<PAGE>
"TERM FACILITIES" means, collectively, the Term A Facility and Term B
---------------
Facility.
"TERM LENDER" means any Term A Lender or Term B Lender, and "TERM
-----------
LENDERS" means all such lenders collectively.
"TERM LOAN" means any Term A Loan or Term B Loan, and "TERM LOANS"
---------
means all such loans collectively.
"TOTAL COMMITMENT" means, with respect to each Lender at any time, the
----------------
aggregate of such Lender's outstanding Term Loans and Revolving Commitment at
such time.
"TOTAL UTILIZATION OF REVOLVING COMMITMENTS" means, as at any date of
------------------------------------------
determination, the sum of (i) the aggregate principal amount of all outstanding
Revolving Loans (other than Revolving Loans made, but not yet applied, for the
purpose of repaying any Swing Line Loans or reimbursing the applicable Issuing
Bank for any Letter of Credit Drawing) plus (ii) the aggregate principal amount
----
of all outstanding Swing Line Loans plus (iii) the Letter of Credit Usage.
----
"TRADE LETTER OF CREDIT" means any Letter of Credit that is issued
----------------------
under the Letter of Credit Subfacility for the benefit of a supplier of
Inventory to the Borrower or any of its Canadian Subsidiaries to effect payment
for such Inventory, the conditions to drawing under which include the
presentation to the Issuing Bank of negotiable bills of lading, invoices and
related documents sufficient, in the judgment of the Issuing Bank, to create a
valid and perfected Lien on such Inventory.
"TRANSACTION FEE AGREEMENT" means the engagement letter between
-------------------------
Panolam International and Genstar Capital LLC, dated as of January 24, 1999, as
in effect on the date hereof and as thereafter amended to the extent permitted
by Section 6.02(n).
"TRANSACTIONS" means, collectively, the Pioneer Acquisition, the
------------
refinancing effected pursuant to this Agreement and the other Loan Documents,
and the payment of fees and expenses in connection with the foregoing.
"TYPE" refers to the distinction between Revolving Loans, Swing Line
----
Loans, Term A Loans and Term B Loans.
"UNREIMBURSED LETTER OF CREDIT LIABILITY" means, as of any date of
---------------------------------------
determination with respect to any Letter of Credit, the aggregate amount of all
Letter of Credit Drawings which have been paid by, and not reimbursed to, the
Issuing Bank under such Letter of Credit.
"UNUSED REVOLVING COMMITMENT" means, with respect to any Revolving
---------------------------
Lender at any time, (a) such Lender's Revolving Commitment at such time, minus
(b) the sum of (i) the aggregate principal amount of all Revolving Loans of such
Lender outstanding at such time, plus
-47-
<PAGE>
(ii) such Lender's Revolving Pro Share of the aggregate Letter of Credit
Obligations outstanding at such time, plus (iii) such Lender's Revolving Pro
Rata Share of the aggregate principal amount of all Swing Line Loans outstanding
at such time.
"UNUSED SWING LINE COMMITMENT" means, with respect to the Swing Line
----------------------------
Lender at any time, the lesser of (i) the remainder of (a) the Swing Line
Commitment at such time, minus (b) the aggregate principal amount of all Swing
Line Loans outstanding at such time, and (ii) the aggregate Unused Revolving
Commitments at such time.
"US" means the United States of America.
--
"US ADMINISTRATIVE AGENT" means the Administrative Agent under the US
-----------------------
Credit Agreement.
"US CREDIT AGREEMENT" means the Credit Agreement, dated as of the date
-------------------
hereof, and entered into among Panolam International, the financial institutions
and other entities party thereto as US Lenders, DLJ Capital Funding, Inc., as
syndication agent, Credit Suisse First Boston, as administrative agent, and
Royal Bank of Canada, as documentation agent.
"US CREDIT AGREEMENT GUARANTY" means the guaranty dated as of the date
----------------------------
hereof, and entered into among Holdings, Group, PII Second, Panolam US and
Pioneer, and acknowledged by Panolam International and the US Administrative
Agent, as the same may be amended, supplemented or otherwise modified from time
to time.
"US DOLLARS" and "US$" each means lawful currency of the United States
---------- ---
of America.
"US LENDERS" means the lenders or lender parties, as applicable, under
----------
the US Credit Agreement.
"US LOAN DOCUMENTS" means the US Credit Agreement, the notes (if any),
-----------------
the US Credit Agreement Guaranty, the other guaranties, the collateral
documents, each letter of credit agreement, each bank hedge agreement and the
Intercreditor Agreement, in each case, in connection with the US Credit
Agreement executed and delivered to, or in favor of, the US Administrative Agent
and/or any of the US Lenders.
"US OBLIGATIONS" means all Obligations (as defined in the US Credit
--------------
Agreement) of any Loan Party of any kind or nature, present or future, whether
or not evidenced by any note, agreement or other instrument, arising under or
pursuant to the US Credit Agreement or any of the other US Loan Documents.
"VOTING EQUITY INTERESTS" means Equity Interests which are ordinarily
-----------------------
entitled to vote in the election of, as applicable, directors, members or
partners generally, whether or not the right so to vote has been suspended by
the happening of any contingency.
-48-
<PAGE>
"WELFARE PLAN" means a welfare plan, as defined in Section 3(l) of
------------
ERISA.
"WITHDRAWAL LIABILITY" has the meaning specified in Part I of Subtitle
--------------------
E of Title IV of ERISA.
SECTION 1.02 COMPUTATION OF TIME PERIODS.
----------------------------
In this Agreement in the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each mean "to but excluding".
SECTION 1.03 ACCOUNTING TERMS.
-----------------
All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles consistent
with those applied in the preparation of the financial statements referred to in
Section 5.01(f) ("GAAP").
----
SECTION 1.04 OTHER DEFINITIONAL PROVISIONS.
------------------------------
References to Articles, Sections, subsections, Schedules and Exhibits
shall be to Articles, Sections, subsections, Schedules and Exhibits,
respectively, of this Agreement unless otherwise specified. The term
"including" means including without limitation.
ARTICLE II.
AMOUNTS AND TERMS OF THE LOANS
SECTION 2.01 THE LOANS.
---------
(a) THE TERM A LOANS. Each Term A Lender severally agrees, on
----------------
the terms and conditions hereinafter set forth, to make a single term A
loan (each, a "TERM A LOAN" and, collectively, the "TERM A LOANS") to the
----------- ------------
Borrower on the Closing Date in an amount not to exceed such Lender's total
Term A Commitment on such Business Day. Amounts borrowed under this
Section 2.01(a) and repaid or prepaid may not be reborrowed.
(b) THE TERM B LOANS. Each Term B Lender severally agrees, on
----------------
the terms and conditions hereinafter set forth, to make a single term B
loan (each, a "TERM B LOAN" and collectively, the "TERM B LOANS") to
----------- ------------
the-Borrower on the Closing Date in an amount not to exceed such Lender's
total Term B Commitment on such Business Day. Amounts borrowed under this
Section 2.01(b) and repaid or prepaid may not be reborrowed.
(c) REVOLVING LOANS. Each Revolving Lender severally agrees, on
---------------
the terms and conditions hereinafter set forth, to make loans (each, a
"REVOLVING LOAN" and,
--------------
-49-
<PAGE>
collectively, the "REVOLVING LOANS") to the Borrower from time to time on
---------------
any Business Day during the period from the Closing Date until the
Revolving Commitment Termination Date by way of Prime Rate Loans, Base Rate
Loans, Eurodollar Rate Loans and BA Loans in an amount for each such
Revolving Loan not to exceed the lesser of (i) such Lender's Unused
Revolving Commitment on such Business Day (after giving effect to any
repayment of Swing Line Loans made or to be made with the proceeds thereof
pursuant to a designation therefor set forth by the Borrower in a Notice of
Borrowing for such Borrowing or pursuant to a Notice of Borrowing given by
the Administrative Agent in accordance with Section 2.02(f)) and (ii) such
Lender's Revolving Pro Rata Share of the remainder of (x) the Borrowing
Base Amount as of such date minus (y) the sum of (A) the then outstanding
-----
Letter of Credit Obligations and (B) the then outstanding Swing Line Loans;
provided, however, that (1) the foregoing clause (ii) shall not limit any
-------- -------
Lender's obligations under Section 2.02(f), and (2) except with respect to
a Borrowing the proceeds of which will be applied to repay outstanding
Swing Line Loans or reimburse Letter of Credit Drawings pursuant to a
designation therefor set forth by the Borrower in a Notice of Borrowing for
such Borrowing or pursuant to a Notice of Borrowing given by the
Administrative Agent pursuant to Section 2.02(f), the Borrower shall not
request, and no Lender shall be required to make Revolving Loans in respect
of, any Borrowing if after giving effect thereto the aggregate principal
amount of all outstanding Revolving Loans would exceed the remainder of (x)
the Borrowing Base Amount at such time minus (y) the sum of (A) the then
-----
outstanding Letter of Credit Obligations and (B) the greater of the
aggregate Swing Line Commitment in effect at such time and the aggregate
principal amount of all outstanding Swing Line Loans at such time. Each
Revolving Borrowing of Eurodollar Rate Loans shall be in an aggregate
amount of US$1,000,000 or an integral multiple of US$100,000 in excess
thereof and each Revolving Borrowing of Base Rate Loans shall be in an
aggregate amount of US$500,000 or an integral multiple of US$100,000 in
excess thereof. Each Revolving Borrowing of BA Loans shall be in an
aggregate amount of CDN$1,000,000 or an integral multiple of CDN$100,000 in
excess thereof and each Revolving Borrowing of Prime Rate Loans shall be in
an aggregate amount of CDN$500,000 or an integral multiple of CDN$100,000
in excess thereof. Each Revolving Borrowing shall consist of Revolving
Loans made by the Revolving Lenders ratably according to their respective
Revolving Commitments. Within the foregoing limits, the Borrower may borrow
under this Section 2.01(c), prepay pursuant to Section 2.04 and reborrow
under this Section 2.01(c).
(d) SWING LINE LOANS. The Swing Line Lender agrees, on the terms and
----------------
conditions hereinafter set forth, to make loans (each, a "SWING LINE LOAN"
---------------
and, collectively, the "SWING LINE LOANS") to the Borrower from time to
----------------
time on any Business Day during the period from the Closing Date until the
Revolving Commitment Termination Date in an amount not to exceed the Unused
Swing Line Commitment on such Business Day; provided, however, that the
-------- -------
Swing Line Lender shall not make any Swing Line Loans if, after giving
effect to such Swing Line Loans, the aggregate
-50-
<PAGE>
principal amount of all outstanding Swing Line Loans would exceed the
remainder of (x) the Borrowing Base Amount then in effect minus (y) the sum
-----
of (A) the aggregate amount of the Letter of Credit Obligations then
outstanding, and (B) the aggregate principal amount of the Revolving Loans
then outstanding. Each Swing Line Borrowing shall consist of Prime Rate
Loans or Base Rate Loans, shall be in an amount equal to CDN$500,000 or an
integral multiple of CDN$100,000 in excess thereof if consisting of Prime
Rate Loans, or in an amount equal to US$500,000 or an integral multiple of
US$100,000 in excess thereof if consisting of Base Rate Loans (or such
other amount or integral multiple as may be agreed between the Swing Line
Lender, the Administrative Agent and the Borrower), and shall consist of
Swing Line Loans made by the Swing Line Lender. Immediately upon the making
of each Swing Line Loan by the Swing Line Lender, the Swing Line Lender
shall be deemed to have sold and transferred to each Revolving Lender, and
each Revolving Lender shall be deemed to have purchased and received from
the Swing Line Lender, in each case irrevocably and without any further
action by any party, an undivided interest and participation in such Swing
Line Loan and the Obligations of the Borrower under this Agreement in
respect thereof in an amount equal to such Lender's Revolving Pro Rata
Share of such Swing Line Loan, provided, however, that (i) no Lender shall
-------- -------
be required to fund its participation in any such Swing Line Loan until
demand therefor is made by the Administrative Agent pursuant to Section
2.02(f)(ii) hereof, and (ii) no Lender shall be entitled to share in any
payments of principal or interest in respect of its participation in any
such Swing Line Loan except to the extent set forth in Section 2.02(f)(ii)
hereof with respect to any such participation which has been funded by such
Lender as provided therein. Within the limits of the Unused Swing Line
Commitment in effect from time to time, the Borrower may borrow under this
Section 2.01(d), prepay pursuant to Section 2.04 and reborrow under this
Section 2.01(d).
SECTION 2.02 MAKING THE LOANS.
-----------------
(a) INITIAL BORROWINGS. The initial Borrowings hereunder shall
------------------
be made on the Closing Date and shall be made on notice received by the
Administrative Agent from the Borrower (pursuant to an irrevocable Notice
of Borrowing) not later than 11:00 a.m. (Toronto time) (or such later time
as the Administrative Agent may agree) on (i) the Business Day immediately
preceding the Closing Date in the case of the initial Borrowings of Prime
Rate Loans, Base Rate Loans and/or BA Loans and (ii) on the second Business
Day immediately preceding the Closing Date in the case of the initial
Borrowings of Eurodollar Rate Loans. Such Notice of Borrowing shall be
irrevocable upon receipt by the Administrative Agent. Each Appropriate
Lender shall, before 11:00 a.m. (Toronto time) on the Closing Date, make
available to the Administrative Agent such Lender's ratable share of such
Borrowings by depositing same day funds in the Administrative Agent's
Account.
-51-
<PAGE>
(b) SUBSEQUENT REVOLVING BORROWINGS. Each Revolving Borrowing
-------------------------------
occurring after the Closing Date shall be made on notice received by the
Administrative Agent from the Borrower (pursuant to an irrevocable Notice
of Borrowing) not later than 11:00 a.m. (Toronto time) (a) on the Business
Day prior to the date of such Borrowing if such Borrowing consists of Prime
Rate Loans or Base Rate Loans, (b) on the second Business Day prior to the
date of Borrowing if such Borrowing consists of BA Loans and (c) on the
third Business Day prior to the date of such Borrowing if such Borrowing
consists of Eurodollar Rate Loans. Each such Notice of Borrowing shall be
irrevocable upon receipt by the Administrative Agent and, in the case of
any Notice of Borrowing for Eurodollar Rate Loans or BA Loans, the Borrower
shall indemnify each Lender against any loss, cost or expense incurred by
such Lender as a result of any failure to fulfill on or before the date
specified by such Notice of Borrowing the applicable conditions set forth
in this Section 2.02 or Article IV, including, without limitation, any
loss, cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such Lender to fund the Loan to be
made by such Lender as a part of such Borrowing when such Loan, as a result
of such failure, is not made on such date.
(c) SWING LINE BORROWINGS. Each Swing Line Borrowing shall be made on
---------------------
notice received by the Administrative Agent from the Borrower (pursuant to
a Notice of Swing Line Borrowing) not later than 11:00 a.m. (Toronto time)
on the date of such Borrowing. Each such Notice of Swing Line Borrowing
shall be irrevocable upon receipt by the Administrative Agent.
(d) LOANS BY LENDERS. If the Administrative Agent receives a Notice
----------------
of Borrowing or a Notice of Swing Line Borrowing (or if the Administrative
Agent gives a Notice of Borrowing pursuant to Section 2.02(f)), the
Administrative Agent shall promptly on (1) the Business Day prior to the
date of such Borrowing if such Borrowing consists of Prime Rate Loans or
Base Rate Loans, (2) the second Business Day prior to the date of such
Borrowing if such Borrowing consists of BA Loans or (3) the third Business
Day prior to the date of such Borrowing if such Borrowing consists of
Eurodollar Rate Loans, give each Appropriate Lender notice of such Notice
of Borrowing or Notice of Swing Line Borrowing. Each Appropriate Lender
shall (i) before 11:00 a.m. (Toronto time) on the date of such Borrowing in
the case of any Revolving Borrowing to be made on such date, make available
to the Administrative Agent such Lender's ratable portion of such Borrowing
by depositing same day funds in the Administrative Agent's Account, or (ii)
before 2:00 p.m. (Toronto time) on the date of such Borrowing in the case
of a Swing Line Borrowing, make available to the Administrative Agent such
Borrowing by depositing same day funds in the Administrative Agent's
Account. Unless the Administrative Agent shall have received written
notice from a Revolving Lender prior to the date of any Revolving Borrowing
hereunder that such Lender will not make available to the Administrative
Agent such Lender's ratable portion of such Borrowing, the Administrative
Agent may assume that such Lender has made such ratable portion available
to the Administrative Agent on the date of such Borrowing in accordance
with
-52-
<PAGE>
the terms hereof and the Administrative Agent may, in reliance upon such
assumption, but shall not be required to, make available to or for the
account of the Borrower on such date a corresponding amount. If and to the
extent that such Lender shall not have so made such ratable portion
available to the Administrative Agent and the Administrative Agent makes
such ratable portion available to the Borrower, such Lender and the
Borrower, without prejudice to any rights or remedies that the Borrower may
have against such Lender, severally agree to repay to the Administrative
Agent forthwith on demand such corresponding amount together with interest
thereon, for each day from the date such amount is made available to or for
the account of the Borrower until the date such amount is repaid to the
Administrative Agent, at (A) in the case of the Borrower, the interest rate
applicable at the time to the Loans comprising such Borrowing, and (B) in
the case of such Lender, the Administrative Agent's cost of funds (the
determination of which by the Administrative Agent shall be conclusive and
binding for all purposes under this Agreement in each case, absent manifest
error). If such Lender shall pay to the Administrative Agent such amount,
such amount so paid shall constitute such Lender's Loan as part of the
relevant Borrowing for purposes of this Agreement and, to the extent that
the Borrower previously paid such amount to the Administrative Agent, the
Administrative Agent will refund to the Borrower such amount so paid (it
being understood that such amount so refunded shall accrue interest only
from the day on which such amount is refunded to the Borrower), but without
interest.
(e) DISBURSEMENT OF LOANS. Upon fulfillment of the applicable
---------------------
conditions set forth in Article IV (which fulfillment the Administrative
Agent may assume in the absence of actual knowledge, or notice received
from the Borrower or any Appropriate Lender, to the contrary), the
Administrative Agent will make funds for any Borrowing available to the
Borrower by crediting the Borrower's Account, subject to the Administrative
Agent's receipt of funds from the Lenders, and, provided that, the
-------- ----
Administrative Agent shall first make a portion of such funds equal to any
unreimbursed Letter of Credit Drawing under any Letter of Credit, and any
interest accrued and unpaid thereon to and as of such date, available to
the applicable Issuing Bank for reimbursement of such Letter of Credit
Drawing and payment of such interest.
(f) SETTLEMENT OF SWING LINE LOANS.
-------------------------------
(i) The Administrative Agent may, and upon request by the Swing
Line Lender the Administrative Agent shall, at any time and from time
to time, give to the Revolving Lenders and the Borrower, on behalf of
the Borrower, a Notice of Borrowing for a Borrowing of Revolving
Loans which are Prime Rate Loans or Base Rate Loans, in each case in
an amount equal to the aggregate amount of Swing Line Loans then
owing by the Borrower, and the proceeds of which are to be used to
prepay such Swing Line Loans on the date of such Borrowing. Upon
receipt of any such Notice of Borrowing, each Revolving Lender (other
than the Swing Line Lender) shall (subject to Section 2.02(f)(iv)),
-53-
<PAGE>
on or before the time specified by the Administrative Agent (which in
no event shall be earlier than 11:00 a.m. nor later than 2:00 p.m.
(Toronto time) on the Business Day following the date on which such
Notice of Borrowing is given), make available to the Administrative
Agent such Lender's Revolving Pro Rata Share of such Borrowing by
depositing same day funds in the Administrative Agent's Account.
Notwithstanding any contrary provision of this Agreement, (A) the
proceeds of any such Borrowing shall be distributed by the
Administrative Agent to the Swing Line Lender (subject to Section
2.02(f)(iv)) as a prepayment of all or a portion of the then
outstanding Swing Line Loans, and (B) the outstanding Swing Line
Loans of the Swing Line Lender, in each case in an amount equal to
the Swing Line Lender's Revolving Pro Rata Share of the aggregate
amount of the Swing Line Loans to be prepaid on such date, shall be
deemed to be prepaid with the proceeds of a Revolving Loan made by
the Swing Line Lender and such portion of the Swing Line Loans deemed
to be so prepaid shall no longer be outstanding as Swing Line Loans
but shall be outstanding as Revolving Loans made by the Swing Line
Lender.
(ii) In addition to the right of the Swing Line Lender to
require a Borrowing under Section 2.02(f)(i), the Swing Line Lender
may at any time and from time to time request (by notice to the
Administrative Agent and the Borrower) the Administrative Agent to,
and upon receipt of such request the Administrative Agent shall, make
demand on each Revolving Lender for payment of its participation in
each Swing Line Loan then outstanding, and upon receipt of any such
demand each Revolving Lender shall (subject to Section 2.02(f)(iv))
promptly fund such participation by paying to the Administrative
Agent, for the account of the Swing Line Lender (subject to Section
2.02(f)(iv)), the amount of such participation in same day funds.
With respect to each such participation in any Swing Line Loan which
is funded by any Lender, the Swing Line Lender shall promptly pay to
the Administrative Agent, and the Administrative Agent shall promptly
pay to such Lender, in the currency so received, an amount equal to
such Lender's ratable share of all payments (other than payments
pursuant to Section 2.04(c)(ix)) received by the Swing Line Lender in
respect of (A) the principal of such Swing Line Loan, and (B)
interest on such Swing Line Loan for the period from and after the
date on which such participation was funded. If any payment received
by any Swing Line Lender on account of any Swing Line Loan and
distributed to any Lender as a participant under the preceding
sentence is thereafter recovered from the Swing Line Lender in
connection with any bankruptcy or insolvency proceeding relating to
the Borrower or otherwise, each Lender that received such
distribution shall, upon demand by the Swing Line Lender through the
Administrative Agent, repay to the Swing Line Lender such Lender's
ratable share of the amount so recovered together with such Lender's
ratable share (according to the proportion of (1) the amount of such
Lender's required
-54-
<PAGE>
prepayment to (2) the total amount so recovered) of any interest or
other amount paid or payable by the Swing Line Lender in respect of
the total amount so recovered. The Borrower agrees that any Lender
purchasing a participation in any Swing Line Loan from the Swing Line
Lender hereunder may, to the fullest extent permitted by law,
exercise all its rights of payment with respect to such participation
as fully as if such Lender were the direct creditor of the Borrower
in the amount of such participation.
(iii) Anything contained herein to the contrary notwithstanding
(but subject to Section 2.02(f)(iv)), the obligation of each
Revolving Lender to make any Revolving Loan pursuant to Section
2.02(f)(i) or to fund its participation in any Swing Line Loans
pursuant to Section 2.02(f)(ii) shall be absolute and unconditional
and shall not be subject to any conditions set forth in Article IV
hereof or otherwise affected by any circumstance including, without
limitation, (A) any set-off, counterclaim, recoupment, defense or
other right which such Lender may have against the Swing Line Lender
or any Loan Party; (B) the occurrence or continuance of a Default or
Event of Default; (C) any adverse change in the business, condition
(financial or otherwise), operations, performance, properties or
prospects of any Loan Party; (D) any breach of any Loan Document by
the Borrower, any other Loan Party or any other Lender Party; or (E)
any other circumstance, happening or event whatsoever, whether or not
similar to any of the foregoing.
(iv) Notwithstanding Section 2.02(f)(iii), if at the time that
any Revolving Lender is required to make any Revolving Loan or fund
any participation pursuant to Section 2.02(f)(i) or 2.02(f)(ii), the
Borrower would not otherwise be entitled to obtain a Borrowing as a
result of the failure of any of the conditions set forth in Article
IV hereof, the obligation of each Revolving Lender to make any such
Revolving Loan or to fund any such participation with respect to any
Swing Line Loan owing to the Swing Line Lender shall be subject to
the condition that at least one of the following is true: (A) the
Swing Line Lender shall have believed in good faith that all
conditions under Article IV to the making of such Swing Line Loan
were satisfied at the time such Swing Line Loan was made, or (B) such
Lender shall have had actual knowledge, by receipt of the statements
required pursuant to Section 6.03 or otherwise, that any such
condition had not been satisfied and failed to notify the Swing Line
Lender and the Administrative Agent in writing that it had no
obligation to make Revolving Loans until such condition was satisfied
(which notice shall be effective as of the date of receipt by the
Swing Line Lender and the Administrative Agent), or (C) the
satisfaction of any such condition not satisfied shall have been
waived by the Required Lenders prior to or at the time such Swing
Line Loan was made. Anything contained in this Section 2.02(f) to the
contrary notwithstanding, the amount to be distributed by the
Administrative Agent to the Swing Line Lender
-55-
<PAGE>
under this Section 2.02(f) shall be reduced to the extent that any
Lender shall refuse to fund its portion of any Revolving Loan or
participation with respect to the Swing Line Lender as a result of
the failure of the conditions set forth above.
(v) The Borrower irrevocably authorizes (A) the Administrative
Agent to give any Notice of Borrowing pursuant to Section 2.02(f)(i)
(with a copy to the Borrower), (B) the Lenders to make the Revolving
Loans pursuant to such Notice of Borrowing, and (C) the
Administrative Agent to distribute the proceeds thereof as provided
herein.
(g) NATURE OF LENDERS' OBLIGATIONS. The failure of any Lender to make
------------------------------
the Loan to be made by it as part of any Borrowing shall not relieve any
other Lender of its obligation, if any, hereunder to make its Loan on the
date of such Borrowing, but no Lender shall be responsible for the failure
of any other Lender to make the Loan to be made by such other Lender on the
date of any Borrowing.
SECTION 2.03 SCHEDULED REPAYMENT.
--------------------
(a) TERM A LOANS. The Borrower shall repay to each Term A Lender
------------
(in accordance with the provisions of Section 2.09(a)) the aggregate
principal amount of all Term A Loans owing to such Lender in consecutive
quarterly installments according to the amortization schedule set forth
below (as the same may be adjusted for prepayments pursuant to Section
2.04) until such principal amount has been paid in full. Such installments
(other than the last installment owing hereunder with respect to the Term A
Loans, which shall be due and payable on the Term A Termination Date) shall
be due and payable on the last Business Day of each March, June, September
and December of each year (each, a "TERM A LOAN PAYMENT DATE"), commencing
------------------------
March 31, 2000, and each such installment payable to each Term A Lender
shall be in an amount equal to such Term A Lender's Term A Pro Rata Share
of the amount set forth below opposite the date on which such Term A Loan
Payment Date is stated to occur:
<TABLE>
<CAPTION>
TERM A LOANS
TERM A LOAN PAYMENT DATE QUARTERLY INSTALMENT
------------------------ --------------------
<S> <C>
March 2000 US$375,000
June 2000 375,000
September 2000 375,000
December 2000 375,000
March 2001 562,500
June 2001 562,500
September 2001 562,500
December 2001 562,500
March 2002 687,500
June 2002 687,500
September 2002 687,500
December 2002 687,500
</TABLE>
-56-
<PAGE>
<TABLE>
<S> <C>
March 2003 875,000
June 2003 875,000
September 2003 875,000
December 2003 875,000
</TABLE> TOTAL US$10,000,000
provided, however, that the last such instalment shall be in the amount
-------- -------
necessary to repay in full the aggregate unpaid principal amount of all
outstanding Term A Loans and shall, in any event, be due and payable on the
Term A Termination Date.
(b) TERM B LOANS. The Borrower shall repay to each Term B Lender (in
------------
accordance with the provisions of Section 2.09(a)) the aggregate principal
amount of all Term B Loans owing to such Lender in consecutive quarterly
installments according to the amortization schedule set forth below (as the
same may be adjusted for prepayments pursuant to Section 2.04) until such
principal amount has been paid in full. Such installments (other than the
last installment owing hereunder with respect to the Term B Loans, which
shall be due and payable on the Term B Termination Date) shall be due and
payable on the last Business Day of each March, June, September and
December of each year (each, a "TERM B LOAN PAYMENT DATE"), commencing
------------------------
March 31, 1999, and each such installment payable to each Term B Lender
shall be in an amount equal to such Term B Lender's Term B Pro Rata Share
of the amount set forth below opposite the date on which such Term B Loan
Payment Date is stated to occur:
<TABLE>
<CAPTION>
TERM B LOANS
TERM B LOAN PAYMENT DATE QUARTERLY INSTALMENT
------------------------ --------------------
<S> <C>
March 1999 US$100,000
June 1999 100,000
September 1999 100,000
December 1999 100,000
March 2000 100,000
June 2000 100,000
September 2000 100,000
December 2000 100,000
March 2001 100,000
June 2001 100,000
September 2001 100,000
December 2001 100,000
March 2002 100,000
June 2002 100,000
September 2002 100,000
December 2002 100,000
March 2003 100,000
June 2003 100,000
September 2003 100,000
December 2003 100,000
March 2004 100,000
</TABLE>
-57-
<PAGE>
<TABLE>
<CAPTION>
TERM B LOANS
TERM B LOAN PAYMENT DATE QUARTERLY INSTALMENT
------------------------ --------------------
<S> <C>
June 2004 100,000
September 2004 100,000
December 2004 9,400,000
March 2005 9,400,000
June 2005 9,400,000
September 2005 9,400,000
December 2005 US$40,000,000
TOTAL
</TABLE>
provided, however, that the last such instalment shall be in the amount
-------- -------
necessary to repay in full the aggregate unpaid principal amount of all
outstanding Term B Loans and shall, in any event, be due and payable on the
Term B Termination Date.
(c) REVOLVING LOANS. The Borrower shall repay to each Revolving Lender
---------------
(in accordance with the provisions of Section 2.09(a)) on the Revolving
Commitment Termination Date the aggregate principal amount of all Revolving
Loans owing to such Lender out standing on the Revolving Commitment Termination
Date.
(d) LETTER OF CREDIT DRAWINGS. The Borrower shall repay each Letter
-------------------------
of Credit Drawing as provided in Section 3.03.
(e) SWING LINE LOANS. The Borrower shall repay to the Swing Line
----------------
Lender (in accordance with the provisions of Section 2.09(a)) on the Revolving
Commitment Termination Date the aggregate principal amount of all Swing Line
Loans owing to such Lender outstanding on the Revolving Commitment Termination
Date.
SECTION 2.04 PREPAYMENTS; REDUCTION OF REVOLVING COMMITMENTS AND SWING LINE
--------------------------------------------------------------
COMMITMENT.
-----------
(a) OPTIONAL PREPAYMENTS. The Borrower may, upon prior notice
--------------------
to the Administrative Agent (which may be given by 11:00 a.m. (Toronto time) on
the date of prepayment in the case of prepayment of Swing Line Loans and which
shall be given at least one Business Day in advance in the case of prepayment of
Revolving Loans which consist of Prime Rate Loans or Base Rate Loans and three
Business Days in advance in the case of prepayment of any Revolving Loans which
are Eurodollar Rate Loans or any Term Loans of any Interest Type), stating the
proposed date and aggregate principal amount of the prepayment and the Type and
Interest Type of Loans to be prepaid (and if such notice is given the Borrower
shall), prepay in whole or in part the outstanding principal of Loans of such
Type and Interest Type, together with, in the case of any prepayment of
Eurodollar Rate Loans, interest thereon to the date of such prepayment on the
principal amounts prepaid (plus, in the case of prepayment of Eurodollar Rate
Loans prior to the end of the applicable Interest Period, any additional amount
for which the
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Borrower shall be obligated pursuant to Section 9.04(c)); provided,
--------
however, that each partial prepayment of Eurodollar Rate Loans shall be in
-------
an aggregate principal amount of US$1,000,000 or an integral multiple of
US$100,000 in excess thereof, and each partial prepayment of Base Rate
Loans or Prime Rate Loans shall be in an aggregate principal amount of
US$500,000 or an integral multiple of US$100,000 in excess thereof or
CDN$500,000 or an integral multiple of CDN$100,000 in excess thereof, as
applicable (it being understood that the amount of such prepayment shall be
rounded upwards to the nearest multiple of US$100,000 or CDN$100,000, as
applicable, after giving effect to the next sentence); and, provided
--------
further, that BA Loans may not be prepaid under this Section 2.04(a),
-------
provided however, the Borrower may pay to the Administrative Agent for the
-------- -------
accounts of the Appropriate Lenders, in same day funds, for deposit in a
Cash Collateral Account (over which the Administrative Agent shall have
sole and exclusive control and right of withdrawal) an amount of cash equal
to the amount of an issue of outstanding Bankers' Acceptances, which cash
shall be applied thereto on their maturity. So long as no Event of Default
has occurred that is continuing, the Administrative Agent, on behalf of the
Appropriate Lenders, shall pay to the Borrower interest on the cash so
deposited pursuant to this Section 2.04(a) at the Prime Rate in effect from
time to time minus 2.00% per annum. Notwithstanding anything to the
-----
contrary herein, an optional prepayment of Term Loans under this Section
2.04(a) may only be made if (i) a simultaneous optional prepayment of term
loans is made under the US Credit Agreement, and the aggregate amount of
such prepayments is such that the Applicable Canadian Facility Percentage
of such amount is equal to at least US$300,000 or the Equivalent Amount
thereof. Each optional prepayment of any Term Loans under this Section
2.04(a) shall be applied to the installments thereof in the following order
of priority:
(i) subject to clauses (ii) and (iii) below, to the Term
A Loans and Term B Loans to the full extent thereof on a pro rata
basis in direct order of maturity (and ratably among the Term A
Lenders and Term B Lenders, respectively, as applicable);
(ii) subject to clause (iii) below, where the optional
prepayment is made pursuant to an election described in Section
7.01(p), to the Term B Loans to the full extent thereof on a pro
rata basis in direct order of maturity; and
(iii) notwithstanding the foregoing clauses (i) and (ii),
so long as (and to the extent that) any Term A Loans are
outstanding, the Borrower may offer the Term B Lenders the option
to, and any Term B Lender may elect to, waive its ratable share
of any optional prepayment under Section 2.04(a). In the event
that any Term B Lender elects by 2:00 p.m. (Toronto time) on the
day prior to the date of prepayment to waive such right with
respect to an optional prepayment under Section 2.04(a)(i), 100%
of that Term B Lender's ratable share of such prepayment shall be
applied to the prepayment of Term A Loans ratably to the Term A
Lenders in direct order of maturity. In the event that any
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<PAGE>
Term B Lender elects by 2:00 p.m. (Toronto time) on the day prior
to the date of prepayment to waive such right with respect to an
optional prepayment under Section 2.04(a)(ii), 50% of that Term B
Lender's ratable share of such prepayment shall be applied to the
payment of Term A Loans ratably to the Term A Lenders in direct
order of maturity and the remaining 50% of such amount shall be
retained by the Borrower. If no Term A Loans are outstanding,
such option to offer and election to waive application of
prepayments to the Term B Loans shall not be available.
The Borrower shall deliver to the Administrative Agent an Officer's
Certificate demonstrating the calculation of the amount of the Net
Cash Proceeds that gave rise to the optional prepayment described in
Section 7.01(p) and describing the application thereof provided for in
Section 7.01(p)(i) concurrently with such optional prepayment.
(b) OPTIONAL REDUCTIONS. The Borrower shall have the right, upon
-------------------
at least five Business Days' notice to the Administrative Agent, to
terminate in whole or reduce in part the aggregate unused portion of the
Revolving Facility, with the corresponding termination in whole or ratable
reduction in part of the unused portions of the respective Revolving
Commitments of the Revolving Lenders; provided, however, that (i) each
-------- -------
partial reduction shall be in an amount of US$500,000 or any integral
multiple of US$100,000 in excess thereof, and (ii) the aggregate amount of
the Revolving Commitments shall not be reduced pursuant to this Section
2.04 to an amount less than the sum of (A) the aggregate principal amount
of all Revolving Loans then outstanding, plus (B) the aggregate amount of
all Letter of Credit Obligations then outstanding, plus (C) the aggregate
principal amount of all Swing Line Loans then outstanding.
(c) MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS.
-----------------------------------------------
(i) PREPAYMENTS AND REDUCTIONS FROM EXCESS CASH FLOW.
------------------------------------------------
Within the earlier of five days after delivery of the Annual
Financials pursuant to Section 6.03(d) and 95 days following the end
of each Fiscal Year, the Borrower shall prepay the Term Loans and/or
the Revolving Loans, and/or the Revolving Commitments shall be
permanently reduced (in each case, as and to the extent set forth in
Section 2.04(c)(xiii)), in an aggregate principal amount equal to the
product of (A) the Applicable Canadian Facility Percentage of the
amount of the total Excess Cash Flow of Panolam International and its
Subsidiaries for such Fiscal Year and (B) the prepayment percentage
set forth below opposite the applicable Consolidated Leverage Ratio as
of the end of such Fiscal Year as set forth in the Effective Quarterly
Compliance Certificate delivered pursuant to Section 6.03(d);
provided, however, if no Quarterly Compliance Certificate has been
-------- -------
delivered at the time required by Section 6.03(d), the Consolidated
Leverage Ratio shall be deemed to be greater than 3.50:1.00 for
purposes of this clause(i):
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EXCESS CASH FLOW
CONSOLIDATED LEVERAGE RATIO PREPAYMENT PERCENTAGE
--------------------------- ---------------------
**3.50:1.00 50%
**3.00:1.00*3.50:1.00 35%
*3.00:1.00 0%
/**/ Greater than equal to
/*/ Less than
(ii) PREPAYMENTS AND REDUCTIONS FROM ASSET SALE PROCEEDS.On
---------------------------------------------------
the date of receipt by the Borrower or any of its Subsidiaries of
any Net Cash Proceeds in respect of any asset sale (other than a
sale in accordance with Section 6.02(e)(i) or (ii), the Borrower
shall prepay the Term A Loans and/or the Revolving Loans, and/or
the Revolving Commitments shall be permanently reduced (in each
case, as and to the extent set forth in Section 2.04(c)(xiii)),
in an aggregate principal amount equal to the amount by which
such Net Cash Proceeds exceed the amount of any optional
prepayment of the Term B Loans made pursuant to an election
described in Section 7.01(p).
(iii) PREPAYMENTS AND REDUCTIONS FROM INSURANCE/
-----------------------------------------
CONDEMNATION PROCEEDS. On the date of receipt by the Borrower or
---------------------
any of its Subsidiaries of any Insurance/Condemnation Proceeds in
excess of (A) US$15,000,000 or the Equivalent Amount thereof,
with respect to any single occurrence or event (or any series of
related occurrences or events) other than amounts in respect of
equipment described on Schedule 2.04(c)(iii), or (B)
US$10,000,000 or the Equivalent Amount thereof with respect to
any single occurrence or event (or any series of related
occurrences or events) with respect to equipment described on
Schedule 2.04(c)(iii), the Borrower shall prepay the Term Loans
and/or the Revolving Loans, and/or the Revolving Commitments
shall be permanently reduced (in each case, as and to the extent
set forth in Section 2.04(c)(xiii)), in an aggregate principal
amount equal to the amount of any such Insurance/Condemnation
Proceeds.
(iv) PREPAYMENTS AND REDUCTIONS FROM DEBT SECURITIES
-----------------------------------------------
PROCEEDS. On the date of receipt by Holdings or any of its
--------
Subsidiaries of any Net Cash Proceeds from any sale or issuance
of debt Securities by Holdings or any of its Subsidiaries after
the Closing Date (excluding any intercompany Debt permitted
hereunder), the Borrower shall prepay the Term A Loans and/or the
Revolving Loans, and/or the Revolving Commitments shall be
permanently reduced (in each case, as and to the extent set forth
in Section 2.04(c)(xiii)), in an aggregate principal amount equal
to the amount by which the Applicable Canadian Facility
Percentage of the amount of such Net Cash Proceeds exceeds the
amount of any optional prepayment of the Term B Loans made
pursuant to an election described in Section 7.01(p);
provided,however, for purposes of this clause , Capital Leases
-------- -------
and purchase money Debt shall not be deemed to be debt
Securities.
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<PAGE>
(v) PREPAYMENTS AND REDUCTIONS FROM EQUITY SECURITIES
-------------------------------------------------
PROCEEDS. On the date of receipt by Holdings or any of its
--------
Subsidiaries of any Net Cash Proceeds (excluding proceeds from
the exercise of Holdings employee stock options permitted
hereunder, proceeds used to pay off the Domtar Note and up to
US$5,000,000 or the Equivalent Amount thereof in Capital Stock of
Holdings issued to sellers as Acquisition Consideration in
connection with Permitted Acquisitions and excluding the proceeds
of any intercompany Investment in Panolam International or any of
its Subsidiaries permitted hereunder) from any sale or issuance
of equity Securities by Holdings or any of its Subsidiaries after
the Closing Date, the Borrower shall prepay the Term A Loans
and/or the Revolving Loans, and/or the Revolving Commitments
shall be permanently reduced (in each case, as and to the extent
set forth in Section 2.04(c)(xiii)), in an aggregate principal
amount equal to the Applicable Canadian Facility Percentage of
the amount of such Net Cash Proceeds received; provided, however,
-------- -------
that (A) during any period in which the Effective Quarterly
Compliance Certificate delivered pursuant to Section 6.03(c) or ,
as applicable, indicates that the Applicable Leverage Ratio is
less than 3.0:1.0, the prepayment and/or reduction required shall
be 50% of the Applicable Canadian Facility Percentage of such Net
Cash Proceeds, (B) if no Quarterly Compliance Certificate has
been delivered at the time required by Section 6.03(c) or , as
applicable, the Consolidated Leverage Ratio shall be deemed to be
greater than 3.0:1.0 for purposes of this clause and (C) if, in
connection with and prior to the date of any such prepayment, the
Borrower shall deliver an Officer's Certificate demonstrating
that after giving effect to such prepayment the Applicable
Leverage Ratio would have been (and will as of the end of each of
the next three fiscal quarters be) reduced to less than 3.0:1.0,
then that portion of such prepayment that results in the
reduction of the Applicable Leverage Ratio to 3.0:1.0 shall be
paid in an amount equal to 100% of the Applicable Canadian
Facility Percentage of the Net Cash Proceeds and any remaining
portion of such Net Cash Proceeds shall be applied to such
prepayment in an amount equal to 50% of the Applicable Canadian
Facility Percentage of such Net Cash Proceeds; and, provided
--------
further, that the prepayment under this clause shall be reduced
-------
by the amount of any related optional prepayment of the Term B
Loans made pursuant to an election described in Section 7.01(p).
(vi) CONSTRAINED AMOUNTS. On the day immediately following
-------------------
the fifth anniversary of the Closing Date, the Borrower shall
prepay the Term B Loans in an amount equal to the aggregate of
all amounts which would, but for Section 2.04(c)(xiii)(A)(2),
have been required to have been prepaid during the five years
following the Closing Date unless Panolam International has
complied with Section 2.04(c)(xiii)(C) of the US Credit
Agreement.
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<PAGE>
(vii) EXCESS LOANS. The Borrower shall from time to time
------------
prepay first the Swing Line Loans and second the Revolving Loans
to the extent necessary so that the Total Utilization of
Revolving Commitments shall not at any time exceed (including by
reason of fluctuations in the exchange rate between Canadian
Dollars and US Dollars) either of the following: (A) the
Revolving Commitments then in effect or (B) the Borrowing Base
Amount then in effect. If, at any time, the then outstanding
aggregate amount of all Swing Line Loans shall exceed (including
by reason of fluctuations in the exchange rate between Canadian
Dollars and US Dollars) either (i) the Swing Line Commitment, or
(ii) the aggregate amount of the Revolving Commitments of the
Lenders minus the sum of (A) the Letter of Credit Usage at such
time, and (B) the aggregate principal amount of the Revolving
Loans then outstanding, the Borrower shall thereupon prepay, for
the account of the Swing Line Lender, the outstanding principal
amount of Swing Line Loans in an aggregate amount equal to such
excess. If any excess remains after the prepayments required by
this Section 2.04(c)(vii), the Borrower shall pay to the
Administrative Agent for the accounts of the Appropriate Lenders,
in same day funds, for deposit to a Cash Collateral Account (over
which the Administrative Agent shall have sole and exclusive
control, including right of withdrawal) an amount equal to such
excess amount.
(viii) CALCULATIONS; ADDITIONAL PREPAYMENTS AND REDUCTIONS.
---------------------------------------------------
Concurrently with any prepayment of the Term Loans, Revolving
Loans and/or reduction of the Revolving Commitments pursuant to
clauses through above, the Borrower shall deliver to the
Administrative Agent an Officers' Certificate demonstrating the
calculation in reasonable detail of the amount of the excess
Loans, Net Cash Proceeds, Insurance/Condemnation Proceeds or
Excess Cash Flow, as applicable, that gave rise to such
prepayment and/or reduction and specifying the application
thereof (in accordance with Section 2.04(c)(xiii)) to the
prepayment of the Term Loans and/or any prepayment of the
Revolving Loans (to the extent Revolving Loans will be repaid)
and/or the reduction of the Revolving Commitments. In the event
that the Borrower shall subsequently determine that the actual
amount of such excess Loans, Net Cash Proceeds,
Insurance/Condemnation Proceeds or Excess Cash Flow, as
applicable, was greater than the amount set forth in such
Officers' Certificate, the Borrower shall promptly make an
additional prepayment of the Term Loans and/or the Revolving
Loans and/or, if applicable, the Revolving Commitments shall be
permanently reduced (in each case, as and to the extent set forth
in Section 2.04(c)(xiii)), in an amount equal to the amount of
such excess, and the Borrower shall concurrently therewith
deliver to the Administrative Agent an Officers' Certificate
demonstrating the derivation of the additional amounts resulting
in such excess and specifying the application thereof as provided
above.
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<PAGE>
(ix) INCOMPLETE SETTLEMENT. If any Lender shall for any
---------------------
reason fail to pay any amount payable by it (including the
funding of any participation in any Swing Line Loans), or fail to
make any Revolving Loan to be made by it, pursuant to Section
2.02(f), the Borrower shall, on demand by the Administrative
Agent, prepay the Swing Line Loans then outstanding in an amount
equal to such amount.
(x) REDUCTION OF SWING LINE COMMITMENTS. The Swing Line
-----------------------------------
Commitment shall be (i) terminated automatically and
simultaneously upon any termination in whole of the Revolving
Commitments, and (ii) reduced ratably in an aggregate amount
equal to the amount by which, as a result of any partial
reduction of the Revolving Commitments of the Lenders, the
aggregate Revolving Commitments of the Lenders are reduced below
the Swing Line Sublimit.
(xi) LETTER OF CREDIT CASH COLLATERAL. If, at any time, the
--------------------------------
Letter of Credit Usage exceeds the Letter of Credit Sublimit in
effect at such time, the Borrower shall immediately pay to the
Administrative Agent, in same day funds, for deposit in the
Letter of Credit Cash Collateral Account an amount sufficient to
cause the aggregate amount on deposit in such account to equal
the amount of such excess.
(xii) REDUCTION OF LETTER OF CREDIT SUBFACILITY. The
-----------------------------------------
Letter of Credit Sublimit shall be permanently reduced from time
to time on the date of each reduction in the Revolving Facility
by the amount, if any, by which the amount of the Letter of
Credit Sublimit exceeds the Revolving Facility after giving
effect to such reduction of the Revolving Facility.
(xiii) APPLICATION OF MANDATORY PREPAYMENTS.
------------------------------------
(A) Except as otherwise specifically set forth in
clauses , and above, all prepayments under this Section 2.04(c)
shall be applied as follows:
(1) subject to clause 3, each prepayment under
this Section 2.04(c) shall be applied first to the prepayment of
the Term A Loans and Term B Loans to the full extent thereof on a
pro rata basis in direct order of maturity (and pro rata among
the Term A Lenders and Term B Lenders, respectively, as
applicable) where the applicable clause of this Section 2.04(c)
does not limit the prepayment to the Term A Loans, and, where the
applicable clause of this Section 2.04(c) does limit the
prepayment to the Term A Loans, to the prepayment of the Term A
Loans to the full extent
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<PAGE>
thereof on a pro rata basis in direct order of maturity and
second, to prepay outstanding Revolving Loans and permanently
------
reduce the Revolving Commitments (it being understood that the
Revolving Commitments shall be reduced by the full amount of any
such required prepayment whether or not any Revolving Loans are
then outstanding);
(2) notwithstanding the foregoing clause 1, no
prepayment under Section 2.04(c)(i) or Section 2.04(c)(iii) shall
be applied to the Term B Loans to the extent that such
application would result in the prepayment of more than 25% of
the original principal amount of the Term B Loans on or before
the fifth anniversary of the Closing Date, taking into account
any prior prepayments and the scheduled repayments of the Term B
Loans in Section 2.03(b); and
(3) notwithstanding the foregoing clauses 1 and
2, so long as (and to the extent that) any Term A Loans are
outstanding, the Borrower may offer the Term B Lenders the option
to, and any Term B Lender may elect to, waive its ratable share
of any prepayment under this Section 2.04(c). In the event that
any Term B Lender elects by 2:00 p.m. (Toronto time) on the day
prior to the date of prepayment to waive such right with respect
to any such prepayment under this Section 2.04(c), 50% of that
Term B Lender's ratable share of such prepayment shall be applied
to the prepayment of Term A Loans ratably to the Term A Lenders
in direct order of maturity, and the remaining 50% of such amount
shall be retained by the Borrower. If no Term A Loans are
outstanding, such option to offer and election to waive
prepayments shall not be available.
(B) Considering Term A Loans, Term B Loans and Revolving Loans
being paid separately, any prepayment thereof shall be applied (1), as
between Base Rate Loans and Eurodollar Rate Loans, first to Base Rate
Loans to the full extent thereof before application to Eurodollar Rate
Loans, in each case in a manner that minimizes the amount of any
payments required to be made by the Borrower pursuant to Section
9.04(c) and (2) as between Prime Rate Loans and BA Loans, first to
Prime Rate Loans to the full extent thereof before application to BA
Loans, in each case in a manner that minimizes the amount of any
payments required to be made by the Borrower pursuant to Section
9.04(c). If a Contract Period in respect of a BA Loan to which a
prepayment is to be applied has not expired, the Borrower shall pay to
the Administrative Agent for the accounts of the Appropriate Lenders,
in
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<PAGE>
same day funds, for deposit to a Cash Collateral Account (over
which the Administrative Agent shall have sole and exclusive
control, including right of withdrawal) an amount equal to the
required prepayment to secure the Borrower's obligations in
respect of such BA Loan until the expiry of the Contract Period
therefor upon which such cash collateral shall be applied to the
repayment of such BA Loan.
(d) INTEREST PAYABLE ON AMOUNTS PREPAID. All prepayments of
----------------------------------
Eurodollar Rate Loans under this Section 2.04 shall be made together with
accrued interest to the date of such prepayment on the principal amount
prepaid.
SECTION 2.05 INTEREST.
--------
The Borrower shall pay interest on the unpaid principal amount of
each Loan from the date of such Loan until such principal is paid in full at the
applicable rate set forth below.
(a) INTEREST ON BASE RATE LOANS. Except to the extent that the
---------------------------
Borrower shall elect to pay interest on all or any part of any Loan made or
to be made to the Borrower in US Dollars under Section 2.01 for any
Interest Period pursuant to subsections and of this Section 2.05, the
Borrower shall pay interest on the unpaid principal amount of each Loan
made in US Dollars, from the date of such Loan until such principal amount
is paid in full, (i) payable quarterly in arrears on the last Business Day
of each March, June, September and December, commencing March 31, 1999, and
(ii) (A) with respect to Revolving Loans and Swing Line Loans, on the
Revolving Commitment Termination Date, (B) with respect to Term A Loans, on
the Term A Termination Date and (C) with respect to Term B Loans, on the
Term B Termination Date, in each case at a fluctuating interest rate per
annum equal to the sum of the Base Rate in effect from time to time plus
----
the Applicable Base Rate Margin for such Type of Loan in effect from time
to time.
(b) INTEREST PERIODS FOR EURODOLLAR RATE LOANS. The Borrower
------------------------------------------
may, pursuant to Section 2.05(c), elect to have the interest on the
principal amount of all or any portion of any Loans made or to be made to
the Borrower in US Dollars under Section 2.01, in each case ratably
according to the respective outstanding principal amounts of Loans of the
same Type owing to each Lender (each such principal amount owing to a
Lender as to which such election has been made being a "EURODOLLAR RATE
LOAN" owing to such Lender) determined and payable for a specified period
(an "INTEREST PERIOD" for such Eurodollar Rate Loan) in accordance with
Section 2.05(c); provided, however, that the Borrower may not have more
than seven Eurodollar Rate Loans owing to any Lender outstanding at any one
time. Each Interest Period shall be one, two, three, or six months, at the
Borrower's election pursuant to Section 2.05(c); provided, however, that:
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(i) the first day of an Interest Period for any Eurodollar
Rate Loan shall be either the last day of any then current
Interest Period for such Loan or, if there shall be no then
current Interest Period for such Loan, any Business Day;
(ii) the Borrower may not select any Interest Period that
ends after any principal repayment installment date unless, after
giving effect to such selection, the aggregate principal amount
of Base Rate Loans and of Eurodollar Rate Loans having Interest
Periods that end on or prior to such principal repayment
installment date shall be at least equal to the aggregate
principal amount of Loans due and payable on or prior to such
date;
(iii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day
of such Interest Period shall be extended to occur on the next
succeeding Business Day; provided, however, that if such
-------- -------
extension would cause the last day of such Interest Period to
occur in the next following month, the last day of such Interest
Period shall occur on the next preceding Business Day;
(iv) whenever the first day of any Interest Period occurs
on a day of the month for which there is no numerically
corresponding day in the calendar month that succeeds such
initial calendar month by the number of months equal to the
number of months in such Interest Period, such Interest Period
shall end on the last Business Day of such succeeding calendar
month; and
(v) for any Interest Period of six months, the Borrower
shall pay interest on the three-month anniversary and at
maturity.
(c) INTEREST ON EURODOLLAR RATE LOANS. The Borrower may from time to
---------------------------------
time, on the condition that no Default or Event of Default has occurred and
is continuing, and subject to the provisions of Sections 2.05(b) and
2.05(f), elect to pay interest on all or any portion of any Loans in US
Dollars of the same Type during any Interest Period therefor at a rate per
annum equal to the sum of the Eurodollar Rate for such Interest Period for
such Loans plus the Applicable Eurodollar Rate Margin in effect from time
----
to time, in a Notice of Borrowing or Notice of Conversion/Continuation,
specifying the Type and amount of the Loans as to which such election is
made (which amount shall aggregate at least US$1,000,000 or any integral
multiple of US$100,000 in excess thereof) and the first day and duration of
such Interest Period, which notice shall be received by the Administrative
Agent before 11:00 a.m. (Toronto time) three Business Days prior to the
first day of such Interest Period. If the Borrower has made such election
for Eurodollar Rate Loans for any Interest Period, the Borrower shall pay
interest on the unpaid principal amount of such Eurodollar Rate Loans
during such Interest Period, payable in arrears on the last Business Day of
such Interest Period and, in the case of any Interest Period which is
longer than three months, on each three month
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<PAGE>
anniversary of the first day of such Interest Period, in each case at a
rate equal to the sum of the Eurodollar Rate for such Interest Period for
such Eurodollar Rate Loans plus the Applicable Eurodollar Rate Margin for
such Type of Loan in effect from time to time during such Interest Period.
On the last day of each Interest Period for any Eurodollar Rate Loan, the
unpaid principal balance thereof shall, subject to Section 2.05(f),
automatically become and bear interest as a Eurodollar Rate Loan with an
Interest Period of one month, except to the extent that the Borrower has
elected in a Notice of Conversion/Continuation to pay interest on all or
any portion of such amount for a new Interest Period commencing on such day
in accordance with this Section 2.05(c) or to convert such amount to a Base
Rate Loan. Each notice by the Borrower under this Section 2.05(c) shall be
irrevocable upon receipt by the Administrative Agent, and the Borrower
shall indemnify each Lender against any loss, cost or expense incurred by
such Lender as a result of any failure to fulfill on or before the date
specified by such Notice of Borrowing or Notice of Conversion/Continuation,
the applicable conditions set forth in this Section 2.05(c) or Article IV,
including, without limitation, any loss, cost or expense incurred by reason
of the liquidation or reemployment of deposits or other funds acquired by
such Lender to fund any such Eurodollar Rate Loan when such Eurodollar Rate
Loan, as a result of such failure, is not made or does not become
effective.
(d) INTEREST ON PRIME RATE LOANS. Except to the extent that the
--- ----------------------------
Borrower shall elect to borrow Revolving Loans in Canadian Dollars under
Section 2.01 pursuant to Section 2.06, the Borrower shall pay interest on
the unpaid principal amount of each Loan made in Canadian Dollars, from the
date of such Loan until such principal amount is paid in full, (i)
quarterly in arrears on the last Business Day of each March, June,
September and December, commencing March 31, 1999, and (ii) on the
Revolving Commitment Termination Date, in each case at a fluctuating
interest rate per annum equal to the sum of the Prime Rate in effect from
time to time plus the Applicable Prime Rate Margin in effect from time to
----
time.
(e) INTEREST ON OVERDUE AMOUNTS. Upon a default in the payment of
---------------------------
interest or any other amount (other than principal) due under this
Agreement or any of the other Loan Documents to which the Borrower is a
party, the Borrower shall pay interest on such overdue amount, both before
and after judgment, at a rate per annum equal to (1) the rate of interest
payable under this Section 2.05 on the principal amount to which such
overdue interest relates, in the case of overdue interest, and (2) (a) the
Prime Rate plus the Applicable Prime Rate Margin in effect from time to
----
time plus 2.00% per annum, in the case of all such other overdue amounts
----
denominated in Canadian Dollars, and (b) the Base Rate plus the Applicable
----
Base Rate Margin in effect from time to time in respect of Term B Loans
that are Base Rate Loans plus 2.00% per annum, in the case of all such
----
other overdue amounts denominated in US Dollars (which overdue amounts, for
greater certainty, shall not include overdue principal or interest in any
case to which this subsection (2) is applicable), in each case, calculated
on a daily basis from the date such amount becomes overdue for so long as
such amount remains overdue. Such interest
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shall be payable at the dates set forth herein for the payment of interest
and upon demand by the Administrative Agent.
(f) SUSPENSION OF EURODOLLAR RATE LOANS.
-----------------------------------
(i) ILLEGALITY. Notwithstanding any other provision of
----------
this Agreement, if the introduction of or any change in or in the
interpretation of any law or regulation shall make it unlawful, or any
central bank or other governmental authority shall assert that it is
unlawful, for any Lender to perform its obligations hereunder to make
Eurodollar Rate Loans or to continue to fund or maintain Eurodollar
Rate Loans hereunder, then, on notice thereof and demand therefor by
such Lender to the Borrower through the Administrative Agent, (i) each
Eurodollar Rate Loan under each Facility under which such Lender has
any outstanding Loans will automatically, upon such demand, Convert
into a Base Rate Loan and (ii) the obligation of the Appropriate
Lenders to make, or to Convert Loans into, Eurodollar Rate Loans shall
be suspended until the Administrative Agent shall notify the Borrower
that such Lender has determined that the circumstances causing such
suspension no longer exist.
(ii) OTHER CIRCUMSTANCES. If, with respect to any
-------------------
Eurodollar Rate Loans of any Type, (A) the Administrative Agent shall
determine in good faith (which determination shall be conclusive) that
the Eurodollar Rate cannot be determined in accordance with the
definition thereof, or (B) Lenders owed or to be owed at least 51% of
the then aggregate unpaid principal amount thereof notify the
Administrative Agent that the Eurodollar Rate for any Interest Period
for such Loans will not adequately reflect the cost to such Lenders of
making, funding or maintaining their Eurodollar Rate Loans for such
Interest Period, the Administrative Agent shall forthwith so notify
the Borrower and the Appropriate Lenders, whereupon (i) each such
Eurodollar Rate Loan will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Base Rate Loan and
(ii) the obligation of the Appropriate Lenders to make, or to Convert
Loans into, Eurodollar Rate Loans shall be suspended until the
Administrative Agent shall notify the Borrower that such Lenders have
determined that the circumstances causing such suspension no longer
exist.
(iii) SUSPENSION ON EVENT OF DEFAULT. Upon the occurrence
------------------------------
and during the continuance of any Event of Default, (i) each
Eurodollar Rate Loan will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Base Rate Loan and
(ii) the obligation of the Lenders to make, or to Convert Loans into,
Eurodollar Rate Loans shall be suspended.
(iv) LENDERS' OBLIGATION TO NOTIFY ADMINISTRATIVE AGENT. If
--------------------------------------------------
any Lender shall give notice to the Administrative Agent under
Section 2.05(f)(i) or
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and such Lender shall thereafter determine that the circumstances
causing such notice no longer exist, such Lender shall promptly give
written notice thereof to the Administrative Agent, and the
Administrative Agent shall thereafter give notice thereof to the
Borrower and the other Lenders.
(g) INTEREST ACT. For purposes of disclosure pursuant to the Interest
------------
Act (Canada), the annual rates of interest or fees, to which the rates of
interest or fees provided in this Agreement and the other Loan Documents,
and stated herein or therein, as applicable, to be computed on the basis of
a 360 or 365 day year are equivalent, are the rates so determined
multiplied by the actual number of days in the applicable calendar year and
divided by 360 or 365, respectively.
(h) LIMIT ON RATE OF INTEREST. If any provision of this Agreement or
-------------------------
any of the other Loan Documents would obligate the Borrower to make any
payment of interest or other amount payable to any Lender in an amount or
calculated at a rate which would be prohibited by law or would result in a
receipt by that Lender of interest at a criminal rate (as such terms are
construed under the Criminal Code (Canada)) then, notwithstanding such
provision, such amount or rate shall be deemed to have been adjusted with
retroactive effect to the maximum amount or rate of interest, as the case
may be, as would not be so prohibited by law or so result in a receipt by
that Lender of interest at a criminal rate, such adjustment to be effected,
to the extent necessary, as follows: (1) firstly, by reducing the amount or
rate of interest required to be paid to the affected Lender under Section
2.05 or 2.06(c); and (2) thereafter, by reducing any fees, commissions,
premiums and other amounts required to be paid to the affected Lender which
would constitute interest for purposes of Section 347 of the Criminal Code
(Canada). Notwithstanding the foregoing, and after giving effect to all
adjustments contemplated thereby, if any Lender shall have received an
amount in excess of the maximum permitted by that section of the Criminal
Code (Canada), then the Borrower shall be entitled, by notice in writing to
the affected Lender, to obtain reimbursement from that Lender in an amount
equal to such excess, and pending such reimbursement, such amount shall be
deemed to be an amount payable by that Lender to the Borrower. Any amount
or rate of interest referred to in this Section 2.05(h) shall be determined
in accordance with generally accepted actuarial practices and principles as
an effective annual rate of interest over the term that any Loan remains
outstanding on the assumption that any charges, fees or expenses that fall
within the meaning of "interest" (as defined in the Criminal Code (Canada))
shall, if they relate to a specific period of time, be pro-rated over that
period of time and otherwise be pro-rated over the period from the Closing
Date to the date on which all of the obligations in respect of the
Revolving Facility, the Term A Loans or the Term B Loans to which any such
charges, fees or expenses relate and, in the event of a dispute, a
certificate of a Fellow of the Canadian Institute of Actuaries appointed by
the Administrative Agent shall be conclusive, absent manifest error, for
the purposes of such determination.
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SECTION 2.06 BA LOANS.
--------
(a) BANKERS' ACCEPTANCES. The Borrower may, from time to time, on
--------------------
the condition that no Default or Event of Default has occurred and is
continuing, request Revolving Loans consisting of BA Loans or convert
Revolving Borrowings consisting of Prime Rate Loans into Revolving
Borrowings consisting of BA Loans in a Notice of Borrowing or Notice of
Conversion/Continuation, as applicable, specifying the amount of the Loans
as to which such request is made (which amount shall aggregate at least
CDN$1,000,000 or any integral multiple of CDN$100,000 in excess thereof)
and the first day and duration of the Contract Period applicable thereto,
which notice shall be received by the Administrative Agent before 11:00
a.m. (Toronto Time) on the second Business Day prior to the first day of
such Contract Period. The obligations of the Revolving Lenders to make
Revolving Borrowings consisting of BA Loans shall in each case be subject
to availability thereof.
(b) DISCOUNT RATE. On each day on which Bankers' Acceptances are
-------------
to be accepted and purchased, the Administrative Agent shall advise the
Borrower as to the Administrative Agent's determination of the applicable
Discount Rate for the Bankers' Acceptances.
(c) PURCHASE. Upon acceptance of a Bankers' Acceptance by a
--------
Lender, the Borrower shall sell and that Lender shall purchase the Bankers'
Acceptance at the applicable Discount Rate. The Lender shall provide the
Administrative Agent for the account of the Borrower the Discount Proceeds
less the fee payable by the Borrower with respect to the Bankers'
Acceptance pursuant to Section 2.07(c).
(d) SALE. Each Lender may from time to time hold, sell, rediscount
----
or otherwise dispose of any or all Bankers' Acceptances accepted
and purchased by it.
(e) LENDERS TO SIGN BANKERS' ACCEPTANCES ON BEHALF OF THE
-----------------------------------------------------
BORROWER. In order to facilitate the acceptance of Bankers'
--------
Acceptances under this Agreement, the Borrower hereby appoints each Lender,
acting by an employee of the Lender with the responsibility for managing
the Borrower's account, attorney of the Borrower to sign and endorse in
handwriting or by facsimile or mechanical signature, and to complete,
Bankers' Acceptances (including filling in the amount, date and maturity)
for and on behalf of and in the name of the Borrower, as drawer. Neither
the Administrative Agent nor any Lender nor any of their respective
directors, officers, employees or representatives shall be responsible or
liable for any action taken or omitted to be taken by it or them under this
Section except if such action or omission constitutes gross negligence or
willful misconduct. The Borrower hereby agrees to indemnify each Lender and
its respective directors, officers, employees and representatives and to
hold it and them harmless from and against any loss, liability, expense or
claim of any kind or nature whatsoever incurred by any of them as a result
of any action or inaction in any way
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<PAGE>
relating to or arising out of the power of attorney granted hereby to such
Lender; provided that, this indemnity shall not apply to any loss,
-------- ----
liability, expense or claim which results from the gross negligence or
willful misconduct of such Lender or any of its directors, officers,
employees or representatives. A power of attorney granted pursuant to this
Section 2.06(e) may be revoked at any time upon not less than five Business
Days' written notice served upon a Lender at its address set out in
Schedule I hereto or the Assignment and Acceptance pursuant to which it
became a Lender, as applicable, provided that, no such revocation shall
-------- ----
reduce, limit or otherwise affect the obligations of the Borrower in
respect of any Bankers' Acceptance executed, completed, endorsed,
discounted and/or delivered in accordance herewith prior to the time at
which such revocation becomes effective.
(f) EXECUTION. Notwithstanding that any Person whose signature
---------
appears on any Bankers' Acceptance may no longer be an authorized signatory
for the Borrower at the time of issuance of a Bankers' Acceptance, that
signature shall nevertheless be valid and sufficient for all purposes as if
the authority had remained in force at the time of issuance and any
Bankers' Acceptance so signed shall be binding on the Borrower.
(g) ISSUANCE. The Administrative Agent, promptly following receipt
--------
of a Notice of Borrowing or Notice of Conversion/Continuation, shall advise
the Lenders of the notice and shall advise each Lender of the face amount
of the Bankers' Acceptance to be accepted and purchased by it and the
applicable Contract Period (which shall be identical for all Lenders). The
aggregate face amount of Bankers' Acceptance to be accepted and purchased
by a Lender shall be determined by the Administrative Agent by reference to
that Lender's rateable portion of the issue of Bankers' Acceptances, except
that, if the face amount of a Bankers' Acceptance which would otherwise be
accepted by a Lender would not be CDN$100,000, or a whole multiple thereof,
the face amount shall be increased or reduced by the Administrative Agent
in its sole discretion to CDN$100,000, or the nearest whole multiple of
that amount, as appropriate.
(h) CONTINUATION. At or before 11:00 a.m. (Toronto time) on the
-------------
second Business Day before the maturity date of any Bankers' Acceptances,
the Borrower shall give to the Administrative Agent a Notice of
Conversion/Continuation if the Borrower intends to issue Bankers'
Acceptances on the maturity date to provide for the payment of the maturing
Bankers' Acceptances. Otherwise, the Borrower shall provide payment to the
Administrative Agent on behalf of the Lenders of an amount equal to the
aggregate face amount of all Bankers' Acceptances of the same issue on
their maturity date. If the Borrower fails to make the payment, the
Borrower's obligations in respect of the maturing Bankers' Acceptances
shall automatically be converted on the maturity date thereof into Prime
Rate Loans.
(i) TRANCHES. The Borrower may not have more than three tranches
--------
of Bankers' Acceptances owing to any Lender outstanding at any time.
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(j) WAIVER OF PRESENTMENT AND OTHER CONDITIONS. The Borrower
------------------------------------------
waives presentment for payment and any other defence to payment of any
amounts due to a Lender in respect of a Bankers' Acceptance accepted and
purchased by it pursuant to this Agreement which might exist solely by
reason of the Bankers' Acceptance being held, at the maturity thereof, by
the Lender in its own right and the Borrower agrees not to claim any days of
grace if the Lender as holder sues the Borrower on the Bankers' Acceptance
for payment of the amount payable by the Borrower thereunder.
(k) BA EQUIVALENT LOANS BY NON BA LENDERS. Whenever the Borrower
-------------------------------------
requests a BA Loan, each Non BA Lender shall, in lieu of accepting a
Bankers' Acceptance, make a BA Equivalent Loan in an amount equal to the Non
BA Lender's rateable portion of the Borrowing.
(l) TERMS APPLICABLE TO DISCOUNT NOTES. As set out in the
----------------------------------
definition of "BANKERS' ACCEPTANCES", that term includes Discount Notes and
---------------------
all terms of this Agreement applicable to Bankers' Acceptances shall apply
equally to Discount Notes evidencing BA Equivalent Loans with such changes
as may in the context be necessary. For greater certainty:
(i) the term of a Discount Note shall be the same as the
Contract Period for Bankers' Acceptances accepted and purchased on
the same date of Borrowing in respect of the same Borrowing;
(ii) an acceptance fee will be payable in respect of a
Discount Note and shall be calculated at the same rate and in the
same manner as the Acceptance Fee in respect of a Bankers'
Acceptance; and
(iii) the Discount Rate applicable to a Discount Note shall be
the Discount Rate applicable to Bankers' Acceptances accepted and
purchased on the same date of Borrowing.
(m) DEPOSITORY BILLS AND NOTES ACT. At the option of the Borrower
------------------------------
and any Lender, Bankers' Acceptances under this Agreement to be accepted by
that Lender may be issued in the form of depository bills for deposit with
The Canadian Depository for Securities Limited pursuant to the Depository
Bills and Notes Act (Canada). All depository bills so issued shall be
governed by the provisions of this Section 2.06.
(n) INDEMNITY. Each Notice of Borrowing and Notice of
---------
Conversion/Continuation given by the Borrower under this Section 2.06 shall
be irrevocable upon receipt by the Administrative Agent, and the Borrower
shall indemnify each Lender against any loss, cost or expense incurred by
such Lender as a result of any failure to fulfill on or before the date
specified by such Notice of Borrowing or Notice of Conversion/Continuation
the applicable conditions set forth in this Section 2.06 and
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<PAGE>
Article IV, including, without limitation, any loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits or other
funds acquired by such Lender to fund any BA Loan when such BA Loan, as a
result of such failure, is not made or does not become effective.
(o) SUSPENSION ON EVENT OF DEFAULT. Upon the occurrence and during
------------------------------
the continuance of an Event of Default, (i) each BA Loan will automatically,
on the last day of the then existing Contract Period therefor, Convert into
a Prime Rate Loan and (ii) the obligation of the Revolving Lenders to make,
or to Convert Prime Rate Loans into, or to continue, BA Loans shall be
suspended.
SECTION 2.07 FEES.
----
(a) COMMITMENT FEES. The Borrower agrees to pay to the
---------------
Administrative Agent a commitment fee in US Dollars on the average daily
Unused Revolving Commitment of each Revolving Lender, for the account of
such Lender, from the Closing Date in the case of each Revolving Lender that
is an Initial Lender and from the effective date specified in the Assignment
and Acceptance pursuant to which it became a Revolving Lender in the case of
each other Revolving Lender, in each case until the Revolving Commitment
Termination Date, at a rate per annum equal to 0.50%, payable quarterly in
arrears on the last Business Day of each March, June, September and
December, commencing March 31, 1999, and on the Revolving Commitment
Termination Date.
(b) LETTER OF CREDIT FEES. The Borrower agrees to pay the Letter of
---------------------
Credit fees set forth in Section 3.05.
(c) BANKERS' ACCEPTANCE FEE. Upon acceptance of a Bankers'
-----------------------
Acceptance by a Lender, the Borrower shall pay to the Administrative Agent
on behalf of the Lender a fee in Canadian Dollars calculated on the face
amount of the Bankers' Acceptance at a rate per annum equal to the
Applicable BA Acceptance Rate in effect on the date of such acceptance on
the basis of the number of days in the Contract Period for the Bankers'
Acceptance and a year of 365 days.
(d) OTHER FEES. The Borrower agrees to pay to the Lead Arranger and
----------
the Administrative Agent, for their own respective accounts (i) the fees in
US Dollars in the amounts and at the times set forth in the Fee Agreement,
and (ii) such other fees as may from time to time be agreed between the
Borrower and the Administrative Agent, the Syndication Agent or the Lead
Arranger.
(e) ABSOLUTE OBLIGATION. The Borrower's obligation hereunder to
-------------------
pay the fees referred to in this Section 2.07 shall be absolute and
unconditional and shall survive the making and repayment of Loans, the
termination of all Letter of Credit Obligations
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<PAGE>
and the termination of this Agreement. All fees which are due or become due
pursuant to this Section 2.07 are nonrefundable.
SECTION 2.08 INCREASED COSTS, ETC.
--------------------
(a) INCREASED COSTS. If, due to either (i) the introduction of or
---------------
any change in or in the interpretation of any law or regulation or (ii) the
compliance with any guideline or request from any central bank or other
governmental authority including, without limitation, the US National
Association of Insurance Commissioners (whether or not having the force of
law), there shall be any increase in the cost to any Lender Party of
agreeing to make or of making, funding or maintaining any Loan or of
agreeing to Issue or of Issuing or maintaining Letters of Credit (or of
agreeing to purchase or purchasing participations therein) or of agreeing to
pay or of paying any Letter of Credit Drawings (or of agreeing to purchase
or purchasing participations therein), then the Borrower shall from time to
time, upon demand by such Lender Party (with a copy of such demand to the
Administrative Agent), pay to the Administrative Agent for the account of
such Lender Party additional amounts sufficient to compensate such Lender
Party on an after-tax basis for such increased cost. A certificate as to the
amount of such increased cost, submitted to the Borrower by such Lender
Party, shall be conclusive and binding for all purposes, absent manifest
error.
(b) CAPITAL REQUIREMENTS. If, due to either (i) the introduction
--------------------
of or any change in or in the interpretation of any law or regulation or
(ii) the compliance with any guideline or request from any central bank or
other governmental authority including, without limitation, the US National
Association of Insurance Commissioners (whether or not having the force of
law), there shall be any increase in the amount of capital required or
expected to be maintained by such Lender Party or any corporation
controlling such Lender Party as a result of or based upon the existence of
such Lender Party's commitment to lend or to Issue or purchase
participations in Letters of Credit hereunder and other commitments of such
type or the Issuance or maintenance of the Letters of Credit (or similar
contingent obligations), then, upon demand by such Lender Party (with a copy
of such demand to the Administrative Agent), the Borrower shall pay to the
Administrative Agent for the account of such Lender Party, from time to time
as specified by such Lender Party, additional amounts sufficient to
compensate such Lender Party on an after-tax basis in the light of such
circumstances, to the extent that such Lender Party reasonably determines
such increase in capital to be allocable to the existence of such Lender
Party's commitment to lend or to Issue or participate in Letters of Credit
hereunder or to the Issuance or maintenance of or participation in any
Letters of Credit. A certificate as to such amounts submitted to the
Borrower by such Lender Party shall be conclusive and binding for all
purposes, absent manifest error.
(c) REPLACEMENT OF LENDER IN RESPECT OF INCREASED COSTS. Within 15
----------------------------------------------------
days after receipt by the Borrower of written notice and demand from any
Lender Party for
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payment of additional amounts or increased costs as provided in Section
2.08(a), Section 2.08(b) or Section 2.10(a) or of written notice from any
Lender under Section 2.05(f)(i) (in each case, an "AFFECTED LENDER"),
---------------
Borrower may, at its option, notify the Administrative agent and such
Affected Lender of its intention to replace the Affected Lender. So long as
no Default or Event of Default shall have occurred and be continuing, and
so long as such demand for such payment of additional amounts or increased
costs has not been withdrawn, the Borrower, with the consent of the
Administrative Agent, may obtain, at the Borrower's expense, a replacement
Lender ("REPLACEMENT LENDER") for the Affected Lender, which
------------------
Replacement Lender must be reasonably satisfactory to the Administrative
Agent. If the Borrower obtains a Replacement Lender within 120 days
following notice of its intention to do so, the Affected Lender must sell
and assign its Loans and Commitments to such Replacement Lender for an
amount equal to the principal balance of all Loans held by the Affected
Lender and all accrued interest and fees with respect thereto through the
date of such sale, provided that, the Borrower shall have reimbursed such
Affected Lender for the additional amounts or increased costs that it is
entitled to receive under this Agreement through the date of such sale and
assignment and, provided further, that if such Affected Lender is an
Issuing Bank, cash collateral or other arrangements satisfactory to such
Affected Lender shall have been provided with respect to each outstanding
Letter of Credit issued by such Issuing Bank.
SECTION 2.09 PAYMENTS AND COMPUTATIONS.
--------------------------
(a) PAYMENTS BY BORROWER. The Borrower shall make each payment
---------------------
hereunder and under any other Loan Document to which it is a party,
irrespective of and without condition or deduction for any counterclaim,
defense, recoupment or setoff, in the currency of the Obligation to which
such payment relates and in same day funds delivered to the Administrative
Agent not later than 2:00 p.m. (Toronto time) on the day when due by
deposit of such funds to the Administrative Agent's Account. Any payment
so delivered to the Administrative Agent after 2:00 p.m. (Toronto time) on
any Business Day, or on any day which is not a Business Day, shall be
deemed received by the Administrative Agent on the next succeeding Business
Day. The Administrative Agent will promptly after receipt of each payment
cause to be distributed like funds relating to the payment of principal,
interest, commitment fees or letter of credit fees ratably to each
Appropriate Lender for its account, and like funds relating to the payment
of any other amount payable to any Lender or any Issuing Bank (including
payments with respect to Letters of Credit and payments for the account of
any Lender under Section 2.08, Section 2.10 or Section 9.04(c)) to such
Lender for its account or to such Issuing Bank, in each case to be applied
in accordance with, and subject to, the terms of this Agreement, including
Section 2.09(e). Upon its acceptance of an Assignment and Acceptance and
recording of the information contained therein in the Register pursuant to
Section 9.07(d), from and after the effective date specified in such
Assignment and Acceptance, the Administrative Agent shall make all payments
hereunder and under any other Loan Document in respect of the interest
assigned thereby to the Lender assignee thereunder,
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and the parties to such Assignment and Acceptance shall make all
appropriate adjustments in such payments for periods prior to such
effective date directly between themselves.
(b) COMPUTATIONS. Unless stated otherwise (1) all calculations,
------------
comparisons, measurements and determinations under this Agreement shall be
made in US Dollars and (2) all calculations of interest, fees and
commissions shall be made by the Administrative Agent on a daily basis and
on the basis of a year of 360 days in the cases of amounts denominated in
US Dollars or a year of 365 days in the cases of amounts denominated in
Canadian Dollars, in each case for the actual number of days (including the
first day but excluding the last day) occurring in the period for which
such interest, fees or commissions are payable; provided that, if any Loan
-------- ----
is repaid on the same day on which it is made, one day's interest shall be
paid on such Loan. For the purpose of all calculations, comparisons,
measurements and determinations referred to in clause (1) above, amounts
denominated in Canadian Dollars shall be converted into the Equivalent
Amount of US Dollars on the date of calculation, comparison, measurement or
determination. Each determination by the Administrative Agent of an
interest rate, fee, commission or discount rate and each calculation,
comparison and measurement by the Administrative Agent hereunder shall be
conclusive and binding for all purposes, absent manifest error.
(c) PAYMENTS ASSUMED. Unless the Administrative Agent shall have
-----------------
received notice from the Borrower prior to the date on which any payment is
due to the Lenders or any Issuing Bank hereunder that the Borrower will not
make such payment in full, the Administrative Agent may assume that the
Borrower has made such payment in full to the Administrative Agent on such
date and the Administrative Agent may, in reliance upon such assumption,
but shall not be required to, cause to be distributed to each Lender or
such Issuing Bank on such due date an amount equal to the amount then due
to such Lender or such Issuing Bank. If and to the extent that the
Borrower shall not have so made such payment in full to the Administrative
Agent, each Lender and Issuing Bank shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Lender or Issuing Bank
together with interest thereon, for each day from the date such amount is
distributed to such Lender or Issuing Bank until the date such Lender or
Issuing Bank repays such amount to the Administrative Agent, at the Federal
Funds Rate in the case of amounts denominated in US Dollars or the
Administrative Agent's cost of funds in the case of amounts denominated in
Canadian Dollars.
(d) APPLICATION OF PAYMENTS SPECIFIED BY THE BORROWER. Except as
--------------------------------------------------
otherwise specified herein, so long as no Event of Default has occurred and
is continuing, all payments shall be applied as instructed by the Borrower
(except that, unless the Administrative Agent otherwise consents,
outstanding Swing Line Loans shall be prepaid before prepayment of any
Revolving Loans) if such instructions are received by the Administrative
Agent prior to or contemporaneously with receipt of funds therefor.
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(e) APPLICATION OF PAYMENTS NOT OTHERWISE SPECIFIED. If the
------------------------------------------------
Administrative Agent receives funds for application to the Loans or any
Letter of Credit Obligations or other Obligations of the Borrower under the
Loan Documents under circumstances for which the Loan Documents do not
specify the Loans or the Facility or the Obligations to which, or the
manner in which, such funds are to be applied, the Administrative Agent
shall apply such funds in such manner as it shall determine or as otherwise
directed by the Required Lenders.
(f) PAYMENTS ON BUSINESS DAYS. Whenever any payment hereunder or
--------------------------
under any other Loan Document shall be stated to be due on a day other than
a Business Day, such payment shall be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of payment of interest and commitment and other fees; provided,
--------
however, if such extension would cause payment of interest on or principal
-------
of any Eurodollar Rate Loan to be made in the next following month, such
payment shall be made on the next preceding Business Day.
(g) RECEIPT OF PAYMENTS. If the Administrative Agent receives any
-------------------
payment from or on behalf of the Borrower in a currency other than the
currency in which an Obligation due and payable is denominated, the
Administrative Agent may convert the payment (including the monetary
proceeds of a realization upon Collateral) into the currency of the
relevant Obligation at the exchange rate that the Administrative Agent
would be prepared to sell the currency in which the relevant Obligation is
denominated against the proceeds received in Toronto on the Business Day
immediately following the date of actual payment. The Obligations shall be
satisfied only to the extent of the amount actually received by the
Administrative Agent upon such conversion.
(h) CERTAIN TERMS. The terms "pay", "paid" or "payment" under this
--------------
Agreement shall include prepay, prepaid or prepayment, respectively, under
this Agreement, and the term "due" under this Agreement shall include due
by reason of a mandatory prepayment (including upon an actual or deemed
entry of an order for relief with respect to any Loan Party under the US
Bankruptcy Code or upon acceleration).
SECTION 2.10 TAXES.
------
(a) WITHHOLDING TAXES. Except as otherwise provided in Section
------------------
9.07, any and all payments by the Borrower hereunder or under the Notes (if
any) to any Lender Party or the Administrative Agent shall be made, in
accordance with Section 2.09, free and clear of and without deduction for
any Taxes. If the Borrower shall be required by law to deduct any Taxes
from or in respect of any sum payable hereunder or under any Note to any
Lender Party or the Administrative Agent, (i) except as otherwise provided
in Section 9.07, the sum payable shall be increased as may be necessary so
that after making all required deductions (including deductions applicable
to additional sums payable under this Section 2.10) such Lender Party or
the Administrative Agent (as the case may be)
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receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law.
(b) OTHER TAXES. In addition, the Borrower shall pay any present
-----------
or future stamp, documentary, excise (including goods and services),
property or similar taxes, charges or levies that arise from any payment
made hereunder or under any other Loan Document or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement
or any other Loan Document (hereinafter referred to as "OTHER TAXES").
-----------
(c) INDEMNIFICATION. Except as otherwise provided in Section 9.07,
----------------
the Borrower shall indemnify each Lender Party and the Administrative Agent
for the full amount of Taxes and Other Taxes, and for the full amount of
Taxes and Other Taxes imposed by any jurisdiction on amounts payable under
this Section 2.10, paid by such Lender Party or the Administrative Agent
(as the case may be) and any liability (including penalties, additions to
tax, interest and expenses) arising therefrom or with respect thereto. This
indemnification shall be made within 30 days from the date such Lender
Party or the Administrative Agent (as the case may be) makes written demand
therefor.
(d) EVIDENCE OF PAYMENT. Within 30 days after the date of any
-------------------
payment of Taxes, the Borrower shall furnish to the Administrative Agent,
at its address referred to in Section 9.02, the original receipt of payment
thereof or a certified copy of such receipt.
(e) SURVIVAL. Without prejudice to the survival of any other
--------
agreement of the Borrower hereunder, the agreements and obligations of the
Borrower contained in this Section 2.10 shall survive the payment in full
of principal and interest hereunder and under the Notes (if any).
(f) CHANGE OF LENDING OFFICE. If the Borrower is required to pay
-------------------------
any additional amount to a Lender, the Administrative Agent or any taxing
authority for the account of any Lender or the Administrative Agent pursuant
to this Section 2.10, the Borrower shall have the right, upon notice to such
Lender or the Administrative Agent, as applicable, to require such Lender or
the Administrative Agent, as applicable, to use reasonable efforts to
designate a different lending office for funding or booking its loan (or any
loan participation) hereunder or to assign its rights and obligations
hereunder to another of its offices, branches or Affiliates, if, in the sole
judgment of such Lender or the Administrative Agent, as applicable, such
designation or assignment (A) would eliminate or reduce amounts payable
pursuant to Section 2.10, as the case may be, in the future and (B) would
not cause such Lender or the Administrative Agent, as applicable, to suffer
any economic, legal or regulatory disadvantage. With respect to the
foregoing, the Borrower hereby agrees to pay on demand all reasonable costs
and expenses incurred by any
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Lender or the Administrative Agent, as applicable, in connection with any
such designation or assignment.
SECTION 2.11 SHARING OF PAYMENTS, ETC.
-------------------------
If any Lender Party shall obtain at any time any payment (whether
voluntary, involuntary, through the exercise of any right of set-off, or
otherwise) (a) on account of Obligations due and payable to such Lender Party
hereunder and under the Notes (if any) at such time in excess of its ratable
share (according to the proportion of (i) the amount of such Obligations due and
payable to such Lender Party at such time to (ii) the aggregate amount of the
Obligations due and payable to all Lender Parties hereunder and under the Notes
(if any) at such time) of payments on account of the Obligations due and payable
to all Lender Parties hereunder and under the Notes (if any) at such time
obtained by all the Lender Parties at such time or (b) on account of Obligations
owing (but not due and payable) to such Lender Party hereunder and under the
Notes (if any) at such time in excess of its ratable share (according to the
proportion of (i) the amount of such Obligations owing to such Lender Party at
such time to (ii) the aggregate amount of the Obligations owing (but not due and
payable) to all Lender Parties hereunder and under the Notes (if any) at such
time) of payments on account of the Obligations owing (but not due and payable)
to all Lender Parties hereunder and under the Notes (if any) at such time
obtained by all the Lender Parties at such time, such Lender Party shall
forthwith purchase from the other Lender Parties such participations in the
Obligations due and payable or owing to them, as the case may be, as shall be
necessary to cause such purchasing Lender Party to share the excess payment
ratably with each of them; provided, however, that if all or any portion of such
-------- -------
excess payment is thereafter recovered from such purchasing Lender Party, such
purchase from each other Lender Party shall be rescinded and such other Lender
Party shall repay to the purchasing Lender Party the purchase price to the
extent of such other Lender Party's ratable share (according to the proportion
of (i) the purchase price paid to such Lender Party to (ii) the aggregate
purchase price paid to all Lender Parties) of such recovery together with an
amount equal to such Lender Party's ratable share (according to the proportion
of (i) the amount of such other Lender Party's required repayment to (ii) the
total amount so recovered from the purchasing Lender Party) of any interest or
other amount paid or payable by the purchasing Lender Party in respect of the
total amount so recovered. The Borrower agrees that any Lender Party so
purchasing a participation from another Lender Party pursuant to this Section
2.11 may, to the fullest extent permitted by law, exercise all its rights of
payment (including the right of set-off) with respect to such participation as
fully as if such Lender Party were the direct creditor of the Borrower in the
amount of such participation.
SECTION 2.12 USE OF PROCEEDS.
----------------
(a) TERM LOANS. The proceeds of the Term Loans shall be applied by
-----------
the Borrower to refinance all existing indebtedness of the Borrower
outstanding under the Existing Credit Agreement and to pay related fees and
expenses of the Transactions.
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(b) REVOLVING LOANS; SWING LINE LOANS. The proceeds of Revolving
----------------------------------
Loans and of Swing Line Loans shall be available to the Borrower (and the
Borrower agrees that it shall use such proceeds) to provide working capital
for the Borrower and its Subsidiaries, to fund Permitted Acquisitions by
the Borrower and its Subsidiaries and, subject to the provisions of this
Agreement and the other Loan Documents, for other general corporate
purposes of the Borrower and its Subsidiaries.
SECTION 2.13 EVIDENCE OF DEBT.
-----------------
(a) MAINTENANCE OF ACCOUNTS BY LENDERS. Each Lender shall
-----------------------------------
maintain in accordance with its usual practice an account or accounts
evidencing the indebtedness of the Borrower to such Lender resulting from
each Loan owing to such Lender from time to time, including the amounts of
principal and interest payable and paid to such Lender from time to time
hereunder.
(b) MAINTENANCE OF ACCOUNTS BY ADMINISTRATIVE AGENT. The
------------------------------------------------
Register maintained by the Administrative Agent pursuant to Section 9.07(c)
shall include a control account, and a subsidiary account for each Lender,
in which accounts (taken together) shall be recorded (i) the date and
amount of each Borrowing made hereunder, the Type and Interest Type of the
Loans comprising such Borrowing and any Interest Period or Contract Period
applicable thereto, (ii) the terms of each Assignment and Acceptance
delivered to and accepted by it, (iii) the amount of any principal,
interest, discount and fees due and payable or to become due and payable
from the Borrower to each Lender hereunder, and (iv) the amount of any sum
received by the Administrative Agent from or on behalf of the Borrower
hereunder and each Lender's share thereof. The entries made in the Register
shall be conclusive and binding for all purposes, absent manifest error.
(c) EXECUTION OF PROMISSORY NOTES BY BORROWER. The Borrower
-----------------------------------------
hereby agrees that if, in the opinion of any Lender, a promissory note or
other evidence of debt is required, appropriate or desirable to reflect or
enforce the indebtedness of the Borrower resulting from the Term Loans,
Revolving Loans or Swing Line Loans made, or to be made, by such Lender,
then upon request of such Lender, the Borrower shall promptly execute and
deliver to such Lender, for each of the Loans made or to be made by such
Lender, a promissory note substantially in the forms of Exhibits VII-A-1
----------------
and VII-A-2 for Revolving Loans, Exhibit VII-B for Term A Loans, Exhibit
------- ------------- -------
VII-C for Term B Loans and Exhibit VII-D-1 and Exhibit VII-D-2 for Swing
----- --------------- ---------------
Line Loans, each payable to the order of such Lender in an amount equal to
the Term Loans, Revolving Commitment or Swing Line Commitment (as the case
may be) of such Lender.
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ARTICLE III.
AMOUNTS AND TERMS OF LETTERS OF CREDIT
SECTION 3.01 THE LETTER OF CREDIT SUBFACILITY.
---------------------------------
The Borrower may request any Lender, on the terms and conditions
herein set forth, to Issue, and any such Lender may, if in its sole discretion
it elects to do so, and the Letter of Credit Bank shall, if no other Lender
elects to do so, Issue Letters of Credit for the account of the Borrower (the
"LETTER OF CREDIT SUBFACILITY") from time to time on any Business Day during the
- -----------------------------
period after the Closing Date until 30 days prior to the Revolving Commitment
Termination Date; provided that (i) the aggregate amount for all Letters of
-------- ----
Credit outstanding shall not exceed at any time the lesser of (a) US$3,000,000
or the Equivalent Amount thereof in Canadian Dollars (the "LETTER OF CREDIT
----------------
SUBLIMIT") and (b) the Net Borrowing Availability and (ii) the amount of each
- --------
such Letter of Credit to be Issued shall not exceed the Unused Revolving
Commitments of the Lenders on the Business Day of its Issuance. No Letter of
Credit shall have an expiration date (including all rights of the Borrower or
the beneficiary to require renewal) later than the earlier of (i) the Revolving
Commitment Termination Date and (ii) one year from the date of Issuance thereof.
Within the limits of the Letter of Credit Subfacility, and subject to the limits
referred to above, the Borrower may request the Issuance of one or more Letters
of Credit under this Section 3.01, repay amounts due resulting from Letter of
Credit Drawings thereunder pursuant to Section 3.03, and request the Issuance of
one or more additional Letters of Credit under this Section 3.01.
SECTION 3.02 ISSUANCE OF LETTERS OF CREDIT.
------------------------------
(a) NOTICE OF ISSUANCE. Each Letter of Credit shall be Issued
-------------------
pursuant to a Notice of Issuance, which must be received by the
Administrative Agent and the Issuing Bank not later than 2:00 p.m. (Toronto
time) on the third Business Day prior to the date of the proposed Issuance
of such Letter of Credit (or such shorter period as may be acceptable to
the applicable Issuing Bank). Each such Notice of Issuance shall specify
whether such Letter of Credit is to be a Standby Letter of Credit or a
Trade Letter of Credit and shall further specify therein the requested (i)
date of such Issuance (which shall be a Business Day), (ii) amount of such
Letter of Credit, (iii) currency of such Letter of Credit, (iv) expiration
date of such Letter of Credit, (v) name and address of the beneficiary of
such Letter of Credit, and (vi) form of such Letter of Credit, and shall be
accompanied by such customary application and agreement for letter of
credit of the Issuing Bank (a "LETTER OF CREDIT AGREEMENT") as the Issuing
--------------------------
Bank may specify to the Borrower for use in connection with such requested
Letter of Credit.
(b) CONDITIONS TO ISSUANCE. If (i) the requested form of such
-----------------------
Letter of Credit is acceptable to the Administrative Agent and the Issuing
Bank in the reasonable discretion of each, (ii) in the case of any Issuing
Bank other than the Letter of Credit Bank, such Issuing Bank elects in its
sole discretion to Issue the requested Letter of
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Credit, and (iii) such Issuing Bank has not received notice from the
Administrative Agent or any Revolving Lender that the Issuance of such
Letter of Credit is not authorized because such Issuance would not comply
with the requirements of Section 3.01 or one or more of the conditions set
forth in Section 4.02 has not been satisfied, then such Issuing Bank will,
upon fulfillment of the applicable conditions set forth in Section 4.02
(which fulfillment such Issuing Bank may assume in the absence of actual
knowledge, or notice received from the Borrower, the Administrative Agent
or any Revolving Lender, to the contrary) and subject to the provisions of
this Article III, make such Letter of Credit available to the Borrower at
its office referred to in Section 9.02 or as otherwise agreed upon with the
Borrower in connection with such Issuance. In the event and to the extent
that the provisions of any Letter of Credit Agreement shall conflict with
this Agreement, the provisions of this Agreement shall govern.
(c) REPORTS BY ISSUING BANKS. Each Issuing Bank shall furnish to
-------------------------
the Administrative Agent (who shall furnish a copy to each Revolving
Lender) (i) on the fifth Business Day of each month a written report
summarizing Issuance and expiration dates of Letters of Credit Issued by
such Issuing Bank during the preceding month and all Letter of Credit
Drawings during such month under all Letters of Credit Issued by such
Issuing Bank, and (ii) two Business Days prior to the last Business Day of
each March, June, September and December, a written report setting forth
the average daily Letter of Credit Usage during the preceding calendar
quarter of all Letters of Credit Issued by such Issuing Bank.
SECTION 3.03 DRAWING AND REIMBURSEMENT.
--------------------------
The Borrower agrees to reimburse the Issuing Bank under each
Letter of Credit, within one Business Day after it has notice of any Letter of
Credit Drawing paid by such Issuing Bank thereunder, for the principal amount of
such Letter of Credit Drawing, and shall pay to such Issuing Bank, on demand,
interest on the unreimbursed amount of such Letter of Credit Drawing at a rate
per annum equal to (a) from the date of such Letter of Credit Drawing to the
first Business Day after notice thereof has been given to the Borrower, the rate
applicable to Term B Loans that are Base Rate Loans in effect from time to time,
in the case of such principal amounts that are denominated in US Dollars, or,
the rate applicable to Revolving Loans that are Prime Rate Loans in effect from
time to time, in the case of such principal amounts that are denominated in
Canadian Dollars, and (b) from and after such first Business Day, the applicable
rate referred to in paragraph (a) above plus, in each case, 2.00% per annum. If
the Borrower shall fail to so reimburse the Issuing Bank within one Business Day
after the Borrower receives notice that any such Letter of Credit Drawing has
been paid, then upon demand by the Issuing Bank, and whether or not a Default
has occurred and is continuing or any conditions set forth in Section 4.02 are
satisfied, each Revolving Lender shall purchase from such Issuing Bank, and such
Issuing Bank shall sell to each Revolving Lender, a participation in (equal to
such Lender's Revolving Pro Rata Share of) such unreimbursed Letter of Credit
Drawing as of the date of such purchase, by making available for the account of
such Issuing Bank, by deposit to the
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Administrative Agent's Account, in same day funds, an amount equal to the
portion of the unreimbursed principal amount of such Letter of Credit Drawing to
be funded by such Lender. Each Revolving Lender agrees to purchase a
participation in the amount of its Revolving Pro Rata Share of an unreimbursed
Letter of Credit Drawing on (A) the Business Day on which demand therefor is
made by the Issuing Bank that paid such Letter of Credit Drawing, provided that,
-------- ----
notice of such demand is given not later than 2:00 p.m. (Toronto time) on such
Business Day, or (B) the first Business Day next succeeding such demand if
notice of such demand is given after such time. Upon any such sale by an Issuing
Bank to any Lender of a participation in an unreimbursed Letter of Credit
Drawing, such Issuing Bank represents and warrants to such Lender that such
Issuing Bank is the legal and beneficial owner of such interest being assigned
by it, but makes no other representation or warranty and assumes no
responsibility with respect to such Letter of Credit Drawing, the Loan Documents
or any Loan Party.
SECTION 3.04 OBLIGATIONS ABSOLUTE.
---------------------
The Obligations of the Borrower under this Agreement, any Letter
of Credit Agreement and any other agreement or instrument relating to any Letter
of Credit shall be unconditional and irrevocable, and shall be paid strictly in
accordance with the terms of this Agreement, such Letter of Credit Agreement and
such other agreements and instruments under all circumstances, including,
without limitation, the following circumstances (it being understood that any
such payment by the Borrower is without prejudice to, and does not constitute a
waiver of, any rights the Borrower might have or might acquire as a result of
the payment by any Issuing Bank of any draft or the reimbursement by the
Borrower thereof):
(a) any lack of validity or enforceability of this Agreement, any
Letter of Credit Agreement, any Letter of Credit or any other agreement or
instrument relating thereto (this Agreement and all of the other foregoing
being collectively referred to herein as the "LETTER OF CREDIT DOCUMENTS");
--------------------------
(b) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations of the Borrower in respect
of any Letter of Credit Document or any other amendment or waiver of or any
consent to departure from all or any of the Letter of Credit Documents;
(c) the existence of any claim, set-off, defense or other right
that the Borrower or any of its Subsidiaries may have at any time against
any beneficiary or any transferee of a Letter of Credit (or any Persons for
whom any such beneficiary or any such transferee may be acting), any
Issuing Bank or any other Person, whether in connection with the
transactions contemplated by the Letter of Credit Documents or any
unrelated transaction;
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(d) any statement or any other document presented under a 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;
(e) payment by any Issuing Bank under a Letter of Credit against
presentation of a draft or certificate that does not strictly comply with
the terms of such Letter of Credit;
(f) any exchange, release or non-perfection of any Collateral or
other collateral, or any release or amendment or waiver of or consent to
departure from any guarantee, for all or any of the Obligations of the
Borrower in respect of the Letter of Credit Documents; or
(g) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing, including, without limitation, any
other circumstance that might otherwise constitute a defense available to,
or a discharge of, the Borrower or a guarantor.
SECTION 3.05 LETTER OF CREDIT FEES.
----------------------
(a) The Borrower shall pay to the Administrative Agent:
(i) for the account of the Issuing Bank that Issues a
Letter of Credit, an issuance fee in the currency of such Letter
of Credit and in an amount equal to 0.25% per annum on the stated
amount of such Letter of Credit, payable quarterly in arrears
after the Issuance thereof on the last Business Day of each
March, June, September and December, and on the Revolving
Commitment Termination Date; and
(ii) for the account of each Revolving Lender according to
its Revolving Pro Rata Share, a letter of credit fee with respect
to (A) all Letters of Credit denominated in US Dollars in an
amount equal to the Applicable Eurodollar Rate Margin then in
effect for Revolving Loans and (B) all Letters of Credit
denominated in Canadian Dollars in an amount equal to the
Applicable BA Rate Margin then in effect for Revolving Loans, and
calculated on the average daily Letter of Credit Usage, payable
quarterly in arrears on the last Business Day of each March,
June, September and December, commencing March 31, 1999, and on
the Revolving Commitment Termination Date.
For purposes of computing any fees under this Section 3.05(a), the
determination of the maximum amount available to be drawn under a Letter of
Credit at any time shall assume strict compliance with all conditions for
drawing. Any fees paid pursuant to this Section 3.05(a) are nonrefundable.
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(b) The Borrower shall pay to each Issuing Bank, for its own
account and on demand, such other commissions, issuance fees, transfer fees
and other fees, charges and expenses in connection with the Issuance,
amendment, transfer, cancellation or administration of each Letter of
Credit as the Borrower and such Issuing Bank shall agree; provided that, in
-------- ----
no event shall any Issuing Bank require, after giving effect to the amounts
payable to it pursuant to Section 3.05(a) (in the case of the Issuance of
any Letter of Credit), more than the standard fees, charges and expenses
which it normally charges in connection with such matters.
SECTION 3.06 USE OF LETTERS OF CREDIT.
-------------------------
Any Letters of Credit Issued hereunder shall be used solely (a)
to support Obligations of the Borrower and its Subsidiaries not prohibited
hereunder, and (b) for the purposes described in the definition of "TRADE LETTER
------------
OF CREDIT".
- ---------
ARTICLE IV.
CONDITIONS OF LENDING
SECTION 4.01 CONDITIONS PRECEDENT TO INITIAL BORROWINGS.
-------------------------------------------
The obligation of each Lender to make a Loan on the occasion of
the initial Borrowings on the Closing Date is subject to the following
conditions precedent:
(a) the Lead Arranger, the Syndication Agent and the
Administrative Agent shall be satisfied with the final structure of the
Transactions and the terms and provisions of all Loan Documents and Related
Documents;
(b) the Subordinated Debt Documents (including, but not limited
to, all covenants, defaults, subordination and redemption provisions) and
the use of proceeds of the Subordinated Notes shall all be on terms and
conditions, and all such documentation shall be in form and substance,
satisfactory to the Lead Arranger, the Syndication Agent and the
Administrative Agent;
(c) the Pioneer Acquisition Agreement shall be in full force and
effect and shall not have been terminated;
(d) the Pioneer Acquisition shall have been consummated (i)
strictly in accordance with the terms of the Pioneer Acquisition Agreement,
without any waiver or amendment not consented to by the Lenders of any
term, provision or condition set forth therein, (ii) in compliance with all
applicable laws and (iii) for aggregate proceeds not exceeding
US$160,000,000 at closing (excluding fees, expenses and other costs
relating to the Transactions totaling approximately US$12,500,000) and not
requiring any additional payments other than payments not exceeding
US$15,000,000 in the aggregate pursuant to Section 2(e)(v) of the Pioneer
Acquisition Agreement;
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(e) Panolam International shall have received gross proceeds of
at least US$135,000,000 from the sale of the Subordinated Notes and
US$5,000,000 in the form of a capital contribution from the sale of common
stock of Holdings to Genstar Capital and management;
(f) the Administrative Agent shall have received fully executed
originals of pay-off letters reasonably satisfactory to the Administrative
Agent confirming that all Obligations pursuant to the Existing Credit
Documentation will be repaid in full from the proceeds of the term loans
made under the US Credit Agreement and the Term Loans and all Liens upon
any property of any Loan Party or any of their respective Subsidiaries in
favor of the Existing Lenders shall be terminated by the Existing Lenders
immediately upon such payment;
(g) the Lenders shall be satisfied that all Existing Debt, other
than the Domtar Note and the Capital Leases set forth on Schedule
5.01(q)(ii) (the "SURVIVING DEBT"), has been prepaid, redeemed or defeased
--------------
in full or otherwise satisfied and extinguished, that all commitments under
any Existing Debt have been terminated, and that all Liens (other than
Permitted Liens and those created pursuant to the Loan Documents and the US
Loan Documents) have been released;
(h) there shall have occurred since December 31, 1997 no event or
circumstance which has had or could reasonably be expected to have a
Material Adverse Effect;
(i) there shall exist no material action, suit, investigation,
litigation or proceeding affecting any Loan Party or any of their
respective Subsidiaries pending or threatened before any court,
governmental agency or arbitrator that (i) could reasonably be expected to
have a Material Adverse Effect or (ii) purports to affect the legality,
validity or enforceability of the Pioneer Acquisition, this Agreement, any
Note, any other Loan Document, any Related Document or the consummation of
the transactions contemplated hereby and thereby;
(j) the Borrower and Panolam International shall have paid all
accrued fees and expenses of the Lead Arranger, the Agents and the Lenders
required to be paid on or before the Closing Date (including the accrued
fees and expenses of counsel to the Syndication Agent and the
Administrative Agent and local counsel to the Syndication Agent and the
Administrative Agent);
(k) the Administrative Agent shall have received on or before the
day of the Closing Date the following, each dated such date (unless
otherwise specified), in form and substance satisfactory to the
Administrative Agent and the Required Lenders (unless otherwise specified)
and (except for the Notes, if any) in sufficient copies for each Lender:
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(i) the Notes to the order of each Lender, as appropriate;
(ii) certified copies of the Certificate or Articles of
Incorporation of each Loan Party, together with a Certificate of
Status from the Director under the OBCA for the Borrower, a good
standing certificate from the Secretary of State (or other
appropriate authority) of each other Loan Party's jurisdiction of
incorporation for such Loan Party and the applicable equivalent
thereof for each other province and state in which any Loan Party
is qualified as an extra-provincial or foreign corporation to do
business (as set forth on Schedule 4.01(k)(ii)) and, to the
extent generally available for each Loan Party, a certificate or
other evidence of good standing as to payment of any applicable
franchise or similar taxes from the appropriate taxing authority
of each of such jurisdictions, each dated a recent date prior to
the Closing Date;
(iii) a bringdown Certificate of Status from the Director
under the OBCA for the Borrower and bringdown good standing
certificates for each other Loan Party from the Secretary of
State (or other appropriate authority) of such Loan Party's
jurisdiction of incorporation certifying that such Loan Party is
incorporated and has not been dissolved or is duly incorporated,
as applicable, and, in the case of the Loan Parties other than
the Borrower, is in good standing under the laws of its
respective jurisdiction of incorporation on or about the Closing
Date;
(iv) copies of the Bylaws of each Loan Party, certified as
of the Closing Date by such Loan Party's corporate secretary or
an assistant secretary;
(v) copies of the unanimous shareholder agreement to which
the Borrower is subject, duly executed by Panolam International,
together with resolutions of Panolam International and the
resolutions of the Board of Directors of each other Loan Party,
in each case (as appropriate), approving the Pioneer Acquisition,
the Transactions, this Agreement, the Notes, each other Loan
Document and each Related Document to which the Borrower or such
other Loan Party is or is to be a party, and authorizing the
execution, delivery and performance of each Loan Document and
Related Document to which the Borrower or such other Loan Party
is a party, certified as of the Closing Date by the corporate
secretary or an assistant secretary of such Loan Party as being
in full force and effect without modification or amendment;
(vi) copies of all documents evidencing other necessary
corporate action (if any) in connection with the Pioneer
Acquisition, the Transactions, this Agreement, the Notes (if
any), each other Loan Document and each Related Document;
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(vii) copies of all governmental and third party approvals
(if any) necessary or advisable and set forth on Schedule
4.01(k)(vii) in connection with the Pioneer Acquisition, the
Transactions, this Agreement, the Notes, each other Loan
Document, each Related Document and the continuing operations of
each of the Loan Parties, which approvals shall have been
obtained and shall be in full force and effect, and all
applicable waiting periods shall have expired without any action
being taken or threatened by any competent authority that would
restrain, prevent or otherwise impose adverse conditions on any
of the Transactions;
(viii) signature and incumbency certificates of the
officers of each Loan Party executing any Loan Document;
(ix) (A) executed originals of each of the Loan Documents,
(B) certified copies of each of the Related Documents, duly
executed by the parties thereto and in each case in form and
substance satisfactory to the Administrative Agent and its
counsel, together with all agreements, instruments and other
documents delivered in connection therewith, and (C) execution
and delivery of such other credit, security, guarantee and other
related documentation in connection with the Transactions as the
Administrative Agent or the Required Lenders may reasonably
request;
(x) copies of (A) the Patent License Agreement between
Panolam US, as licensor, and the Borrower, as licensee, dated as
of June 7, 1996, the Trade Mark License Agreement between Panolam
US, as licensor, and the Borrower, as licensee, dated as of June
7, 1996, the Trade Mark License Agreement between Panolam US, as
licensor, and the Borrower, as licensee, dated April 14, 1997,
each certified by the Secretary or Assistant Secretary of the
Borrower as of the Closing Date to be true and complete, together
with a certificate from such Secretary or Assistant Secretary as
of the Closing Date that there are no other material agreements
respecting intellectual property entered into between any Loan
Parties (other than in respect of readily available commercial
software and the agreement referred to in clause (B) immediately
below) and (B) the Agreement Respecting Intellectual Property
duly executed by Panolam US, the Borrower, the US Administrative
Agent and the Administrative Agent;
(xi) a copy of the duly executed Stock Option Agreement
dated as of June 7, 1996 between Group, Genstar Capital Partners
II, L.P. and the other Parent Stockholders (as defined in such
agreement), and all amendments to the Stock Option Agreement,
certified by the Secretary or Assistant Secretary of the Borrower
as of the Closing Date to be true and complete;
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(xii) a copy of each of the duly executed Genstar
Agreements, each certified by the Secretary or Assistant
Secretary of the Borrower as of the Closing Date to be true and
complete and each in form and substance reasonably satisfactory
to the Administrative Agent and the Required Lenders;
(xiii) a certificate of the Borrower and each other Loan
Party, signed on behalf of the Borrower and such other Loan Party
by its President or a Vice President and its Secretary or any
Assistant Secretary, dated as of the Closing Date (the statements
made in which certificate shall be true on and as of the Closing
Date), certifying as to (A) the absence of any amendments to the
charter of the Borrower or such other Loan Party since the date
of the Director's or the Secretary of State's certificate
referred to in Section 4.01(k)(ii), as applicable, (B) a true and
correct copy of the bylaws of the Borrower and such other Loan
Party as in effect on the date of the initial Borrowing, (C) the
due incorporation of each Loan Party and good standing of each
Loan Party as corporations organized under the laws of their
respective jurisdictions of incorporation, and the absence of any
proceeding for the dissolution or liquidation of each Loan Party,
(D) the truth of the representations and warranties contained in
the Loan Documents as though made on and as of the date of the
initial Borrowing and (E) the absence of any event occurring and
continuing, or resulting from the initial Borrowing, that
constitutes a Default;
(xiv) a security agreement in substantially the applicable
form of Exhibit X (together with any additional security
---------
agreement executed by any Loan Party in favor of the
Administrative Agent and/or the Lenders after the Closing Date,
as amended from time to time in accordance with their terms,
each, a "SECURITY AGREEMENT"), duly executed by each Loan Party,
------------------
together with:
(A) certificates representing the Pledged Shares of
the Borrower referred to in the Security Agreement executed by
Panolam International, accompanied by an undated share transfer
power executed in blank, and instruments evidencing the Pledged
Debt referred to in the Security Agreement endorsed in blank by
the Borrower;
(B) a verification statement verifying proper
registration under the PPSA (Ontario) and executed copies of
proper financing statements, in appropriate form for filing under
the PPSA of all jurisdictions in the United States of America,
that the Administrative Agent may deem necessary or desirable in
order to perfect and protect the Liens created by the Security
Agreements, covering the Collateral described in the Security
Agreements; and
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(C) confirmations executed by Persons with PPSA
registrations prior to the registrations in favor of the
Administrative Agent confirming the nature of the Collateral in
respect of which those registrations have been made in form and
substance reasonably satisfactory to the Administrative Agent;
(xv) mortgages, assignment of leases and rents, deeds of
trust, trust deeds, leasehold mortgages and leasehold deeds of
trust in substantially the applicable form of Exhibit XII and
-----------
covering the properties listed on Schedule 4.01(k)(xv), together
with any additional security documents of substantially similar
purposes executed by any Loan Party in favor of the
Administrative Agent and/or the Lenders after the Closing Date,
as amended from time to time in accordance with their terms, the
"MORTGAGES"), duly executed by each applicable Loan Party,
---------
together with:
(A) evidence that counterparts of the Mortgages have
been duly recorded (or executed and delivered in appropriate form
for filing and recording) in all filing or recording offices that
the Administrative Agent may deem necessary or desirable in order
to create a valid first (in the case of any Mortgage executed by
the Borrower) or second (in the case of any Mortgage executed by
any other Loan Party) and subsisting Lien on the property
described therein (subject to Permitted Liens and exceptions set
forth in the applicable Mortgage Policies (as defined below)) in
favor of the Administrative Agent for the benefit of the
Administrative Agent and the Lender Parties and that all filing
and recording taxes and fees have been paid or provided for;
(B) for the properties described in paragraphs 2 to 7
inclusive of Schedule 4.01(k)(xv), fully paid American Land Title
Association Lender's Extended Coverage title insurance policies,
and for the property described in paragraph 1 of Schedule
4.01(k)(xv), a fully paid First American Title Insurance Company
Form 1 (12-90) Loan Policy (Ontario) with a guarantee endorsement
for the ALTA 1970 Loan Policy, as amended in 1992 (the "MORTGAGE
--------
POLICIES") or commitments therefor in form and substance, with
--------
endorsements and in amount reasonably acceptable to the
Administrative Agent, issued, coinsured and reinsured by title
insurers acceptable to the Administrative Agent, insuring the
Mortgages to be valid first (in the case of any Mortgage executed
by the Borrower) or second (in the case of any Mortgage executed
by any other Loan Party) and subsisting Liens on the property
described therein, subject only to Permitted Liens, and providing
for such other affirmative insurance (including endorsements for
future advances under the Loan Documents and for mechanics',
construction and materialmen's Liens) and such coinsurance and
direct access reinsurance
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as the Administrative Agent may reasonably deem necessary or
desirable; and
(C) such consents and agreements of lessors and other
third parties, and such estoppel letters and other confirmations,
as the Administrative Agent may deem necessary or desirable;
(xvi) a guaranty in substantially the form of Exhibit XI
----------
(together with any additional guaranty or guarantee executed by
any Loan Party in favor of the Administrative Agent and/or the
Lenders after the Closing Date, as amended from time to time in
accordance with its terms, each, a "GUARANTY"), duly executed by
--------
each of the Guarantors;
(xvii) pro forma Consolidated opening balance sheets of each
of the Borrower and Panolam International as of the Closing Date,
giving effect to the Transactions and reflecting the proposed
legal and capital structure of Holdings and its Subsidiaries,
which legal and capital structure shall be satisfactory in all
respects to the Lead Arranger, the Syndication Agent and the
Administrative Agent;
(xviii) (A) the audited financial statements of Holdings and
its Subsidiaries on a Consolidated basis and of Pioneer dated
December 28, 1995, December 27, 1996, and December 26, 1997, (B)
the unaudited financial statements of Holdings and its
Subsidiaries on a Consolidated basis and of Pioneer for each
quarterly period completed subsequent to December 31, 1997, and
(C) the available unaudited financial statements of Holdings and
its Subsidiaries on a Consolidated basis and of Pioneer for each
monthly period subsequent to the most recently ended quarterly
period;
(xix) the Projections in form and substance satisfactory
to the Syndication Agent and the Administrative Agent in all
respects;
(xx) a certificate of the Chief Financial Officer of
Panolam International, in form and substance satisfactory to the
Administrative Agent and the Lenders, attesting to the Solvency
of each Loan Party after giving effect to the Pioneer Acquisition
and the Transactions;
(xxi) certified copies of the environmental reports listed
on Schedule 4.01(k)(xxi);
(xxii) evidence of insurance naming the Administrative
Agent as insured and loss payee in form and substance reasonably
satisfactory to the Administrative Agent with such responsible
and reputable insurance companies or associations, and in such
amounts and covering such risks (including, but not
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limited to, general and other liability and business
interruption), as is satisfactory to the Administrative Agent and
the Syndication Agent;
(xxiii) certified copies of each employment agreement and
other compensation arrangement with each executive officer of any
Loan Party;
(xxiv) certified copies of all Material Contracts of each
Loan Party;
(xxv) favorable opinions of Davies, Ward & Beck, counsel
to the Borrower, and of Brobeck, Phleger & Harrison LLP, counsel
to the other Loan Parties, in substantially the forms of Exhibit
-------
XIII-A hereto and as to such other matters as the Agents or any
------
Lender through the Administrative Agent may reasonably request;
(xxvi) favorable opinions of counsel to the Borrower or
Panolam International under the laws of each jurisdiction in
which any material portion of the Collateral is located with
respect to the creation and perfection of the security interests
in favor of the Administrative Agent in such Collateral and such
other matters governed by the laws of such jurisdiction as the
Agents or any Lender through the Administrative Agent may
reasonably request, in each case in form and substance reasonably
satisfactory to the Syndication Agent and the Administrative
Agent dated as of the Closing Date and setting forth
substantially the matters in the applicable form of opinion
annexed hereto as Exhibit XIII-B;
--------------
(xxvii) copies of (i) such opinions of counsel delivered to
the parties under the US Credit Agreement, (ii) the opinions of
counsel, if any, delivered to the parties under the Pioneer
Acquisition Agreement and (iii) each opinion of counsel to
Panolam International delivered in connection with the
Subordinated Debt Documents, together with a letter from each
counsel (other than counsel to Pioneer in connection with the
Pioneer Acquisition Agreement) delivering such opinion
authorizing the Lenders to rely upon such opinion to the same
extent as though it were addressed to the Lenders;
(xxviii) such other policies of title insurance, closing
certificates, resolutions, solvency certificates and opinions of
counsel, in each case satisfactory in form and substance to the
Lead Arranger, the Syndication Agent and the Administrative
Agent, as they may reasonably deem necessary in connection with
the Transactions;
(xxix) an acknowledgement (as amended, supplemented and
otherwise modified, the "ACKNOWLEDGEMENT RESPECTING SALES
--------------------------------
AGREEMENTS") duly executed by Panolam US and the Borrower and
----------
addressed to the Administrative Agent and the US Administrative
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Agent in which those Loan Parties clarify certain inadvertent
errors in certain sales agreements described in the Schedules to
such acknowledgement, in form and substance reasonably
satisfactory to the Administrative Agent;
(xxx) an Intercreditor and Subordination Agreement in
substantially the form of Exhibit XVI (as amended from time to
-----------
time in accordance with its terms, the "INTERCREDITOR
-------------
AGREEMENT"), duly executed by the Administrative Agent, the US
Administrative Agent and the Loan Parties;
(l) the Administrative Agent shall have received the initial
Notice of Borrowing in accordance with Section 2.02(a) and a Borrowing Base
Certificate as of January 31, 1999 and such other Receivables and Inventory
reports as the Administrative Agent may reasonably request; and
(m) Panolam International shall have received (or shall
substantially concurrently receive) the proceeds of the initial loans under
the US Credit Agreement of at least US$55,000,000 or the Administrative
Agent shall otherwise be satisfied that the closing under the US Credit
Agreement will happen concurrently with the closing under this Agreement.
SECTION 4.02 CONDITIONS PRECEDENT TO EACH BORROWING AND ISSUANCE.
----------------------------------------------------
The obligation of each Appropriate Lender to make a Loan (other
than payment against a Letter of Credit Drawing and other than a Revolving Loan
made by a Revolving Lender pursuant to Section 2.02(f)) on the occasion of each
Borrowing (including the initial Borrowing), and the right of the Borrower to
request a Swing Line Borrowing or the Issuance of a Letter of Credit, shall be
subject to the further conditions precedent that on the date of such Borrowing
or Issuance the following statements shall be true and the Administrative Agent
shall have received for the account of such Lender or such Issuing Bank a
certificate signed by a duly authorized officer of the Borrower, dated the date
of such Borrowing or Issuance, stating that (and each of the giving of the
applicable Notice of Borrowing, Notice of Swing Line Borrowing or Notice of
Issuance and the acceptance by the Borrower of the proceeds of such Borrowing or
of such Letter of Credit shall constitute a representation and warranty by the
Borrower that on the date of such Borrowing or Issuance such statements are
true):
(a) the representations and warranties contained in each Loan
Document are true and correct on and as of the date of such Borrowing or
Issuance, before and after giving effect to such Borrowing or Issuance and
to the application of the proceeds therefrom, as though made on and as of
such date other than any such representations or warranties that, by their
terms, are specifically made as of a date other than the date of such
Borrowing or Issuance (which shall be true and correct as of such other
date);
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(b) no event or condition has occurred and is continuing, or
would result from such Borrowing or Issuance or from the application of the
proceeds therefrom, that constitutes a Default; and
(c) for each Revolving Loan or Swing Line Loan or Issuance of
any Letter of Credit, the Borrowing Base Amount exceeds the Total
Utilization of Revolving Commitments and the specific credit limits set
forth in the first sentence of Sections 2.01(c), 2.01(d) and 3.01 are not
exceeded after giving effect to such Loan or Issuance, respectively.
SECTION 4.03 DETERMINATIONS UNDER SECTION 4.01.
----------------------------------
For purposes of determining compliance with the conditions
specified in Section 4.01, each Lender shall be deemed to have consented to,
approved or accepted or to be satisfied with each document or other matter
required thereunder to be consented to or approved by or acceptable or
satisfactory to the Lenders unless an officer of the Administrative Agent
responsible for the Transactions contemplated by the Loan Documents shall have
received written notice from such Lender prior to the initial Borrowing
specifying its objection thereto and such Lender shall not have made available
to the Administrative Agent such Lender's ratable portion of such Borrowing.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
SECTION 5.01 REPRESENTATIONS AND WARRANTIES OF LOAN PARTIES.
-----------------------------------------------
Each Loan Party represents and warrants as follows:
(a) INCORPORATION, QUALIFICATION, CORPORATE POWER AND
-------------------------------------------------
AUTHORIZATION. Each Loan Party (i) is a corporation duly organized, validly
-------------
existing and good standing under the laws of the jurisdiction of its
incorporation, (ii) is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which it owns or leases property
or in which the conduct of its business requires it to so qualify or be
licensed except where the failure to so qualify or be licensed would not
have a Material Adverse Effect and (iii) has all requisite corporate power
and authority to own or lease and operate its properties and to carry on
its business as now conducted and as proposed to be conducted. All of the
outstanding Capital Stock of each Loan Party has been validly issued, is
fully paid and non-assessable and, as of the date hereof, is owned by the
respective parties set forth in Schedule 5.01(b) in the amounts specified
therein free and clear of all Liens.
(b) CAPITAL STOCK. Set forth on Schedule 5.01(b) hereto is a
--------------
complete and accurate list, as of the date hereof, of all Loan Parties and
each of their respective Subsidiaries, showing as of the date hereof (as to
each such Loan Party and Subsidiary)
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the jurisdiction of its incorporation, the number of shares of each class
of Capital Stock authorized and outstanding, the percentage of the
outstanding shares of each such class owned (directly or indirectly) by
another Loan Party and the number of shares covered by all outstanding
options, warrants, rights of conversion or purchase and similar rights. All
of the outstanding Capital Stock of each Loan Party has been validly
issued, is fully paid and non-assessable and (except in the case of
Holdings) is owned by another Loan Party free and clear of all Liens,
except those created by the Collateral Documents.
(c) AUTHORIZATION; NO CONFLICT OR VIOLATION; COMPLIANCE WITH
--------------------------------------------------------
LAWS. The execution, delivery and performance by each Loan Party of this
----
Agreement, the Notes (if any), each other Loan Document and each Related
Document to which it is or is to be a party, and the consummation of the
Pioneer Acquisition and the other Transactions contemplated hereby, are
within such Loan Party's corporate powers, have been duly authorized by all
necessary corporate action, and do not (i) contravene such Loan Party's
charter or bylaws, (ii) violate any law, rule, regulation (including,
without limitation, Regulation X of the Board of Governors of the US
Federal Reserve System), order, writ, judgment, injunction, decree,
determination or award, (iii) conflict with or result in the breach of, or
constitute a default under, any contract, loan agreement, indenture,
mortgage, deed of trust, lease or other instrument binding on or affecting
any Loan Party, any of its Subsidiaries or any of their properties or (iv)
except for the Liens created by the Collateral Documents and the US Loan
Documents, result in or require the creation or imposition of any Lien upon
or with respect to any of the properties of any Loan Party. No Loan Party
or any of its Subsidiaries is in violation of any such law, rule,
regulation, order, writ, judgment, injunction, decree, determination or
award or in breach of any such contract, loan agreement, indenture,
mortgage, deed of trust, lease or other instrument, the violation or breach
of which could have a Material Adverse Effect.
(d) APPROVALS AND CONSENTS. No authorization or approval or
----------------------
other action by, and no notice to or filing with, any governmental
authority or regulatory body or any other third party is required for (i)
the due execution, delivery, recordation, filing or performance by any Loan
Party of this Agreement, the Notes (if any), any other Loan Document or any
Related Document to which it is or is to be a party, or for the
consummation of the Pioneer Acquisition or the other Transactions
contemplated hereby, (ii) the grant by any Loan Party of the Liens granted
by it pursuant to the Collateral Documents and the US Loan Documents, (iii)
the perfection or maintenance of the Liens created by the Collateral
Documents and the US Loan Documents (including the first or second priority
nature thereof, as applicable) or (iv) the exercise by the Administrative
Agent or any Lender of its rights under the Loan Documents or the remedies
in respect of the Collateral pursuant to the Collateral Documents, except
for the authorizations, approvals, actions, notices and filings listed on
Schedule 5.01(d), all of which have been duly obtained, taken, given or
made and are in full force and effect. All applicable waiting periods in
connection with the Pioneer Acquisition and the other Transactions
contemplated hereby have expired without any action having been taken by
any
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competent authority restraining, preventing or imposing materially adverse
conditions upon the Pioneer Acquisition or the rights of the Loan Parties
freely to transfer or otherwise dispose of, or to create any Lien on, any
properties now owned or hereafter acquired by any of them.
(e) ENFORCEABILITY. This Agreement has been, and each of the
---------------
Notes (if any), each other Loan Document and each Related Document when
delivered hereunder will have been, duly executed and delivered by each
Loan Party party thereto. This Agreement is, and each of the Notes (if
any), each other Loan Document and each Related Document when delivered
hereunder will be, the legal, valid and binding obligation of each Loan
Party thereto, enforceable against such Loan Party in accordance with its
terms.
(f) FINANCIAL STATEMENTS.
---------------------
(i) (A) The audited Consolidated balance sheets of Holdings
and its Subsidiaries as at December 31, 1996 and 1997, the
related audited Consolidated statements of operations for the
period from May 16, 1996 to December 31, 1996 and the year ended
December 31, 1997, the related audited Consolidated statements of
stockholders' equity for the period from May 16, 1996 to December
31, 1996 and the year ended December 31, 1997, and the related
audited Consolidated statements of cash flows for the period from
May 16, 1996 to December 31, 1996 and the year ended December 31,
1997, accompanied by an opinion of Coopers & Lybrand, independent
public accountants, and (B) the unaudited Consolidated balance
sheets of Holdings and its Subsidiaries as at September 30, 1998,
the related unaudited Consolidated statements of operations for
the nine-month periods ended September 30, 1997 and 1998, the
related unaudited Consolidated statements of stockholders' equity
for the period from January 1, 1998 to September 30, 1998, and
the related unaudited Consolidated statements of cash flows for
the nine-month periods ended September 30, 1997 and 1998, duly
certified by the Chief Financial Officer, copies of all of which
have been furnished to each Lender, fairly present, subject, in
the case of said balance sheets and statements in the foregoing
clause (B), to year-end audit adjustments, the Consolidated
financial condition of Holdings and its Subsidiaries as at such
dates and the Consolidated results of the operations of Holdings
and its Subsidiaries for the periods ended on such dates, all in
accordance with GAAP applied on a consistent basis, and since
December 31, 1997, there has occurred no event or circumstance
which has had or could reasonably be expected to have a Material
Adverse Effect.
(ii) (A) The audited balance sheets of Pioneer as at
December 28, 1995, December 27, 1996 and December 26, 1997, the
related audited statements of income for the period from July 21,
1995 to December 28, 1995
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and the years ended December 27, 1996 and December 26, 1997, and
the related audited statements of cash flows for the period from
July 21, 1995 to December 28, 1995 and the years ended December
27, 1996 and December 26, 1997, accompanied by an opinion of
PricewaterhouseCoopers LLP, independent public accountants, and
(B) the unaudited balance sheets of the Borrower as at September
25, 1998, the related unaudited statements of income for the
nine-month periods ended September 26, 1997 and September 25,
1998, and the related unaudited statements of cash flows for the
nine-month periods ended September 26, 1997 and September 25,
1998, duly certified by the Chief Financial Officer, copies of
all of which have been furnished to each Lender, fairly present,
subject, in the case of said balance sheets and statements in the
foregoing clause (B), to year-end audit adjustments, the
financial condition of Pioneer as at such dates and the results
of the operations of Pioneer for the periods ended on such dates,
all in accordance with GAAP applied on a consistent basis, and
since December 26, 1997, there has occurred no event or
circumstance which has had or could reasonably be expected to
have a Material Adverse Effect.
(iii) The Consolidated pro forma opening balance sheets of
each of the Borrower and Panolam International as of the Closing
Date, and the related Consolidated pro forma statements of income
and cash flows of the Borrower and Panolam International as of
December 31, 1998 and for the Fiscal Year then ended, certified
by the Chief Financial Officer, copies of which have been
furnished to each Lender, fairly present the Consolidated pro
forma financial condition of the Borrower and of Panolam
International and its Domestic Subsidiaries as at the Closing
Date and the Consolidated pro forma results of operations of the
Borrower and of Panolam International and its Domestic
Subsidiaries for the period ended on December 31, 1998, in each
case giving effect to the Pioneer Acquisition and the other
Transactions contemplated hereby, all in accordance with GAAP.
(iv) The Consolidated forecasted balance sheets, income
statements and cash flows statements of Holdings and its
Subsidiaries delivered to the Lenders pursuant to Section 4.01 or
5.01 were prepared in good faith on the basis of the assumptions
stated therein, which assumptions were fair in the light of
conditions existing at the time of delivery of such forecasts,
and represented, at the time of delivery, the Borrower's best
estimate of its future financial performance.
(g) DISCLOSURE. Neither the Information Memorandum (by itself)
-----------
nor any other information, exhibit or report (taken as a whole) furnished
by any Loan Party to the Lead Arranger, any Agent or any Lender in
connection with the negotiation of the Loan Documents or pursuant to the
terms of the Loan Documents contained any untrue
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statement of a material fact or omitted to state a material fact necessary
to make the statements made therein not misleading.
(h) LITIGATION. There is no action, suit, investigation,
-----------
litigation or proceeding affecting any Loan Party, including any
Environmental Action, pending or (to its knowledge) threatened before any
court, governmental agency or arbitrator that (i) could reasonably be
expected to have a Material Adverse Effect or (ii) purports to affect the
legality, validity or enforceability of the Pioneer Acquisition, this
Agreement, any Note, any other Loan Document or any Related Document or the
consummation of the transactions contemplated hereby.
(i) USE OF PROCEEDS.
---------------
(i) No proceeds of any Loan will be used to acquire any
equity security of a class that is registered pursuant to Section
12 of the Exchange Act.
(ii) None of the Loan Parties is engaged in the business
of extending credit for the purpose of purchasing or carrying
Margin Stock, and no proceeds of any Loan will be used to
purchase or carry any Margin Stock or to extend credit to others
for the purpose of purchasing or carrying any Margin Stock.
(iii) Following application of the proceeds of each Loan,
not more than 25 percent of the value of the assets (either of
Panolam International only or of Panolam International and its
Subsidiaries on a Consolidated basis) subject to the provisions
of Section 6.02(a) or Section 6.02(e) or subject to any
restriction contained in any agreement or instrument between any
Loan Party and any Lender or any Affiliate of any Lender relating
to Debt and within the scope of Section 7.01(e) will be Margin
Stock.
(j) PENSION PLANS.
-------------
(i) Set forth on Schedule 5.01(j) hereto is a complete
and accurate list of all Canadian Benefit Plans and Canadian
Pension Plans respecting employees and/or former employees of any
Loan Party.
(ii) The Canadian Pension Plans are duly registered under
the ITA and all other applicable laws which require registration
and no event has occurred which is reasonably likely to cause the
loss of such registered status. None of the Loan Parties makes
any contributions in respect of a multi-employer pension plan.
All material obligations of each Loan Party (including fiduciary,
funding, investment and administration obligations) required to
be performed in respect of the Canadian Benefit Plans and the
Canadian Pension Plans and the funding agreements therefor have
been performed in a timely fashion.
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(iii) There have been no improper withdrawals or
applications of the assets of the Canadian Pension Plans or the
Canadian Benefit Plans. There are no outstanding disputes
concerning the assets of the Canadian Pension Plans or the
Canadian Benefit Plans.
(iv) The most recent actuarial report respecting each of
the Canadian Pension Plans has been filed with all applicable
regulatory authorities in a timely fashion and has been delivered
to the Administrative Agent and the Lenders. The Employee
Pension Plan for employees of the Borrower is in the process of
being converted from a defined benefit plan to a defined
contribution plan effective January 1, 1999, as described in
Schedule 5.01(j). There have been no material adverse changes to
any of the Canadian Pension Plans since the events described in
Schedule 5.01(j).
(v) Set forth on Schedule 5.01(j) hereto is a complete
and accurate list of all Plans and Welfare Plans with respect to
any employees of any Loan Party.
(vi) No ERISA Event has occurred or is reasonably
expected to occur with respect to any Plan of any Loan Party or
any of its ERISA Affiliates that has resulted in or is reasonably
likely to result in liability of any Loan Party in excess, either
individually or in the aggregate with all other ERISA Events
which have occurred or are reasonably expected to occur, of
US$2,000,000.
(vii) Schedule B (Actuarial Information) to the 1997
annual report (Form 5500 Series) for each Plan of any Loan Party
and each Plan of each ERISA Affiliate that is not a Loan Party
and that has an Insufficiency in excess of US$2,000,000, copies
of which have been filed with the US Internal Revenue Service and
furnished to the Lenders, is complete and accurate and fairly
presents the funding status of such Plan, and since the date of
such Schedule B there has been no material adverse change in such
funding status.
(viii) Neither any Loan Party nor any of its ERISA
Affiliates has incurred or is reasonably expected to incur any
Withdrawal Liability to any Multiemployer Plan which would,
either individually or in the aggregate with other payments of
Withdrawal Liability with respect to all Multiemployer Plans,
increase the amounts contributed or required to be contributed by
the Loan Parties to such Multiemployer Plans for the plan years
of such Multiemployer Plans immediately preceding the plan year
in which such Withdrawal Liability is incurred by an amount
exceeding US$1,000,000.
(ix) Neither any Loan Party nor any of its ERISA
Affiliates has been notified by the sponsor of a Multiemployer
Plan of any Loan Party or any of its ERISA Affiliates that such
Multiemployer Plan is in reorganization or has been
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terminated, within the meaning of Title IV of ERISA, and no such
Multiemployer Plan is reasonably expected to be in reorganization
or to be terminated, within the meaning of Title IV of ERISA
where the amount of liability incurred, or that may reasonably be
expected to be incurred, by the Loan Parties with respect to such
event, either individually or in the aggregate with all other
such events, would exceed US$2,000,000.
(k) NO ADVERSE CONDITIONS. Neither the business nor the
----------------------
properties of any Loan Party are affected by any fire, explosion, accident,
strike, lockout or other labor dispute, drought, storm, hail, earthquake,
embargo, act of God or of the public enemy or other casualty (whether or
not covered by insurance) that could reasonably be expected to have a
Material Adverse Effect.
(l) COMPLIANCE WITH ENVIRONMENTAL LAWS.
-----------------------------------
(i) Except as set forth on Schedule 5.01(l)(i), the
operations and properties of each Loan Party comply in all
material respects with all Environmental Laws, all necessary
Environmental Permits have been obtained and are in effect for
the operations and properties of each Loan Party, each Loan Party
is in compliance in all material respects with all such
Environmental Permits, and no circumstances exist that could (A)
form the basis of an Environmental Action against any Loan Party
or any of its respective properties that could have a Material
Adverse Effect or (B) cause any such property to be subject to
any material restrictions on ownership, occupancy, use or
transferability under any Environmental Law.
(ii) Except as set forth on Schedule 5.01(l)(ii), as it
may be updated from time to time (but only to the extent items
identified on any such update could not reasonably be expected to
have a Material Adverse Effect), none of the properties of any
Loan Party is listed or proposed for listing on the National
Priorities List under CERCLA or on the Comprehensive
Environmental Response, Compensation and Liability Information
System maintained by the Environmental Protection Agency or any
analogous state list of sites requiring investigation or cleanup
or is adjacent to any such property, and no underground storage
tanks are located on any property of any Loan Party or, to the
best of its knowledge, on any adjoining property.
(iii) Except as set forth on Schedule 5.01(l)(iii), no Loan
Party has transported or arranged for the transportation of any
Hazardous Materials to any location that is listed or proposed
for listing on the National Priorities List under CERCLA or on
the Comprehensive Environmental Response, Compensation and
Liability Information System maintained by the Environmental
Protection Agency or any analogous state list, Hazardous
Materials have not been generated, used,
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treated, handled, stored or disposed of on, or released or
transported to or from, any property of any Loan Party or, to the
best of its knowledge, any adjoining property, except for limited
quantities required in connection with the normal operation and
maintenance of such properties and used or stored at such
properties in compliance with all Environmental Laws and
Environmental Permits, and all other wastes generated at any such
properties have been disposed of in compliance with all
Environmental Laws and Environmental Permits, in each case other
than those that would have no Material Adverse Effect.
(m) TAX INFORMATION.
---------------
(i) Each Loan Party has filed, has caused to be filed or
has been included in all Federal and other material tax returns
(Federal, provincial, local and foreign) required to be filed and
has paid all taxes shown thereon to be due, together with
applicable interest and penalties.
(ii) Set forth on Schedule 5.01(m) hereto is a complete
and accurate list, as of the date hereof, of each taxable year of
(A) the Loan Parties for which US Federal income tax returns have
been filed and (B) the Borrower for which Canadian Federal income
tax returns have been filed, in each case for which the
expiration of the applicable statute of limitations for
assessment, reassessment or collection has not occurred by reason
of waiver, extension or otherwise (an "OPEN YEAR").
---------
(iii) The aggregate unpaid amount, as of the date hereof,
of adjustments to the US Federal income tax liability of the Loan
Parties proposed by the US Internal Revenue Service with respect
to Open Years does not exceed US$100,000. The aggregate unpaid
amount, as of the date hereof, of adjustments to the Canadian
Federal income tax liability of the Borrower proposed by Revenue
Canada with respect to Open Years does not exceed CDN$150,000.
Set forth on Schedule 5.01(m) hereto in respect of each Loan
Party are complete and accurate descriptions, as of the date
hereof, of each such item that separately, for all such Open
Years, together with applicable interest and penalties, exceeds
US$50,000 in the case of any of the Loan Parties (excluding the
Borrower) or CDN$75,000 in the case of the Borrower. No issues
have been raised by Revenue Canada or the US Internal Revenue
Service in respect of Open Years that, in the aggregate, could
have a Material Adverse Effect.
(iv) The aggregate unpaid amount, as of the date hereof,
of adjustments to the state, local and foreign tax liability of
the Company proposed by all state, local and foreign taxing
authorities (other than amounts arising from adjustments to US
Federal income tax returns) does not exceed US$50,000. The
aggregate unpaid amount, as of the date hereof, of adjustments to
the provincial, local and
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foreign tax liability of the Borrower proposed by all provincial,
local and foreign taxing authorities (other than amounts arising
from adjustments to Canadian Federal income tax returns) does not
exceed CDN$75,000. No issues have been raised by such taxing
authorities that, in the aggregate, could have a Material Adverse
Effect.
(v) The Pioneer Acquisition will not be taxable to
Holdings or any of its Subsidiaries or Affiliates.
(n) NO INVESTMENT COMPANY. Neither any Loan Party nor any of its
----------------------
Subsidiaries is an "investment company", or an "affiliated person" of, or
"promoter" or a "principal underwriter" for, an "investment company", as
such terms are defined in the US Investment Company Act of 1940, as
amended. Neither the making of any Loans, nor the issuance of any Letters
of Credit, nor the application of the proceeds or repayment thereof by the
Borrower, nor the consummation of the other transactions contemplated
hereby, will violate any provision of such Act or any rule, regulation or
order of the Securities and Exchange Commission thereunder.
(o) SOLVENCY. Each Loan Party is, individually and together with
its Subsidiaries, Solvent.
(p) ASSETS OF HOLDINGS AND ITS SUBSIDIARIES.
---------------------------------------
(i) As of the Closing Date, Holdings owns no assets other
than the Capital Stock of Group, certain deferred tax assets and
other assets with a fair market value that does not exceed
US$10,000 or the Equivalent Amount thereof; Group owns no assets
other than the Capital Stock of PII Second and other assets with
a fair market value that does not exceed US$ 10,000 or the
Equivalent Amount thereof; PII Second owns no assets other than
the Capital Stock of Panolam International and other assets with
a fair market value that does not exceed US$10,000 or the
Equivalent Amount thereof; Panolam International owns no assets
other than the Capital Stock of each of the Borrower, Panolam US
and Pioneer, other Investments in its Subsidiaries permitted
hereunder and other assets with a fair market value that does not
exceed US$10,000 or the Equivalent Amount thereof.
(ii) As of the Closing Date, none of Holdings, Group, PII
Second or Panolam International has engaged in any trade or
business or incurred any Debt or any other liabilities (which
have not been completely repaid or discharged), except for the
Domtar Note, the Genstar Agreements and the Obligations under the
Loan Documents and the Related Documents, and in connection with
its corporate formation and maintenance.
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(q) DEBT OF HOLDINGS AND ITS SUBSIDIARIES.
--------------------------------------
(i) Set forth on Schedule 5.01(q)(i) hereto is a complete
and accurate list of all Existing Debt, showing as of the date
hereof the principal amount outstanding thereunder. There are no
outstanding letters of credit as of the Closing Date in respect
of which Holdings or any of its Subsidiaries has any financial
obligations.
(ii) Set forth on Schedule 5.01(q)(ii) hereto is a complete
and accurate list of all Surviving Debt, showing as of the date
hereof the principal amount outstanding thereunder.
(r) DOMTAR NOTE. As of the Closing Date, the Borrower has caused
------------
to be delivered to the Administrative Agent a complete and correct copy of
the Domtar Note (including all schedules, exhibits, amendments,
supplements, modifications, assignments and all other documents delivered
pursuant thereto or in connection therewith). All Obligations, including
the Obligations to pay principal of and interest on the Loans and the
Letter of Credit Obligations, and all Liens granted to the Administrative
Agent, for the benefit of the Administrative Agent and the Lenders, in the
Collateral constitute permitted indebtedness and liens, respectively, under
the Domtar Note. Holdings is the sole obligor under the Domtar Note and no
other Loan Party has any liability in respect of the Domtar Note.
(s) OWNED REAL PROPERTY.
--------------------
(i) Set forth on Schedule 5.01(s) hereto is a complete and
accurate list of all real property owned by any Loan Party,
showing as of the date hereof the street address, municipality,
county or other relevant jurisdiction, province, state and
record/registered owner. Each Loan Party has good, marketable
and insurable fee simple title to such real property, free and
clear of all Liens, other than Liens created or permitted by the
Loan Documents.
(ii) Set forth on Schedule 5.01(s) hereto is a complete and
accurate list of all leases of real property under which any Loan
Party is the lessee, showing as of the date hereof the street
address, municipality, county or other relevant jurisdiction,
province, state, lessor, lessee, expiration date and annual
rental cost thereof. To the best knowledge of each Loan Party,
each such lease is the legal, valid and binding obligation of the
lessor thereof, enforceable in accordance with its terms.
(t) MATERIAL CONTRACTS. Set forth on Schedule 5.01(t) hereto is
-------------------
a complete and accurate list of all Material Contracts of each Loan Party,
showing as of the date hereof the parties, subject matter and term thereof.
Each such Material Contract has been
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duly authorized, executed and delivered by all parties thereto, has not
been amended or otherwise modified, is in full force and effect and is
binding upon and enforceable against all parties thereto in accordance with
its terms, and there exists no default under any Material Contract by any
party thereto.
(u) PIONEER ACQUISITION AGREEMENT. Each of the representations
------------------------------
and warranties in the Pioneer Acquisition Agreement is true and correct in
all material respects as of the Closing Date, in each case subject to the
qualifications set forth in the Pioneer Acquisition Agreement and the
schedules and exhibits thereto.
(v) INVESTMENTS. Set forth on Schedule 5.01(v) hereto is a
------------
complete and accurate list of all Investments held by any Loan Party,
showing as of the date hereof the amount, obligor or issuer and maturity,
if any, thereof.
(w) INTELLECTUAL PROPERTY. Set forth on Schedule 5.01(w) hereto
----------------------
is a complete and accurate list of all patents, patent designs, industrial
designs, trademarks, trade names, service marks and copyrights, and all
applications therefor and licenses thereof, of each Loan Party, showing as
of the date hereof the jurisdiction in which registered, the registration
number, the date of registration and the expiration date.
(x) OTHER AGREEMENTS. Schedule 5.01(x) sets forth a complete and
-----------------
accurate list as of the date hereof of (i) all joint venture and
partnership agreements to which any Loan Party is a party, and (ii) all
covenants not to compete restricting any Loan Party, to which any Loan
Party is a party or by which any Loan Party is bound.
(y) YEAR 2000. Any reprogramming required to permit the proper
----------
functioning, in and following the year 2000, of (i) each Loan Party's
computer systems and (ii) equipment containing embedded microchips
(including systems and equipment supplied by others or with which any Loan
Party's systems interface) and the testing of all such systems and
equipment, as so reprogrammed, will be completed by September 30, 1999.
The cost to the Loan Parties of such reprogramming and testing of the
reasonably foreseeable consequences of year 2000 to the Loan Parties
(including, without limitation, reprogramming errors and the failure of
others' systems or equipment) will not result in a Default or a Material
Adverse Effect. Except for such of the reprogramming referred to in the
preceding sentence as may be necessary, the computer and management
information systems of each Loan Party are and, with ordinary course
upgrading and maintenance, will continue for the term of this Agreement to
be, sufficient to permit such Loan Party to conduct its business without
Material Adverse Effect. Each Loan Party represents and warrants that it
has a reasonable basis to believe that no year 2000 problem will cause a
Material Adverse Effect.
(z) EXCLUDED MELAMINE SUBS. As of the date hereof, neither of
----------------------
the Excluded Melamine Subs owns any assets or is engaged in any trade or
business or has incurred
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any other liabilities which have not been completely repaid or discharged,
except for such liabilities as are required by law in connection with its
corporate formation and existence.
ARTICLE VI.
COVENANTS OF THE LOAN PARTIES
SECTION 6.01 AFFIRMATIVE COVENANTS.
----------------------
So long as any Loan or Unreimbursed Letter of Credit Liability
shall remain unpaid, any Letter of Credit shall be outstanding or any Lender
shall have any Commitment hereunder, each Loan Party will, unless the Required
Lenders shall otherwise consent in writing:
(a) COMPLIANCE WITH LAWS, ETC. Comply, and cause each of its
--------------------------
Subsidiaries to comply (i) in all material respects, with all applicable
laws, rules, regulations and orders and (ii) in all respects with all
provisions under applicable laws containing prohibitions or restrictions on
financial assistance and, for greater certainty and without limiting any
other covenant of any Loan Party hereunder, each Loan Party agrees that any
event, activity or transaction otherwise permitted hereunder shall only be
permitted to occur if such event, activity or transaction would not result
in a breach of this Section 6.01(a).
(b) PAYMENT OF TAXES, ETC. Pay and discharge, and cause each of
----------------------
its Subsidiaries to pay and discharge, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges or levies
imposed upon it or upon its property and (ii) all lawful claims that, if
unpaid, might by law become a Lien upon its property; provided, however,
-------- -------
that none of the Loan Parties nor any of their Subsidiaries shall be
required to pay or discharge any such tax, assessment, charge, levy or
claim that is being contested in good faith and by proper proceedings and
as to which appropriate reserves are being maintained, unless and until any
material Lien resulting therefrom attaches to its property and becomes
enforceable against its other creditors; and provided further, that if the
-------- -------
non-payment of any such tax, assessment, charge, levy or claim might become
a Lien upon any Loan Party's property, such Loan Party shall have notified
the Administrative Agent of the maximum amount thereof, and such amount
shall constitute a Reserve (but without duplication) for the purpose of
determining the Borrowing Base Amount (unless the Administrative Agent
otherwise consents in writing).
(c) COMPLIANCE WITH ENVIRONMENTAL LAWS. Comply, and cause each
-----------------------------------
of its Subsidiaries and all lessees and other Persons occupying its
properties to comply, in all material respects, with all Environmental Laws
and Environmental Permits applicable to its operations and properties; and
obtain and renew all Environmental Permits necessary for its operations and
properties.
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(d) MAINTENANCE OF INSURANCE; DAMAGE TO OR DESTRUCTION OF COLLATERAL.
-----------------------------------------------------------------
(i) Maintain, at their sole cost and expense, the policies
of insurance described on Schedule 6.01(d) as in effect on the Closing
Date (or equivalent replacements thereof), in form and with insurers
reasonably acceptable to the Administrative Agent. If any Loan Party
at any time or times hereafter shall fail to obtain or maintain any of
the policies of insurance required above or to pay all premiums
relating thereto, the Administrative Agent may at any time or times
thereafter obtain and maintain such policies of insurance and pay such
premiums and take any other action with respect thereto which the
Administrative Agent reasonably deems advisable. The Administrative
Agent shall have no obligation to obtain insurance for any Loan Party
or pay any premiums therefor. By doing so, the Administrative Agent
shall not be deemed to have waived any Default or Event of Default
arising from any Loan Party's failure to maintain such insurance or
pay any premiums therefor. All sums so disbursed, including reasonable
legal counsel fees, court costs and other reasonable charges related
thereto, shall be payable on demand by the Borrower (to the extent not
prohibited or limited by applicable law and, if prohibited or limited
by applicable law, then at the expense (to the extent not recoverable
from the Borrower) of any one or more of the other Loan Parties
designated by the Administrative Agent) to the Administrative Agent
and shall be additional Obligations hereunder secured by the
Collateral.
(ii) The Administrative Agent reserves the right at any time
upon any change in any Loan Party's risk profile (including any change
in the product mix maintained by any Loan Party or any laws affecting
the potential liability of such Loan Party) to require additional
forms and limits of insurance to, in the Administrative Agent's
reasonable opinion, adequately protect both the Administrative Agent's
and the Lenders' interests in all or any portion of the Collateral and
to ensure that each Loan Party is protected by insurance in amounts
and with coverage customary for its industry.
(iii) In the event that any Collateral is damaged, destroyed or
lost and any insurance proceeds are payable as a result of such
occurrence and the cost of the repair, restoration or replacement is
reasonably expected to exceed US$10,000,000, or the Equivalent Amount
thereof, and the Loans are not required to be prepaid pursuant to
Section 2.04, then: (A) within 30 days after the date of such damage,
destruction or loss, the Borrower shall deliver to the Administrative
Agent, in form and substance reasonably satisfactory to the
Administrative Agent: (1) a written plan for the repair, restoration
or replacement of such Collateral, including the estimated cost of
such repair, restoration or replacement and time of completion, and
(2) such other documents and information relating to such repair,
restoration or replacement as the
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<PAGE>
Administrative Agent or the Required Lenders may reasonably request;
(B) any related insurance proceeds shall be immediately paid into a
Cash Collateral Account in the name of the Borrower at a bank (other
than a Lender or the Administrative Agent) acceptable to the
Administrative Agent (which account must be subject to a blocked
account agreement reasonably satisfactory in form and substance to the
Administrative Agent) which account shall be used solely to pay the
cost of such repair, restoration or replacement and shall be disbursed
in accordance with such terms, conditions and procedures as the
Administrative Agent may reasonably require, provided that (1) the
-------- ----
Administrative Agent shall have no obligation to disburse any such
amounts if an Event of Default has occurred and is continuing, and (2)
if the amount of any such insurance proceeds paid into such Cash
Collateral Account exceeds the cost of completing the repair,
restoration or replacement, the excess may be applied by
Administrative Agent to the Obligations hereunder in such order and
manner as the Administrative Agent may determine (provided that no
-------- ----
amount shall be applied to the payment of the Term B Loans to the
extent that such application would result in the payment of more than
25% of the original principal amount of the Term B Loans on or before
the fifth anniversary of the Closing Date, taking into account any
prior prepayments and the scheduled repayments of the Term B Loans in
Section 2.03(b)) or, at the option of the Administrative Agent and the
Required Lenders, may be released to the Borrower.
(e) PRESERVATION OF CORPORATE EXISTENCE, ETC. Preserve and maintain
-----------------------------------------
its corporate existence, rights (charter and statutory) and franchises;
provided, however, a Loan Party may consummate any amalgamation, merger or
-------- -------
consolidation permitted under Section 6.02(d), provided further, none of
-------- -------
the Loan Parties shall be required to preserve any right or franchise if
the Board of Directors of such Loan Party shall determine that the
preservation thereof is no longer desirable in the conduct of its business
and that the loss thereof is not disadvantageous in any material respect to
any Loan Party or Lender Party.
(f) VISITATION RIGHTS. At any reasonable time and from time to time,
------------------
permit the Administrative Agent or any of the Lenders or any agents or
representatives thereof, to examine and make copies of and abstracts from
the records and books of account of, and visit the properties of each Loan
Party, and to discuss the affairs, finances and accounts of each Loan Party
with any of their officers or directors and with their independent
certified or chartered public accountants.
(g) PREPARATION OF ENVIRONMENTAL REPORTS. At the request of the
-------------------------------------
Administrative Agent and the Required Lenders from time to time, provide to
the Lenders within 90 days after such request, at the expense of the
Borrower (to the extent not prohibited or limited by applicable law and, if
prohibited or limited by applicable law, then at the expense (to the extent
not recoverable from the Borrower) of any one or more
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of the other Loan Parties designated by the Administrative Agent), an
environmental site assessment report for all of the Loan Parties'
properties described in such request, prepared by an environmental
consulting firm acceptable to the Administrative Agent and the Required
Lenders, indicating the presence or absence of Hazardous Materials and the
estimated cost of any compliance, removal or remedial action in connection
with any Hazardous Materials on such properties; provided that the Borrower
-------- ----
may satisfy the foregoing obligations by providing the Administrative Agent
and the Required Lenders with a copy of an environmental site assessment
report prepared by an independent environmental consulting firm within
three years prior to such request unless a Loan Party knows or has reason
to know that a new condition has occurred or that an existing condition has
materially adversely changed. Without limiting the generality of the
foregoing, if the Administrative Agent or the Required Lenders determine at
any time that a material risk exists that any such report will not be
provided within the time referred to above, the Administrative Agent or the
Required Lenders may retain an environmental consulting firm to prepare
such report at the expense of the Borrower (to the extent not prohibited or
limited by applicable law, and, if prohibited or limited by applicable law,
then at the expense (to the extent not recoverable from the Borrower) of
any one or more of the other Loan Parties designated by the Administrative
Agent), and each Loan Party hereby grants and agrees to grant at the time
of such request, to the Administrative Agent, the Lenders, such firm and
any agents or representatives thereof an irrevocable non-exclusive license,
subject to the rights of tenants, to enter onto their respective properties
to undertake such an assessment.
(h) APPRAISALS. The Borrower, at its own expense (to the extent not
-----------
prohibited or limited by applicable law, and, if prohibited or limited by
applicable law, then at the expense (to the extent not recoverable from the
Borrower) of any one or more of the other Loan Parties designated by the
Administrative Agent), shall deliver to the Administrative Agent within 60
days of written request therefor such appraisals satisfying the
requirements of any applicable laws and regulations concerning the value of
such of the real property of any of the Loan Parties as the Administrative
Agent may request at any time to comply with such laws or regulations, such
appraisals to be conducted by an appraiser, and be in form and substance,
satisfactory to the Administrative Agent.
(i) KEEPING OF BOOKS. Keep, and cause each of its Subsidiaries to
-----------------
keep, proper books of record and account, in which full and correct entries
shall be made of all their respective financial transactions and their
respective assets and business in accordance with generally accepted
accounting principles in effect from time to time.
(j) MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve, and cause
-------------------------------
each of its Subsidiaries to maintain and preserve, all of its properties
that are used or useful in the conduct of its business in good working
order and condition, ordinary wear and tear excepted.
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(k) COMPLIANCE WITH TERMS OF LEASEHOLDS. (i) Make all payments and
------------------------------------
otherwise perform all obligations in respect of all Material Leases of real
property, (ii) keep such leases in full force and effect and not allow such
leases to lapse or be terminated or any rights to renew such leases to be
forfeited or canceled, except in connection with the moving or
consolidation of facilities as determined to be in the best interest of
Panolam International and its Subsidiaries by the Board of Directors of
Panolam International, (iii) notify the Administrative Agent of any default
by any party with respect to such leases and (iv) cooperate with the
Administrative Agent in all respects to cure any such default.
(l) PERFORMANCE OF LOAN DOCUMENTS AND RELATED DOCUMENTS. Perform and
----------------------------------------------------
observe all of the terms and provisions of each Loan Document and Related
Document to be performed or observed by it, maintain each such Loan
Document and Related Document in full force and effect, enforce such Loan
Document and Related Document in accordance with its terms, take all such
action to such end as may be from time to time requested by the
Administrative Agent and, upon request of the Administrative Agent, make to
each other party to each such Loan Document and Related Document such
demands and requests for information and reports or for action as it is
entitled to make under such Loan Document or Related Document.
(m) PERFORMANCE OF MATERIAL CONTRACTS. Perform and observe all the
----------------------------------
terms and provisions of each Material Contract to be performed or observed
by it, maintain each such Material Contract in full force and effect,
enforce each such Material Contract in accordance with its terms, in each
case, unless Panolam International's Board of Directors (or the Borrower's
Board of Directors if the Borrower is party to such Material Contract and
the Borrower's Board of Directors' powers to manage or supervise the
management of the business and affairs of the Borrower have not been
restricted by a written declaration constituting an unanimous shareholder
agreement made by Panolam International, as the sole shareholder of the
Borrower) determines otherwise in the best interest of Panolam
International (or the Borrower if the Borrower or any of its Subsidiaries
is party to such Material Contract), and take all such action to such end
as may be from time to time requested by the Administrative Agent and, upon
request of the Administrative Agent, make to each other party to each such
Material Contract such demands and requests for information and reports or
for action as it is entitled to make under such Material Contract.
(n) ADDITIONAL LOAN PARTIES; ADDITIONAL COLLATERAL.
-----------------------------------------------
(i) Substantially concurrently with the formation or
acquisition of any Subsidiary of any Loan Party, (A) cause such
Subsidiary to deliver to the Administrative Agent a confirmation that
it is a "LOAN PARTY" and shall comply with and be bound by this
----------
Agreement and the Intercreditor Agreement as a Loan Party hereto and
thereto, (B) cause such Subsidiary (unless such Subsidiary is a
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Foreign Subsidiary that is not a Subsidiary of the Borrower) to
unconditionally guarantee all Obligations of the Borrower hereunder
and under the Notes (if any) by executing and delivering to the
Administrative Agent an amendment to Guaranty substantially in the
form of Exhibit XIV, if such Subsidiary is a corporation incorporated
-----------
under the laws of the United States of America, or a guarantee in form
and substance satisfactory to the Administrative Agent, acting
reasonably, in all other cases, (C) cause such Subsidiary (unless such
Subsidiary is a Foreign Subsidiary that is not a Subsidiary of the
Borrower) to execute and deliver to the Administrative Agent, an
amendment to Security Agreement, substantially in the form of Exhibit
-------
XV, if such Subsidiary is organized under the laws of the United
--
States of America, or a Security Agreement (or the applicable
equivalent thereof taking into account the laws of the relevant
jurisdictions under which the Subsidiary is organized, domiciled
(within the meaning of the Quebec Civil Code), and located and in
which the Subsidiary has assets or property) in form and substance
satisfactory to the Administrative Agent, acting reasonably, in all
other cases, (whereby such Subsidiary shall in each case, grant a Lien
on those of its assets described in the Security Agreements delivered
under Section 4.01 on or before the Closing Date (or in another
Collateral Document, if appropriate, of substantially the same purpose
and effect)), (D) promptly pledge to the Administrative Agent or cause
to be pledged to the Administrative Agent all of the outstanding
Capital Stock of such Subsidiary owned by any Loan Party to secure
such Loan Party's Obligations under the Loan Documents, (E) with
respect to any real property in which such Subsidiary has an interest,
cause such Subsidiary (unless such Subsidiary is a Foreign Subsidiary
that is not a Subsidiary of the Borrower) to execute and deliver such
deeds of trust, trust deeds, mortgages or the applicable equivalent
thereof ("ADDITIONAL MORTGAGES") in appropriate form for filling in
--------------------
all filing or recording offices that the Administrative Agent may deem
necessary or desirable to create a valid first (or second, in case of
any Domestic Subsidiary) and subsisting Lien on the property described
therein in favor of the Administrative Agent for the benefit of the
Administrative Agent and the Lender Parties, (F) promptly take, and
cause such Subsidiary and each other Loan Party to take, all action
necessary or (in the opinion of the Administrative Agent or the
Required Lenders) desirable to perfect and protect the Liens intended
to be created by the Collateral Documents, as required and as amended
pursuant to this Section 6.01(n), (G) promptly take, and cause such
Subsidiary to take, all action necessary or (in the opinion of the
Administrative Agent or the Required Lenders) desirable to provide
such Mortgage Policies, American Land Title Association form surveys
(or the applicable equivalent thereof), appraisals, environmental
reports, engineering, soils and other reports, assignments of leases
and rents, consents and agreements of lessors and other third parties,
estoppel letters and other confirmations, and evidence of insurance
with respect to any real property that becomes the subject of an
Additional Mortgage, as the
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Administrative Agent may deem necessary or desirable, in each case in
form and substance acceptable to the Administrative Agent, and (H)
promptly deliver to the Administrative Agent such Officers'
Certificates and opinions of counsel, if any, as the Administrative
Agent or the Required Lenders may reasonably require with respect to
the foregoing (including opinions as to enforceability and perfection
of security interests (or the applicable equivalent thereof)).
(ii) Substantially concurrently with the formation or
acquisition of the Excluded Acquisition Sub, (A) promptly pledge to
the Administrative Agent or cause to be pledged to the Administrative
Agent all of the outstanding Capital Stock of the Excluded Acquisition
Sub owned by any Loan Party to secure such Loan Party's Obligations
under the Loan Documents, (B) promptly take, and cause such Excluded
Acquisition Sub and each other Loan Party to take, all action
necessary or (in the opinion of the Administrative Agent or the
Required Lenders) desirable to perfect and protect the Lien intended
to be created by the foregoing, and (C) promptly deliver to the
Administrative Agent such opinions of counsel, if any, as the
Administrative Agent or the Required Lenders may reasonably require
with respect to the foregoing (including opinions as to enforceability
and perfection of security interests).
(iii) In addition to the foregoing, upon the acquisition by any
Loan Party (other than any Foreign Subsidiary that is not a Subsidiary
of the Borrower) on or after the date hereof of any interest in any
real property (A) the applicable Loan Party shall promptly execute and
deliver such Additional Mortgages in appropriate form for filing in
all filing or recording offices that the Administrative Agent may deem
necessary or desirable to create a valid first (or second, in case of
Panolam International or any Domestic Subsidiary) and subsisting Lien
on such real property in favor of the Administrative Agent for the
benefit of the Administrative Agent and the Lender Parties, (B) the
applicable Loan Party shall take all action necessary or (in the
opinion of the Administrative Agent or the Required Lenders) desirable
to perfect and protect the Liens intended to be created by the
Additional Mortgages, (C) each Loan Party shall take all action
necessary or (in the opinion of the Administrative Agent or the
Required Lenders) desirable to provide such Mortgage Policies,
American Land Title Association form surveys (or the applicable
equivalent thereof), appraisals, environmental reports, engineering,
soils and other reports, assignments of leases and rents, consents and
agreements of lessors and other third parties, estoppel letters and
other confirmations, and evidence of insurance with respect to any
real property that becomes the subject of an Additional Mortgage, as
the Administrative Agent may deem necessary or desirable, in each case
in form and substance acceptable to the Administrative Agent, and (D)
promptly deliver to the Administrative Agent such Officers'
Certificates and opinions of counsel, if any, as the Administrative
Agent or the Required Lenders
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may reasonably require with respect to the foregoing (including
opinions as to enforceability and perfection of security interests).
(o) YEAR 2000 ASSURANCES. Panolam International and each of its
---------------------
Subsidiaries shall take all action necessary and commit adequate resources
to assure that their respective computer-based and other systems are able
to effectively process data including dates before, on and after January 1,
2000 without experiencing any year 2000 problem that could cause a Material
Adverse Effect. At the request of the Administrative Agent or any Lender,
the Borrower shall use commercially reasonable efforts to provide or cause
to be provided to the Administrative Agent or such Lender, as the case may
be, with assurance and substantiation (including, but not limited to, the
results of internal or external audit reports prepared in the ordinary
course of business) reasonably acceptable to the Administrative Agent or
such Lender, as the case may be, as to the year 2000 capability of Panolam
International and its Subsidiaries and their respective abilities to
conduct their respective businesses and operations before, on and after
January 1, 2000 without experiencing a year 2000 problem causing a Material
Adverse Effect.
(p) CANADIAN PENSION PLANS. For each existing Canadian Pension Plan,
-----------------------
each Loan Party shall ensure that such plan retains its registered status
under and is administered in a timely manner in all respects in accordance
with the applicable pension plan text, funding agreement, the ITA and all
other applicable laws. For each Canadian Pension Plan hereafter adopted or
contributed to by any Loan Party which is required to be registered under
the ITA or any other applicable laws, any Loan Party shall use its best
efforts to seek and receive confirmation in writing from the applicable
regulatory authorities to the effect that such plan is unconditionally
registered under the ITA and such other applicable laws. For each existing
Canadian Pension Plan and Canadian Benefit Plan hereafter adopted or
contributed to by any Loan Party, the applicable Loan Party shall in a
timely fashion perform in all material respects all obligations (including
fiduciary, funding, investment and administration obligations) required to
be performed in connection with such plan and the funding therefor.
(q) CERTAIN POST-CLOSING MATTERS.
----------------------------
(i) Provide to the Administrative Agent within 30 days after
the Closing Date such consents and agreements of the lessor with
respect to the property located at 1111 All Pro Drive, Elkhart,
Indiana (the "ELKHART PROPERTY") as the Administrative Agent may
----------------
require and a Memorandum of Lease with respect to the lease relating
to the Elkhart Property, all in form and substance satisfactory to the
Administrative Agent, acting reasonably.
(ii) Within 30 days after the Closing Date, provide to the
Administrative Agent amended or replacement lenders' loss payable and
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additional insured endorsements in form and substance satisfactory to
the Administrative Agent, acting reasonably.
SECTION 6.02 NEGATIVE COVENANTS.
-------------------
So long as any Loan or Unreimbursed Letter of Credit Liability
shall remain unpaid, any Letter of Credit shall be outstanding or any Lender
shall have any Commitment hereunder, each of the Loan Parties (other than
Holdings with respect to Section 6.02(g)), the Excluded Acquisition Sub (with
respect to Sections 6.02(a), (b), (f) and (h)) and each of the Excluded Melamine
Subs (with respect to Sections 6.02(a), (b), (f) and (h)), will not, at any
time, without the written consent of the Required Lenders or, if required under
Section 9.01, of all of the Lenders (other than any Lender which is, at such
time, a Defaulting Lender):
(a) LIENS, ETC. Create, incur, assume or suffer to exist any
-----------
Lien on or with respect to any of its properties of any character
(including, without limitation, Receivables) whether now owned or hereafter
acquired, or sign or file under the PPSA of any jurisdiction, a financing
statement (or the applicable equivalent thereof) that names any Loan Party,
the Excluded Acquisition Sub or either of the Excluded Melamine Subs as
debtor, or sign any security agreement authorizing any secured party
thereunder to file such financing statement (or applicable equivalent
thereof), or assign any Receivables or other right to receive income,
excluding, however, from the operation of the foregoing restrictions the
------------------
following:
(i) Liens created by the Loan Documents and Liens
created by the US Loan Documents;
(ii) Permitted Liens;
(iii) the Liens described on Schedule 6.02(a)(iii);
(iv) purchase money Liens upon or in property acquired or
held by Holdings or any of its Subsidiaries in the ordinary
course of business to secure the purchase price of such property
or to secure Debt incurred by Holdings or its applicable
Subsidiary solely for the purpose of financing the acquisition,
construction or improvement of any such property to be subject to
such Liens, or Liens existing on any such property at the time of
acquisition, or extensions, renewals or replacements of any of
the foregoing for the same or a lesser amount; provided, however,
-------- -------
that no such Lien shall extend to or cover any property other
than the property being acquired, constructed or improved, and no
such extension, renewal or replacement shall extend to or cover
any property not theretofore subject to the Lien being extended,
renewed or replaced; and, provided further, that the aggregate
-------- -------
principal amount of the Debt secured by Liens permitted by this
clause (iv) and by clause (v) shall not exceed
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US$10,000,000 or the Equivalent Amount thereof at any time
outstanding and that any such Debt shall not otherwise be
prohibited by the terms of the Loan Documents;
(v) Liens arising in connection with Capital Leases of
Panolam International and its Subsidiaries; provided, that the
-------- ----
aggregate principal amount of the Debt secured by Liens permitted
by clause above and this clause shall not exceed US$10,000,000
or the Equivalent Amount thereof at any time outstanding; and,
provided further, that no such Lien shall extend to or cover any
-------- ------- ----
Collateral;
(vi) the replacement, extension or renewal of any Lien
permitted by clause (iii) above upon or in the same property
theretofore subject thereto or the replacement, extension or
renewal (without increase in the amount or change in any direct
or contingent obligor) of the Debt secured thereby;
(vii) Liens arising in the ordinary course of business and
securing liabilities (but not Funded Debt) in an outstanding
aggregate amount not in excess of US$300,000 or the Equivalent
Amount thereof in the aggregate for all Loan Parties; and
(viii) Liens on the property of the Excluded Acquisition
Sub but only to the extent that the Debt secured by such Liens is
permitted under Section 6.02(b)(vi); or
(b) DEBT. Create, incur, assume or suffer to exist any Debt
-----
other than:
(i) in the case of Panolam International:
(A) Debt under the Loan Documents;
(B) Debt under the US Credit Agreement;
(C) Subordinated Debt evidenced by the Subordinated
Notes;
(D) Permitted Seller Financing in an aggregate
principal amount at any time outstanding not to exceed
US$5,000,000 or the Equivalent Amount thereof; and
(E) intercompany Debt owed to any Loan Party so long as
such Debt is evidenced by one or more Intercompany Notes
that have been pledged to the Administrative Agent pursuant
to a Security Agreement; provided that, neither Panolam
-------- ----
International nor any of its Subsidiaries shall repay any
interest on or principal of, or pay any other amount in
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<PAGE>
respect of, such Debt (except Debt owing to the Borrower or
any of its Subsidiaries) upon or following the occurrence of
any Default that is continuing;
(ii) in the case of any of Panolam International's Domestic
Subsidiaries and the Borrower and its Subsidiaries:
(A) intercompany Debt owed to Panolam International or to
a wholly-owned Subsidiary of Panolam International so long as
such Debt is evidenced by one or more Intercompany Notes that
have been pledged to the Administrative Agent pursuant to a
Security Agreement; provided that, no Loan Party shall repay any
-------- ----
interest on or principal of, or pay any other amount in respect
of, such Debt upon or following the occurrence of any Default
that is continuing, other than such repayments by Domestic
Subsidiaries of Panolam International on or of their Debt owing
to Panolam International or any other Domestic Subsidiary and
such repayments by any Loan Party to the Borrower or any of its
Subsidiaries on or of Debt owing to the Borrower or any of its
Subsidiaries;
(B) Debt pursuant to the Loan Documents; and
(C) Debt pursuant to the US Credit Agreement Guaranty.
(iii) in the case of any Parent (other than Panolam
International), Debt pursuant to the Loan Documents and the US
Credit Agreement Guaranty;
(iv) in the case of Panolam International and the Borrower,
Debt in respect of Hedge Agreements in an aggregate notional
amount for all such Debt under this clause (v) not to exceed
US$30,000,000 or the Equivalent Amount thereof at any time
outstanding;
(v) in the case of any Loan Party:
(A) Debt of Panolam International or any of its
Subsidiaries secured by Liens permitted by Section 6.02(a)(iv) or
not to exceed in the aggregate the amount set forth in such
Section;
(B) the Surviving Debt;
(C) endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
business; and
(D) so long as no Default or Event of Default has occurred
that is continuing as of the date of incurrence or assumption
thereof or would
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<PAGE>
result after giving effect thereto, other Debt not exceeding
US$1,000,000 or the Equivalent Amount thereof in the aggregate
(for Panolam International and its Subsidiaries);
(vi) in the case of the Excluded Acquisition Sub:
(A) Non-Recourse Debt in an aggregate principal amount not
to exceed US$60,000,000 or the Equivalent Amount thereof at any
time outstanding; and
(B) intercompany Debt owed to Panolam International to the
extent constituting Investments permitted under Section
6.02(f)(ix); and
(vii) in the case of any Excluded Foreign Subsidiary,
intercompany Debt to the extent constituting Investments
permitted under Section 6.02(f)(xii).
(c) SYNTHETIC LEASE OBLIGATIONS. Create, incur, assume or suffer to
----------------------------
exist, any obligations as lessee for the rental or hire of real or personal
property in connection with any synthetic lease transaction.
(d) MERGERS, ETC. Amalgamate with, merge into or consolidate with any
-------------
Person or permit any Person to amalgamate with, merge into or consolidate
with it, except that (i) any Domestic Subsidiary of Panolam International
that is Solvent may merge into or consolidate with any other Domestic
Subsidiary of Panolam International that is Solvent; provided that, the
-------- ----
Person formed by such merger or consolidation shall be a Domestic
Subsidiary of Panolam International, (ii) any of Panolam International's
Domestic Subsidiaries that is Solvent may merge into Panolam International,
(iii) any Canadian Subsidiary of the Borrower that is Solvent may
amalgamate with a Canadian Subsidiary of the Borrower that is Solvent or
with the Borrower, (iv) a wholly-owned Subsidiary of Panolam International
or the Borrower formed primarily for the purposes of consummating a
Permitted Acquisition may, substantially contemporaneously with the
consummation of such Permitted Acquisition, be merged into or amalgamated
with the Person being acquired in such Permitted Acquisition; provided,
--------
however, that (i) in each case, immediately after giving effect thereto, no
-------
event shall occur and be continuing that constitutes a Default, (ii) in the
case of any such merger to which Panolam International is a party, Panolam
International is the surviving corporation and (iii) in the case of any
amalgamation to which the Borrower or any of its Subsidiaries is party, the
continuing corporation is incorporated under the laws of Canada (but not
the Province of Quebec) and the Administrative Agent shall have been given
sufficient prior notice by the Borrower of such transaction to enable it to
request and to receive, in form and substance satisfactory to it, acting
reasonably, concurrently therewith if it reasonably determines it necessary
or advisable one or more agreements (including guarantees, security
agreements and mortgages) duly executed by the continuing person from such
transaction
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<PAGE>
together with Officers' Certificates and legal opinions in connection
therewith (as to customary corporate matters relating to such continuing
person and as to the enforceability of such agreements and the perfection
of the Liens created by the Collateral Documents executed thereby).
(e) SALES, ETC. OF ASSETS. Sell, lease, transfer or otherwise dispose
----------------------
of any assets or grant any option or other right to purchase, lease or
otherwise acquire any Collateral except (i) sales of Inventory in the
ordinary course of its business and sales of worn out or obsolete assets or
trade-ins or trade-ups on other assets the proceeds of which are
substantially concurrently applied or committed to be applied within 90
days to the purchase of replacement assets, (ii) in a transaction
authorized by Section 6.02(d), (iii) sales of assets for cash and for fair
value in an aggregate amount not to exceed US$5,000,000 or the Equivalent
Amount thereof in any period of 12 consecutive months and US$15,000,000 or
the Equivalent Amount thereof in the aggregate since the Closing Date, (iv)
the sale of any asset by any Loan Party identified on Schedule 6.02(e)
subject to the parameters set forth on such Schedule, so long as, in the
case of each of the foregoing clauses (iii) and (iv), (A) the purchase
price paid to the Loan Party for such asset shall be no less than the fair
market value of such asset at the time of such sale and (B) the purchase
price for such asset shall be paid to that Loan Party solely in cash, (v)
so long as no Default shall occur and be continuing, the grant of any
option or other right to purchase any asset in a transaction which would be
permitted under the provisions of the preceding clause (iii) or (iv) and
(vi) intercompany transfers of assets among the Loan Parties so long as in
the case of any transfer by the Borrower or any other Foreign Subsidiary to
Panolam International, any of its Parents or any Domestic Subsidiary, the
transferor receives at the time of such transfer cash consideration equal
to the fair market value of the assets so transferred.
(f) INVESTMENTS IN OTHER PERSONS; ACQUISITIONS. Make or hold any
-------------------------------------------
Investment in any Person, or make any Acquisition, except that:
(i) the Borrower and its Subsidiaries may hold Investments
comprised of notes payable, or (solely as a result of reorganization
proceedings referred to below) Capital Stock or other securities
issued by Receivables Debtors to the Borrower or its applicable
Subsidiary pursuant to negotiated agreements or reorganization
proceedings under an Insolvency Law with respect to the settlement of
such Receivables Debtor's Receivables in the ordinary course of
business;
(ii) each Loan Party may maintain its existing Investments in
its Subsidiaries as of the Closing Date and, subject to Section
6.02(b), and so long as no Default has occurred and is continuing,
each Loan Party may make additional Investments in any Subsidiary that
is a Loan Party other than any Excluded Foreign Subsidiary;
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<PAGE>
(iii) each Subsidiary of Panolam International may maintain its
existing Investments in the other Subsidiaries of Panolam
International as of the Closing Date and, subject to Section 6.02(b),
and so long as no Default has occurred and is continuing, each such
Subsidiary may make additional Investments in any other wholly-owned
Subsidiary of Panolam International other than any Excluded Foreign
Subsidiary;
(iv) the Borrower may maintain its existing Investments in
Panolam International as of the Closing Date and, subject to Section
6.02(b), and so long as no Default has occurred and is continuing, the
Borrower may make additional Investments in Panolam International;
(v) unless an Event of Default has occurred and is continuing
and there is a Revolving Loan or Swing Line Loan outstanding, Panolam
International and its operating Domestic Subsidiaries and the Borrower
and its operating Canadian Subsidiaries may make investments in Cash
Equivalents;
(vi) so long as no Default shall have occurred and be
continuing, Panolam International and its Subsidiaries may consummate
Permitted Acquisitions (subject to Section 6.02(f)(xii) with respect
to any Excluded Foreign Subsidiary);
(vii) so long as no Default shall have occurred and be
continuing, the Borrower and its Subsidiaries may make loans and
advances described in clause (f) of the definition of "EXEMPTED
--------
AFFILIATE TRANSACTION";
---------------------
(viii) Panolam International and its Domestic Subsidiaries
may make any Investment permitted under the US Credit Agreement;
(ix) Panolam International may make an Investment of up to
US$5,000,000 or the Equivalent Amount thereof in the Excluded
Acquisition Sub;
(x) so long as no Event of Default has occurred and is
continuing, the Excluded Acquisition Sub may consummate the Excluded
Acquisition;
(xi) Panolam International may maintain its existing
Investments in the Excluded Melamine Subs as of the Closing Date, but
may not make any additional Investments therein;
(xii) the Loan Parties may make Investments in Excluded Foreign
Subsidiaries in an aggregate amount for all such Investments made
after the Closing Date, including such Investments pursuant to Section
6.02(f)(vi), not to exceed US$5,000,000 or the Equivalent Amount
thereof; and
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<PAGE>
(xiii) so long as no Event of Default shall have occurred and be
continuing, Panolam International may make other Investments not
exceeding US$500,000 or the Equivalent Amount thereof in the aggregate
at any time outstanding.
(g) DIVIDENDS, ETC. Declare or pay any dividends, purchase, redeem,
---------------
retire, defease or otherwise acquire for value any Capital Stock of any
Loan Party or any warrants, rights or options to acquire such Capital
Stock, now or hereafter outstanding, return any capital to any of their
stockholders as such, make any distribution of assets, capital stock,
warrants, rights, options, obligations or securities to any of their
stockholders as such or issue or sell any Capital Stock or any warrants,
rights or options to acquire such Capital Stock, except that, Panolam
International's Domestic Subsidiaries may declare and pay cash dividends to
Panolam International and the Borrower's Subsidiaries may declare and pay
cash dividends to the Borrower, and so long as no Default shall have
occurred and be continuing:
(i) Panolam International and its Subsidiaries may declare
and deliver dividends and distributions payable only in common stock
of Panolam International or such Subsidiary, as applicable;
(ii) the Borrower may declare and pay cash dividends to Panolam
International (and Panolam International and its respective Parents
may, in turn, pay cash dividends to their respective Parents) in
amounts necessary to pay (and only substantially concurrently with
payment of) (A) fees payable by Holdings pursuant to the Genstar
Agreements as and when due, and (B) income taxes attributable to the
business of Holdings and its Subsidiaries (but not attributable to the
Excluded Acquisition Sub, except to the extent of any cash dividend
actually received by Panolam International from the Excluded
Acquisition Sub for such purposes), the necessary fees and expenses to
maintain Holdings', Group's and PII Second's corporate existence, the
reasonable costs of their directors' and officers' insurance and their
legal and accounting fees to the extent such fees related to legal and
accounting services provided directly to them by entities that are not
Affiliates of the Borrower;
(iii) the Borrower and Panolam International may declare and pay
cash dividends to their respective Parents (and their respective
Parents may, in turn, pay cash dividends to their respective Parents)
in amounts necessary to fund (A) repurchases of Capital Stock of
Holdings from employees or former employees of Holdings or any of its
Subsidiaries upon such employees ceasing to be employees of Holdings
or any Loan Party up to an aggregate maximum amount for all such
repurchases on or after the date hereof US$3,000,000 or the Equivalent
Amount thereof and (B) amounts necessary to repay (and only
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substantially concurrently with payment of) the Domtar Note in
accordance with Section 6.02(k); and
(iv) the Borrower may declare and pay other cash dividends to
Panolam International.
(h) CHANGE IN NATURE OF BUSINESS. (i) Make any material change in
-----------------------------
the of its business as carried on at the date hereof or permit the Excluded
Acquisition Sub to engage in any business materially different from the
business of Holdings and its Subsidiaries; or (ii) in the case of any
Parent, engage in any trade or business, or own any assets or incur any
Debt or Obligations, except the Domtar Note owing by Holdings, the
obligations under the Genstar Agreements or such other Debt or Obligations
as are otherwise specifically permitted under this Agreement.
(i) CHARTER AMENDMENTS. Except as could not reasonably be expected
------------------
to affect any Lender Party, amend its certificate of incorporation or
bylaws (or applicable equivalent).
(j) ACCOUNTING CHANGES. Make or permit any change in accounting
-------------------
policies or reporting practices, except as required by generally accepted
accounting principles.
(k) PREPAYMENTS, ETC. OF DEBT. (i) Prepay, redeem, purchase,
--------------------------
defense or otherwise satisfy prior to the scheduled maturity thereof in any
manner any Debt other than (A) the prepayment of the Loans in accordance
with the terms of this Agreement, (B) regularly scheduled or required
repayments or redemptions of Surviving Debt, (ii) make any payment in
violation of any subordination terms of any Debt, or (iii) amend, modify or
change in any manner any term or condition of any Surviving Debt or
Subordinated Debt, except in any manner that does not adversely affect the
Loans, the Obligations, the Collateral, any Loan Document or any Lender
Party, provided, that under no circumstances shall any modification to
--------------
subordination provisions be permitted, other than (A) the prepayment of any
Debt payable to the Borrower or, subject to Section 6.02(b), Panolam
International, (B) subject to Section 6.02(b), the payment by Panolam
International and its Subsidiaries of interest on and principal of Debt
under Intercompany Notes issued in accordance with Section 6.02(b), (C) the
prepayment by Panolam International of loans under the US Credit Agreement
in accordance with the terms thereof and (D) payment or prepayment of all
or any portion of the Domtar Note (including interest); provided that, the
--------------
Borrower demonstrates pro forma compliance with the financial covenants in
Section 6.04 (as set forth in an Officers' Certificate setting forth the
calculations thereof and delivered to the Administrative Agent at least
three Business Days in advance of making such payment); and provided
--------
further, that no Default or Event of Default exists or would result
--------
therefrom,.
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<PAGE>
(l) AMENDMENT, ETC. OF RELATED DOCUMENTS. Except as otherwise
-------------------------------------
provided in the Intercreditor Agreement with respect to the US Loan
Documents, cancel or terminate any Related Document or consent to or accept
any cancellation or termination thereof, amend, modify or change in any
manner any term or condition of any Related Document or give any consent,
waiver or approval thereunder, waive any default under or any breach of any
term or condition of any Related Document, agree in any manner to any other
amendment, modification or change of any term or condition of any Related
Document or take any other action in connection with any Related Document
that would impair the value of the interest or rights of any Loan Party
thereunder or that would impair the rights or interests of the
Administrative Agent or any Lender Party.
(m) AMENDMENT, ETC. OF MATERIAL CONTRACTS. Cancel or terminate any
--------------------------------------
Material Contract or consent to or accept any cancellation or termination
thereof, amend or otherwise modify any Material Contract or give any
consent, waiver or approval thereunder, waive any default under or breach
of any Material Contract, agree in any manner to any other amendment,
modification or change of any term or condition of any Material Contract or
take any other action in connection with any Material Contract that would
impair the value of the interest or rights of any Loan Party thereunder or
that would impair the interest or rights of the Administrative Agent or any
Lender Party, in each case, except as determined by such Loan Party's
management to be in the best interests of that Loan Party.
(n) AMENDMENT, ETC. OF DOMTAR NOTE AND GENSTAR AGREEMENTS.
------------------------------------------------------
(i) Amend or modify the Domtar Note (or any indenture or
agreement in connection therewith) in any manner that has the
effect of (A) increasing the interest rate on the Debt thereunder
(other than pursuant to its terms as in effect on the date
hereof); (B) changing the dates upon which payments of principal
or interest are due on the Debt thereunder other than to extend
such dates; (C) changing any default or event of default other
than to delete or make less restrictive any default provision
therein, or add any covenant with respect to the Debt thereunder;
(D) changing the redemption or prepayment provisions of the Debt
thereunder other than to extend the date therefor or to reduce the
premiums payable in connection therewith; (E) granting any
security or collateral to secure payment of the Debt thereunder;
or (F) changing or amending any other term if such change or
amendment would increase any monetary obligation or materially
increase any other obligation of the obligor or confer additional
material rights to the holder of such Debt in a manner adverse to
any Loan Party, the Administrative Agent or any Lender Party.
(ii) Amend or modify any Genstar Agreement in any manner
that has the effect of (A) increasing any fees payable
thereunder; (B) changing the dates upon which payments are due
thereunder (other than extend time for payment);
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<PAGE>
(C) granting any security or collateral to secure payments
thereunder; or (D) changing or amending any subordination
provisions thereof or (E) changing or amending any other term if
such change or amendment of such other term would increase any
monetary obligation or materially increase any other obligation of
the obligor or confer additional material rights to the holder of
such Debt in a manner adverse to any Loan Party, the
Administrative Agent or any Lender Party .
(o) PAYMENT RESTRICTIONS AFFECTING LOAN PARTIES. Enter into or
--------------------------------------------
permit any agreement, instrument or other document which directly or
indirectly prohibits or restricts in any manner, or would have the effect
of prohibiting or restricting in any manner, the ability of Panolam
International or any of its Subsidiaries to (i) pay dividends or make any
other distributions in respect of its Capital Stock or any other Equity
Interest or participation in its profits owned by the Borrower or any of
its Subsidiaries, or pay or repay any Debt owed to the Borrower or any of
its Subsidiaries, (ii) make loans or advances to the Borrower, or (iii)
transfer any of its properties or assets to the Borrower or any of its
Subsidiaries, in each case except for Permitted Restrictions.
Notwithstanding the foregoing, (x) 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
Loan Party to transfer such agreement or assets, as the case may be, and
(y) any asset subject to a Lien which is not prohibited to exist with
respect to such asset pursuant to this Agreement may be subject to
restrictions on the transfer or disposition thereof pursuant to such Lien.
(p) NEGATIVE PLEDGE. Enter into or suffer to exist any agreement
----------------
prohibiting or conditioning the creation or assumption of any Lien upon any
of its property or assets other than (i) in favor of the Administrative
Agent and the Lender Parties, (ii) in favor of the US Administrative Agent
and the US Lenders pursuant to the terms of the US Loan Documents, (iii)
pursuant to the Subordinated Note Indenture or (iv) in connection with (A)
any Surviving Debt and any Debt outstanding on the date a Subsidiary first
becomes a Subsidiary or (B) any Debt permitted by Section 6.02(b)(v)(A)
hereof, provided that the prohibition in this clause (B) extends only to
-------- ----
the assets subject to such Liens.
(q) PARTNERSHIPS. Become a general partner in any general or
-------------
limited partnership, other than any Subsidiary of Panolam International
whose sole assets consist of its interest in such a partnership.
(r) TRANSACTIONS WITH AFFILIATES. Enter into any transaction,
-----------------------------
including, without limitation, any purchase, sale, lease or exchange of
property or the rendering of any service, with any Affiliate unless such
transaction is (i) otherwise permitted under this Agreement, (ii) in the
ordinary course of the applicable Loan Party's business and (iii) upon fair
and reasonable terms no less favorable to any Loan Party than it would
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obtain in a comparable arm's length transaction with a Person that is not
an Affiliate; provided that, (x) each such transaction involving
-------- ----
consideration to either party in excess of US$1,000,000 or the Equivalent
Amount thereof, is disclosed in advance to the Administrative Agent and,
concurrently with such disclosure, Panolam International delivers to the
Administrative Agent an Officer's Certificate addressed and delivered to
the Administrative Agent and the Lenders certifying that such affiliate
transaction has been approved by a majority of the members of the Board of
Directors of Panolam International that are disinterested in such
transaction, if any (y) each such transaction involving consideration to
either party in excess of US$5,000,000 or the Equivalent Amount thereof,
shall in addition require that Panolam International, prior to the
consummation thereof, obtain and provide to the Administrative Agent and
the Lenders a written favorable opinion as to the fairness of such
transaction to Panolam International 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, and (z) all such transactions existing as of the date
hereof are described on Schedule 6.02(r). Notwithstanding the foregoing:
(i) nothing contained in this Section 6.02(r) shall be
deemed to prohibit any Exempted Affiliate Transaction except that,
notwithstanding any contrary provision hereof, no payment of fees
under any Genstar Agreement may be made by any Loan Party if a
Default has occurred and is continuing; and
(ii) Debt payable by Holdings to Domtar Industries Inc.
under the Domtar Note may be set off against Domtar's liabilities
to the Borrower under the Asset Purchase Agreement dated February
15, 1996 between the Borrower and Domtar, as amended.
(s) EXCLUDED MELAMINE SUBS. Notwithstanding any contrary provision
-----------------------
of this Agreement or any other Loan Document (i) sell, contribute or
otherwise transfer any assets to or for the benefit of either of the
Excluded Melamine Subs or (ii) permit either of the Excluded Melamine Subs
to have any assets or liabilities (other than liabilities required by law
in connection with the maintenance of its corporate existence) or to engage
in any business activities.
SECTION 6.03 REPORTING REQUIREMENTS.
-----------------------
So long as any Loan or Unreimbursed Letter of Credit Liability shall
remain unpaid, any Letter of Credit shall be outstanding or any Lender shall
have any Commitment hereunder, the Borrower will, unless the Required Lenders
shall otherwise consent in writing, furnish to the Administrative Agent and
the Lenders:
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<PAGE>
(a) DEFAULT NOTICE. As soon as possible and in any event within
---------------
two days after the actual knowledge of the occurrence of each Default
continuing on the date of such statement, a statement of the Chief
Financial Officer of the Borrower setting forth details of such Default and
the action that the Borrower has taken and proposes to take with respect
thereto.
(b) MONTHLY FINANCIALS. As soon as available and in any event
-------------------
within 45 days after the end of each Fiscal Month, financial information
regarding Panolam International and its Subsidiaries, certified by the
Chief Financial Officer of the Borrower (or, if the Borrower does not have
a Chief Financial Officer, its Treasurer or Director of Finance),
consisting of Consolidated and consolidating (i) unaudited balance sheets
as of the close of such Fiscal Month and the related statements of income
and cash flow for that portion of the Fiscal Year ending as of the close of
such Fiscal Month and (ii) unaudited statements of income and cash flows
for such Fiscal Month, setting forth in comparative form the figures for
the corresponding period in the prior year for such Fiscal Year, all
prepared in accordance with GAAP (subject to normal year-end adjustments
and except for the Projections). Such financial information shall be
accompanied by a Compliance Certificate, which shall include a
certification that such financial information presents fairly in accordance
with GAAP (subject to normal year-end adjustments) the financial position
and results of operations of the Borrower and its Subsidiaries, on a
Consolidated and consolidating basis, in each case as at the end of such
month and for the period then ended.
(c) QUARTERLY FINANCIALS. As soon as available and in any event
---------------------
within 45 days after the end of each of the first three quarters of each
Fiscal Year: (i) Consolidated and consolidating balance sheets of Panolam
International and its Subsidiaries as of the end of such quarter and
Consolidated and consolidating statements of income and cash flows of
Panolam International and its Subsidiaries for the period commencing at the
end of the previous Fiscal Year and ending with the end of such quarter,
setting forth in each case in comparative form the corresponding figures
for the corresponding period of the preceding Fiscal Year, all in
reasonable detail; (ii) a Quarterly Compliance Certificate; (iii) a summary
of the outstanding balance of all Intercompany Notes as of the last day of
that fiscal quarter; and (iv) an accounts payable report for Panolam
International and each of its Subsidiaries (including the Borrower) setting
out the aging of their respective total outstanding balances of accounts
payable as of the end of such fiscal quarter.
(d) ANNUAL FINANCIALS. As soon as available and in any event
------------------
within (i) 90 days after the Closing Date, audited financial statements for
Panolam International and its Subsidiaries and for Pioneer, on a
Consolidated and consolidating basis (as applicable, and recognizing that
the consolidating financial statements will not be audited), consisting of
balance sheets as at December 31, 1998 and the related statements of
operations, income, stockholders' equity and cash flows and (ii) 90 days
after the end of each Fiscal Year (commencing with the 1999 Fiscal Year),
audited financial statements
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<PAGE>
for Panolam International and its Subsidiaries on a Consolidated and
consolidating basis (recognizing that the consolidating financial
statements will not be audited), consisting of balance sheets and
statements of operations, income, stockholders' equity and cash flows,
setting forth in comparative form in each case the figures for the previous
Fiscal Year, which financial statements referred to in clauses (i) and (ii)
shall be prepared in accordance with GAAP, certified without qualification,
by an independent certified public accounting firm of national standing or
otherwise acceptable to the Administrative Agent. The financial statements
required by clause (ii) above shall be accompanied by (A) a Quarterly
Compliance Certificate, (ii) a letter from such accounting firm to the
effect that, in connection with their audit examination, nothing has come
to their attention during such audit examination to cause them to believe
that a Default or Event of Default has occurred (or specifying those
Defaults and Events of Default that they became aware of), it being
understood that such audit examination extended only to accounting matters
and that no special investigation was made with respect to the existence of
Defaults or Events of Default, provided that, such letter can be obtained
--------------
without any additional cost to any Loan Party, and (iii) the annual letters
to such accountants (to the extent not subject to attorney or solicitor
client privilege) in connection with their audit examination detailing
contingent liabilities and material litigation matters. Requirements to
provide audited financial information hereunder with respect to Panolam
International and its Subsidiaries on a Consolidated basis may be satisfied
by providing the same financial information for Holdings and its
Subsidiaries on a Consolidated basis so long as the requisite adjustments
for such alternate presentation are clearly shown therein in a manner
satisfactory in form and substance to the Administrative Agent and the
Required Lenders.
(e) ANNUAL OPERATING PLAN. As soon as available and in any event
----------------------
no later than 60 days after the end of each Fiscal Year (except that this
Section 6.03(e) shall not be applicable following the consummation of an
Initial Public Equity Offering), an annual operating plan for Panolam
International and its Subsidiaries, approved by the Board of Directors of
Panolam International and its Subsidiaries, for the following year, which
will include a statement of all of the material assumptions on which such
plan is based, will include monthly balance sheets and a monthly budget for
the following year and will integrate sales, gross profits, operating
expenses, operating profit, cash flow forecasts and Borrowing availability
forecasts, all prepared on a Consolidated and business unit basis and in
similar detail as that on which operating results are reported (and in the
case of cash flow forecasts, representing management's good faith estimates
of future financial performance based on historical performance), and
including plans for personnel, Capital Expenditures and facilities.
(f) CANADIAN PENSION PLAN FAILURE TO MAKE REQUIRED PAYMENT. Prompt
-------------------------------------------------------
and in any event within five Business Days after any Loan Party has failed
to make a required contribution to a Canadian Pension Plan in a timely
fashion, a statement of the
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<PAGE>
Chief Financial Officer describing such failure and the action, if any,
that the applicable Loan Party has taken and proposes to take with respect
thereto.
(g) CANADIAN PENSION PLAN TERMINATIONS. Promptly and in any event
-----------------------------------
within 10 Business Days after receipt by any Loan Party of a notice from an
applicable regulatory authority indicating that such authority has or will
(1) terminate the registration of, (2) require or commence the winding up
of, or (3) act as, or appoint, an administrator in respect of, a Canadian
Pension Plan.
(h) CANADIAN PENSION PLAN INCREASE IN ANNUAL COSTS AND NEW PLANS.
-------------------------------------------------------------
Promptly and in any event within 30 days after, (1) any increases having a
cost to any Loan Party of in excess of CDN$500,000 per annum in the
benefits of any existing Canadian Pension Plan or Canadian Benefit Plan,
(2) the establishment of any new Canadian Pension Plan or Canadian Benefit
Plan, the annual costs of which exceed CDN$500,000, or (3) the commencement
of contributions to any such plan to which any Loan Party was not
previously contributing where the annual contributions exceed CDN$500,000.
(i) CANADIAN PENSION PLAN ACTUARIAL REPORTS. Promptly and in any
----------------------------------------
event within 30 days after the filing thereof, copies of each actuarial
report and annual information return respecting any of the Canadian Pension
Plans.
(j) ERISA EVENTS. Promptly and in any event within 30 days after
-------------
any Loan Party or any of its ERISA Affiliates knows or has reason to know
that any ERISA Event with respect to any Loan Party or any of its ERISA
Affiliates has occurred, a statement of the Chief Financial Officer of
Panolam International describing such ERISA Event and the action, if any,
that such Loan Party or such ERISA Affiliate has taken and proposes to take
with respect thereto; provided that no notice shall be required under this
Section 6.03(j) for any ERISA Event unless such ERISA Event has resulted in
or is reasonably likely to result in liability of any Loan Party or any of
its ERISA Affiliates in excess, either individually or in the aggregate
with all other ERISA Events which have occurred or are reasonably expected
to occur, of US$2,000,000.
(k) PLAN TERMINATIONS. Promptly and in any event within ten
------------------
Business Days after receipt thereof by any Loan Party or any of its ERISA
Affiliates, copies of each notice from the PBGC stating its intention to
terminate any Plan of any Loan Party or any of its ERISA Affiliates or to
have a trustee appointed to administer any such Plan; provided that, with
-------- -----
respect to the plan of an ERISA Affiliate that is not a Loan Party, such
notice shall not be required if it is reasonably anticipated that such
action will not result in liability of a Loan Party in excess of
US$2,000,000.
(l) PLAN ANNUAL REPORTS. Promptly and in any event within 30 days
--------------------
after the filing thereof with the Internal Revenue Service, copies of each
Schedule B (Actuarial
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<PAGE>
Information) to the annual report (Form 5500 Series) with respect to (i)
each Plan of each Loan Party and (ii) each Plan of each ERISA Affiliate
that is not a Loan Party if such Plan has an Insufficiency in excess of
US$2,000,000.
(m) MULTIEMPLOYER PLAN NOTICES. Promptly and in any event within
---------------------------
Business Days after receipt thereof by any Loan Party or any of its ERISA
Affiliates from the sponsor of a Multiemployer Plan of any Loan Party or
any of its ERISA Affiliates, copies of each notice concerning (i) the
imposition of Withdrawal Liability in excess of US$1,000,000 by any such
Multiemployer Plan, (ii) the reorganization or termination, within the
meaning of Title IV of ERISA, of any such Multiemployer Plan or (iii) the
amount of liability incurred, or that may be incurred, by such Loan Party
or any of its ERISA Affiliates in connection with any event described in
clause (i) or (ii) if such amount exceeds US$1,000,000; provided that, with
-------- ----
respect to any notice received by an ERISA Affiliate that is not a Loan
Party it is reasonably anticipated that such action may result in liability
of a Loan Party in excess of US$2,000,000.
(n) LITIGATION. Promptly after learning of the commencement there
-----------
of, notice of all actions, suits, investigations, litigation and
proceedings before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, affecting any Loan
Party of the type described in Section 5.01(h), and promptly after the
occurrence thereof, notice of any adverse change in the status or the
financial effect on any Loan Party of any litigation required to be
disclosed under this Section 6.03(n).
(o) SECURITIES REPORTS. Promptly after the sending or filing
-------------------
thereof copies of all (i) proxy statements, financial statements and
reports that any Loan Party sends to its stockholders, and (ii) regular,
periodic and special reports, and each prospectus and registration
statement, that any Loan Party files with the Ontario Securities
Commission, the Securities and Exchange Commission or any governmental
authority that may be substituted therefor, or with any national securities
exchange.
(p) CREDITOR REPORTS. Promptly after the furnishing thereof,
-----------------
copies of any statement or report furnished to any other holder of the
securities of any Loan Party pursuant to the terms of any indenture, loan
or credit or similar agreement and not otherwise required to be furnished
to the Lenders pursuant to any other clause of this Section 6.03.
(q) AGREEMENT NOTICES. Promptly upon receipt thereof, copies of
------------------
default and other material notices, requests and other documents received
by any Loan Party under or pursuant to any Related Document or Material
Contract and, from time to time upon request by the Administrative Agent,
such information and reports regarding the Related Documents and the
Material Contracts as the Administrative Agent may reasonably request.
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<PAGE>
(r) ENVIRONMENTAL CONDITIONS. Promptly after the occurrence there-
-------------------------
of notice of any condition or occurrence on any property of any Loan Party
that results in a material noncompliance by any Loan Party with any
Environmental Law or Environmental Permit or could (i) form the basis of an
Environmental Action against any Loan Party or such property that could
have a Material Adverse Effect or (ii) cause any such property to be
subject to any material restrictions on ownership, occupancy, use or
transferability under any Environmental Law; provided that, notices need be
-------- ----
given for any condition set forth on Schedule 5.01(l)(i), 5.01(l)(ii) or
5.01(l)(iii) only to the extent that such condition has materially or
adversely changed.
(s) COLLATERAL REPORTS. From and after the Closing Date and until
-------------------
last to occur of (i) the Revolving Commitment Termination Date, (ii) the
Term A Termination Date and (iii) the Term B Termination Date, deliver to
the Administrative Agent and/or the Lenders, as required, the various
Collateral Reports (including Borrowing Base Certificates) at the times, to
the Persons and in the manner set forth in Schedule II.
(t) OTHER INFORMATION. Such other information respecting the
------------------
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Loan Party the Administrative Agent or any
Lender through the Administrative Agent may from time to time reasonably
request.
SECTION 6.04 FINANCIAL COVENANTS.
--------------------
So long as any Loan or Unreimbursed Letter of Credit Liability shall
remain unpaid, any Letter of Credit shall be outstanding or any Lender shall
have any Commitment hereunder, unless the Required Lenders otherwise consent
in writing:
(a) MAXIMUM CONSOLIDATED LEVERAGE RATIO. At all times from and
------------------------------------
after the Closing Date, Panolam International shall maintain a Consolidated
Leverage Ratio for Panolam International and its Subsidiaries below the
levels specified for the periods indicated, which ratio shall be tested as
of the last day of each fiscal quarter ending during any period indicated
below (commencing June 30, 1999):
<TABLE>
<CAPTION>
MAXIMUM CONSOLIDATED
PERIOD LEVERAGE RATIO
--------------------------------------------------------- ---------------------
<S> <C>
Closing Date through and including September 30, 1999 5.00:1.0
October 1, 1999 through and including December 31, 1999 4.80:1.0
January 1, 2000 through and including March 31, 2000 4.65:1.0
April 1, 2000 through and including June 30, 2000 4.50:1.0
July 1, 2000 through and including September 30, 2000 4.35:1.0
October 1, 2000 through and including December 31, 2000 4.15:1.0
January 1, 2001 through and including March 31, 2001 4.00:1.0
April 1, 2001 through and including June 30, 2001 3.85:1.0
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
MAXIMUM CONSOLIDATED
PERIOD LEVERAGE RATIO
--------------------------------------------------------- ---------------------
<S> <C>
July 1, 2001 through and including September 30, 2001 3.70:1.0
October 1, 2001 through and including September 30, 2002 3.50:1.0
October 1, 2002 through and including September 30, 2003 3.25:1.0
October 1, 2003 and thereafter 3.00:1.0
</TABLE>
(b) MINIMUM FIXED CHARGE COVERAGE RATIO. At all times from and
------------------------------------
the Closing Date, Panolam International shall maintain a ratio of (i)
Consolidated EBITDA of Panolam International and its Subsidiaries for the
four fiscal quarter period ending on the last day of the applicable fiscal
quarter to (ii) Consolidated Fixed Charges, above the levels specified for
the periods indicated, which ratio shall be tested as of the last day of
each fiscal quarter ending during any period indicated below (commencing
June 30, 1999):
<TABLE>
<CAPTION>
MAXIMUM CONSOLIDATED
PERIOD LEVERAGE RATIO
--------------------------------------------------------- ---------------------
<S> <C>
Closing Date through and including December 31, 1999 1.000:1.0
January 1, 2000 through and including March 31, 2000 1.025:1.0
April 1, 2000 through and including June 30, 2000 1.050:1.0
July 1, 2000 through and including September 30, 2000 1.075:1.0
October 1, 2000 through and including December 31, 2001 1.100:1.0
January 1, 2002 and thereafter 1.150:1.0
</TABLE>
(c) MINIMUM INTEREST COVERAGE RATIO. At all times from and after
--------------------------------
Closing Date, Panolam International shall maintain a ratio of (i)
Consolidated EBITDA of Panolam International and its Subsidiaries for the
four fiscal quarter period ending on the last day of the applicable fiscal
quarter to (ii) Consolidated Interest Expense, above the levels specified
for the periods indicated, which ratio shall be tested as of the last day
of each fiscal quarter ending during any period indicated below (commencing
June 30, 1999):
<TABLE>
<CAPTION>
MAXIMUM CONSOLIDATED
PERIOD LEVERAGE RATIO
--------------------------------------------------------- ---------------------
<S> <C>
Closing Date through and including September 30, 1999 1.90:1.0
October 1, 1999 through and including March 31, 2000 2.00:1.0
April 1, 2000 through and including June 30, 2000 2.10:1.0
July 1, 2000 through and including September 30, 2000 2.20:1.0
October 1, 2000 through and including March 31, 2001 2.25:1.0
April 1, 2001 through and including June 30, 2001 2.35:1.0
July 1, 2001 through and including September 30, 2001 2.45:1.0
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
MINIMUM INTEREST
PERIOD COVERAGE RATIO
------------------------------------------------------------ ----------------------------
<S> <C>
October 1, 2001 through and including September 30, 2002 2.50:1.0
October 1, 2002 through and including September 30, 2003 2.75:1.0
October 1, 2003 and thereafter 3.00:1.0
</TABLE>
(d) CAPITAL EXPENDITURES. Panolam International and its Subsidiaries
--------------------
shall not make any Capital Expenditures that would cause the aggregate
amount of all Capital Expenditures made by Panolam International and its
Subsidiaries (including, with respect to Pioneer (and each other Loan
Party), any Capital Expenditures made on or after January 1, 1999 but
excluding any Capital Expenditures consisting of purchases or trade-ins of
replacement assets pursuant to Section 6.02(e)(i) to the extent of the
proceeds received on the asset sold or traded) in any Fiscal Year set
forth below to exceed the amount set forth below for such period (the "BASE
----
AMOUNT") plus up to 50% of the unused Base Amount of Capital Expenditures,
------
if any, from the prior Fiscal Year:
<TABLE>
<CAPTION>
BASE AMOUNT OF
FISCAL YEAR MAXIMUM CAPITAL EXPENDITURES
------------------------------- ---------------------------------------
<S> <C>
1999 US$23,000,000
2000 16,000,000
2001 and thereafter 12,000,000
</TABLE>
(e) MINIMUM CONSOLIDATED EBITDA. (i) At all times from and after June
---------------------------
30, 1999, Panolam International and its Domestic Subsidiaries shall not
permit their Consolidated EBITDA for any period of four consecutive fiscal
quarters ending on and after June 30, 1999 to be less than US$20,000,000.
(ii) At all times from and after June 30, 1999, the Borrower and its
Subsidiaries shall not permit their Consolidated EBITDA for any period of
four consecutive fiscal quarters ending on and after June, 1999 to be less
than US$10,000,000 or the Equivalent Amount thereof.
ARTICLE VII.
EVENTS OF DEFAULT
SECTION 7.01 EVENTS OF DEFAULT.
------------------
If any of the following events ("EVENTS OF DEFAULT") shall occur and
-----------------
be continuing:
(a) (i) the Borrower shall fail to pay any principal of any Loan when
the same becomes due and payable, or (ii) the Borrower shall fail to pay
any interest on any Loan within three Business Days after the same becomes
due and payable, or (iii) any Loan
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<PAGE>
Party shall fail to make any other payment under any Loan Document within
three Business Days after the same becomes due and payable; or
(b) any representation or warranty made by any Loan Party (or any of
its officers) under or in connection with any Loan Document shall prove to
have been materially incorrect in any respect when made; or
(c) the Borrower shall fail to perform or observe any term, covenant
or agreement contained in Section 6.01, , or , 602, 6.03 (other than
6.03(i) or 6.03(l)) or 6.04; or
(d) any Loan Party shall fail to perform any other term, covenant or
agreement contained in any Loan Document on its part to be performed or
observed if such failure shall remain unremedied for 15 days after written
notice thereof shall have been given to the Borrower by the Administrative
Agent or any Lender Party; or
(e) any Loan Party shall fail to pay any principal of, premium or
interest on or any other amount payable in respect of any Debt of such Loan
Party that is outstanding in a principal amount of at least US$2,000,000,
or the Equivalent Amount thereof, in the aggregate (but excluding the
Domtar Note and Debt outstanding hereunder), when the same becomes due and
payable (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), and such failure shall continue after the applicable
grace period, if any, specified in the agreement or instrument relating to
such Debt; or any other event shall occur or condition shall exist under
any agreement or instrument relating to any such Debt and shall continue
after the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such event or condition is to accelerate, or
to permit the acceleration of, the maturity of such Debt or otherwise to
cause, or to permit the holder thereof to cause, such Debt to mature; or
any such Debt shall be declared to be due and payable or required to be
prepaid or redeemed (other than by a regularly scheduled required
prepayment or redemption), purchased or defeased, or an offer to prepay,
redeem, purchase or defease such Debt shall be required to be made, in each
case prior to the stated maturity thereof; or
(f) any Event of Default (as such term is defined in the US Credit
Agreement) shall occur and be continuing (and has not been waived) under
the US Credit Agreement; or
(g) any Loan Party shall generally not pay its debts as such debts
become due or shall otherwise become insolvent, or shall admit in writing
its inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be
instituted by or against any Loan Party seeking to adjudicate it a bankrupt
or insolvent, or seeking liquidation, winding up, dissolution, suspension
of general operations, reorganization, arrangement, adjustment, protection,
relief, or
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<PAGE>
composition of or stay of enforcement against it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors,
or seeking the entry of an order for relief or the appointment of a
receiver, interim receiver, receiver and manager, trustee, or other similar
official for it or for any substantial part of its property and, in the
case of any such proceeding instituted against it (but not instituted by
it) that is being diligently contested by it in good faith, either such
proceeding shall remain undismissed or unstayed for a period of 30 days or
any of the actions sought in such proceeding (including, without
limitation, the entry of an order for relief against, or the appointment of
a receiver, interim receiver, receiver and manager, trustee, custodian or
other similar official for, it or any substantial part of its property)
shall occur; or any Loan Party shall take any corporate action to authorize
any of the actions set forth above in this subsection ; or
(h) any judgment or order for the payment of money in excess of
US$2,000,000, or the Equivalent Amount thereof, shall be rendered against
any Loan Party and either (i) enforcement proceedings shall have been
commenced by any creditor upon such judgment or order or (ii) there shall
be any period of 10 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; or
(i) any final non-monetary and non-appealable judgment or order shall
be rendered against any Loan Party that could reasonably be expected to
have a Material Adverse Effect; or
(j) any provision of any Loan Document after delivery thereof shall
for any reason cease to be valid and binding on or enforceable against any
Loan Party party to it, or any such Loan Party shall so state in writing;
or
(k) any Collateral Document after delivery thereof shall for any
reason (other than pursuant to the terms thereof) cease to create a valid
and perfected first priority Lien on the Collateral in which the Borrower
or any of its Subsidiaries has an interest and a valid and perfected second
priority Lien on the Collateral in which Panolam International or any of
its Domestic Subsidiaries has an interest, and purported to be covered
thereby or otherwise become materially impaired; or
(l) any ERISA Event shall have occurred with respect to a Plan of any
Loan Party or any of its ERISA Affiliates and the liability of the Loan
Parties with respect to such ERISA Event exceeds, or could reasonably be
expected to exceed, either individually or in the aggregate with the
liability of the Loan Parties for all other ERISA Events which have
occurred or are reasonably expected to occur, US$2,000,000; or
(m) any Loan Party or any of its ERISA Affiliates shall have been
notified by the sponsor of a Multiemployer Plan of any Loan Party or any of
its ERISA Affiliates
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<PAGE>
that it has incurred Withdrawal Liability to such Multiemployer Plan which
would, either individually or in the aggregate with other payments of
Withdrawal Liability by the Loan Parties with respect to all Multiemployer
Plans, increase the amounts contributed by the Loan Parties to such
Multiemployer Plans for the plan years of such Multiemployer Plans
immediately preceding the plan year in which such Withdrawal Liability is
incurred by an amount exceeding US$1,000,000; or
(n) any Loan Party or any of its ERISA Affiliates shall have been
notified by the sponsor of a Multiemployer Plan of any Loan Party or any of
its ERISA Affiliates that such Multiemployer Plan is in reorganization or
is being terminated, within the meaning of Title IV of ERISA, and as a
result of such reorganization or termination the aggregate annual
contributions of the Loan Parties to all Multiemployer Plans that are then
in reorganization or being terminated have been or will be increased over
the amounts contributed by the Loan Parties to such Multiemployer Plans for
the plan years of such Multiemployer Plans immediately preceding the plan
year in which such reorganization or termination occurs by an amount
exceeding US$1,000,000; or
(o) a Change of Control shall have occurred; or
(p) the Borrower shall (i) fail to make an irrevocable election in
writing delivered to the Administrative Agent, prior to the Borrower or any
of its Subsidiaries committing to the completion of any asset sale, any
sale or issuance of debt Securities or any sale or issuance of any equity
Securities, in which the Borrower notifies the Administrative Agent that it
elects to make an optional prepayment of the Term B Loans in an amount
equal to that portion of the Net Cash Proceeds of any such sale or issuance
that would have been applied to the prepayment of the Term B Loans ratably
with, and in the same order as, the Term A Loans under Section
2.04(c)(xiii) if the applicable clause of Section 2.04(c) did not limit the
mandatory prepayment of the Term Loans to the Term A Loans; or (ii) having
made an irrevocable election in accordance with clause (i) above, fail to
make the optional prepayment of the Term B Loans as specified in such
election;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Required Lenders, by notice to the Borrower,
declare the obligation of each Appropriate Lender to make Loans and of any
Issuing Bank to issue Letters of Credit to be terminated, whereupon the same
shall forthwith terminate, and (ii) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the Loans,
all interest thereon and all other amounts payable under this Agreement and the
other Loan Documents (including the face amount of all outstanding Bankers'
Acceptances accepted hereunder and regardless of whether their maturity dates
have occurred) to be forthwith due and payable, whereupon the Loans, all such
interest and all such amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of any kind, all of which
are hereby expressly waived by the Borrower; provided, however, that in the
-------- -------
event of an actual or deemed entry of an order for relief with respect to any
Loan Party under any
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Insolvency Law, (x) the obligation of each Lender to make Loans and of each
Issuing Bank to issue Letters of Credit shall automatically be terminated and
(y) the Loans, all such interest and all such amounts shall automatically become
and be due and payable, without presentment, demand, protest or any notice of
any kind, all of which are hereby expressly waived by the Borrower.
SECTION 7.02 ACTIONS IN RESPECT OF THE LETTERS OF CREDIT UPON DEFAULT.
---------------------------------------------------------
If any Event of Default shall have occurred and be continuing, the
Administrative Agent shall at the request, or may with the consent, of the
Required Lenders, irrespective of whether it is taking any of the actions
described in Section 7.01 or otherwise, make demand upon the Borrower to, and
forthwith upon such demand the Borrower will, pay to the Administrative Agent
for the benefit of the Lender Parties in same day funds at the Administrative
Agent's office designated in such demand, for deposit in the Letter of Credit
Cash Collateral Account an amount equal to the total Letter of Credit Usage then
outstanding (and the Borrower hereby grants to the Administrative Agent, for the
ratable benefit of the Administrative Agent and each Lender Party, a continuing
security interest in all amounts at any time on deposit in the Letter of Credit
Cash Collateral Account to secure all Letter of Credit Obligations from time to
time outstanding). If at any time the Administrative Agent determines that any
funds held in the Letter of Credit Cash Collateral Account are subject to any
right or claim of any Person other than the Administrative Agent and the Lender
Parties or that the total amount of such funds is less than the total Letter of
Credit Usage, the Borrower will, forthwith upon demand by the Administrative
Agent, pay to the Administrative Agent, as additional funds to be deposited and
held in the Letter of Credit Cash Collateral Account, an amount equal to the
excess of (a) such Letter of Credit Usage over (b) the total amount of funds, if
any, then held in the Letter of Credit Cash Collateral Account that the
Administrative Agent determines to be free and clear of any such right and
claim.
ARTICLE VIII.
THE ADMINISTRATIVE AGENT
SECTION 8.01 AUTHORIZATION AND ACTION.
-------------------------
Each Lender Party hereby appoints and authorizes the Administrative
Agent to take such action as agent on its behalf and to exercise such powers and
discretion under this Agreement and the other Loan Documents as are delegated to
the Administrative Agent by the terms hereof and thereof, together with such
powers and discretion as are reasonably incidental thereto, including, without
limitation, to execute and enter into on behalf of the Lender Parties the
Intercreditor Agreement and the Collateral Documents (and each Lender Party
hereby agrees to be bound by the terms of such Intercreditor Agreement and
Collateral Documents). As to any matters not expressly provided for by the Loan
Documents (including, without limitation, enforcement or collection of the
Notes, if any), the Administrative Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting
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(and shall be fully protected in so acting or refraining from acting) upon the
instructions of the Required Lenders or such other number of Lender Parties as
may be expressly required by any Loan Document, and such instructions shall be
binding upon all Lender Parties and all holders of Notes, if any; provided,
--------
however, that the Administrative Agent shall not be required to take any action
- -------
that exposes the Administrative Agent to personal liability or that is contrary
to this Agreement or applicable law. The Administrative Agent agrees to give to
each Lender prompt notice of each notice given to it by a Loan Party pursuant to
the terms of this Agreement.
SECTION 8.02 ADMINISTRATIVE AGENT'S RELIANCE, ETC.
-------------------------------------
Neither the Administrative Agent nor any of its directors, officers,
agents or employees shall be liable for any action taken or omitted to be taken
by it or them under or in connection with the Loan Documents, except for its or
their own gross negligence or willful misconduct. Without limitation of the
generality of the foregoing, the Administrative Agent: (i) may treat the payee
of any Note as the holder thereof until the Administrative Agent receives and
accepts an Assignment and Acceptance entered into by the Lender that is the
payee of such Note as assignor, and an Eligible Assignee, as assignee, as
provided in Section 9.07; (ii) may consult with legal counsel (including counsel
for any Loan Party), independent public accountants and other experts selected
by it and shall not be liable for any action taken or omitted to be taken in
good faith by it in accordance with the advice of such counsel, accountants or
experts; (iii) makes no warranty or representation to any Lender Party and shall
not be responsible to any Lender Party for any statements, warranties or
representations made in or in connection with the Loan Documents; (iv) shall not
have any duty to ascertain or to inquire as to the performance or observance of
any of the terms, covenants or conditions of any Loan Document on the part of
any Loan Party or to inspect the property (including the books and records) of
any Loan Party; (v) shall not be responsible to any Lender for the due
execution, legality, validity, enforceability, genuineness, sufficiency or value
of any Loan Document or any other instrument or document furnished pursuant
hereto; (vi) shall incur no liability under or in respect of any Loan Document
by acting upon any notice, consent, certificate or other instrument or writing
(which may be by telegram, telecopy, cable or telex) believed by it to be
genuine and signed or sent by the proper party or parties; and (vii) shall incur
no liability as a result of any determination whether the transactions
contemplated by the Loan Documents constitute a "highly leveraged transaction"
within the meaning of the interpretations issued by the US Comptroller of the
Currency, the US Federal Deposit Insurance Corporation and the Board of
Governors of the US Federal Reserve System.
SECTION 8.03 AGENTS AND AFFILIATES.
----------------------
With respect to its Commitments, the Loans made by it, any Letters of
Credit Issued by it and any Notes issued to it, each Agent shall have the same
rights and powers under the Loan Documents as any other Lender and may exercise
the same as though it were not an Agent; and the terms "Lender" or "Lenders" and
"Lender Party" or "Lender Parties" shall, unless otherwise expressly indicated,
include each Agent in its individual capacity, as applicable. Each
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Agent and its affiliates may accept deposits from, lend money to, act as trustee
under indentures of, accept investment banking engagements from and generally
engage in any kind of business with, any Loan Party, any of its Subsidiaries and
any Person who may do business with or own securities of any Loan Party or any
such Subsidiary, all as if such Agent were not an Agent and without any duty to
account therefor to the Lender Parties.
SECTION 8.04 LENDER CREDIT DECISION.
-----------------------
Each Lender acknowledges that it has, independently and without
reliance upon any Agent or any other Lender and based on the financial
statements referred to in Section 4.01 and such other documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Lender also acknowledges that it will, independently
and without reliance upon any Agent or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement.
SECTION 8.05 INDEMNIFICATION.
----------------
Each Lender severally agrees to indemnify the Administrative Agent (to
the extent not promptly reimbursed by the Borrower) from and against such
Lender's ratable share of any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever that may be imposed on, incurred by, or asserted
against the Administrative Agent in any way relating to or arising out of the
Loan Documents or any action taken or omitted by the Administrative Agent under
the Loan Documents; provided, however, that no Lender shall be liable to any
-------- -------
such Person for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from such Person's gross negligence or willful misconduct. Without limitation
of the foregoing, each Lender agrees to reimburse the Administrative Agent
promptly upon demand for its ratable share of any costs and expenses payable by
the Borrower under Section 9.04, to the extent that the Administrative Agent is
not promptly reimbursed for such costs and expenses by the Borrower. For
purposes of this Section 8.05, the Lenders' respective ratable shares of any
amount shall be determined, at any time, according to the sum of (a) the
aggregate principal amount of the Loans (other than unreimbursed Letter of
Credit Drawings) outstanding at such time and owing to the respective Lenders,
(b) their respective Revolving Pro Rata Shares of the aggregate Letter of Credit
Obligations outstanding at such time, plus (c) their respective Unused Revolving
----
Commitments at such time. In the event that any defaulted Loan shall be owing
by any Defaulting Lender at any time, such Lender's Commitment with respect to
the Facility under which such defaulted Loan was required to have been made
shall be considered to be unused for purposes of this Section 8.05 to the extent
of the amount of such defaulted Loan. The failure of any Lender to reimburse
the Administrative Agent promptly upon demand for its ratable share of any
amount required to be paid by the Lenders to the Administrative Agent as
provided herein, shall not relieve any other Lender of its obligation hereunder
to reimburse the Administrative Agent for its ratable share of such amount,
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but no Lender shall be responsible for the failure of any other Lender to
reimburse the Administrative Agent for such other Lender's ratable share of such
amount.
SECTION 8.06 SUCCESSOR ADMINISTRATIVE AGENTS.
--------------------------------
The Administrative Agent may resign at any time by giving written
notice thereof to the Lender Parties and the Borrower and may be removed at any
time with or without cause by the Required Lenders. Upon any such resignation
or removal, the Required Lenders shall have the right to appoint a successor
Administrative Agent. If no successor Administrative Agent shall have been so
appointed by the Required Lenders, and shall have accepted such appointment,
within 30 days after the retiring Administrative Agent's giving of notice of
resignation or the Required Lenders' removal of the retiring Administrative
Agent, then the retiring Administrative Agent may, on behalf of the Lenders,
appoint a successor Administrative Agent, which shall be a chartered bank having
a combined capital and surplus of at least CDN$100,000,000. Upon the acceptance
of any appointment as Administrative Agent hereunder by a successor
Administrative Agent and upon the execution and filing or recording of such
financing statements, or amendments thereto, and such amendments or supplements
to the Mortgages, and such other instruments or notices, as may be necessary or
desirable, or as the Required Lenders may request, in order to continue the
perfection of the Liens granted or purported to be granted by the Collateral
Documents, such successor Administrative Agent shall succeed to and become
vested with all the rights, powers, discretion, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations under the Loan Documents. After any
retiring Administrative Agent's resignation or removal hereunder as
Administrative Agent, the provisions of this Article VIII shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement. The fees payable by the Borrower to
a successor Administrative Agent shall be the same as those payable to its
predecessor unless otherwise agreed upon between the Borrower and such
successor.
SECTION 8.07 DOCUMENTATION AGENT.
-------------------
Notwithstanding anything herein to the contrary, the Documentation
Agent has no rights or obligations in such capacity under any of the Loan
Documents.
SECTION 8.08 MINISTERIAL ACTS
----------------
The duties of the Administrative Agent shall be ministerial and
administrative in nature, and the Administrative Agent shall not have, by reason
of this Agreement or any of the other Loan Documents, a fiduciary relationship
with any Lender Party (or any participant, Affiliate, Approved Fund or SPV of
any Lender Party).
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ARTICLE IX.
MISCELLANEOUS
SECTION 9.01 AMENDMENTS, ETC.; RELEASE OF COLLATERAL.
----------------------------------------
(a) Except as otherwise provided in the Intercreditor Agreement, no
amendment or waiver of any provision of this Agreement, any Notes or any
other Loan Document, nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Required Lenders (and, notwithstanding anything
to the contrary in any Loan Document, in the case of any such amendment,
the Borrower), and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given;
provided, however, that notwithstanding the foregoing or any contrary
-------- -------
provision of the Intercreditor Agreement, (i) no amendment, waiver or
consent shall, unless in writing and signed by all the Lenders (other than
any Lender which is, at such time, a Defaulting Lender), do any of the
following at any time: (A) change the percentage of the Commitments or of
the aggregate unpaid principal amount of any Loans or Notes, or the number
of Lenders, that shall be required for the Lenders or any of them to take
any action hereunder or under the Intercreditor Agreement or change the
definition of Required Lenders or Supermajority Lenders, or (B) amend this
Section 9.01, or (C) release all or substantially all of the Collateral or
(D) release any Guarantor from its obligations under any Guaranty, (ii) no
amendment, waiver or consent shall, unless in writing and signed by the
Required Lenders and each Lender that has an outstanding Loan or Commitment
under the Facility affected by such amendment, waiver or consent, (A)
increase the Commitments of such Lender or subject such Lender to any
additional obligations, (B) reduce the principal of, or interest on, any
Loans made or Notes held by such Lender or any fees or other amounts
payable hereunder to such Lender or (C) postpone any date fixed for any
payment of principal of, or interest on, the Loans made or Notes held by
such Lender or any fees or other amounts payable hereunder to such Lender,
(iii) no amendment, waiver or consent shall, unless in writing and signed
by the Supermajority Lenders, increase the advance rate percentages set
forth in the definition of the Borrowing Base Amount or make less
restrictive the definition of Eligible Receivables or Eligible Inventory
and (iv) no amendment, waiver or consent shall, unless in writing and
signed by the Supermajority Lenders and each Lender that has an outstanding
Loan or Commitment under the Facility affected by such amendment, waiver or
consent, change the order of application of any prepayment set forth in
Section 2.04 in any manner that materially affects such Lender (it being
expressly understood that other provisions of Section 2.04, including,
those providing for and requiring prepayments, may be waived or amended by
the Supermajority Lenders); provided further that no amendment, waiver or
-------- -------
consent shall, unless in writing and signed by the Swing Line Lender or
each Issuing Bank, as the case may be, in addition to the Lenders required
above to take such action, affect the rights or obligations of the Swing
Line Lenders or of the Issuing Banks, as the case may be, under this
Agreement; and provided further that no amendment, waiver or consent shall,
-------- -------
unless
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in writing and signed by the Administrative Agent in addition to the
Lenders required above to take such action, affect the rights or duties of
the Administrative Agent under this Agreement or any Note.
(b) So long as no Default under Section 7.01(a) or 7.01(g) and no
Event of Default has occurred and is continuing: upon the request of the
Borrower, and without the consent of the Lenders or the Required Lenders,
the Administrative Agent is authorized to (i) release from the Lien of any
Collateral Document any item or items of Collateral comprising less than
all or substantially all of the Collateral at the time of such release
(and, if such Collateral consists of all of Panolam International's or any
of its Subsidiaries' interest in any Guarantor, to simultaneously release
such Guarantor from its obligations under the Guaranty and the Collateral
Documents) and (ii) execute any documents or instruments reasonably
requested by the Borrower (as determined by the Administrative Agent) in
connection therewith, but in each case only if (x) such release is
requested in conjunction with the consummation of any sale or other
disposition of such Collateral by Panolam International or any of its
Subsidiaries (or the creation of any Lien) that is not prohibited by this
Agreement, and (y) the Borrower has delivered to the Administrative Agent
an Officer's Certificate certifying that no Default under Section 7.01(a)
or 7.01(g) or Event of Default has occurred and is continuing and that such
sale or other disposition (or such creation of a Lien) is not prohibited by
this Agreement.
SECTION 9.02 NOTICES, ETC.
-------------
Except as otherwise expressly provided herein, all notices and other
communications provided for hereunder shall be in writing (including
telegraphic, telecopy, telex or cable communication) and mailed, telegraphed,
telecopied, telexed, cabled or delivered as follows:
If to the Borrower: Panolam Industries Ltd.
c/o Panolam Industries International, Inc.
20 Progress Drive
Shelton, CT 06484
Attention: President
Telecopier: (203) 225-0051
If to any Initial Lender: At its address for notices specified on its
signature page hereto, or if not so
specified, at its address specified opposite
its name on Schedule I hereto
If to any other Lender: At its address for notices specified in the
Assignment and Acceptance pursuant to which
it became a Lender
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If to the Administrative Agent: Credit Suisse First Boston Canada
One First Canadian Place
Suite 3000
P.O. Box 301
Toronto, Ontario
M5X 1C9
Attention: Syndications Administration
Telecopier: (416) 352-4574
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other parties (or, in the case of any Lender, as
designated in a notice to the Borrower and the Administrative Agent). All such
notices and communications shall, when mailed, telegraphed, telecopied, telexed
or cabled, be effective when deposited in the mails, delivered to the telegraph
company, transmitted by telecopier, confirmed by telex answerback or delivered
to the cable company, respectively, except that notices and communications to
the Administrative Agent pursuant to Article II, III, IV or VIII shall not be
effective until received by the Administrative Agent.
SECTION 9.03 NO WAIVER, REMEDIES.
--------------------
No failure on the part of any Lender Party or the Administrative Agent
to exercise, and no delay in exercising, any right hereunder, under any Note or
under any other Loan Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 9.04 COSTS AND EXPENSES.
-------------------
(a) The Borrower agrees to pay on demand (i) all reasonable costs and
expenses of the Administrative Agent in connection with the preparation,
execution, delivery, administration, modification and amendment of the Loan
Documents (including, without limitation, (A) all due diligence,
transportation, computer, duplication, appraisal, audit, insurance,
consultant, search, filing and recording fees and expenses and (B) the
reasonable fees and expenses of counsel for the Administrative Agent with
respect thereto, with respect to advising the Administrative Agent as to
its rights and responsibilities, or the perfection, protection or
preservation of rights or interests, under the Loan Documents, with respect
to negotiations with any Loan Party or with other creditors of any Loan
Party or any of its Subsidiaries arising out of any Default or any events
or circumstances that may give rise to a Default and with respect to
presenting claims in or otherwise participating in or monitoring any
bankruptcy, insolvency or other similar proceeding involving creditors'
rights generally and any proceeding ancillary thereto) and (ii) all costs
and expenses of the Administrative Agent, each Lender and each Issuing Bank
in connection with the enforcement of the Loan
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Documents, whether in any action, suit or litigation, any bankruptcy,
insolvency or other similar proceeding affecting creditors' rights
generally or otherwise (including, without limitation, the reasonable fees
and expenses of counsel for the Administrative Agent and each Lender with
respect thereto).
(b) Each Loan Party jointly and severally agrees to indemnify and hold
harmless the Administrative Agent, each Lender, each Issuing Bank and each
of their Affiliates and their officers, directors, employees, agents,
trustees, investment advisors and other advisors (each, an "INDEMNIFIED
-----------
PARTY"), to the extent that such indemnification would not be prohibited or
-----
restricted under applicable law, from and against any and all claims,
damages, losses, liabilities and expenses (including, without limitation,
reasonable fees and expenses of counsel) that may be incurred by or
asserted or awarded against any Indemnified Party, in each case arising out
of or in connection with or by reason of, or in connection with the
preparation for a defense of, any investigation, litigation or proceeding
arising out of, related to or in connection with (i) this Agreement or any
other Loan Document, the actual or proposed use of the proceeds of any Loan
or of any Letter of Credit issued hereunder or any of the transactions
contemplated hereby or by the other Loan Documents, or (ii) any acquisition
or proposed acquisition (including, without limitation, the Pioneer
Acquisition and any of the other transactions contemplated hereby) by any
Loan Party or any of their respective Affiliates of all or any portion of
the stock or substantially all the assets of Holdings or any of its
Subsidiaries or (iii) the actual or alleged presence of Hazardous Materials
on any property of any Loan Party or any of its Subsidiaries or any
Environmental Action relating in any way to any Loan Party or any of its
Subsidiaries, in each case whether or not such investigation, litigation or
proceeding is brought by any Loan Party, its directors, shareholders or
creditors or an Indemnified Party or any Indemnified Party is otherwise a
party thereto and whether or not the transactions contemplated hereby are
consummated, except to the extent such claim, damage, loss, liability or
expense is found in a final, nonappealable judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross
negligence or willful misconduct. Each Loan Party also agrees not to assert
any claim against any Agent, the Lead Arranger, any Lender Party, any of
their respective affiliates, or any of their respective directors,
officers, employees, attorneys and agents, on any theory of liability, for
special, indirect, consequential or punitive damages arising out of or
otherwise relating to any of the transactions contemplated herein or in any
other Loan Document or the actual or proposed use of the proceeds of the
Loans or the Letters of Credit.
(c) If any payment of principal of, or Conversion of, any Eurodollar
Rate Loan or BA Loan is made by the Borrower to or for the account of a
Lender other than on the last day of the Interest Period or Contract
Period, respectively, for such Loan, as a result of a payment or conversion
pursuant to this Agreement, acceleration of the maturity of any of the
Obligations pursuant to Section 7.01 or for any other reason, or by an
Eligible Assignee to a Lender other than on the last day of the Interest
Period or
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Contract Period, as applicable, for such Loan upon an assignment of rights
and obligations under this Agreement pursuant to Section 9.07 as a result
of a demand by the Borrower pursuant to Section 2.08(c), the Borrower
shall, upon demand by such Lender (with a copy of such demand to the
Administrative Agent), pay to the Administrative Agent for the account of
such Lender any amounts required to compensate such Lender for any
additional losses, costs or expenses that it may reasonably incur as a
result of such payment, including, without limitation, any loss, cost or
expense incurred by reason of the liquidation or reemployment of deposits
or other funds acquired by any Lender to fund or maintain such Loan.
(d) If any Loan Party fails to pay when due any costs, expenses or
other amounts payable by it under any Loan Document, including, without
limitation, fees and expenses of counsel and indemnities, such amount may
be paid on behalf of such Loan Party by the Administrative Agent or any
Lender, in its sole discretion and the Borrower shall reimburse the
Administrative Agent or such Lender on demand, to the extent that such
payment would not be prohibited or restricted under applicable law, for any
amounts so paid with interest thereon at the rate of interest per annum
that would be applicable thereto pursuant to Section 2.05(e) if the
Borrower was the Loan Party which failed to make the required payment of
such defaulting Loan Party, in each case from the date of such payment
until so reimbursed.
SECTION 9.05 RIGHT OF SET-OFF.
-----------------
Upon (a) the occurrence and during the continuance of any Event of
Default and (b) the making of the request or the granting of the consent
specified by Section 7.01 to authorize the Administrative Agent to declare any
Obligations due and payable pursuant to the provisions of Section 7.01, each
Lender Party and each of its Affiliates are hereby authorized at any time and
from time to time, to the fullest extent permitted by law, to set off and
otherwise apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by such Lender Party or such Affiliate to or for the credit or the account of
the Borrower against any and all of the Obligations of the Borrower now or
hereafter existing under this Agreement and any Note or Notes held by such
Lender, irrespective of whether such Lender shall have made any demand under
this Agreement or such Note or Notes and although such obligations may be
unmatured. Each Lender Party agrees promptly to notify the Borrower after any
such set-off and application; provided, however, that the failure to give such
--------- -------
notice shall not affect the validity of such set-off and application. The
rights of each Lender Party and its Affiliates under this Section are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) that such Lender Party and its Affiliates may have.
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SECTION 9.06 BINDING EFFECT.
---------------
This Agreement shall become effective when it shall have been executed
by each Loan Party and the Administrative Agent and when the Administrative
Agent shall have been notified by each Lender that such Lender has executed it
and thereafter shall be binding upon and inure to the benefit of each Loan
Party, the Administrative Agent, the Documentation Agent and each Lender Party
and their respective successors and assigns, except that none of the Loan
Parties shall have the right to assign its rights hereunder or any interest
herein without the prior written consent of the Lenders.
SECTION 9.07 ASSIGNMENTS AND PARTICIPATIONS.
-------------------------------
(a) Each Lender may assign to one or more banks or other entities all
or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitment or Commitments, the
Loans owing to it and any Note or Notes held by it); provided, however,
-------- -------
that (i) except in the case of an assignment to a Person that, immediately
prior to such assignment, was a Lender or Affiliate or Approved Fund of a
Lender or an assignment of all of a Lender's rights and obligations under
this Agreement or in respect of any Facility, the amount of the Commitments
and/or Loans of the assigning Lender being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than US$1,000,000, or
CDN$1,000,000, as applicable, and shall be in integral multiples of
US$100,000 or CDN$100,000, as applicable in excess thereof, (ii) each such
assignment shall be to an Eligible Assignee or to an Affiliate or Approved
Fund of the assignor, (iii) except for any assignments by the
Administrative Agent and any assignments to another Lender or an Affiliate
or an Approved Fund of the assigning Lender or of any other Lender or an
SPV, each assignment shall require the written consent of (A) the
Administrative Agent, and (B) unless a Default or Event of Default has
occurred and is continuing, the Borrower, such consent in each case not to
be unreasonably withheld or delayed, and (iv) the parties to each such
assignment shall execute and deliver to the Administrative Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance,
together with any Note or Notes subject to such assignment and a processing
and recordation fee of US$3,500; provided, however that no such fee shall
-------- -------
be payable in the case of an assignment to an Affiliate, an SPV or an
Approved Fund of the assigning Lender; and, provided further, that in the
-------- -------
case of contemporaneous assignments by a Lender to more than one fund
managed by the same investment advisor (which funds are not then Lenders
hereunder), only a single such US$3,5000 fee shall be payable for all such
contemporaneous assignments. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in such Assignment
and Acceptance, (x) the assignee thereunder shall be a party hereto and, to
the extent that rights, benefits and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, have (in
addition to any such rights and obligations theretofore held by it) the
rights, benefits and obligations of a Lender
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hereunder; provided that, the rights and benefits under Section 2.10 shall
-------- ----
only be available to the assignee to the extent that the assigning Lender
would have had such rights and benefits and (y) the Lender assignor
thereunder shall, to the extent that rights, benefits and obligations
hereunder have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights and benefits and be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's
rights, benefits and obligations under this Agreement, such Lender shall
cease to be a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to
any statements, warranties or representations made in or in connection with
this Agreement or any other Loan Document or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of, or the
perfection or priority of any Lien or security interest created or
purported to be created under or in connection with, this Agreement or any
other Loan Document or any other instrument or document furnished pursuant
hereto or thereto; (ii) such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to the financial
condition of the Borrower or any other Loan Party or the performance or
observance by any Loan Party of any of its obligations under any Loan
Document or any other instrument or document furnished pursuant thereto;
(iii) such assignee confirms that it has received a copy of this Agreement,
together with copies of the financial statements referred to in Section
4.01 and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into such Assignment
and Acceptance; (iv) such assignee will, independently and without reliance
upon any Agent, such assigning Lender or any other Lender Party and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under this Agreement; (v) such assignee confirms that it is an Eligible
Assignee; (vi) such assignee appoints and authorizes the Administrative
Agent to take such action as agent on its behalf and to exercise such
powers and discretion under the Loan Documents as are delegated to the
Administrative Agent by the terms hereof, together with such powers and
discretion as are reasonably incidental thereto; and (vii) such assignee
agrees that it will perform in accordance with their terms all of the
obligations which by the terms of this Agreement are required to be
performed by it as a Lender or Issuing Bank, as the case may be and shall
be bound by the terms of the Intercreditor Agreement.
(c) The Administrative Agent shall maintain at its address referred to
in Section 9.02 a copy of each Assignment and Acceptance delivered to and
accepted by it and a register for the recordation of the names and
addresses of the Lenders and the Commitment under each Facility of, and
principal amount of the Loans owing under each
-145-
<PAGE>
Facility to, each Lender from time to time (the "REGISTER"). The entries in
--------
the Register shall be conclusive and binding for all purposes, absent
manifest error, and the Borrower, the Administrative Agent and the Lender
Parties may treat each Person whose name is recorded in the Register as a
Lender hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower or any Lender Party at any
reasonable time and from time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee, together with any Note or Notes subject
to such assignment, the Administrative Agent shall, if such Assignment and
Acceptance has been completed and is in substantially the form of Exhibit I
---------
hereto, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Borrower. Within five Business Days after its receipt of
such notice of assignment and a request for new Notes in favor of such
assignee, the Borrower, at its own expense, shall execute and deliver to
the Administrative Agent in exchange for the surrendered Note or Notes a
new Note to the order of such Eligible Assignee in an amount equal to the
Loans and/or Commitments, as applicable, assumed by it under a Facility
pursuant to such Assignment and Acceptance and, if the assigning Lender has
retained any Loans and/or Commitments hereunder under such Facility, a new
Note to the order of the assigning Lender in an amount equal to such Loans
and/or Commitments, as applicable retained by it hereunder. Such new Note
or Notes shall be in an aggregate principal amount equal to the aggregate
principal amount of such surrendered Note or Notes, shall be dated the
effective date of such Assignment and Acceptance and shall otherwise be in
substantially the form of Exhibits VII-A-1, VII-A-2, VII-B, VII-C, VII-D-1
---------------- ------- ----- ----- -------
and VII-D-2, as applicable.
-------
(e) Each Lender may sell participations in or to all or a portion of
its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitments, the Loans owing to it and
any Note or Notes held by it); provided, however, that (i) such Lender's
-------- -------
obligations under this Agreement (including, without limitation, its
Commitments) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such
obligations, (iii) such Lender shall remain the holder of any such Note for
all purposes of this Agreement, (iv) the Borrower, the Administrative Agent
and the other Lender Parties shall continue to deal solely and directly
with such Lender in connection with such Lender's rights and obligations
under this Agreement and (v) no participant under any such participation
shall have any right to approve any amendment or waiver of any provision of
any Loan Document, or any consent to any departure by any Loan Party
therefrom, except to the extent that such amendment, waiver or consent
would reduce the principal of, or interest on, any Loans or any fees or
other amounts payable hereunder, in each case to the extent subject to such
participation, postpone any date fixed for any payment of principal of, or
interest on, any Loans or any fees or other amounts payable hereunder, in
each case to the extent subject to such participation, or release all or
substantially all of the Collateral;
-146-
<PAGE>
and, provided further, that participants shall have the same rights and
-------- -------
benefits as Lenders under Section 2.08 and Section 2.10, but only to the
extent that the Lender from which such participation is acquired would have
had such rights and benefits.
(f) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 9.07,
disclose to the assignee or participant or proposed assignee or
participant, any information relating to any Loan Party furnished to such
Lender by or on behalf of any Loan Party; provided, however, that, prior to
-------- -------
any such disclosure, the assignee or participant or proposed assignee or
participant shall agree to preserve the confidentiality of any Confidential
Information received by it from such Lender.
(g) Notwithstanding any other provision set forth in this Agreement,
any Lender may at any time create a security interest in all or any portion
of its rights under this Agreement (including, without limitation, the
Loans owing to it and any Note or Notes held by it) in favor of any Federal
Reserve Bank in accordance with Regulation A of the Board of Governors of
the US Federal Reserve System.
(h) Notwithstanding anything to the contrary contained herein, any
Lender (a "GRANTING LENDER") may grant to a special purpose funding vehicle
---------------
(an "SPV"), identified as such in writing from time to time by the Granting
---
Lender to the Administrative Agent and the Borrower, the option to provide
to the Borrower all or any part of any Loan that such Granting Lender would
otherwise be obligated to make to the Borrower pursuant to this Agreement;
provided that (i) nothing herein shall constitute a commitment by any SPV
-------- ----
to make any Loan and (ii) if an SPV 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.
The making of a Loan by an SPV hereunder shall utilize the Commitment
availability of the Granting Lender to the same extent, and as if, such
Loan were made by such Granting Lender. Each party hereto hereby agrees
that no SPV 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 SPV, it will not institute against, or join any other
person in instituting against, such SPV any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings under any Insolvency
Law. In addition, notwithstanding anything to the contrary contained in
this Section 9.07(h), any SPV may (i) with notice to, but without the prior
written consent of, the Borrower and the Administrative Agent and without
paying any processing fee therefor, assign all or a portion of its
interests in any Loans to the Granting Lender or to any financial
institutions (consented to by the Borrower and the Administrative Agent)
providing liquidity and/or credit support to or for the account of such SPV
to support the funding or maintenance of
-147-
<PAGE>
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 SPV. To the extent that an SPV assumes a Commitment and/or makes a
Loan on behalf of a Granting Lender, such SPV shall be deemed a "Lender"
for all purposes hereunder and under the other Loan Documents and shall be
entitled to the same rights and benefits as such Granting Lender hereunder
and thereunder except that, with reference to the rights and benefits
provided under Section 2.10, only to the extent that the relevant Granting
Lender would have been entitled to such rights and benefits. This Section
9.07(h) may not be amended without the written consent of the SPV.
SECTION 9.08 GOVERNING LAW; JURISDICTION.
----------------------------
(a) This Agreement and the Notes (if any) shall be governed by, and
construed in accordance with, the laws of the Province of Ontario and of
Canada applicable therein.
(b) Each party hereby consents and agrees that the courts located in
the Province of Ontario shall have non-exclusive jurisdiction to hear and
determine any claim or dispute pertaining to this Agreement or any of the
other Loan Documents; provided that, nothing in this Agreement shall be
-------- -----
deemed or operate to preclude the Administrative Agent from bringing suit
or taking other legal action in any other jurisdiction to realize on the
Collateral or any other security for the Obligations or to enforce a
judgment or other court order. Each Party hereby irrevocably waives, to
the fullest extent permitted by law, the defense of an inconvenient forum
to the maintenance of such action or proceedings in any such court.
SECTION 9.09 EXECUTION IN COUNTERPARTS.
--------------------------
This Agreement may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement. Delivery of an executed counterpart of a
signature page to this Agreement by telecopier shall be effective as delivery of
a manually executed counterpart of this Agreement.
SECTION 9.10 NO LIABILITY OF THE ISSUING BANKS.
----------------------------------
The Borrower assumes all risks of the acts or omissions of any
beneficiary or transferee of any Letter of Credit with respect to its use of
such Letter of Credit. Neither any Issuing Bank nor any of its officers or
directors shall be liable or responsible for: (a) the use that may be made of
any Letter of Credit or any acts or omissions of any beneficiary or transferee
in connection therewith; (b) the validity, sufficiency or genuineness of
documents, or of any endorsement thereon, even if such documents should prove to
be in any or all respects invalid,
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<PAGE>
insufficient, fraudulent or forged; (c) payment by such Issuing Bank against
presentation of documents that do not comply with the terms of a Letter of
Credit, including failure of any documents to bear any reference or adequate
reference to the Letter of Credit; or (d) any other circumstances whatsoever in
making or failing to make payment under any Letter of Credit, except that the
------
Borrower and each Lender shall have a claim against such Issuing Bank, and such
Issuing Bank shall be liable to the Borrower and each Lender, to the extent of
any direct, but not consequential, damages suffered by the Borrower or such
Lender that the Borrower or such Lender proves were caused by (i) such Issuing
Bank's willful misconduct or gross negligence in determining whether documents
presented under any Letter of Credit comply with the terms of the Letter of
Credit or (ii) such Issuing Bank's willful failure to make lawful payment under
a Letter of Credit after the presentation to it of a draft and certificates
strictly complying with the terms and conditions of the Letter of Credit. In
furtherance and not in limitation of the foregoing, such Issuing Bank may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary.
SECTION 9.11 CONFIDENTIALITY.
----------------
Neither any Agent nor any Lender Party shall disclose any Confidential
Information to any Person without the consent of the Borrower, other than (a) to
such Agent's or such Lender's Affiliates or Approved Funds and their officers,
directors, employees, agents and advisors and to actual or prospective Eligible
Assignees and participants, and then only on a confidential basis, (b) as
required by any law, rule or regulation or judicial process, (c) as requested or
required by any provincial, federal or foreign authority or examiner regulating
the activities of such Lender Party or (d) in connection with customary filings
with the US National Association of Insurance Commissioners.
SECTION 9.12 JUDGMENT CURRENCY.
------------------
(a) If, for the purpose of obtaining or enforcing judgment against any
Loan Party in any court in any jurisdiction, it becomes necessary to
convert into any other currency (such other currency being hereinafter in
this Section 9.12 referred to as the "JUDGMENT CURRENCY") an amount due
-----------------
under any Loan Document in any currency (the "OBLIGATION CURRENCY") other
-------------------
than the Judgment Currency, the conversion shall be made at the rate of
exchange prevailing on the Business Day immediately preceding the date of
actual payment of the amount due, in the case of any proceeding in the
courts of the Province of Ontario or in the courts of any other
jurisdiction that will give effect to such conversion being made on such
date, or the date on which the judgment is given, in the case of any
proceeding in the courts of any other jurisdiction (the applicable date as
of which such conversion is made pursuant to this Section 9.12 being
hereinafter in this Section 9.12 referred to as the "JUDGMENT CONVERSION
-------------------
DATE").
----
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<PAGE>
(b) If, in the case of any proceeding in the court of any jurisdiction
referred to in Section 9.12(a), there is a change in the rate of exchange
prevailing between the Judgment Conversion Date and the date of actual
receipt of the amount due in same day funds, the applicable Loan Party
shall pay such additional amount (if any, but in any event not a lesser
amount) or the Administrative Agent or applicable Lender, as appropriate,
shall refund to the Borrower such amount (if any), as applicable, as may be
necessary to ensure that the amount actually received in the Judgment
Currency, when converted at the rate of exchange prevailing on the date of
payment, will produce the amount of the Obligation Currency which could
have been purchased with the amount of the Judgment Currency stipulated in
the judgment or judicial order at the rate of exchange prevailing on the
Judgment Conversion Date. Any amount due from a Loan Party under this
Section 9.12(b) shall be due as a separate debt and shall not be affected
by judgment being obtained for any other amounts due under or in respect of
any of the Loan Documents.
(c) The term "rate of exchange" in this Section 9.12 means the rate of
exchange at which the Administrative Agent would, on the relevant date at
or about 12:00 noon (Toronto time), be prepared to sell the Obligation
Currency against the Judgment Currency.
SECTION 9.13 WAIVER OF JURY TRIAL.
---------------------
Each of the Loan Parties, the Administrative Agent, the Issuing Banks
and the Lender Parties hereby irrevocably waives all right to trial by jury in
any action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to any of the Loan Documents, the Loans,
any Letter of Credit or the actions of any Agent or any Lender Party in the
negotiation, administration, performance or enforcement thereof.
[INTENTIONALLY LEFT BLANK]
-150-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
PANOLAM INDUSTRIES LTD.
as Borrower
By: /s/ Robert J. Muller
---------------------------
Title: President
------------------------
By: /s/ Sara Foster
---------------------------
Title: Secretary
------------------------
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<PAGE>
CREDIT SUISSE FIRST BOSTON CANADA,
as an Initial Lender and as Administrative Agent
By: /s/ W.M. McFarland
----------------------------------------
Title: Vice President
-------------------------------------
By: /s/ Peter Chaurin
----------------------------------------
Title: Vice President
-------------------------------------
Lending Office and Address for Notices:
Credit Suisse First Boston Canada
1 First Canadian Place, Suite 3000
Toronto, Ontario
M5X 1C9
Attention: Bill McFarland
Telephone No.: (416) 352-4528
Telecopier No.: (416) 352-4576
-152-
<PAGE>
ROYAL BANK OF CANADA, as an Initial
Lender and as Documentation Agent
By: /s/ Luc Lachapelle
-----------------------------------
Title: Deputy to the Vice - President
and Sales and Market Manager
--------------------------------
By: [SIGNATURE ILLIGIBLE]
----------------------------------
Title: ________________________________
Lending Office and Address for Notices:
Royal Bank of Canada
1 Place Ville Marie
8/th/ Floor, East Wing
Montreal, Quebec
H3C 3A9
Attention: Michel Roch
Telephone No.: (514) 874-3726
Telecopier No.: (514) 874-3144
With a copy to:
Royal Bank of Canada
One Liberty Plaza, 4/th/ Floor
New York, New York 10006-1404
Attention: Colleen Roux
Telephone No.: (212) 428-6214
Telecopier No.: (212) 428-2319
-153-
<PAGE>
COMERICA BANK-CANADA, as an Initial
Lender
By: /s/ William T. Carrothers
-----------------------------------
Title: Vice President
--------------------------------
By: ___________________________________
Title: ________________________________
Lending Office and Address for Notices:
Comerica Bank-Canada
Suite 2210
South Tower, Royal Bank Plaza
Toronto, Ontario
M5J 2J2
Attention: William Carrothers
Telephone No.: (416) 367-3113 Ext. 230
Telecopier No.: (416) 367-2460
-154-
<PAGE>
The following Persons are signatories to this Agreement in their
capacity as Loan Parties and not as Borrower.
PANOLAM INDUSTRIES HOLDINGS, INC.
By: /s/ Robert J. Muller
----------------------------------
Title: _______________________________
By: /s/ Sara Foster
----------------------------------
Title: _______________________________
PANOLAM GROUP, INC.
By: /s/ Robert J. Muller
----------------------------------
Title: _______________________________
By: /s/ Sara Foster
----------------------------------
Title: _______________________________
PII SECOND, INC.
By: /s/ Robert J. Muller
----------------------------------
Title: _______________________________
By: /s/ Sara Foster
----------------------------------
Title: _______________________________
-155-
<PAGE>
PANOLAM INDUSTRIES INTERNATIONAL, INC.
By: /s/ Robert J. Muller
------------------------------------
Title: _________________________________
By: /s/ Sara Foster
------------------------------------
Title: _________________________________
PANOLAM INDUSTRIES, INC.
By: /s/ Robert J. Muller
------------------------------------
Title:__________________________________
By: /s/ Sara Foster
------------------------------------
Title: _________________________________
PIONEER PLASTICS CORPORATION
By: /s/ Robert J. Muller
------------------------------------
Title: _________________________________
By: /s/ Sara Foster
------------------------------------
Title: _________________________________
-156-
<PAGE>
- --------------------------------------------------------------------------------
US$65,000,000
CREDIT AGREEMENT
DATED AS OF FEBRUARY 18, 1999
AMONG
PANOLAM INDUSTRIES LTD.,
AS BORROWER,
THE OTHER LOAN PARTIES SIGNATORY HERETO,
THE LENDERS NAMED HEREIN,
AS INITIAL LENDERS,
DLJ CAPITAL FUNDING, INC.,
AS SYNDICATION AGENT,
CREDIT SUISSE FIRST BOSTON CANADA,
AS ADMINISTRATIVE AGENT
AND
ROYAL BANK OF CANADA,
AS DOCUMENTATION AGENT
LEAD ARRANGED BY:
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
- --------------------------------------------------------------------------------
<PAGE>
SCHEDULES AND EXHIBITS
SCHEDULES
Schedule I Commitments, Etc.
Schedule II Collateral Reports
Schedule 1.01(a) Historical Restructuring Costs
Schedule 1.01(b) Future Restructuring Costs
Schedule 2.04(c)(iii) Equipment
Schedule 4.01(k)(ii) Jurisdiction of Incorporation; Foreign
Qualifications
Schedule 4.01(k)(vii) Government and Third Party Approvals
Schedule 4.01(k)(xv) Secured Properties
Schedule 4.01(k)(xxi) Environmental Reports
Schedule 5.01(b) Capital Stock
Schedule 5.01(d) Approvals and Consents
Schedule 5.01(j) Pension Plans
Schedule 5.01(l)(i) Environmental Law and Permit Exceptions
Schedule 5.01(l)(ii) Environmental Disclosure
Schedule 5.01(l)(iii) Hazardous Materials Disposals and Releases
Schedule 5.01(m) Open Years
Schedule 5.01(q)(i) Existing Debt
Schedule 5.01(q)(ii) Surviving Debt
Schedule 5.01(s) Real Property
Schedule 5.01(t) Material Contracts
Schedule 5.01(v) Investments
Schedule 5.01(w) Intellectual Property
Schedule 5.01(x) Other Agreements
Schedule 6.01(d) Policies of Insurance
Schedule 6.02(a)(iii) Existing Liens
Schedule 6.02(e) Sale of Assets
Schedule 6.02(r) Affiliate Transactions
EXHIBITS
Exhibit I Form of Assignment and Acceptance
Exhibit II Form of Notice of Borrowing
Exhibit III Form of Notice of Conversion/Continuation
Exhibit IV Form of Notice of Issuance
Exhibit V Form of Notice of Swing Line Borrowing
Exhibit VI Form of Borrowing Base Certificate
Exhibit VII-A-1 Form of Canadian Dollar Revolving Note
Exhibit VII-A-2 Form of US Dollar Revolving Note
Exhibit VII-B Form of Term A Note
Exhibit VII-C Form of Term B Note
-i-
<PAGE>
Exhibit VII-D-1 Form of Canadian Dollar Swing Line Note
Exhibit VII-D-2 Form of US Dollar Swing Line Note
Exhibit VIII-A Form of Bankers' Acceptance
Exhibit VIII-B Form of Discount Note
Exhibit IX Form of Compliance Certificate/Quarterly
Compliance Certificate
Exhibit X Forms of Canadian Security Agreement and US
Security Agreement
Exhibit XI Form of US Guaranty
Exhibit XII Forms of Mortgage/Assignment of Rents/Deed of
Trust/Leasehold Deed of Trust/Leasehold Mortgage
Exhibit XIII-A Forms of Opinions of Borrower's Canadian and
US Counsel
Exhibit XIII-B Form of Opinion of Borrower's US Local Counsel
Exhibit XIV Form of Amendment to US Guaranty
Exhibit XV Form of Amendment to US Security Agreement
Exhibit XVI Form of Intercreditor and Subordination
Agreement
Exhibit XVII Form of Intercompany Note
-ii-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Article I. DEFINITIONS AND ACCOUNTING TERMS................................................................ 2
Section 1.01 Certain Defined Terms................................................................. 2
Section 1.02 Computation of Time Periods........................................................... 49
Section 1.03 Accounting Terms...................................................................... 49
Section 1.04 Other Definitional Provisions......................................................... 49
Article II. AMOUNTS AND TERMS OF THE LOANS................................................................. 49
Section 2.01 The Loans............................................................................. 49
Section 2.02 Making the Loans...................................................................... 51
Section 2.03 Scheduled Repayment................................................................... 56
Section 2.04 Prepayments; Reduction of Revolving Commitments and
Swing Line Commitment................................................................. 58
Section 2.05 Interest.............................................................................. 66
Section 2.06 BA Loans.............................................................................. 71
Section 2.07 Fees.................................................................................. 74
Section 2.08 Increased Costs, Etc.................................................................. 75
Section 2.09 Payments and Computations............................................................. 76
Section 2.10 Taxes................................................................................. 78
Section 2.11 Sharing of Payments, Etc.............................................................. 80
Section 2.12 Use of Proceeds....................................................................... 80
Section 2.13 Evidence of Debt...................................................................... 81
Article III. AMOUNTS AND TERMS OF LETTERS OF CREDIT........................................................ 82
Section 3.01 The Letter of Credit Subfacility...................................................... 82
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Section 3.02 Issuance of Letters of Credit........................................................... 82
Section 3.03 Drawing and Reimbursement............................................................... 83
Section 3.04 Obligations Absolute.................................................................... 84
Section 3.05 Letter of Credit Fees................................................................... 85
Section 3.06 Use of Letters of Credit................................................................ 86
Article IV. CONDITIONS OF LENDING............................................................................ 86
Section 4.01 Conditions Precedent to Initial Borrowings.............................................. 86
Section 4.02 Conditions Precedent to Each Borrowing and Issuance..................................... 94
Section 4.03 Determinations Under Section 4.01....................................................... 95
Article V. REPRESENTATIONS AND WARRANTIES.................................................................... 95
Section 5.01 Representations and Warranties of Loan Parties.......................................... 95
Article VI. COVENANTS OF THE LOAN PARTIES.................................................................... 106
Section 6.01 Affirmative Covenants................................................................... 106
Section 6.02 Negative Covenants...................................................................... 114
Section 6.03 Reporting Requirements.................................................................. 124
Section 6.04 Financial Covenants..................................................................... 129
Article VII. EVENTS OF DEFAULT............................................................................... 131
Section 7.01 Events of Default....................................................................... 131
Section 7.02 Actions in Respect of the Letters of Credit Upon Default................................ 135
Article VIII. THE ADMINISTRATIVE AGENT....................................................................... 135
Section 8.01 Authorization and Action................................................................ 135
Section 8.02 Administrative Agent's Reliance, Etc.................................................... 136
Section 8.03 Agents and Affiliates................................................................... 136
Section 8.04 Lender Credit Decision.................................................................. 137
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
Section 8.05 Indemnification....................................................................... 137
Section 8.06 Successor Administrative Agents....................................................... 138
Section 8.07 Documentation Agent................................................................... 138
Section 8.08 Ministerial Acts...................................................................... 138
Article IX. MISCELLANEOUS.................................................................................. 139
Section 9.01 Amendments, Etc.; Release of Collateral............................................... 139
Section 9.02 Notices, Etc.......................................................................... 140
Section 9.03 No Waiver, Remedies................................................................... 141
Section 9.04 Costs and Expenses.................................................................... 141
Section 9.05 Right of Set-Off...................................................................... 143
Section 9.06 Binding Effect........................................................................ 144
Section 9.07 Assignments and Participations........................................................ 144
Section 9.08 Governing Law; Jurisdiction........................................................... 148
Section 9.09 Execution in Counterparts............................................................. 148
Section 9.10 No Liability of the Issuing Banks..................................................... 148
Section 9.11 Confidentiality....................................................................... 149
Section 9.12 Judgment Currency..................................................................... 149
Section 9.13 Waiver of Jury Trial.................................................................. 150
</TABLE>
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<PAGE>
EXHIBIT I
FORM OF ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement, dated as of February 16, 1999
(as amended, amended and restated, supplemented or otherwise modified from time
to time, the "CREDIT AGREEMENT," the terms defined therein being used herein as
----------------
therein defined), among PANOLAM INDUSTRIES LTD., an Ontario corporation (the
"BORROWER"), the other Loan Parties signatory thereto, the financial
--------
institutions and other entities listed on the signature pages of the Credit
Agreement as Lender, and CREDIT SUISSE FIRST BOSTON CANADA, for itself as a
Lender and as Administrative Agent, and Royal Bank of Canada, for itself as an
Initial Lender and as Documentation Agent.
The "Assignor" and the "Assignee" referred to on Schedule 1 hereto
agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, an interest in and to
the Assignor's rights and obligations under the Credit Agreement as of the date
hereof equal to the percentage interest specified on Schedule 1 hereto of all
outstanding rights and obligations under the Credit Agreement Facility or
Facilities specified on Schedule 1 hereto. After giving effect to such sale and
assignment, the Assignee's Commitments and the amount of the Loans owing to the
Assignee will be as set forth on Schedule 1 hereto.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Loan Documents
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of, or the perfection or priority of any lien or security interest
created or purported to be created under or in connection with, the Loan
Documents or any other instrument or document furnished pursuant thereto; and
(iii) makes no representation or warranty and assumes no responsibility with
respect to the financial condition of any Loan Party or the performance or
observance by any Loan Party of any of its obligations under any Loan Document
or any other instrument or document furnished pursuant thereto; and (iv)
attaches the Note or Notes held by the Assignor and requests that the
Administrative Agent exchange such Note or Notes for a new Note or Notes payable
to the order of the Assignee in an amount equal to the Commitments assumed by
the Assignee pursuant hereto or new Notes payable to the order of the Assignee
in an amount equal to the Commitments assumed by the Assignee pursuant hereto
and the Assignor in an amount equal to the Commitments retained by the Assignor
under the Credit Agreement, respectively, as specified on Schedule 1 hereto.
3. The Assignee (i) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 5.01(f) thereof and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
this Assignment and Acceptance; (ii) agrees that it will, independently and
without reliance upon the Administrative Agent, the Assignor or any other Lender
and based on such documents and information as it shall deem appropriate at the
time,
I-1
<PAGE>
continue to make its own credit decisions in taking or not taking action under
the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv)
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers and discretion under the Credit Agreement
and the other Loan Documents (including, without limitation, under the
Intercreditor Agreement and the Collateral Documents) as are delegated to the
Administrative Agent by the terms thereof, together with such powers and
discretion as are reasonably incidental thereto, and without limiting the
foregoing, the Assignee expressly agrees to be bound by the terms of the
Intercreditor Agreement and the Collateral Documents; and (v) agrees that it
will perform in accordance with their terms all of the obligations that by the
terms of the Credit Agreement are required to be performed by it as a Lender
and, if applicable, as an Issuing Bank.
4. Following the execution of this Assignment and Acceptance, it will
be delivered to the Administrative Agent for acceptance and recording by the
Administrative Agent. The effective date for this Assignment and Acceptance (the
"EFFECTIVE DATE") shall be the date of acceptance hereof by the Administrative
--------------
Agent, unless otherwise specified on Schedule 1 hereto.
5. Upon such acceptance and recording by the Administrative Agent, as
of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement
and, to the extent provided in this Assignment and Acceptance, have the rights
and obligations of a Lender and, if applicable, an Issuing Bank thereunder, and
(ii) the Assignor shall, to the extent provided in this Assignment and
Acceptance, relinquish its rights and be released from its obligations under the
Credit Agreement.
6. Upon such acceptance and recording by the Administrative Agent,
from and after the Effective Date, the Administrative Agent shall make all
payments under the Credit Agreement and any Notes in respect of the interest
assigned hereby (including, without limitation, all payments of principal,
interest and commitment fees with respect thereto) to the Assignee. The Assignor
and Assignee shall make all appropriate adjustments in payments under the Credit
Agreement and any Notes for periods prior to the Effective Date directly between
themselves.
7. This Assignment and Acceptance shall be governed by, and construed
in accordance with, the laws of the Province of Ontario.
8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall
be effective as delivery of a manually executed counterpart of this Assignment
and Acceptance.
I-2
<PAGE>
IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule
1 to this Assignment and Acceptance to be executed by their officers thereunto
duly authorized as of the date specified thereon.
[NAME OF ASSIGNOR], as Assignor
By __________________________________________
Title:
Dated: ___________, ____
[NAME OF ASSIGNEE], as Assignee
By __________________________________________
Title:
Dated: ___________, ____
Assignee's Notice Address:
Assignee's Account Information:
I-3
<PAGE>
Accepted and Approved this ____
day of ___________, ____
CREDIT SUISSE FIRST BOSTON CANADA,
as Administrative Agent
By __________________________________
Title:
[Approved this ____ day
of _____________, ____
PANOLAM INDUSTRIES LTD.
By __________________________________
Title:]
I-4
<PAGE>
EXHIBIT II
FORM OF NOTICE OF BORROWING
[Date]
Credit Suisse First Boston Canada, as Administrative Agent
for the Lenders party
to the Credit Agreement
referred to below
1 First Canadian Place
30/th/ Floor
Toronto, Ontario, M5X 1C9
Attn: Syndications Agency
PANOLAM INDUSTRIES LTD.
Ladies and Gentlemen:
The undersigned, Panolam Industries Ltd., refers to the Credit Agreement, dated
as of February 16, 1999 (as amended, supplemented, amended and restated or
otherwise modified from time to time, the "CREDIT AGREEMENT," the terms defined
----------------
therein being used herein as therein defined), among the undersigned, the other
Loan Parties signatory thereto, the financial institutions and other entities
listed on the signature pages of the Credit Agreement as Lenders, Credit Suisse
First Boston Canada for itself as a Lender and as Administrative Agent, and
hereby gives you notice, irrevocably, pursuant to Section 2.02 of the Credit
Agreement, that the undersigned hereby requests a [Term A Loan][Term B
Loan][Revolving Loan] under the Credit Agreement, and in that connection sets
forth below the information relating to such Borrowing (the "PROPOSED
--------
BORROWING"):
- ---------
(i) The Business Day of the Proposed Borrowing is _________
___, ____.
(ii) The Type of Loan comprising the Proposed Borrowing is a
[Term A Loan][Term B Loan][Revolving Loan] [Base Rate Loan] [Eurodollar
Rate Loan] [BA Loan] [Prime Rate Loan].
(iii) The aggregate amount of the Proposed Borrowing is
[US][CND]$__________.
[(iv) The initial Interest Period for each Eurodollar Rate Loan
made as part of the Proposed Borrowing is [one][two][three][six] month[s].]
[(v) The Contract Period for each BA Loan representing part of
the Proposed Borrowing is approximately [thirty] [sixty] [ninety] [one
hundred eighty] days ending on _________ ___,_____.]
II-1
<PAGE>
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed Borrowing:
(A) the representations and warranties contained in each Loan
Document are correct, before and after giving effect to the Proposed
Borrowing and to the application of the proceeds therefrom, as though made
on and as of such date other than any such representations or warranties
that, by their terms, are specifically made as of a date other than the
date of the Proposed Borrowing;
(B) no event has occurred and is continuing, or would result from
such Proposed Borrowing or from the application of the proceeds therefrom,
that constitutes or would constitute a Default or an Event of Default; and
(C) after giving effect to the Proposed Borrowing, the Borrowing
Base Amount and the Revolving Commitments then in effect each exceed the
Total Utilization of Revolving Commitments.
Very truly yours,
PANOLAM INDUSTRIES LTD.
By:_____________________________________
Title:
II-2
<PAGE>
EXHIBIT III
FORM OF NOTICE OF CONVERSION/CONTINUATION
[Date]
Credit Suisse First Boston Canada, as Administrative Agent
for the Lenders party
to the Credit Agreement
referred to below
1 First Canadian Place
30/th/ Floor
Toronto, Ontario, M5X 1C9
Attn: Syndications Agency
PANOLAM INDUSTRIES LTD.
Ladies and Gentlemen:
The undersigned, Panolam Industries Ltd. ("Borrower"), refers to the Credit
Agreement, dated as of February 16, 1999 (as amended, supplemented, amended and
restated or otherwise modified from time to time, the "CREDIT AGREEMENT," the
----------------
terms defined therein being used herein as therein defined), among the
undersigned, the other Loan Parties signatory thereto, the financial
institutions and other entities listed on the signature pages of the Credit
Agreement as Lenders, and, Credit Suisse First Boston Canada for itself as a
Lender and as Administrative Agent. Borrower hereby gives you notice,
irrevocably, pursuant to Section [2.05(c)][2.06(a)] of the Credit Agreement that
the undersigned hereby requests [a Conversion under the Credit Agreement (the
"PROPOSED BASE RATE/EURODOLLAR CONVERSION") of US$________ in principal amount
- -----------------------------------------
of presently outstanding [Term A][Term B][Revolving] Loans that are [Base Rate]
[Eurodollar Rate] Loans to [Eurodollar Rate] [Base Rate] Loans on ________ __,
____] [a Conversion under the Credit Agreement (the "PROPOSED PRIME RATE/BA
----------------------
CONVERSION") of CDN$_________ of outstanding Revolving Loans that are Prime Rate
- ----------
Loans to BA Loans with a Contract Period ending _______ __, _____] [a
Continuation under the Credit Agreement (the "PROPOSED BA CONTINUATION") as BA
------------------------
Loans of CDN$________ in principal amount of presently outstanding BA Loans with
a contract period requested to be approximately a [thirty] [sixty] [ninety] [one
hundred eighty] day period ending on _________ __, _____.] [a Continuation under
the Credit Agreement (the "PROPOSED EURODOLLAR CONTINUATION") as Eurodollar Rate
--------------------------------
Loans of US$ ________ in principal amount of presently outstanding [Term A][Term
B][Revolving] Loans that are Eurodollar Rate Loans with an Interest Period
ending ________ __, ____. The Interest Period for such Eurodollar Rate Loans is
requested to be a [one][two][three][six]month period ending on ________ __,
____].
III-1
<PAGE>
The undersigned hereby certifies that the following statement is true
on the date hereof, and will be true on the date of the Proposed [[Base
Rate/Eurodollar][Prime Rate/BA]Conversion] [[BA][Eurodollar]Continuation]:
(A) the representations and warranties contained in each Loan
Document are correct, before and after giving effect to the Proposed [[BA
Rate/Eurodollar][Prime Rate/BA]Conversion] [[BA][Eurodollar]Continuation]
and to the application of the proceeds therefrom, as though made on and as
of such date other than any such representations or warranties that, by
their terms, are specifically made as of a date other than the date of the
Proposed [[Base Rate/Eurodollar][Prime Rate/BA]Conversion]
[[BA][Eurodollar]Continuation]; and
(B) no event has occurred and is continuing, or would result from
such Proposed [[Base Rate/Eurodollar] [Prime Rate/BA] Conversion]
[BA][Eurodollar]Continuation] that constitutes or would constitute a
Default or an Event of Default.
Very truly yours,
PANOLAM INDUSTRIES LTD.
By:_____________________________________
Title:
III-2
<PAGE>
EXHIBIT IV
FORM OF NOTICE OF ISSUANCE
[Date]
Credit Suisse First Boston Canada, as Administrative Agent
for the Lenders party
to the Credit Agreement
referred to below
1 First Canadian Place
30/th/ Floor
Toronto, Ontario, M5X 1C9
Attn: Syndications Agency
[Name and address of
Issuing Bank
Attention: ________________________]
PANOLAM INDUSTRIES LTD.
Ladies and Gentlemen:
The undersigned, Panolam Industries Ltd., refers to the Credit Agreement, dated
as of February 16, 1999 (as amended, supplemented, amended and restated or
otherwise modified from time to time, the "CREDIT AGREEMENT," the terms defined
----------------
therein being used herein as therein defined), among the undersigned, the other
Loan Parties signatory thereto, the financial institutions and other entities
listed on the signature pages of the Credit Agreement as Lenders, and Credit
Suisse First Boston Canada, for itself as a Lender and as Administrative Agent,
and hereby gives you notice, pursuant to Section 3.02 of the Credit Agreement
that the undersigned hereby requests the issuance of a Letter of Credit under
the Credit Agreement, and in that connection sets forth below the information
relating to such issuance (the "PROPOSED ISSUANCE"):
-----------------
(i) The requested Business Day of the Proposed Issuance is
________ ___, ____.
(ii) The requested available amount of such Letter of Credit is
[US$__________ ] [CDN$____________.]
(iii) The requested expiration date of such Letter of Credit is
________ ___, ____.
(iv) The name and address of the beneficiary of such requested
Letter of Credit is as follows:
IV-1
<PAGE>
________________________________
________________________________
________________________________
(v) The requested form of such Letter of Credit and a copy of the
Letter of Credit Agreement are attached hereto as Schedule 1.
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed Issuance:
(A) the representations and warranties contained in each Loan
Document are correct on and as of the date of the Proposed Issuance, before
and after giving effect to the Proposed Issuance requested hereby, as
though made on and as of such date, other than any such representations and
warranties that, by their terms, are specifically made as of a date other
than the date of the Proposed Issuance;
(B) no event has occurred and is continuing, or would result from
the Proposed Issuance requested hereby, that constitutes or would
constitute a Default or an Event of Default; and
(C) after giving effect to the Proposed Borrowing, the Borrowing
Base Amount and the Revolving Commitments then in effect each exceed the
Total Utilization of Revolving Commitments.
Very truly yours,
PANOLAM INDUSTRIES LTD.
By:_____________________________________
Title:
IV-2
<PAGE>
EXHIBIT V
FORM OF NOTICE OF SWING LINE BORROWING
[Date]
Credit Suisse First Boston Canada, as Administrative Agent
for the Lenders party
to the Credit Agreement
referred to below
1 First Canadian Place
30/th/ Floor
Toronto, Ontario, M5X 1C9
Attn: Syndications Agency
PANOLAM INDUSTRIES LTD.
Ladies and Gentlemen:
The undersigned, Panolam Industries Ltd., refers to the Credit Agreement, dated
as of February 16, 1999 (as amended, supplemented, amended or restated or
otherwise modified from time to time, the "CREDIT AGREEMENT," the terms defined
----------------
therein being used herein as therein defined), among the undersigned, the other
Loan Parties signatory thereto, the financial institutions and other entities
listed on the signature pages of the Credit Agreement as Lenders and Credit
Suisse First Boston Canada for itself as a Lender and as Administrative Agent,
and hereby gives you notice irrevocably, pursuant to Section 2.02(c) of the
Credit Agreement that the undersigned hereby requests a Swing Line Borrowing
under the Credit Agreement, and in that connection sets forth below the
information relating to such Borrowing (the "PROPOSED SWING LINE BORROWING"):
-----------------------------
(i) The Business Day of the Proposed Swing Line Borrowing is
_________ ___, ____.
(ii) The aggregate amount of the Proposed Swing Line Borrowing by
way of [Prime Rate Loan][Base Rate Loan] is [CDN$][US$]_____________.
V-1
<PAGE>
The undersigned hereby certifies that the following statements are
true on the date hereof, and will be true on the date of the Proposed Swing Line
Borrowing:
(A) the representations and warranties contained in each Loan
Document are correct, before and after giving effect to the Proposed Swing
Line Borrowing and to the application of the proceeds therefrom, as though
made on and as of such date other than any such representations or
warranties that, by their terms, are specifically made as of a date other
than the date of the Proposed Swing Line Borrowing;
(B) no event has occurred and is continuing, or would result from
such Proposed Swing Line Borrowing or from the application of the proceeds
therefrom, that constitutes or would constitute a Default or an Event of
Default; and
(C) after giving effect to the Proposed Swing Line Borrowing, the
aggregate principal amount of all outstanding Swing Line Loans will not
exceed the lesser of (i) the remainder of the Borrowing Base Amount then in
effect minus the sum of (A) the aggregate amount of the Letter of Credit
-----
Obligations then outstanding, and (B) the aggregate principal amount of the
Revolving Loans then outstanding; or (ii) the aggregate Revolving
Commitments then in effect.
Very truly yours,
PANOLAM INDUSTRIES LTD.
By:_____________________________________
Title:
V-2
<PAGE>
EXHIBIT VI
FORM OF BORROWING BASE CERTIFICATE
In connection with the Credit Agreement by and among PANOLAM
INDUSTRIES LTD. (the "BORROWER"), the financial institutions and certain other
--------
entities listed on the signature pages of the Credit Agreement as Lenders and
Credit Suisse First Boston Canada, for itself as a Lender and as Administrative
Agent (as amended, supplemented amended and restated or otherwise modified from
time to time, the "CREDIT AGREEMENT"), dated as of February 16, 1999, I, [NAME
----------------
OF OFFICER], in my personal capacity as [Chief Financial Officer] [Treasurer]
[Director of Finance] of the Borrower, hereby certify that I am the duly elected
and acting [Chief Financial Officer] [Treasurer] [Director of Finance] of the
Borrower and that:
1. All information and each calculation set forth in the attached
Schedule 1 are, and all supporting documentation and reports attached
hereto as Schedule 2 are, to the best of my knowledge, true, correct
and complete in all material respects as of the date hereof.
2. All information and each calculation set forth in the attached
Borrowing Base Certificate is based on the most recent financial
statements of the Borrower [AND ITS CANADIAN SUBSIDIARIES] delivered
pursuant to Section 6.03(b), (c) or (d) of the Credit Agreement
(except that, in the event that this Borrowing Base Certificate is
delivered more than 40 days after the end of the most recently ended
fiscal quarter of the Borrower, such Schedule 1 sets forth the
Borrower's [AND ITS CANADIAN SUBSIDIARIES] Eligible Receivables and
Eligible Inventory as of the last day of the most recently ended
fiscal month of the Borrower, and a balance sheet of the Borrower and
its Subsidiaries as of the last day of such fiscal month, which has
been prepared in accordance with GAAP (subject to year end audit
adjustments) and is attached hereto as Schedule 3).
3. During the most recent fiscal quarter of the Borrower, [more than
US$1,000,000 or the Equivalent Amount thereof] [less than US$1,000,000
or the Equivalent Amount thereof] of the Collateral at any one time
was being warehoused and/or processed at locations not owned or leased
by any of the Credit Parties.
Unless otherwise defined herein, all terms used herein shall have the
meanings ascribed to them in the Credit Agreement.
Executed this ___ day PANOLAM INDUSTRIES LTD.
of __________, ____
By:_____________________________________
title
VI-1
<PAGE>
EXHIBIT VII-A-1
FORM OF CANADIAN DOLLAR REVOLVING NOTE
Equivalent Amount in Canadian Dollars
of US$[____________] Dated: February 16, 1999
FOR VALUE RECEIVED, the undersigned, PANOLAM INDUSTRIES LTD., an
Ontario corporation (the "BORROWER"), HEREBY PROMISES TO PAY to the order of
--------
[NAME OF LENDER] (the "LENDER") the aggregate principal amount of the Revolving
------
Loans (as defined below) denominated in Canadian Dollars owing to the Lender by
the Borrower pursuant to the Credit Agreement (as defined below) on the
Revolving Commitment Termination Date. All capitalized terms used and not
otherwise defined herein have the meanings given to them in the Credit
Agreement.
The Borrower promises to pay interest on the unpaid principal amount
of each Revolving Loan denominated in Canadian Dollars from the date of such
Revolving Loan until such principal amount is paid in full, at such interest
rates, and payable at such times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of Canada in
same day funds to the Lender in accordance with the provisions of Section 2.09
of the Credit Agreement. Each Revolving Loan denominated in Canadian Dollars
owing to the Lender by the Borrower and the maturity thereof, and all payments
made on account of principal thereof, shall be recorded by the Lender and, prior
to any transfer hereof, endorsed on the grid attached hereto, which is part of
this Promissory Note; provided, however, that any failure to make such
-------- -------
endorsement on such grid shall in no way alter, impair or limit the Borrower's
obligations hereunder.
This Promissory Note is one of the Revolving Notes referred to in, and
is entitled to the benefits of, the Credit Agreement dated as of February 16,
1999 (as the same may be amended, amended and restated, supplemented or
otherwise modified from time to time, the "CREDIT AGREEMENT") among the
----------------
Borrower, the other Loan Parties signatory thereto, the Lender and certain other
entities listed on the signature pages of the Credit Agreement as Lenders and
Credit Suisse First Boston Canada, for itself as a Lender and as Administrative
Agent. The Credit Agreement, among other things, (i) provides for the making of
loans (the "REVOLVING LOANS") denominated in Canadian Dollars by the Lender to
---------------
the Borrower from time to time in an aggregate principal amount not to exceed at
any time outstanding the Equivalent Amount in Canadian Dollars of the amount in
US Dollars first above mentioned, the indebtedness of the Borrower resulting
from each such Revolving Loan denominated in Canadian Dollars being evidenced by
this Promissory Note, and (ii) contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified. The Borrower and any endorser of this
Revolving Note hereby waive presentment, demand, protest and notice of any
- --------------
kind. No failure to exercise, and no delay in exercising, any rights hereunder
on the part of the holder shall operate as a waiver of such rights.
VIII-A-1-1
<PAGE>
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE PROVINCE ONTARIO.
PANOLAM INDUSTRIES LTD.
By:___________________________________
Title:
VII-A-1-2
<PAGE>
CANADIAN DOLLAR REVOLVING LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
========================================================================================================================
Date Amount of Canadian Amount of Principal Paid Unpaid Principal Balance Notation
Dollar Revolving Loan or Prepaid Made By
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
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- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
========================================================================================================================
</TABLE>
VII-A-1-3
<PAGE>
EXHIBIT VII-A-2
FORM OF US DOLLAR REVOLVING NOTE
US$[____________] Dated: February 16, 1999
FOR VALUE RECEIVED, the undersigned, PANOLAM INDUSTRIES LTD., an
Ontario corporation (the "BORROWER"), HEREBY PROMISES TO PAY to the order of
--------
[NAME OF LENDER] (the "LENDER") the aggregate principal amount of the Revolving
------
Loans (as defined below) denominated in US Dollars owing to the Lender by the
Borrower pursuant to the Credit Agreement (as defined below) on the Revolving
Commitment Termination Date. All capitalized terms used and not otherwise
defined herein have the meanings given to them in the Credit Agreement.
The Borrower promises to pay interest on the unpaid principal amount
of each Revolving Loan denominated in US Dollars from the date of such Revolving
Loan until such principal amount is paid in full, at such interest rates, and
payable at such times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America in same day funds to the Lender in accordance with the
provisions of Section 2.09 of the Credit Agreement. Each Revolving Loan
denominated in US Dollars owing to the Lender by the Borrower and the maturity
thereof, and all payments made on account of principal thereof, shall be
recorded by the Lender and, prior to any transfer hereof, endorsed on the grid
attached hereto, which is part of this Promissory Note; provided, however, that
-------- -------
any failure to make such endorsement on such grid shall in no way alter, impair
or limit the Borrower's obligations hereunder.
This Revolving Note is one of the Revolving Notes referred to in, and
is entitled to the benefits of, the Credit Agreement dated as of February 18,
1999 (as the same may be amended, amended and restated, supplemented or
otherwise modified from time to time, the "CREDIT AGREEMENT") among the
----------------
Borrower, the other Loan Parties signatory thereto, the Lender and certain other
entities listed on the signature pages of the Credit Agreement as Lenders and
Credit Suisse First Boston Canada, for itself as a Lender and as Administrative
Agent. The Credit Agreement, among other things, (i) provides for the making of
loans (the "REVOLVING LOANS") denominated in US Dollars by the Lender to the
---------------
Borrower from time to time in an aggregate principal amount not to exceed at any
time outstanding the amount of US Dollars first above mentioned, the
indebtedness of the Borrower resulting from each such Revolving Loan being
evidenced by this Promissory Note, and (ii) contains provisions for acceleration
of the maturity hereof upon the happening of certain stated events and also for
prepayments on account of principal hereof prior to the maturity hereof upon the
terms and conditions therein specified. The Borrower and any endorser of this
Revolving Note hereby waive presentment, demand, protest and notice of any
kind. No failure to exercise, and no delay in exercising, any rights hereunder
on the part of the holder shall operate as a waiver of such rights.
VIII-A-2-1
<PAGE>
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE PROVINCE ONTARIO.
PANOLAM INDUSTRIES LTD.
By:_____________________________________
Title:
VII-A-2-2
<PAGE>
US DOLLAR REVOLVING LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
========================================================================================================================
Date Amount of US Dollar Amount of Principal Paid Unpaid Principal Balance Notation
Revolving Loan or Prepaid Made By
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
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- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
========================================================================================================================
</TABLE>
VII-A-2-3
<PAGE>
EXHIBIT VII-B
FORM OF TERM A NOTE
US$[____________] Dated: February 16, 1999
FOR VALUE RECEIVED, the undersigned, PANOLAM INDUSTRIES LTD., an
Ontario corporation (the "BORROWER"), HEREBY PROMISES TO PAY to the order of
--------
[NAME OF LENDER] (the "LENDER") the aggregate principal amount of the Term A
------
Loan (as defined below) owing to the Lender by the Borrower pursuant to the
Credit Agreement (as defined below) in consecutive quarterly installments
according to the amortization schedule set forth in Section 2.03(a) of the
Credit Agreement until such principal amount has been paid in full with the last
such installment owing under the Credit Agreement to be paid on the Term A
Termination Date. All capitalized terms used and not otherwise defined herein
have the meanings given to them in the Credit Agreement.
The Borrower promises to pay interest on the unpaid principal amount
of the Term A Loan from the date of such Term A Loan until such principal amount
is paid in full, at such interest rates, and payable at such times, as are
specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America in same day funds to the Lender in accordance with the
provisions of Section 2.09 of the Credit Agreement. The Term A Loan owing to
the Lender by the Borrower and the maturity thereof, and all payments made on
account of principal thereof, shall be recorded by the Lender and, prior to any
transfer hereof, endorsed on the grid attached hereto, which is part of this
Promissory Note; provided, however, that any failure to make such endorsement on
-------- -------
such grid shall in no way alter, impair or limit the Borrower's obligations
hereunder.
This Term A Note is one of the Term A Notes referred to in, and is
entitled to the benefits of, the Credit Agreement dated as of February 18, 1999
(as the same may be amended, amended and restated, supplemented or otherwise
modified from time to time, the "CREDIT AGREEMENT") among the Borrower, the
----------------
other Loan Parties signatory thereto, the Lender and certain other entities
listed on the signature pages of the Credit Agreement as Lenders and Credit
Suisse First Boston Canada, for itself as a Lender and as Administrative Agent.
The Credit Agreement, among other things, (i) provides for a single Term A Loan
by the Lender to the Borrower on the Closing Date in an aggregate principal
amount not to exceed at any time outstanding the US Dollar amount first above
mentioned, the indebtedness of the Borrower resulting from each such Term A Loan
being evidenced by this Promissory Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified. The Borrower and any
endorser of this Term A Note hereby waive presentment, demand, protest and
notice of any kind. No failure to exercise, and no delay in exercising, any
rights hereunder on the part of the holder shall operate as a waiver of such
rights.
VII-B-1
<PAGE>
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE PROVINCE ONTARIO.
PANOLAM INDUSTRIES LTD.
By:___________________________________
Title:
VII-B-2
<PAGE>
TERM A LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
==============================================================================================
Date Amount of Term A Loan Amount of Principal Paid Unpaid Principal Balance Notation
or Prepaid Made By
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
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</TABLE>
VII-B-3
<PAGE>
EXHIBIT VII-C
FORM OF TERM B NOTE
US$ [____________] Dated: February 16, 1999
FOR VALUE RECEIVED, the undersigned, PANOLAM INDUSTRIES LTD., an
Ontario corporation (the "BORROWER"), HEREBY PROMISES TO PAY to the order of
--------
[NAME OF LENDER] (the "LENDER") the aggregate principal amount of the Term B
------
Loan (as defined below) owing to the Lender by the Borrower pursuant to the
Credit Agreement (as defined below) in consecutive quarterly installments
according to the amortization schedule set forth in Section 2.03(b) of the
Credit Agreement until such principal amount has been paid in full with the last
such installment owing under the Credit Agreement to be paid on the Term B
Termination Date. All capitalized terms used and not otherwise defined herein
have the meanings given to them in the Credit Agreement.
The Borrower promises to pay interest on the unpaid principal amount
of the Term B Loan from the date of such Term B Loans until such principal
amount is paid in full, at such interest rates, and payable at such times, as
are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America in same day funds to the Lender in accordance with the
provisions of Section 2.09 of the Credit Agreement. The Term B Loan owing to
the Lender by the Borrower and the maturity thereof, and all payments made on
account of principal thereof, shall be recorded by the Lender and, prior to any
transfer hereof, endorsed on the grid attached hereto, which is part of this
Promissory Note; provided, however, that any failure to make such endorsement on
-------- -------
such grid shall in no way alter, impair or limit the Borrower's obligations
hereunder.
This Term B Note is one of the Term B Notes referred to in, and is
entitled to the benefits of, the Credit Agreement dated as of February 18, 1999
(as the same may be amended, amended and restated, supplemented or otherwise
modified from time to time, the "CREDIT AGREEMENT") among the Borrower, the
----------------
other Loan Parties signatory thereto, the Lender and certain other entities
listed on the signature pages of the Credit Agreement as Lenders and Credit
Suisse First Boston Canada, for itself as a Lender and as Administrative Agent.
The Credit Agreement, among other things, (i) provides for a single Term B Loan
by the Lender to the Borrower on the Closing Date in an aggregate principal
amount not to exceed at any time outstanding the US Dollar amount first above
mentioned, the indebtedness of the Borrower resulting from each such Term B Loan
being evidenced by this Promissory Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified. The Borrower and any
endorser of this Term B Note hereby waive presentment, demand, protest and
notice of any kind. No failure to exercise, and no delay in exercising, any
rights hereunder on the part of the holder shall operate as a waiver of such
rights.
VII-C-1
<PAGE>
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE PROVINCE ONTARIO.
PANOLAM INDUSTRIES LTD.
By:________________________________
Title:
VII-C-2
<PAGE>
TERM B LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
==============================================================================================
Date Amount of Term B Loan Amount of Principal Paid Unpaid Principal Balance Notation
or Prepaid Made By
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
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</TABLE>
VII-C-3
<PAGE>
EXHIBIT VII-D-1
FORM OF CANADIAN DOLLAR SWING LINE NOTE
Equivalent Amount in Canadian Dollars
of US$ [_________] Dated: February 16, 1999
FOR VALUE RECEIVED, the undersigned, PANOLAM INDUSTRIES LTD., an
Ontario corporation (the "BORROWER"), HEREBY PROMISES TO PAY to the order of
--------
[NAME OF LENDER] (the "LENDER") the aggregate principal amount of the Swing Line
------
Loans (as defined below) denominated in Canadian Dollars owing to the Lender by
the Borrower pursuant to the Credit Agreement (as defined below) on the
Revolving Commitment Termination Date. All capitalized terms used and not
otherwise defined herein have the meanings given to them in the Credit
Agreement.
The Borrower promises to pay interest on the unpaid principal amount
of each Swing Line Loan denominated in Canadian Dollars from the date of such
Swing Line Loan until such principal amount is paid in full, at such interest
rates, and payable at such times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of Canada in
same day funds to the Lender in accordance with the provisions of Section 2.09
of the Credit Agreement. Each Swing Line Loan denominated in Canadian Dollars
owing to the Lender by the Borrower and the maturity thereof, and all payments
made on account of principal thereof, shall be recorded by the Lender and, prior
to any transfer hereof, endorsed on the grid attached hereto, which is part of
this Promissory Note; provided, however, that any failure to make such
-------- -------
endorsement on such grid shall in no way alter, impair or limit the Borrower's
obligations hereunder.
This Swing Line Note is one of the Swing Line Notes referred to in,
and is entitled to the benefits of, the Credit Agreement dated as of February
18, 1999 (as the same may be amended, supplemented, amended and restated or
otherwise modified from time to time, the "CREDIT AGREEMENT") among the
----------------
Borrower, the other Loan Parties signatory thereto, the Lender and certain other
entities listed on the signature pages of the Credit Agreement as Lenders and
Credit Suisse First Boston Canada, for itself as a Lender and as Administrative
Agent. The Credit Agreement, among other things, (i) provides for the making of
Swing Line Loans denominated in Canadian Dollars by the Lender to the Borrower
from time to time in an aggregate principal amount not to exceed at any time
outstanding the Equivalent Amount in Canadian Dollars of the amount in US
Dollars first above mentioned, the indebtedness of the Borrower resulting from
each such Swing Line Loan being evidenced by this Promissory Note, and (ii)
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events and also for prepayments on account of principal hereof
prior to the maturity hereof upon the terms and conditions therein specified.
The Borrower and any endorser of this Term A Note hereby waive presentment,
demand, interest and notice of any kind. No failure to exercise, and no delay in
exercising, any rights hereunder on the part of the holder shall operate as a
waiver of such rights.
VII-D-1-1
<PAGE>
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE PROVINCE ONTARIO.
PANOLAM INDUSTRIES LTD.
By:____________________________
Title:
VII-D-1-2
<PAGE>
CANADIAN DOLLAR SWING LINE LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
================================================================================================
Date Amount of Canadian Amount of Principal Paid Unpaid Principal Balance Notation
Dollar Swing Line Loan or Prepaid Made By
<S> <C> <C> <C> <C>
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</TABLE>
VII-D-1-3
<PAGE>
EXHIBIT VII-D-2
FORM OF US DOLLAR SWING LINE NOTE
US$ [_________] Dated: February 16, 1999
FOR VALUE RECEIVED, the undersigned, PANOLAM INDUSTRIES LTD., an
Ontario corporation (the "BORROWER"), HEREBY PROMISES TO PAY to the order of
--------
[NAME OF LENDER] (the "LENDER") the aggregate principal amount of the Swing Line
------
Loans (as defined below) denominated in US Dollars owing to the Lender by the
Borrower pursuant to the Credit Agreement (as defined below) on the Revolving
Commitment Termination Date. All capitalized terms used and not otherwise
defined herein have the meanings given to them in the Credit Agreement.
The Borrower promises to pay interest on the unpaid principal amount
of each Swing Line Loan denominated in US Dollars from the date of such Swing
Line Loan until such principal amount is paid in full, at such interest rates,
and payable at such times, as are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America in same day funds to the Lender in accordance with the
provisions of Section 2.09 of the Credit Agreement. Each Swing Line Loan
denominated in US Dollars owing to the Lender by the Borrower and the maturity
thereof, and all payments made on account of principal thereof, shall be
recorded by the Lender and, prior to any transfer hereof, endorsed on the grid
attached hereto, which is part of this Promissory Note; provided, however, that
-------- -------
any failure to make such endorsement on such grid shall in no way alter, impair
or limit the Borrower's obligations hereunder.
This Swing Line Note is one of the Swing Line Notes referred to in,
and is entitled to the benefits of, the Credit Agreement dated as of February
16, 1999 (as the same may be amended, supplemented, amended and restated or
otherwise modified from time to time, the "CREDIT AGREEMENT") among the
----------------
Borrower, the other Loan Parties signatory thereto, the Lender and certain other
entities listed on the signature pages of the Credit Agreement as Lenders and
Credit Suisse First Boston Canada, for itself as a Lender and as Administrative
Agent. The Credit Agreement, among other things, (i) provides for the making of
Swing Line Loans denominated in US Dollars by the Lender to the Borrower from
time to time in an aggregate principal amount not to exceed at any time
outstanding the US Dollar amount first above mentioned, the indebtedness of the
Borrower resulting from each such Swing Line Loan being evidenced by this
Promissory Note, and (ii) contains provisions for acceleration of the maturity
hereof upon the happening of certain stated events and also for prepayments on
account of principal hereof prior to the maturity hereof upon the terms and
conditions therein specified. The Borrower and any endorser of this Swing Line
Note hereby waive presentment, demand, protest and notice of any kind. No
failure to exercise, and no delay in exercising, any rights hereunder on the
part of the holder shall operate as a waiver of such rights.
VII-D-2-1
<PAGE>
THIS PROMISSORY NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE PROVINCE ONTARIO.
PANOLAM INDUSTRIES LTD.
By:____________________________
Title:
VIII-D-2-2
<PAGE>
US DOLLAR SWING LINE LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
================================================================================================
Date Amount of US Dollar Amount of Principal Paid Unpaid Principal Balance Notation
Swing Line Loan or Prepaid Made By
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
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</TABLE>
VIII-D-2-3
<PAGE>
EXHIBIT VIII-A
FORM OF BANKERS' ACCEPTANCE
==========================================================================
BANKER'S ACCEPTANCE No.________
To:____________________ Due ______________ ________ 19 __________
Bank
_______________________________________ days after date (without grace)
Address
ACCEPTED For value received pay to the order of the
undersigned drawer the sum of CDN$___________
________________________ _____________________Dollars $ ____________
Payable At
________________________
[THIS IS A DEPOSITORY BILL SUBJECT TO THE
DEPOSITORY BILLS AND NOTES ACT.]
________________________ Value Received and Charge to the Account of:
For ____________________ _____________________________________________
________________________ Per: ________________________________________
Authorized Signature
________________________ Per: ________________________________________
Authorized Signature
=========================================================================
VIII-A-1
<PAGE>
===========================================
___________________________________________
___________________________________________
Per:_______________________________________
Per:_______________________________________
===========================================
VIII-A-2
<PAGE>
EXHIBIT VIII-B
DISCOUNT NOTE
CDN$ _____________ Date: ________
FOR VALUE RECEIVED, the undersigned unconditionally promises to pay on
__________________________, 19____, to or to the order of ______________________
______________(the "HOLDER"), the sum of CDN$_____________with no interest
thereon.
The undersigned hereby waives presentment, protest and notice of every
kind and waives any defences based upon indulgences which may be granted by the
Holder to any party liable hereon and any days of grace.
This promissory note evidences a BA Equivalent Loan, as defined in the
Credit Agreement dated as of February 16, 1999 between Panolam Industries Ltd.,
as the Borrower, the other Loan Parties signatory thereto, the financial
institutions and other entities listed on the signature page thereof, as lenders
(the "LENDERS") and Credit Suisse First Boston Canada, as a Lender and as
Administrative Agent for the Lenders, as amended, restated, supplemented or
otherwise modified from time to time, and constitutes indebtedness to the Holder
arising under the BA Equivalent Loan. Payment of this note shall be made at the
offices of the Administrative Agent located at 1 First Canadian Place, 30/th/
Floor, Toronto, Ontario, M5X 1C9.
PANOLAM INDUSTRIES LTD.
By: ___________________________
Name:
Title:
VIII-B-1
<PAGE>
EXHIBIT IX
FORM OF COMPLIANCE CERTIFICATE /
QUARTERLY COMPLIANCE CERTIFICATE
[Date]
Credit Suisse First Boston Canada, as Administrative Agent
for the Lenders party
to the Credit Agreement
referred to below
1 First Canadian Place
30/th/ Floor
Toronto, Ontario, M5X 1C9
Attn: Syndications Agency
RE: COMPLIANCE CERTIFICATE
This certificate is given [IN ACCORDANCE WITH SECTION 6.03[(B)][(C)][(D)] OF]
[PURSUANT TO A PERMITTED ACQUISITION UNDER] the Credit Agreement, dated as of
February 16, 1999 (as amended, amended and restated, supplemented or otherwise
modified from time to time, the "CREDIT AGREEMENT," the terms defined therein
----------------
being used herein as therein defined), among PANOLAM INDUSTRIES LTD., an Ontario
corporation (the "BORROWER"), the other Loan Parties signatory thereto, the
--------
financial institutions and other entities listed on the signature pages of the
Credit Agreement as Lenders and CREDIT SUISSE FIRST BOSTON CANADA, for itself as
a Lender and as Administrative Agent. The undersigned hereby certifies that:
(a) I am the [Chief Financial Officer] [Treasurer] [Director of Finance]
of [the Borrower] [Panolam International];
(b) I have reviewed the financial statements attached hereto as Schedule 1
and delivered with this Certificate [in accordance with Section
6.03[(b)][(c)][(d)] of the Credit Agreement] [in connection with a
Permitted Acquisition], and such financial statements truthfully,
accurately, and completely present the financial condition of
[Holdings] [Panolam International] and its Subsidiaries (including the
Borrower) [and Pioneer ] in all material respects as of the dates of
such financial statements;
(c) All financial information provided has been prepared in accordance
with GAAP, and such information presents fairly, in accordance with
GAAP, (subject to normal year-end adjustments) the financial position
and results of operations of [Holdings] [Panolam International] and
its Subsidiaries (including the Borrower) [and Pioneer], on a
Consolidated and consolidating basis, in each case as at the end of
the relevant period and for the period then ended;
(d) I have reviewed the terms of the Credit Agreement and have made, or
have caused to be made under my supervision, a review in reasonable
detail of the transactions and financial condition of [Holdings]
[Panolam International] and its Subsidiaries (including the Borrower)
[and Pioneer] during the accounting period covered by the financial
statements delivered herewith and such review [has not disclosed and I
do not otherwise know of the existence, during or at the end of such
accounting period or as of the date hereof, of any condition or event
that
A-IX-1
<PAGE>
constitutes a Default or an Event of Default] [has disclosed or I
otherwise know of the existence, during or at the end of such
accounting period or as of the date hereof, of one or more conditions
or events that constitute Default(s) or Event(s) of Default and I have
attached hereto as Schedule 2 a detailed description of the nature and
period of existence thereof and the action that the Borrower has taken
and/or proposes to take with respect thereto]; and
[(e) [Except as disclosed in paragraph (d) above and on Schedule 2 attached
hereto,] Panolam International and its Subsidiaries (including the
Borrower) are in compliance with the financial covenants contained in
Section 6.04 of the Credit Agreement, as detailed and computed on
Schedule [2] [3] attached hereto, and such calculations are true,
correct and complete in all respects.]
The foregoing certifications and the Schedules delivered with this Certificate
in support hereof are made and delivered this ____ day of _________________,
____.
PANOLAM INDUSTRIES
LTD.
By:__________________________
Title:
A-IX-2
<PAGE>
EXHIBIT X-B
FORM OF US SECURITY AGREEMENT
This SECURITY AGREEMENT (as it may be amended, supplemented or
otherwise modified from time to time, the "AGREEMENT") is dated as of February
---------
16, 1999 and made by PANOLAM INDUSTRIES INTERNATIONAL, INC., a Delaware
corporation with an office at 20 Progress Drive, Shelton, Connecticut 06484 (the
"BORROWER"), PANOLAM INDUSTRIES HOLDINGS, INC., a Delaware corporation with an
--------
office at 20 Progress Drive, Shelton, Connecticut 06484 ("HOLDINGS"), PANOLAM
--------
GROUP, INC., a Delaware corporation with an office at 20 Progress Drive,
Shelton, Connecticut 06484 ("GROUP"), PII SECOND, INC., a Delaware corporation
-----
with an office at 20 Progress Drive, Shelton, Connecticut 06484 ("PII SECOND"),
----------
PANOLAM INDUSTRIES, INC., a Delaware corporation with an office at 20 Progress
Drive, Shelton, Connecticut 06484 ("PANOLAM US"), PIONEER PLASTICS CORPORATION,
----------
a Delaware corporation with an office at 20 Progress Drive, Shelton, Connecticut
06484 ("PIONEER"), and any future direct or indirect parent or subsidiary, if
-------
any, of the Borrower that becomes a party to this Agreement as an additional
Grantor (as defined below), in favor of and for the benefit of (i) CREDIT SUISSE
FIRST BOSTON ("CSFB"), as administrative agent (in such capacity, together with
----
any successor in such capacity, the "US ADMINISTRATIVE AGENT") for the Lender
-----------------------
Parties (as defined in the US Credit Agreement (as hereinafter defined), such
Lender Parties being referred to herein as the "US LENDERS") that are or may
----------
hereafter become party to the US Credit Agreement, and (ii) CREDIT SUISSE FIRST
BOSTON CANADA ("CSFB CANADA"), as administrative agent (in such capacity,
-----------
together with any successor in such capacity, the "CANADIAN ADMINISTRATIVE
-----------------------
AGENT") for the Lender Parties (as defined in the Canadian Credit Agreement (as
hereinafter defined) , such Lender Parties being referred to herein as the
"CANADIAN LENDERS") that are or may hereafter become party to the Canadian
----------------
Credit Agreement. Holdings, Group and PII Second are each referred to herein as
a "PARENT GRANTOR" and collectively as the "PARENT GRANTORS." Panolam US and
-------------- ---------------
Pioneer are each referred to herein as a "SUBSIDIARY GRANTOR" and collectively
------------------
as the "SUBSIDIARY GRANTORS." The Borrower, the Parent Grantors, the Subsidiary
-------------------
Grantors and any other Person agreeing to be bound hereby as a Grantor are each
individually referred to herein as a "GRANTOR" and collectively as the
-------
"GRANTORS." The US Administrative Agent, US Lenders, the Canadian
--------
Administrative Agent and the Canadian Lenders are each referred to herein as a
"SECURED PARTY" and are collectively referred to herein as the "SECURED
------------- -------
PARTIES."
PRELIMINARY STATEMENTS
(1) The Borrower is party to a Credit Agreement, dated as of the date
hereof (said agreement, as it may hereafter be amended, supplemented, amended
and restated or otherwise modified from time to time, being the "US CREDIT
---------
AGREEMENT," the terms defined therein and not otherwise defined herein being
- ---------
used herein as therein defined) with the Lender Parties from time to time party
thereto, the Administrative Agent, DLJ Capital Funding, Inc., as syndication
agent.
(2) Panolam Industries, Ltd. ("PANOLAM CANADA") is party to a Credit
--------------
Agreement, dated as of the date hereof (said agreement, as it may hereafter be
amended, supplemented, amended and restated or otherwise modified from time to
time, being the
X-B-1
<PAGE>
"CANADIAN CREDIT AGREEMENT") with the Lender Parties (as defined therein) from
-------------------------
time to time party thereto and the Canadian Administrative Agent.
(3) Pursuant to that certain Guaranty (as it may be amended,
supplemented or otherwise modified from time to time, the "GUARANTY") of even
--------
date herewith, the Parent Grantors and the Subsidiary Grantors have guaranteed
all obligations of the Borrower under the US Credit Agreement [and all
obligations of Panolam Canada under the Canadian Credit Agreement].
(4) The US Administrative Agent, on behalf of itself and the US
Lenders, and the Canadian Administrative Agent, on behalf of itself and the
Canadian Lenders have entered into an Intercreditor Agreement, dated as of the
date hereof (said agreement, as it may hereafter be amended, supplemented,
amended and restated or otherwise modified from time to time, being the
"INTERCREDITOR AGREEMENT"), setting forth, among other things, the relative
-----------------------
rights of the US Administrative Agent, the US Lenders, the Canadian
Administrative Agent and the Canadian Lenders with respect to the security
interests provided for herein and in the other Collateral Documents.
(5) Each Grantor is the owner of the shares (the "PLEDGED SHARES") of
--------------
stock and other certificated securities described in Part I of Schedule I hereto
----------
and issued by the Persons named therein and of the indebtedness described in
Part II of such Schedule I (the "PLEDGED DEBT") and issued by the obligors named
---------- ------------
therein.
(6) It is a condition precedent to (i) the making of Loans by the US
Lenders under the US Credit Agreement and (ii) and the making of Loans (as
defined in the Canadian Credit Agreement) by the Canadian Lenders under the
Canadian Credit Agreement that each Grantor shall have granted the assignment
and security interest and made the pledge and assignment contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the Grantors, and each of them, hereby agrees with (i) the US
Administrative Agent for its benefit and the ratable benefit of the US Lenders,
and (ii) the Canadian Administrative Agent for its benefit and the ratable
benefit of the Canadian Lenders as follows:
SECTION 1. DEFINITIONS.
-----------
(a) CERTAIN TERMS. Capitalized terms defined in the preamble and the
-------------
recitals to this Agreement have the meanings set forth therein. Capitalized
terms defined in the US Credit Agreement and used and not otherwise defined
herein have the meanings assigned to such terms in the US Credit Agreement. As
used in this Agreement, the following terms have the meanings specified below:
"ACCOUNT COLLATERAL" has the meaning set forth in Section 2(a)(viii).
------------------
"ACTING ADMINISTRATIVE AGENT" means until such time as all Secured
---------------------------
Obligations referred to in clause (i) of the definition thereof have been paid
in full, the US Administrative Agent and, thereafter, shall mean the Canadian
Administrative Agent.
X-B-2
<PAGE>
"BANKRUPTCY CODE" means Title 11 of the United States Code, as from
---------------
time to time amended.
"CASH COLLATERAL ACCOUNT" means any account established by the
-----------------------
Administrative Agent for purposes of holding any cash proceeds of Collateral,
insurance proceeds, amounts required to cash collateralize Letters of Credit or
any other amounts deposited from time to time by any Credit Party for purposes
of, or otherwise held by the Acting Administrative Agent for purposes of,
securing the Secured Obligations.
"CLAIM" has the meaning set forth in the Bankruptcy Code.
-----
"COLLATERAL" has the meaning set forth in Section 2(a).
----------
"COPYRIGHTS" has the meaning set forth in Section 2(a)(xii).
----------
"COPYRIGHT LICENSES" has the meaning set forth in Section 2(a)(xii).
------------------
"EQUIPMENT" means all "equipment," as such term is defined in the NY
---------
Uniform Commercial Code, now owned or hereafter acquired by any Grantor,
wherever located and, in any event, including all such Grantor's machinery and
equipment, including processing equipment, conveyors, machine tools, data
processing and computer equipment with software and peripheral equipment (other
than software constituting part of the Receivables and Intellectual Property),
and all engineering, processing and manufacturing equipment, office machinery,
furniture, materials handling equipment, tools, attachments, accessories,
automotive equipment, trailers, trucks, forklifts, molds, dies, stamps, motor
vehicles, rolling stock and other equipment of every kind and nature, trade
fixtures and fixtures not forming a part of real property, all whether now owned
or hereafter acquired, and wherever situated, together with (but excluding
Inventory) all additions and accessions thereto, replacements therefor, all
parts therefor, all substitutes for any of the foregoing, fuel therefor, and all
manuals, drawings, instructions, warranties and rights with respect thereto, and
all products and proceeds thereof and condemnation awards and insurance proceeds
with respect thereto.
"EXCLUDED ASSETS" means rights, licenses and franchises granted by any
---------------
governmental authority in which it is unlawful to create a Lien.
"LETTER OF CREDIT CASH COLLATERAL ACCOUNT" means a Cash Collateral
----------------------------------------
Account established for purposes of maintaining amounts deposited to cash
collateralize Letters of Credit.
"NY UNIFORM COMMERCIAL CODE" means, at any time of determination, the
--------------------------
Uniform Commercial Code in effect in the State of New York at such time.
"PATENTS" has the meaning set forth in Section 2(a)(x).
-------
"PATENT LICENSES" has the meaning set forth in Section 2(a)(x).
---------------
"RELATED CONTRACTS" means all security agreements, leases and other
-----------------
contracts and agreements of every type included in the Collateral, whether
relating to an Account or otherwise.
X-B-3
<PAGE>
"SECURED OBLIGATIONS" is defined in Section 2(b).
-------------------
"SECURITY COLLATERAL" has the meaning set forth in Section 2(a)(vii).
-------------------
"TRADEMARKS" has the meaning set forth in Section 2(a)(xi).
----------
"TRADEMARK LICENSES" has the meaning set forth in Section 2(a)(xi).
------------------
"WORK" has the meaning set forth in Section 11(n).
----
(b) TERMS DEFINED IN THE UNIFORM COMMERCIAL CODE. When capitalized,
--------------------------------------------
the following terms used in this Agreement or any other Collateral Document have
the meanings given to them in the NY Uniform Commercial Code: Accounts;
Certificated Security; Chattel Paper; Commodity Account; Commodity Contract;
Commodities Intermediary; Control; Documents; Equipment; Financial Asset;
Fixtures; General Intangibles; Goods; Instruments; Inventory; Investment
Property; Securities Account; Securities Intermediary; Security; Security
Certificate; Security Entitlement; and Uncertificated Security. Unless otherwise
defined herein or in the US Credit Agreement, terms used in Article 8 or Article
9 the NY Uniform Commercial Code are used herein as therein defined.
SECTION 2. GRANT OF SECURITY; SECURED OBLIGATIONS.
---------------------------------------
(a) GRANT OF SECURITY INTERESTS. As security for the payment of the
---------------------------
Secured Obligations, each Grantor hereby (I) assigns to the US Administrative
Agent for the ratable benefit of the US Administrative Agent and the US Lenders,
and grants to the US Administrative Agent for the ratable benefit of the US
Administrative Agent and the US Lenders a continuing and first priority security
interest (except as otherwise modified in the Intercreditor Agreement with
respect to the capital stock of Panolam Canada) in, and (II) assigns to the
Canadian Administrative Agent for the ratable benefit of the Canadian
Administrative Agent and the Canadian Lenders, and grants to the Canadian
Administrative Agent for the ratable benefit of the Canadian Administrative
Agent and the Canadian Lenders a continuing and second priority security
interest (except as otherwise modified in the Intercreditor Agreement with
respect to the capital stock of Panolam Canada) in, all of such Grantor's right,
title and interest in and to the following types or items of property, in each
case whether now or hereafter existing or owned by such Grantor or in which such
Grantor now owns or hereafter acquires an interest and wherever the same may be
located (collectively, the "COLLATERAL"):
-----------
(i) all Inventory, including specifically all raw materials,
work-in-process, finished Goods, supplies, materials, spare parts,
Goods held for sale or on lease or for lease or furnished or to be
furnished under contracts of service, merchandise inventory, rental
inventory, and returned or repossessed Goods and all rights to enforce
return or repossession by reclamation, stoppage in transit or
otherwise,
(ii) all Equipment, including specifically all manufacturing,
printing, distribution, delivery, retailing, vending, computing, data
processing, communications, office and other equipment in all of its
forms, all vehicles, all tools, dies, and molds, all Fixtures, all
other Goods used or bought for use
X-B-4
<PAGE>
primarily in a business and all other Goods except Inventory,
(iii) all Accounts,
(iv) all Chattel Paper,
(v) all Documents,
(vi) all Instruments and all other Claims that are in any
respect evidenced or represented by any writing, including
specifically the Pledged Debt described in Schedule I and all other
Pledged Debt and all other writings evidencing or representing a Claim
against any Credit Party or any other Person,
(vii) all of the following (the "SECURITY COLLATERAL"): all
-------------------
Securities, whether constituting Certificated Securities or
Uncertificated Securities, all Financial Assets, all Security
Entitlements, all Securities Accounts, all Commodity Contracts, all
Commodity Accounts, and all other Investment Property, including
specifically the Pledged Shares described in Schedule I and all other
Equity Interests,
(viii) all of the following (the "ACCOUNT COLLATERAL"): (a)
------------------
each Cash Collateral Account, the Letter of Credit Cash Collateral
Account, all funds held therein and all certificates and instruments,
if any, from time to time representing or evidencing any Cash
Collateral Account or the Letter of Credit Cash Collateral Account,
(b) all other deposit accounts of such Grantor, all funds held therein
and all certificates and instruments, if any from time to time
representing or evidencing such deposit accounts, (c) all notes,
certificates of deposit, deposit accounts, checks and other
instruments from time to time hereafter delivered to or otherwise
possessed by the Administrative Agent for or on behalf of such Grantor
in substitution for or in addition to any or all of the then existing
Account Collateral, and (d) all interest, dividends, cash, instruments
and other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the then
existing Account Collateral,
(ix) all money, cash and cash equivalents,
(x) (A) all letters patent of the United States or any other
country and all reissues and extensions thereof, including, without
limitation, any thereof referred to in Part I of Schedule II hereto,
------------
and (B) all applications for letters patent of the United States or
any other country and all divisions, continuations and continuations-
in-part thereof, including, without limitation, any thereof referred
to in Part I of Schedule II hereto (collectively, the "PATENTS"), and
------------ -------
(C) all agreements, whether written or oral, providing for the grant
by or to such Grantor of any right to manufacture, use or sell any
invention covered by a Patent, including, without limitation, any
thereof referred to in Part II of Schedule II (collectively, the
------------
"PATENT LICENSES");
----------------
(xi) (A) all trademarks, trade names, corporate names, company
names,
X-B-5
<PAGE>
business names, fictitious business names, trade styles, service
marks, logos and other source or business identifiers, and the
goodwill associated therewith, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all
applications in connection therewith, whether in the United States
Patent and Trademark Office or in any similar office or agency of the
United States, any state thereof or any other country or any political
subdivision thereof, or otherwise, including, without limitation, any
thereof referred to in Part I of Schedule III, and (B) all renewals
------------
thereof (collectively, the "TRADEMARKS"), and (C) all agreements,
----------
written or oral, providing for the grant by or to such Grantor of any
right to use any trademark, including, without limitation, any thereof
referred to in Part II of Schedule III (collectively, the "TRADEMARK
------------- ---------
LICENSES");
--------
(xii) (A) all copyrights in all works, whether published or
unpublished, registered or unregistered, including, without
limitation, those listed on Part I of Schedule IV, all registrations
-----------
and recordings thereof, and all applications in connection therewith,
including, without limitation, registrations, recordings and
applications in the United States Copyright Office or in any other
country, and (B) all renewals thereof (collectively, the
"COPYRIGHTS"), and (C) all agreements, written or oral, providing for
----------
the grant by or to such Grantor of any right to reproduce, copy,
publish or otherwise use any Copyright, including, without limitation,
the agreements set forth on Part II of Schedule IV (collectively, the
------------
"COPYRIGHT LICENSES");
------------------
(xiii) all other General Intangibles, including specifically (A)
all customer lists and agreements, (B) all supplier lists and
agreements, (C) all employee and consultant lists, rights, and
agreements, (D) all computing, data and information processing and
communications programs, discs, designs, and information and the data
and other entries thereon, (E) all books, records, catalogs, back
issues, library rights and all manifestations and embodiments thereof,
(F) all contracts, contract rights and agreements and all rights and
claims arising under or in respect of all contracts and agreements of
every type and nature (including, without limitation, all stock and/or
asset purchase agreements and all rights and claims arising under or
in respect of the US Credit Agreement or any other Loan Document,
including rights and claims against the Administrative Agent or any
Lender Party and each Hedge Agreement to which such Grantor is now or
may hereafter become a party, in each case as such agreements may be
amended, amended and restated, supplemented or otherwise modified from
time to time), (G) all rights and claims arising in respect of the
related transaction, (H) all Net Cash Proceeds, (I) all tax refunds,
(J) all policies of insurance and condemnation awards of every type
and description and the proceeds thereof, (K) all loans receivable,
letters of credit, bonds and undertakings, deferred purchase price or
deferred purchase consideration, consulting or non-competition
payments and other indebtedness, liabilities and obligations
receivable not constituting an Account and not evidenced or
represented by any Instrument, Chattel Paper or Security, (L) all
rights of recoupment, recourse, reimbursement, subrogation, indemnity
or contribution (including those arising under any Loan Document,
those arising in respect of any
X-B-6
<PAGE>
guarantee of the senior subordinated notes or any other guarantee or
any payment thereon, and those arising on account of any other
agreement, transaction or event), (M) all other causes of action and
claims of every type and description, whether fixed or contingent,
liquidated or not liquidated, accrued or not accrued, and all
judgments, orders and recoveries thereon, (N) all other rights,
privileges, benefits, entitlements, franchises, licenses and
expectancies of every type and description, (O) all other intangible
property of every type and description, and (P) all goodwill
associated with any of the foregoing,
(xiv) all property that is at any time delivered to, or that is
at any time in the Control of, the Administrative Agent,
TOGETHER, IN EACH CASE, WITH (1) all accessions thereto and products and
replacements thereof, (2) all guaranties, Liens and other forms of collateral
security therefor, and (3) all dividends, distributions, and payments received
thereon or in exchange or substitution therefor or upon transfer thereof, and
(4) all other proceeds thereof,
EXCEPT AND EXCLUDING, HOWEVER, each item of property that is an Excluded Asset,
for as long as it remains an Excluded Asset.
Notwithstanding anything to the contrary in this Agreement, no Grantor
shall be required to pledge to the U.S. Administrative Agent, in its capacity as
such, more than 65% of the shares of the capital stock of any Foreign Subsidiary
(as defined below) to secure the U.S. Secured Obligations (it being understood
and agreed that 100% of the shares of capital stock of any such Foreign
Subsidiary shall be pledged hereunder to the Canadian Administrative Agent to
secure the Canadian Secured Obligation, subject to the terms of the
Intercreditor Agreement). For the purposes of this Section, "Foreign
Subsidiary" means any "controlled foreign corporation" within the meaning of
Section 957(a) of the Internal Revenue Code, as to which such Grantor is a
"United States shareholder" as defined in Section 951(b) of the Internal Revenue
Code.
X-B-7
<PAGE>
(b) SECURITY FOR OBLIGATIONS. This Agreement secures with respect to
------------------------
each Grantor, and the Collateral of such Grantor is collateral security for, in
each case subject to the terms of the Intercreditor Agreement, the prompt
payment and performance in full when due, whether on a specified payment date,
at stated maturity, by acceleration or otherwise (including, without limitation,
the payment of amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code or any similar law)
of (i) all Obligations of such Grantor now or hereafter existing under the Loan
Documents, whether for principal, interest (including, without limitation,
interest that, but for the filing of a petition in bankruptcy would accrue on
such obligations), fees, expenses or otherwise (all such Obligations being the
"US SECURED OBLIGATIONS"), and (ii) all Obligations of such Grantor now or
----------------------
hereafter existing under the Canadian Loan Documents, whether for principal,
interest (including, without limitation, interest that, but for the filing of a
petition in bankruptcy would accrue on such obligations), fees, expenses or
otherwise (all such Obligations being the "CANADIAN SECURED OBLIGATIONS"; the US
----------------------------
Secured Obligations and the Canadian Secured Obligations are collectively
referred to herein as the "SECURED OBLIGATIONS"). Without limiting the
-------------------
generality of the foregoing, this Agreement secures the payment of all amounts
that constitute part of the Secured Obligations and would be owed by any Grantor
to any Secured Party under the Loan Documents or the Canadian Loan Documents but
for the fact that they are unenforceable or not allowable due to the existence
of a bankruptcy, reorganization or similar proceeding.
SECTION 3. GRANTORS REMAIN LIABLE.
-----------------------
Anything herein to the contrary notwithstanding, (a) each Grantor
shall remain liable under the Related Contracts to the extent set forth therein
to perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by the Acting
Administrative Agent of any of the rights hereunder shall not release any
Grantor from any of its duties or obligations under the Related Contracts and
(c) neither the Acting Administrative Agent nor any other Secured Party shall
have any obligation or liability under the Related Contracts by reason of this
Agreement, nor shall the Acting Administrative Agent or any other Secured Party
be obligated to perform any of the obligations or duties of any Grantor
thereunder, to take any action to collect or enforce any claim for payment
assigned hereunder, to make any payment or to make any inquiry as to the nature
or the sufficiency of any payment received by it or as to the sufficiency of any
performance by any party in respect of any Account or any Related Contract.
SECTION 4. DELIVERY OF SECURITY COLLATERAL AND ACCOUNT COLLATERAL.
-------------------------------------------------------
All certificates or instruments, if any, representing or evidencing
Security Collateral or Account Collateral shall be delivered to and held by or
on behalf of the Acting Administrative Agent pursuant hereto (a) on or prior to
the Closing Date, with respect to such Collateral in existence on the Closing
Date, and (b) within 3 Business Days of any Grantor obtaining rights thereto
with respect to any other such Collateral. All such Collateral when so
delivered shall be in suitable form for transfer by delivery, or shall be
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance satisfactory to the Acting Administrative Agent. The
Acting Administrative Agent shall have the right, at any time in its discretion
and without notice to any Grantor, to transfer to or to register in the name of
the Acting Administrative Agent or any of its nominees any or all of the
Security Collateral and
X-B-8
<PAGE>
Account Collateral, subject only to the revocable rights specified in Section
10(a). In addition, the Acting Administrative Agent shall have the right at any
time to exchange certificates or instruments representing or evidencing Security
Collateral or Account Collateral for certificates or instruments of smaller or
larger denominations.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
-------------------------------
Each Grantor represents and warrants as follows:
(a) All of the Equipment and Inventory are located at the places
specified in Schedule VI hereto. The chief place of business and chief
------------
executive office of such Grantor and the office where such Grantor keeps
its records concerning the Accounts, and the original copies of the Related
Contracts and all originals of all Chattel Paper, are located at the
address first specified above for such Grantor, and the original copies of
each Related Contract and all originals of all Chattel Paper that evidence
Accounts, are located at the address first specified above for such
Grantor. None of the Accounts or the Account Collateral is evidenced by a
promissory note or other instrument.
(b) Such Grantor is the legal and beneficial owner of the Collateral
of such Grantor free and clear of any Lien, except for the security
interests created by this Agreement and Permitted Liens. No effective
financing statement or other instrument similar in effect covering all or
any part of the Collateral is on file in any recording office, except such
as may have been filed in favor of the Acting Administrative Agent and the
Canadian Administrative Agent relating to this Agreement and except as
otherwise permitted under the US Credit Agreement and the Canadian Credit
Agreement. Such Grantor has the trade names listed on Part I of Schedule
--------
III.
---
(c) Such Grantor has exclusive possession and control of the Equipment
constituting Collateral and Inventory constituting Collateral.
(d) The Pledged Shares have been duly authorized and validly issued
and are fully paid and non-assessable. The Pledged Debt has been duly
authorized, authenticated or issued and delivered, is the legal, valid and
binding obligation of the issuers thereof and is not in default.
(e) The Pledged Shares constitute the percentage of the issued and
outstanding shares of stock of the issuers thereof indicated on Schedule I.
----------
The Pledged Debt is, as of the date hereof, outstanding in the principal
amount indicated on Schedule I.
----------
(f) This Agreement, the pledge of the Security Collateral pursuant
hereto and the pledge and assignment of the certificates, if any,
representing the Account Collateral pursuant hereto create a valid and
perfected first priority security interest in such Collateral, securing the
payment of the Secured Obligations, and all filings and other actions
necessary or desirable to perfect and protect such security interests have
been duly taken. Upon the filing of financing statements under the Uniform
Commercial Code in each of the filing offices listed on Schedule V with
-----------
respect to each Grantor, which financing statements have been duly filed or
executed in appropriate form for filing and
X-B-9
<PAGE>
delivered to the Acting Administrative Agent, the security interest of each
of the US Administrative Agent and the Canadian Administrative Agent in
respect of all other Collateral will be perfected to the extent a security
interest in such Collateral may be perfected by the filing of financing
statements.
(g) No consent of any other Person and no authorization, approval or
other action by, and no notice to or filing with, any governmental
authority or regulatory body or other third party is required either (i)
for the grant by such Grantor of the assignment and security interest
granted or purported to be granted hereby, for the pledge by such Grantor
of the Security Collateral pursuant hereto or for the execution, delivery
or performance of this Agreement by such Grantor, (ii) for the perfection
or maintenance of the pledge, assignment and security interest created or
purported to be created hereby (including the first priority nature of such
pledge, assignment or security interest), except for the filing of
financing and continuation statements under the Uniform Commercial Code,
which financing statements have been duly filed or executed in appropriate
form for filing and delivered to the Acting Administrative Agent, and the
recording of this Agreement in the United States Patent and Trademark
Office, which Agreement has been duly filed or executed in appropriate form
for filing and delivered to the Acting Administrative Agent, or (iii) for
the exercise by the Acting Administrative Agent of its voting or other
rights provided for in this Agreement or the remedies in respect of the
Collateral pursuant to this Agreement, except as may be required in
connection with the disposition of any portion of the Security Collateral
by laws affecting the offering and sale of securities generally.
(h) The Inventory has been produced by such Grantor in compliance with
all requirements of the Fair Labor Standards Act.
(i) None of the Collateral constitutes, or is the proceeds of, farm
products.
SECTION 6. FURTHER ASSURANCES.
-------------------
(a) Each Grantor agrees that from time to time, at the expense of such
Grantor, such Grantor will promptly execute and deliver all further instruments
and documents, and take all further action, that may be necessary or desirable,
or that the Acting Administrative Agent may request, in order to perfect and
protect any pledge, assignment or security interest granted or purported to be
granted hereby or to enable the Acting Administrative Agent to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, such Grantor will: (i) mark
conspicuously all Chattel Paper, each Related Contract, and, at the request of
the Acting Administrative Agent, each of its records pertaining to the
Collateral with a legend, in form and substance satisfactory to the Acting
Administrative Agent, indicating that such document, Chattel Paper, Related
Contract or Collateral is subject to the security interest granted hereby; (ii)
if any Collateral shall be evidenced by a promissory note or other instrument,
deliver and pledge to the Acting Administrative Agent hereunder such note or
instrument duly indorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance satisfactory to the Acting
Administrative Agent; and (iii) execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or notices, as may
be necessary
X-B-10
<PAGE>
or desirable, or as the Acting Administrative Agent may request, in order to
perfect and preserve the pledge, assignment and security interest granted or
purported to be granted hereby.
(b) Each Grantor hereby authorizes the US Administrative Agent and the
Canadian Administrative Agent to file one or more financing or continuation
statements, and amendments thereto, relating to all or any part of the
Collateral without the signature of such Grantor where permitted by law. A
photocopy or other reproduction of this Agreement or any financing statement
covering the Collateral or any part thereof shall be sufficient as a financing
statement where permitted by law.
(c) Each Grantor will furnish to the US Administrative Agent and the
Canadian Administrative Agent from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Administrative Agent may reasonably request, all in
reasonable detail.
SECTION 7. AS TO EQUIPMENT AND INVENTORY.
------------------------------
(a) Each Grantor shall keep the Equipment and Inventory (other than
Inventory sold in the ordinary course of business) at the places therefor
specified in Section 5(a) or, upon 30 days' prior written notice to the US
Administrative Agent and the Canadian Administrative Agent, at such other places
in a jurisdiction where all action required by Section 6 shall have been taken
with respect to the Equipment and Inventory.
(b) Each Grantor shall cause the Equipment to be maintained and
preserved in the same condition, repair and working order as when new, ordinary
wear and tear excepted, and in accordance with any manufacturer's manual, and
shall forthwith, or in the case of any loss or damage to any of the Equipment
as quickly as practicable after the occurrence thereof, make or cause to be made
all repairs, replacements and other improvements in connection therewith that
are necessary or desirable to such end. Each Grantor shall promptly furnish to
the Acting Administrative Agent a statement respecting any loss or damage to any
Equipment.
SECTION 8. INSURANCE.
----------
(a) Each Grantor (or the Borrower, on behalf of each Grantor) shall,
at its own expense, maintain the insurance required pursuant to the Credit
Agreement and with such insurers, as shall be reasonably satisfactory to the
Acting Administrative Agent from time to time. Each policy for liability
insurance shall provide for all losses to be paid on behalf of the Acting
Administrative Agent and such Grantor as their interests may appear, and each
policy for property damage insurance shall provide for all losses (except for
losses of less than $10,000,000 per occurrence) to be paid directly to the
Acting Administrative Agent in accordance with Section 6.01(d) of the Credit
Agreement. Each such policy be subject to such loss payee endorsements and
additional insured provisions as the Acting Administrative Agent may require.
Each Grantor shall, if so requested by the Acting Administrative Agent, deliver
to the Acting Administrative Agent original or duplicate policies of such
insurance and, as often as the Acting Administrative Agent may reasonably
request, a report of a reputable insurance broker with respect to such
insurance. Further, each Grantor shall, at the request of the Acting
Administrative Agent, duly exercise and deliver instruments of assignment of
such insurance
X-B-11
<PAGE>
policies to comply with the requirements of Section 6 and cause the insurers to
acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by any
Grantor pursuant to this Section 8 may be paid directly to the Person who shall
have incurred liability covered by such insurance. In case of any loss
involving damage to Equipment or Inventory when no Event of Default has occurred
and is continuing, such Grantor shall make or cause to be made the necessary
repairs to or replacements of such Equipment or Inventory, and any proceeds of
insurance maintained by such Grantor pursuant to this Section 8 shall be paid to
such Grantor as reimbursement for the costs of such repairs or replacements in
accordance with Section 6.01(d) of the US Credit Agreement or the Canadian
Credit Agreement, as applicable.
(c) Upon the occurrence and during the continuance of any Default or
Event of Default or the actual or constructive total loss of any Equipment or
Inventory, all insurance payments in respect of such Equipment or Inventory
shall be paid to and applied by the Acting Administrative Agent as specified in
Section 16(b).
SECTION 9. PLACE OF PERFECTION; RECORDS; COLLECTION OF ACCOUNTS.
-----------------------------------------------------
(a) Each Grantor shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Collateral, and the original copies of the Related Contracts and all originals
of all Chattel Paper, at the location therefor specified in Section 5(a) or,
upon 30 days' prior written notice to the US Administrative Agent and the
Canadian Administrative Agent, at such other locations in a jurisdiction where
all actions required by Section 6 shall have been taken with respect to the
Collateral. Each Grantor will hold and preserve such records, Related Contracts
and Chattel Paper and will permit representatives of the US Administrative Agent
and the Canadian Administrative Agent at any time during normal business hours
to inspect and make abstracts from such records, Related Contracts and Chattel
Paper.
(b) Each Grantor will not change its name, identity or corporate
structure to such an extent that any financing statement filed by the
Administrative Agent in connection with this Agreement would become seriously
misleading, unless it shall have given the US Administrative Agent and the
Canadian Administrative Agent at least 30 days' prior written notice of such
change and shall have taken any action required by the US Administrative Agent
or the Canadian Administrative Agent in connection therewith.
(c) Except as otherwise provided in this subsection (c), each Grantor
shall continue to collect, at its own expense, all amounts due or to become due
such Grantor under the Accounts. In connection with such collections, each
Grantor may take (and, at the Acting Administrative Agent's direction, shall
take) such action as such Grantor or the Acting Administrative Agent may deem
necessary or advisable to enforce collection of the Accounts; provided, however,
-------- -------
that the Acting Administrative Agent shall have the right at any time after the
occurrence and during the continuance of an Event of Default, upon written
notice to such Grantor of its intention to do so, to notify the Obligors under
any Accounts of the assignment of such Accounts to the Acting Administrative
Agent and to direct such Obligors to make payment of all amounts due or to
become due to such Grantor thereunder directly to the Acting
X-B-12
<PAGE>
Administrative Agent and, upon such notification and at the expense of such
Grantor, to enforce collection of any such Accounts, and to adjust, settle or
compromise the amount or payment thereof, in the same manner and to the same
extent as such Grantor might have done. After receipt by such Grantor of the
notice from the Acting Administrative Agent referred to in the proviso to the
preceding sentence, (i) all amounts and proceeds (including instruments)
received by such Grantor in respect of the Accounts shall be received in trust
for the benefit of the Acting Administrative Agent hereunder, shall be
segregated from other funds of such Grantor and shall be forthwith paid over to
the Acting Administrative Agent in the same form as so received (with any
necessary or requested indorsement) and either (A) released to such Grantor so
long as no Default or Event of Default shall have occurred and be continuing or
(B) if any Default or Event of Default shall have occurred and be continuing,
applied as provided by Section 16(b) and (ii) such Grantor shall not adjust,
settle or compromise the amount or payment of any Account, release wholly or
partly any obligor thereof, or allow any credit or discount thereon. At the
Acting Administrative Agent's request such Grantor shall deliver to the Acting
Administrative Agent all original and other documents evidencing, and relating
to, the agreements and transactions which gave rise to the Accounts, including,
without limitation, all original orders, invoices and shipping receipts.
SECTION 10. VOTING RIGHTS; DIVIDENDS; ETC.
------------------------------
(a) So long as no Default or Event of Default shall have occurred and
be continuing:
(i) Each Grantor shall be entitled to exercise any and all
voting and other consensual rights pertaining to the Security
Collateral or any part thereof for any purpose not inconsistent with
the terms of this Agreement or the other Loan Documents; provided,
--------
however, that no Grantor shall exercise or refrain from exercising any
-------
such right if could reasonably be expected to have a Material Adverse
Effect on the value of the Security Collateral or any part thereof or
adversely affect (A) the validity, perfection or priority of the
security interest and pledge granted or purported to be granted by
this Agreement or (B) the right and remedies of the Acting
Administrative Agent or the Secured Parties hereunder;
(ii) Each Grantor shall be entitled to receive and retain any and
all dividends and interest paid in respect of the Security Collateral;
provided, however, that any and all
-------- -------
(A) dividends and interest paid or payable other than in
cash in respect of, and instruments and other property received,
receivable or otherwise distributed in respect of, or in exchange
for, any Security Collateral,
(B) dividends and other distributions paid or payable in
cash in respect of any Security Collateral in connection with a
partial or total liquidation or dissolution or in connection with
a reduction of capital, capital surplus or paid-in-surplus and
X-B-13
<PAGE>
(C) cash paid, payable or otherwise distributed in respect
of principal of, or in redemption of, or in exchange for, any
Security Collateral
shall be, and shall be forthwith delivered to the Acting Administrative
Agent to hold as, Security Collateral and shall, if received by such
Grantor, be received in trust for the benefit of the Acting
Administrative Agent, be segregated from the other property or funds of
such Grantor and be forthwith delivered to the Acting Administrative
Agent as Security Collateral in the same form as so received (with any
necessary or requested indorsement).
(iii) The Acting Administrative Agent shall execute and deliver
(or cause to be executed and delivered) to any Grantor all such
proxies and other instruments as such Grantor may reasonably request
for the purpose of enabling such Grantor to exercise the voting and
other rights that it is entitled to exercise pursuant to paragraph (i)
above and to receive the dividends or interest payments that it is
authorized to receive and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuance of a Default or
Event of Default:
(i) All rights of each Grantor (x) to exercise or refrain from
exercising the voting and other consensual rights that it would
otherwise be entitled to exercise pursuant to Section 10(a)(i) shall,
upon notice to such Grantor by the Acting Administrative Agent, cease
and (y) to receive the dividends and interest payments that it would
otherwise be authorized to receive and retain pursuant to Section
10(a)(ii) shall automatically cease, and all such rights shall
thereupon become vested in the Acting Administrative Agent, which
shall thereupon have the sole right to exercise or refrain from
exercising such voting and other consensual rights and to receive and
hold as Security Collateral such dividends and interest payments.
(ii) All dividends and interest payments that are received by
any Grantor contrary to the provisions of paragraph (i) of this
Section 10(b) shall be received in trust for the benefit of the Acting
Administrative Agent and the Lender Parties, shall be segregated from
other funds of such Grantor and shall be forthwith paid over to the
Acting Administrative Agent as Security Collateral in the same form as
so received (with any necessary or requested indorsement).
SECTION 11. AS TO PATENTS, TRADEMARKS AND COPYRIGHTS.
-----------------------------------------
(a) Schedule II includes all Patents and Patent Licenses owned by
-----------
each Grantor in its own name on the date hereof.
(b) Schedule III includes all Trademarks and Trademark Licenses owned
------------
by each Grantor in its own name on the date hereof.
(c) Schedule IV includes all Copyrights and Copyright Licenses owned
-----------
by
X-B-14
<PAGE>
each Grantor in its own name on the date hereof.
(d) Except as set forth on Schedule II, III or IV, to the best of each
----------------------
Grantor's knowledge, each Patent, Trademark and Copyright is on the date hereof
valid, subsisting, unexpired, enforceable and has not been abandoned.
(e) Except as set forth in Schedule II, III or IV, none of such
----------------------
Patents, Trademarks or Copyrights is on the date hereof the subject of any
licensing or franchise agreement.
(f) Except as set forth on Schedule II, III or IV, no holding,
----------------------
decision or judgment has been rendered by any governmental authority which would
limit, cancel or question the validity of any Patent, Trademark or Copyright in
any respect that could reasonably be expected to have a Material Adverse Effect.
(g) Except as set forth on Schedule II, III or IV, no action or
----------------------
proceeding is pending on the date hereof (i) seeking to limit, cancel or
question the validity of any Patent, Trademark or Copyright, or (ii) which, if
adversely determined, would have a material adverse effect on the value of any
material Patent, Trademark or Copyright.
(h) Each Grantor (either itself or through licensees) will (i)
continue to use each material Trademark of such Grantor on each and every
trademark class of goods applicable to its current line as reflected in its
current catalogs, brochures and price lists in order to maintain such Trademark
in full force free from any claim of abandonment for non-use, (ii) maintain as
in the past the quality of products and services offered under such material
Trademark, (iii) employ such material Trademark with the appropriate notice of
registration, (iv) not adopt or use any mark which is confusingly similar or a
colorable imitation of such material Trademark unless the Acting Administrative
Agent, for the ratable benefit of the Secured Parties (subject to the terms of
the Intercreditor Agreement), shall obtain a perfected first priority security
interest in such mark pursuant to this Agreement, and (v) not (and not permit
any licensee or sublicensee thereof to) do any act or knowingly omit to do any
act whereby such material Trademark may become invalidated.
(i) No Grantor will do any act, or omit to do any act, whereby any
material Patent may become abandoned or dedicated.
(j) Each Grantor will notify the Acting Administrative Agent and the
Lender Parties immediately if it knows, or has reason to know, that any
application or registration relating to any material Patent or Trademark may
become abandoned or dedicated, or of any adverse determination or development
(including, without limitation, the institution of, or any such determination or
development in, any proceeding in the United States Patent and Trademark Office
or any court or tribunal in any country) regarding such Grantor's ownership of
any material Patent or Trademark or its right to register the same or to keep
and maintain the same.
(k) Whenever any Grantor, either by itself or through any agent,
employee, licensee or designee, shall file an application for the registration
of any Patent or Trademark with the United States Patent and Trademark Office or
any similar office or agency in any other country or any political subdivision
thereof, such Grantor shall report such filing to the Acting
X-B-15
<PAGE>
Administrative Agent within five Business Days after the last day of the fiscal
quarter in which such filing occurs. Upon request of the Acting Administrative
Agent, such Grantor shall execute and deliver any and all agreements,
instruments, documents, and papers as the Acting Administrative Agent may
request to evidence the Acting Administrative Agent's and the Secured Parties'
security interest in any Patent or Trademark and the goodwill and general
intangibles of such Grantor relating thereto or represented thereby.
(l) Each Grantor will take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States Patent
and Trademark Office, or any similar office or agency in any other country or
any political subdivision thereof, to maintain and pursue each application (and
to obtain the relevant registration) and to maintain each registration of the
material Patents and Trademarks, including, without limitation, filing of
applications for renewal, affidavits of use and affidavits of incontestability.
(m) In the event that any material Patent or Trademark included in the
Collateral is infringed, misappropriated or diluted by a third party, each
Grantor shall (i) take such actions as such Grantor shall reasonably deem
appropriate under the circumstances to protect such Patent or Trademark and (ii)
if such Patent or Trademark is of material economic value, promptly notify the
Acting Administrative Agent after it learns thereof and sue for infringement,
misappropriation or dilution, to seek injunctive relief where appropriate and to
recover any and all damages for such infringement, misappropriation or dilution.
(n) Each Grantor (either itself or through licensees) will (i) employ
the appropriate notice of copyright for each published work which is or may be
subject to copyright protection under Title 17 of the U.S. Code (each such
published work, a "WORK") subject to copyright protection to the extent
----
necessary to protect the Copyright relating to such Work and (ii) not (and not
permit any licensee or sublicensee thereof to) do any act or knowingly omit to
do any act whereby any material Copyright may become invalidated, except where
the failure to take any such action would not reasonably be expected to have a
Material Adverse Effect.
(o) No Grantor will (either itself or through licensees) do any act,
or omit to do any act, whereby any material Copyright may become injected into
the public domain, except where such action or the failure to take any such
action would not have a Material Adverse Effect.
(p) Each Grantor will notify the Acting Administrative Agent
immediately if it knows, or has reason to know, that any material Copyright may
become injected into the public domain or of any adverse determination or
development (including, without limitation, the institution of, or any such
determination or development in, any proceeding in any court or tribunal in any
country) regarding such Grantor's ownership of any such Copyright or its
validity and of any action such Grantor is taking in respect of such event.
(q) Whenever any Grantor, either by itself or through any agent,
employee, licensee or designee, shall file an application for the registration
of any Copyright with the United States Copyright Office or any similar office
in any other country or political subdivision thereof, such Grantor shall report
such filing to the Acting Administrative Agent within five Business Days after
the last day of the fiscal quarter in which such filing occurs. Such Grantor
X-B-16
<PAGE>
shall execute and deliver any and all agreements, instruments, documents and
papers as shall be necessary or appropriate or as the Acting Administrative
Agent reasonably may request to evidence the security interest granted or
purported to be granted to the Acting Administrative Agent for its benefit and
the ratable benefit of the Secured Parties (subject to the Intercreditor
Agreement) in such Copyright and shall deliver to the Acting Administrative
Agent an officer's certificate of such Grantor, in form and substance
satisfactory to the Acting Administrative Agent as to compliance with this
Section 11(q).
(r) Each Grantor will take all reasonable and necessary steps, as it
shall deem appropriate under the circumstances, in accordance with its
reasonable business judgment, to maintain and pursue each application (and to
obtain the relevant registration) and to maintain to the extent permitted by law
each registration of each material Copyright owned by such Grantor including,
without limitation, filing of applications for renewal, where necessary.
(s) Each Grantor will promptly notify the Acting Administrative Agent
of any material infringement of any material Copyright owned by it of which it
becomes aware and will take such actions as it shall reasonably deem appropriate
under the circumstances to protect such Copyright, including, where appropriate
in its reasonable business judgment, the bringing of suit or the settling of
actual or potential suits for infringement, seeking injunctive relief and
seeking to recover any and all damages for such infringement.
SECTION 12. TRANSFERS AND OTHER LIENS; ADDITIONAL SHARES.
---------------------------------------------
(a) Each Grantor shall not, except as otherwise permitted by the US
Credit Agreement and the Canadian Credit Agreement (i) sell, assign (by
operation of law or otherwise) or otherwise dispose of, or grant any option with
respect to, any of the Collateral, or (ii) create or suffer to exist any Lien
upon or with respect to any of the Collateral except for the pledges,
assignments and security interests created by this Agreement.
(b) Each Grantor shall (i) cause each issuer of the Pledged Shares not
to issue any stock or other securities in addition to or in substitution for the
Pledged Shares issued by such issuer, except to such Grantor, and (ii) pledge
hereunder, immediately upon its acquisition (directly or indirectly) thereof,
any and all additional shares of stock or other securities of each issuer of the
Pledged Shares.
SECTION 13. ACTING ADMINISTRATIVE AGENT APPOINTED ATTORNEY-IN-FACT.
-------------------------------------------------------
Each Grantor hereby irrevocably appoints the Acting Administrative
Agent and any officer or agent thereof, with full power of substitution, such
Grantor's attorney-in-fact, with full authority in the place and stead of such
Grantor and in the name of such Grantor or otherwise, from time to time in the
Acting Administrative Agent's discretion, to take any action and to execute any
instrument that the Acting Administrative Agent may deem necessary or advisable
to accomplish the purposes of this Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to the Acting
Administrative Agent pursuant to Section 8,
(b) to ask for, demand, collect, sue for, recover, compromise, receive
and give
X-B-17
<PAGE>
acquittance and receipts for moneys due and to become due under or in respect of
any of the Collateral,
(c) to receive, indorse and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a) or (b) above,
(d) in the case of any Patent, Trademark or Copyright, execute and
deliver any and all agreements, instruments, documents, and papers as the Acting
Administrative Agent may request to evidence the Acting Administrative Agent's
and the Secured Parties' security interest in such Patent, Trademark or
Copyright and the goodwill and general intangibles of such Grantor relating
thereto or represented thereby; and
(e) to file any claims or take any action or institute any proceedings
that the Acting Administrative Agent may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce compliance with the
terms and conditions of any Related Contract or the rights of the Acting
Administrative Agent with respect to any of the Collateral.
Anything in this Section 13 to the contrary notwithstanding, the Acting
Administrative Agent agrees that it will not exercise any rights under the power
of attorney provided for in this Section 13 unless an Event of Default shall
have occurred and be continuing. Each Grantor hereby ratifies all that said
attorney shall lawfully do or cause to be done by virtue hereof. All powers,
authorizations and agencies contained in this Agreement are coupled with an
interest and are irrevocable until this Agreement is terminated and the security
interests created hereby are released.
SECTION 14. ACTING ADMINISTRATIVE AGENT MAY PERFORM.
----------------------------------------
If any Grantor fails to perform any agreement contained herein, the
Acting Administrative Agent may itself perform, or cause performance of, such
agreement, and the expenses of the Acting Administrative Agent incurred in
connection therewith shall be payable by such Grantor and the Borrower under
Section 17(b).
SECTION 15. THE ACTING ADMINISTRATIVE AGENT'S DUTIES.
-----------------------------------------
The powers conferred on the Acting Administrative Agent hereunder are
solely to protect its interest in the Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder, the Acting Administrative Agent shall have no duty, under Section
9-207 of the NY Uniform Commercial Code or otherwise, as to any Collateral, as
to ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Security Collateral,
whether or not the Acting Administrative Agent or any other Secured Party has or
is deemed to have knowledge of such matters, or as to the taking of any
necessary steps to preserve rights against any parties or any other rights
pertaining to any Collateral. The Acting Administrative Agent shall be deemed
to have exercised reasonable care in the custody and preservation of any
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which the Acting Administrative Agent (in its
individual capacity) accords its own property.
X-B-18
<PAGE>
SECTION 16. REMEDIES.
---------
If any Event of Default shall have occurred and be continuing:
(a) The Acting Administrative Agent may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party upon
default under the NY Uniform Commercial Code (whether or not the NY Uniform
Commercial Code applies to the affected Collateral) and also may (i) require
each Grantor to, and each Grantor hereby agrees that it will at its expense and
upon request of the Acting Administrative Agent forthwith, assemble all or part
of the Collateral as directed by the Acting Administrative Agent and make it
available to the Acting Administrative Agent at a place to be designated by the
Acting Administrative Agent that is reasonably convenient to both parties and
(ii) without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any of the Acting
Administrative Agent's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Acting Administrative Agent may deem
commercially reasonable. Each Grantor agrees that, to the extent notice of sale
shall be required by law, at least ten days' notice to such Grantor of the time
and place of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification. The Acting Administrative Agent
shall not be obligated to make any sale of Collateral regardless of notice of
sale having been given. The Acting Administrative Agent may adjourn any public
or private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned.
(b) All cash proceeds received by the Acting Administrative Agent in
respect of any sale of, collection from, or other realization upon all or any
part of the Collateral may, in the discretion of the Acting Administrative
Agent, be held by the Acting Administrative Agent as collateral for, and/or then
or at any time thereafter applied (after payment of any amounts payable to the
Acting Administrative Agent pursuant to Section 17) in whole or in part by the
Acting Administrative Agent as set forth in Section [__] of the Intercreditor
Agreement. Any surplus of such cash or cash proceeds held by the Acting
Administrative Agent and remaining after payment in full of all the Secured
Obligations shall be paid over to the Borrower or to whomsoever may be lawfully
entitled to receive such surplus.
(c) The Acting Administrative Agent may exercise any and all rights
and remedies of any Grantor under or in connection with the Related Contracts or
otherwise in respect of the Collateral, including, without limitation, any and
all rights of any Grantor to demand or otherwise require payment of any amount
under, or performance of any provision of, any Related Contract.
(d) All payments received by any of the Grantors under or in
connection with any Related Contract or otherwise in respect of the Collateral
shall be received in trust for the benefit of the Acting Administrative Agent,
shall be segregated from other funds of such Grantor and shall be forthwith paid
over to the Acting Administrative Agent in the same form as so received (with
any necessary or requested indorsement).
(e) The Acting Administrative Agent may, without notice to any Grantor
X-B-19
<PAGE>
except as required by law and at any time or from time to time, charge, set-off
and otherwise apply all or any part of the Secured Obligations against the
Letter of Credit Cash Collateral Account or any part thereof.
SECTION 17. INDEMNITY AND EXPENSES.
-----------------------
(a) Each Grantor agrees, jointly and severally, to indemnify the
Acting Administrative Agent and each other Secured Party from and against any
and all claims, losses and liabilities growing out of or resulting from this
Agreement (including, without limitation, enforcement of this Agreement), except
claims, losses or liabilities resulting from the Acting Administrative Agent's
or such Secured Party's gross negligence or willful misconduct as determined by
a final judgment of a court of competent jurisdiction.
(b) Each Grantor agrees, jointly and severally, upon demand to pay to
the US Administrative Agent and the Canadian Administrative Agent the amount of
any and all reasonable expenses, including the reasonable fees and expenses of
its counsel and of any experts and agents, that the US Administrative Agent or
the Canadian Administrative Agent may incur in connection with (i) the
administration of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from or other realization upon, any of
the Collateral, (iii) the exercise or enforcement of any of the rights of the
Acting Administrative Agent or any Secured Party hereunder or (iv) the failure
by such Grantor to perform or observe any of the provisions hereof.
SECTION 18. WAIVERS; DEFICIENCY.
--------------------
Each Grantor waives and agrees not to assert any rights or privileges
which it may acquire under Section 9-112 of the NY Uniform Commercial Code.
Each Grantor shall remain liable for any deficiency if the proceeds of any sale
or other disposition of the Collateral are insufficient to pay the Secured
Obligations and the fees and disbursements of any attorneys employed by the
Acting Administrative Agent or any Secured Party to collect such deficiency.
SECTION 19. AMENDMENTS; WAIVERS; ETC.
-------------------------
(a) No amendment or waiver of any provision of this Agreement and no
consent to any departure by any Grantor herefrom shall in any event be effective
unless the same shall be in writing and signed by (i) the US Administrative
Agent (with the consent or at the direction of the Required Lenders under the US
Credit Agreement or, if required pursuant to the US Credit Agreement, all
Lenders, in each case except as otherwise provided in this Section 19 and except
as otherwise provided in the US Credit Agreement or the Intercreditor
Agreement), and (ii) the Canadian Administrative Agent (with the consent or at
the direction of the Required Lenders under the Canadian Credit Agreement or, if
required pursuant to the Canadian Credit Agreement, all Lenders thereunder, in
each case except as otherwise provided in this Section 19 and except as
otherwise provided in the US Credit Agreement or the Intercreditor Agreement),
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. No failure on the part of the
Acting Administrative Agent to exercise, and no delay in exercising any right
hereunder, shall operate as a waiver thereof; nor shall any
X-B-20
<PAGE>
single or partial exercise of any such right preclude any other or further
exercise thereof or the exercise of any other right.
(b) Upon the execution and delivery to the Administrative Agent by
any Person of an Amendment to Security Agreement in substantially the form of
Exhibit XV to the Credit Agreement (each, an "AMENDMENT TO SECURITY AGREEMENT"),
-------------------------------
which Amendment to Security Agreement need not be executed by any other Grantor,
and the acceptance thereof by the Acting Administrative Agent, such Person shall
be and become a Grantor hereunder, and each reference in this Security Agreement
to a "Grantor" shall include such Person and each reference in any other Loan
Document to a "Grantor", "Credit Party" or a "Loan Party" shall include such
Person.
SECTION 20. ADDRESSES FOR NOTICES.
----------------------
All notices and other communications provided for hereunder shall be
in writing (including telecopier, telegraphic, telex or cable communication)
and, mailed, telegraphed, telecopied, telexed, cabled or delivered to each
Grantor or to the US Administrative Agent or the Canadian Administrative Agent,
as the case may be, in each case addressed to it at its address specified in the
US Credit Agreement or the Canadian Credit Agreement or, if not specified
therein, set forth opposite such Grantor's name on the signature page hereto or,
as to any party, at such other address as shall be designated by such party in a
written notice to each other party complying as to delivery with the terms of
this Section 20. All such notices and other communications shall, when mailed,
telecopied, telegraphed, telexed or cabled, respectively, be effective when
deposited in the mails, telecopied, delivered to the telegraph company,
confirmed by telex answerback or delivered to the cable company, respectively,
addressed as aforesaid.
SECTION 21. CONTINUING SECURITY INTEREST; ASSIGNMENTS UNDER THE
---------------------------------------------------
CREDIT AGREEMENTS.
- ------------------
This Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the last to occur
of (i) the payment in full in cash of the Secured Obligations, (ii) the
Revolving Commitment Termination Date (as defined in the US Credit Agreement and
the Canadian Credit Agreement), (iii) the Term A Termination Date (as defined in
the US Credit Agreement and the Canadian Credit Agreement), (iv) the Term B
Termination Date (as defined in the US Credit Agreement and the Canadian Credit
Agreement), and (v) the expiration or termination of all Bank Hedge Agreements
(as defined in the US Credit Agreement and the Canadian Credit Agreement), (b)
be binding upon each Grantor, its successors and assigns and (c) inure, together
with the rights and remedies of the Acting Administrative Agent hereunder, to
the benefit of the US Administrative Agent, the Canadian Administrative Agent,
the other Secured Parties and their respective successors, transferees and
assigns. Without limiting the generality of the foregoing clause (c), any
Secured Party may assign or otherwise transfer all or any portion of its rights
and obligations under the US Credit Agreement or the Canadian Credit Agreement
(including, without limitation, all or any portion of its Commitments (as
defined in the US Credit Agreement and the Canadian Credit Agreement), the Loans
(as defined in the US Credit Agreement and the Canadian Credit Agreement)owing
to it and the Note or Notes (as defined in the US Credit Agreement and the
Canadian Credit Agreement) (if any) held by it to any other Person, and such
other Person shall thereupon become vested with all the benefits in respect
thereof granted to such Lender herein or
X-B-21
<PAGE>
otherwise, in each case as provided in Section 9.07 of the US Credit Agreement
or Section [9.07] of the Canadian Credit Agreement, as the case may be.
SECTION 22. RELEASE AND TERMINATION.
------------------------
(a) Upon any sale, lease, transfer or other disposition of any item of
Collateral permitted in accordance with the terms of the Loan Documents (other
than sales of Inventory in the ordinary course of business), the Acting
Administrative Agent will, at such Grantor's expense, execute and deliver to
such Grantor such documents as such Grantor shall reasonably request to evidence
the release of such item of Collateral from the assignment and security interest
granted hereby; provided, however, that (i) at the time of such request and such
-------- -------
release no Event of Default shall have occurred and be continuing, (ii) such
Grantor shall have delivered to the Acting Administrative Agent, at least ten
Business Days prior to the date of the proposed release, a written request for
release describing the item of Collateral and the terms of the sale, lease,
transfer or other disposition in reasonable detail, including the price thereof
and any expenses in connection therewith, together with a form of release for
execution by the Acting Administrative Agent and a certification by such Grantor
to the effect that the transaction is permitted in compliance with the Loan
Documents and as to such other matters as the Acting Administrative Agent may
request, and (iii) the proceeds of any such sale, lease, transfer or other
disposition required to be applied in accordance with Section 2.04 of the US
Credit Agreement or Section [2.04] of the Canadian Credit Agreement shall be
paid to, or in accordance with the instructions of the Acting Administrative
Agent.
(b) Subject to Section 22(c) below, upon the last to occur of (i) the
payment in full in cash of the Secured Obligations, (ii) the Revolving
Commitment Termination Date (as defined in the US Credit Agreement and the
Canadian Credit Agreement), (iii) the Term A Termination Date, (iv) the Term B
Termination Date (as defined in the US Credit Agreement and the Canadian Credit
Agreement), and (v) the expiration or termination of all Bank Hedge Agreements
(as defined in the US Credit Agreement and the Canadian Credit Agreement), the
pledge, assignment and security interest granted hereby shall terminate and all
rights to the Collateral shall revert to each applicable Grantor. Upon any such
termination, the Acting Administrative Agent will, at such Grantor's expense,
execute and deliver to such Grantor such documents as such Grantor shall
reasonably request to evidence such termination.
(c) This Agreement shall continue to be effective or be reinstated, as
the case may be, if at any time any amount received by the Acting Administrative
Agent or any Secured Party in respect of the Secured Obligations is rescinded or
must otherwise be restored or returned by the Acting Administrative Agent or any
Secured Party upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of any Grantor or any other Person or upon the appointment of any
receiver, intervenor, conservator, trustee or similar official for any Grantor
or any other Person or any substantial part of its assets, or otherwise, all as
though such payments had not been made.
(d) In the event the Canadian Administrative Agent shall become the
Acting Administrative Agent hereunder, the US Administrative Agent shall, at the
expense of the Borrower, take such action with respect to the delivery to the
Canadian Administrative Agent of Collateral then in the possession of the US
Administrative Agent, the execution and filing or
X-B-22
<PAGE>
recording of such financing statements, or amendments thereto or termination
statements, and such amendments or supplements to the Mortgages, and such other
instruments or notices, as may be necessary or desirable, or as the Canadian
Administrative Agent may reasonably request, in order to continue the perfection
of the Liens granted or purported to be granted hereunder and under the other
Collateral Documents, and the Canadian Administrative Agent shall succeed to and
become vested with all the rights, powers, discretion, privileges and duties of
the Acting Administrative Agent, and the US Agent shall be discharged from its
duties and obligations under this Agreement and the other Collateral Documents.
SECTION 23. SECURITY INTEREST ABSOLUTE.
---------------------------
The obligations of each Grantor under this Agreement are independent
of the Secured Obligations, and a separate action or actions may be brought and
prosecuted against each Grantor to enforce this Agreement, irrespective of
whether any action is brought against the Borrower or whether the Borrower is
joined in any such action or actions. All rights of the Acting Administrative
Agent and the other Secured Parties and the pledge, assignment and security
interest hereunder, and all obligations of each Grantor hereunder, shall be
absolute and unconditional, irrespective of:
(a) any lack of validity or enforceability of any Loan Document or any
other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Secured Obligations or any other amendment or
waiver of or any consent to any departure from any Loan Document, including,
without limitation, any increase in the Secured Obligations resulting from the
extension of additional credit to the Borrower or any of its subsidiaries or
otherwise;
(c) any taking, exchange, release or non-perfection of any other
collateral, or any taking, release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Secured Obligations;
(d) any manner of application of collateral, or proceeds thereof, to
all or any of the Secured Obligations, or any manner of sale or other
disposition of any collateral for all or any of the Secured Obligations or any
other assets of the Borrower or any of its subsidiaries;
(e) any change, restructuring or termination of the corporate
structure or existence of the Borrower or any of its subsidiaries; or
(f) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, such Grantor (unless the Grantor is the
Borrower) or a third party grantor of a security interest.
SECTION 24. MORTGAGES.
----------
In the event that any of the Collateral hereunder is also subject to a
valid and enforceable Lien under the terms of any Mortgage and the terms of such
Mortgage are inconsistent with the terms of this Agreement, then with respect to
such Collateral, the terms of
X-B-23
<PAGE>
such Mortgage shall be controlling in the case of Fixtures and leases, letting
and licenses of, and contracts and agreements relating to the lease of real
property, and the terms of this Agreement shall be controlling in the case of
all other Collateral.
SECTION 25. GOVERNING LAW.
--------------
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, except to the extent that the validity or
perfection of the security interest hereunder, or remedies hereunder, in respect
of any particular Collateral are governed by the laws of a jurisdiction other
than the State of New York.
[Remainder of page intentionally blank. Signature pages follow.]
X-B-24
<PAGE>
IN WITNESS WHEREOF, each Grantor has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
PANOLAM INDUSTRIES INTERNATIONAL, INC.,
a Delaware corporation
By: /s/ Robert J. Muller
---------------------------------
Title:
Address for Notice:
As set forth in the US Credit Agreement
PANOLAM INDUSTRIES HOLDINGS, INC.,
a Delaware corporation
By: /s/ Robert J. Muller
---------------------------------
Title:
Address for Notice:
20 Progress Drive
Shelton, Connecticut 06484
Telecopier: (203) ___-____
Telephone: (203) 925-1556
Attention: [Robert J. Muller]
X-B-25
<PAGE>
PANOLAM GROUP, INC.,
a Delaware corporation
By: /s/ Robert J. Muller
------------------------------
Title:
Address for Notice:
20 Progress Drive
Shelton, Connecticut 06484
Telecopier: (203) ___-____
Telephone: (203) 925-1556
Attention: [Robert J. Muller]
PII SECOND, INC.,
a Delaware corporation
By: /s/ Robert J. Muller
--------------------------------
Title:
Address for Notice:
20 Progress Drive
Shelton, Connecticut 06484
Telecopier: (203) ___-____
Telephone: (203) 925-1556
Attention: [Robert J. Muller]
X-B-26
<PAGE>
PANOLAM INDUSTRIES, INC.,
a Delaware corporation
By: /s/ Robert J. Muller
--------------------------------
Title:
Address for Notice:
20 Progress Drive
Shelton, Connecticut 06484
Telecopier: (203) ___-____
Telephone: (203) 925-1556
Attention: [Robert J. Muller]
PIONEER PLASTIC CORPORATION,
a Delaware corporation
By: /s/ Robert J. Muller
--------------------------------
Title:
Address for Notice:
20 Progress Drive
Shelton, Connecticut 06484
Telecopier: (203) ___-____
Telephone: (203) 925-1556
Attention: [Robert J. Muller]
X-B-27
<PAGE>
EXHIBIT XI
FORM OF GUARANTY
This GUARANTY dated as of February 18, 1999 (as amended, amended and
restated, supplemented or otherwise modified from time to time, this "GUARANTY")
--------
is made by PANOLAM INDUSTRIES HOLDINGS, INC., a Delaware corporation
("HOLDINGS"), PANOLAM GROUP, INC., a Delaware corporation ("GROUP"), and PII
-------- -----
SECOND, INC., a Delaware corporation ("PII SECOND" and together with Holdings
----------
and Group, the "PARENT GUARANTORS"), and PANOLAM INDUSTRIES, INC., a Delaware
-----------------
corporation ("PANOLAM US"), and PIONEER PLASTICS CORPORATION, a Delaware
----------
corporation ("PIONEER" and together with Panolam US, the "SUBSIDIARY
------- ----------
GUARANTORS"), in favor of the financial institutions from time to time party to
- ----------
the Credit Agreement referred to below as the Agents, the Lenders, the Issuing
Banks, the Letter of Credit Bank and the Swing Line Lender (such Agents,
Lenders, Issuing Banks, Letter of Credit Bank and Swing Line Lender are each
referred to individually herein as a "GUARANTEED PARTY" and are collectively
----------------
referred to herein as the "GUARANTEED PARTIES"). Each of the Parent Guarantors
------------------
and the Subsidiary Guarantors, together with any future direct or indirect
parent or subsidiary of the Borrower (as hereinafter defined) that agrees to be
bound by the terms hereof, is referred to as a "GUARANTOR" and such entities
---------
collectively are referred to as the "GUARANTORS."
----------
PRELIMINARY STATEMENT
PANOLAM INDUSTRIES LTD., a Ontario corporation (the "BORROWER") has
--------
entered into a Credit Agreement dated as of February 18, 1999 with the financial
institutions from time to time party thereto as Lenders and as Issuing Banks,
the Letter of Credit Bank and the Swing Line Lender, and CREDIT SUISSE FIRST
BOSTON, as Administrative Agent for such Lenders, such Issuing Banks, the Letter
of Credit Bank and the Swing Line Lender (in such capacity, together with any
successor appointed pursuant to Article VIII of such Credit Agreement, the
"ADMINISTRATIVE AGENT") (said agreement, as it may hereafter be amended, amended
--------------------
and restated, supplemented or otherwise modified from time to time, being the
"CREDIT AGREEMENT," the terms defined therein and not otherwise defined herein
----------------
being used herein as therein defined). Each Parent Guarantor owns, as of the
date hereof, directly or indirectly, 100% of the capital stock of the Borrower.
Each Subsidiary Guarantor is a wholly owned Subsidiary of the Borrower. Each
Guarantor will derive substantial direct and indirect benefit from the
transactions contemplated by the Credit Agreement. It is a condition precedent
to the making of Loans by the Lenders under the Credit Agreement that each
Guarantor shall have executed and delivered this Guaranty.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders to make the Loans and the Issuing Banks to issue Letters of
Credit under the Credit Agreement from time to time, each Guarantor hereby
agrees as follows:
SECTION 1. GUARANTY; LIMITATION OF LIABILITY.
---------------------------------
XI-1
<PAGE>
(a) Each Guarantor hereby unconditionally and irrevocably guarantees,
on a joint and several basis, the punctual payment when due, whether at stated
maturity, by acceleration or otherwise, of all Obligations of the Borrower now
or hereafter existing under the Loan Documents, whether for principal
(including, without limitation, reimbursement of, and providing cash collateral
for, amounts drawn or available to be drawn under Letters of Credit), interest,
fees, expenses or otherwise (such Obligations being the "GUARANTEED
----------
OBLIGATIONS"), and agrees to pay any and all expenses (including counsel fees
and expenses) incurred by the Administrative Agent or any other Guaranteed Party
in enforcing any rights under this Guaranty. Without limiting the generality of
the foregoing, each Guarantor's liability shall extend to all amounts that
constitute part of the Guaranteed Obligations and would be owed by the Borrower
to the Administrative Agent or any other Guaranteed Party under the Loan
Documents but for the fact that they are unenforceable or not allowable due to
the existence of a bankruptcy, reorganization or similar proceeding.
(b) Any provision of this Guaranty to the contrary notwithstanding,
the liability of each Subsidiary Guarantor under this Guaranty shall be limited
to such maximum aggregate amount as would not render such Subsidiary Guarantor's
obligations hereunder subject to avoidance as a fraudulent transfer or
conveyance under Section 548 of Title 11 of the United States Code or any
applicable provisions of any state or foreign law having similar effect.
SECTION 2. GUARANTY ABSOLUTE.
-----------------
Each Guarantor guarantees that the Guaranteed Obligations will be paid
strictly in accordance with the terms of the Loan Documents, regardless of any
law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of the Administrative Agent or any
other Guaranteed Party with respect thereto. The Obligations of each Guarantor
under this Guaranty are independent of the Guaranteed Obligations or any other
Obligations of any other Credit Party under the Loan Documents, and a separate
action or actions may be brought and prosecuted against each Guarantor to
enforce this Guaranty, irrespective of whether any action is brought against the
Borrower or any other Credit Party or whether the Borrower or any other Credit
Party is joined in any such action or actions. The liability of each Guarantor
under this Guaranty is joint and several and shall be irrevocable, absolute and
unconditional irrespective of, and each Guarantor hereby irrevocably waives any
defenses it may now or hereafter have in any way relating to, any or all of the
following:
(a) any lack of validity or enforceability of any Loan Document or any
agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Guaranteed Obligations or any other
Obligations of any other Loan Party under the Loan Documents, or any other
amendment or waiver of or any consent to departure from any Loan Document,
including, without limitation, any increase in the Guaranteed Obligations
resulting from the extension of additional credit to the Borrower or any of
its Subsidiaries or otherwise;
XI-2
<PAGE>
(c) any taking, exchange, release or non-perfection of any Collateral,
or any taking, release or amendment or waiver of or consent to departure
from any other guaranty, for all or any of the Guaranteed Obligations;
(d) any manner of application of collateral, or proceeds thereof, to
all or any of the Guaranteed Obligations, or any manner of sale or other
disposition of any collateral for all or any of the Guaranteed Obligations
or any other Obligations of any other Credit Party under the Loan Documents
or any other assets of the Borrower or any of its Subsidiaries;
(e) any change, restructuring or termination of the corporate
structure or existence of the Borrower or any of its Subsidiaries;
(f) any failure of any Guaranteed Party to disclose to the Borrower or
any Guarantor any information relating to the financial condition,
operations, properties or prospects of any other Credit Party now or in the
future known to any Guaranteed Party (each Guarantor hereby waiving any
duty on the part of the Guaranteed Parties to disclose such information);
or
(g) any other circumstance (including, without limitation, any statute
of limitations) or any existence of or reliance on any representation by
the Administrative Agent or any other Guaranteed Party that might otherwise
constitute a defense available to, or a discharge of, the Borrower, any
Guarantor or any other guarantor or surety.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by any Guaranteed Party or any other Person upon
the insolvency, bankruptcy or reorganization of the Borrower or any other Credit
Party or otherwise, all as though such payment had not been made.
SECTION 3. WAIVERS AND ACKNOWLEDGMENTS.
---------------------------
(a) Each Guarantor hereby waives promptness, diligence, notice of
acceptance and any other notice with respect to any of the Guaranteed
Obligations and this Guaranty and any requirement that the Administrative Agent
or any other Guaranteed Party protect, secure, perfect or insure any Lien or any
property subject thereto or exhaust any right or take any action against the
Borrower or any other Person or any collateral.
(b) Each Guarantor hereby waives any right to revoke this Guaranty,
and acknowledges that this Guaranty is continuing in nature and applies to all
Guaranteed Obligations, whether existing now or in the future.
(c) Each Guarantor acknowledges that the Administrative Agent may,
without notice to or demand upon such Guarantor and without affecting the
liability of such Guarantor under this Guaranty, foreclose under any Mortgage by
nonjudicial sale, and each Guarantor hereby waives all rights and defenses
(including, without limitation, any defense to the recovery
XI-3
<PAGE>
by the Administrative Agent and the other Guaranteed Parties against any
Guarantor of any deficiency after such nonjudicial sale and any defense or
benefits that may be afforded by applicable law) arising out of an election of
remedies by any Guaranteed Party, even though that election of remedies, such as
a nonjudicial foreclosure with respect to security for a Guaranteed Obligation,
has destroyed such Guarantor's rights of subrogation and reimbursement against
the principal.
(d) Each Guarantor acknowledges that it will receive substantial
direct and indirect benefits from the financing arrangements contemplated by the
Loan Documents and that the waivers set forth in this Section 3 are knowingly
made in contemplation of such benefits.
SECTION 4. SUBROGATION; SUBORDINATION; CONTRIBUTION.
----------------------------------------
(a) Each Guarantor agrees that it will not exercise any rights that it
may now or hereafter acquire against the Borrower or any other insider guarantor
that arise from the existence, payment, performance or enforcement of such
Guarantor's Obligations under this Guaranty or any other Loan Document,
including, without limitation, any right of subrogation, reimbursement,
exoneration, contribution or indemnification and any right to participate in any
claim or remedy of the Administrative Agent or any other Guaranteed Party
against the Borrower or any other insider guarantor or any collateral, whether
or not such claim, remedy or right arises in equity or under contract, statute
or common law, including, without limitation, the right to take or receive from
the Borrower or any other insider guarantor, directly or indirectly, in cash or
other property or by set-off or in any other manner, payment or security on
account of such claim, remedy or right, unless and until all of the Obligations
and all other amounts payable under this Guaranty shall have been paid in full
in cash, all Bank Hedge Agreements shall have expired or been terminated and the
Commitments shall have expired or terminated. If any amount shall be paid to
any Guarantor in violation of the preceding sentence at any time prior to the
later of the payment in full in cash of the Guaranteed Obligations and all other
amounts payable under this Guaranty and the last to occur of (i) the Revolving
Commitment Termination Date, (ii) the Term A Termination Date, (iii) the Term B
Termination Date and (iv) the expiration or termination of all Bank Hedge
Agreements, such amount shall be held in trust for the benefit of the
Administrative Agent and the other Guaranteed Parties and shall forthwith be
paid to the Administrative Agent to be credited and applied to the Guaranteed
Obligations and all other amounts payable under this Guaranty, whether matured
or unmatured, in accordance with the terms of the Loan Documents, or to be held
as collateral for any Guaranteed Obligations or other amounts payable under this
Guaranty thereafter arising. If (i) any Guarantor shall make payment to the
Administrative Agent or any other Guaranteed Party of all or any part of the
Guaranteed Obligations, (ii) all of the Guaranteed Obligations and all other
amounts payable under this Guaranty shall be paid in full in cash, (iii) each of
the Revolving Commitment Termination Date, the Term A Termination Date and the
Term B Termination Date shall have occurred and (iv) all Bank Hedge Agreements
shall have expired or been terminated, the Administrative Agent and the other
Guaranteed Parties will, at such Guarantor's request and expense, execute and
deliver to such Guarantor appropriate documents, without recourse and without
representation or warranty, necessary to evidence the transfer by subrogation to
such
XI-4
<PAGE>
Guarantor of an interest in the Guaranteed Obligations resulting from such
payment by such Guarantor.
(b) Each Guarantor hereby agrees that any indebtedness of the Borrower
now or hereafter owing to such Guarantor (the "SUBORDINATED DEBT") is hereby
-----------------
subordinated to all of the Guaranteed Obligations and all other amounts payable
under this Guaranty, whether heretofore, now or hereafter created, and that
without the prior consent of the Administrative Agent, the Subordinated Debt
shall not be paid in whole or in part until the Guaranteed Obligations and all
other amounts payable under this Guaranty have been paid in full and the Credit
Agreement has been terminated and is of no further force or effect, except that
payments of principal and interest on the Subordinated Debt shall be permitted
(i) so long as no Event of Default shall have occurred and be continuing and
(ii) during the continuance of any Event of Default so long as the
Administrative Agent has not provided the Borrower and each Guarantor with
written notice of default stating that such payment shall no longer be
permitted, but in either of the foregoing events only to the extent such
payments would not render the Borrower incapable of performing the Guaranteed
Obligations. Each Guarantor agrees that it will not accept any payment of or on
account of any Subordinated Debt at any time in contravention of the foregoing.
At the request of the Administrative Agent, following the occurrence and during
the continuance of an Event of Default, each Guarantor hereby agrees to direct
the Borrower to pay to the Administrative Agent, for the account of the
Administrative Agent and the Lenders, all or any part of the Subordinated Debt
and any amount so paid to the Administrative Agent shall be applied to payment
of the Guaranteed Obligations and all other amounts payable under this Guaranty.
Each payment on the Subordinated Debt received in violation of any of the
provisions hereof shall be deemed to have been received in trust for the
Administrative Agent and shall be paid over to the Administrative Agent
immediately on account of the Guaranteed Obligations, but without otherwise
affecting in any manner any Guarantor's liability under any of the provisions of
this Guaranty. Each Guarantor agrees to file all claims against the Borrower in
any bankruptcy or other proceeding in which the filing of claims is required by
law in respect of any Subordinated Debt, and the Administrative Agent shall be
entitled to all of such Guarantor's rights thereunder. If for any reason any
Guarantor fails to file such claim at least 30 days prior to the last date on
which such claim should be filed, the Administrative Agent, as such Guarantor's
attorney-in-fact, is hereby authorized to do so in such Guarantor's name or, in
the Administrative Agent's discretion, to assign such claim to and cause proof
of claim to be filed in the name of the Administrative Agent or its nominee. In
all such cases, whether in reorganization, bankruptcy or otherwise, the Person
or Persons authorized to pay such claim shall pay to the Administrative Agent,
for the account of the Administrative Agent and the Lenders, the full amount
payable on the claim in the proceeding, and, to the full extent necessary for
that purpose, each Guarantor hereby assigns to the Administrative Agent, for the
account of the Administrative Agent and the Lenders, all of such Guarantor's
rights to any payments or distributions to which such Guarantor otherwise would
be entitled. If the amount so paid is greater than such Guarantor's liability
hereunder, the Administrative Agent will pay the excess amount to the party
entitled thereto. In addition, each Guarantor hereby appoints the
Administrative Agent as its attorney-in-fact to exercise all of such Guarantor's
voting rights in connection with any bankruptcy proceeding or any plan for the
reorganization of the Borrower.
XI-5
<PAGE>
(c) In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
----- --
distribution is made by any Guarantor (a "FUNDING GUARANTOR") under this
-----------------
Guaranty, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount based on the Adjusted Net Assets (as
--- ----
hereinafter defined) of each Guarantor (including the Funding Guarantor) for all
payments, damages and expenses incurred by that Funding Guarantor in discharging
the Guaranteed Obligations or any other Guarantor's Obligations with respect to
this Guaranty. "ADJUSTED NET ASSETS" of any Guarantor at any date means the
-------------------
lesser of (a) the amount by which the fair value of the property of such
Guarantor exceeds the total amount of liabilities (including, without
limitation, contingent liabilities, but excluding liabilities of such Guarantor
under this Guaranty) of such Guarantor at such date, and (b) the amount by which
the present fair salable value of the assets of such Guarantor at such date
exceeds the amount that will be required to pay the probable liability of such
Guarantor on its debts (after giving effect to all contingent liabilities, but
excluding liabilities of such Guarantor under this Guaranty) as they become
absolute and matured.
SECTION 5. PAYMENTS FREE AND CLEAR OF TAXES, ETC.
--------------------------------------
(a) Except as otherwise provided in this Section 5, any and all
payments made by any Guarantor hereunder shall be made, in accordance with
Section 2.09 of the Credit Agreement, free and clear of and without deduction
for any Taxes. Except as otherwise provided in this Section 5 if any Guarantor
shall be required by law to deduct any Taxes from or in respect of any sum
payable hereunder to the Administrative Agent or any other Guaranteed Party, (i)
the sum payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section) the Administrative Agent or such other Guaranteed Party (as
the case may be) receives an amount equal to the sum it would have received had
no such deductions been made, (ii) such Guarantor shall make such deductions and
(iii) such Guarantor shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(b) In addition, each Guarantor agrees to pay any present or future
Other Taxes.
(c) Except as otherwise provided in this Section 5, each Guarantor
will indemnify the Administrative Agent and each other Guaranteed Party for the
full amount of Taxes and Other Taxes, and for the full amount of Taxes imposed
by any jurisdiction on amounts payable under this Section 5 paid by the
Administrative Agent or such other Guaranteed Party (as the case may be) and any
liability (including penalties, additions to tax, interest and expenses) arising
therefrom or with respect thereto. This indemnification shall be made within 30
days from the date the Administrative Agent or such other Guaranteed Party (as
the case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes by or on
behalf of any Guarantor, such Guarantor will furnish to the Administrative
Agent, at its address referred to in the Credit Agreement, the original receipt
of payment thereof or a certified copy of such
XI-6
<PAGE>
receipt. In the case of any payment hereunder by or on behalf of any Guarantor
through an account or branch outside the United States or on behalf of any
Guarantor by a payor that is not a United States person, if such Guarantor
determines that no Taxes are payable in respect thereof, such Guarantor shall
furnish, or shall cause such payor to furnish, to the Administrative Agent, at
such address, an opinion of counsel acceptable to the Administrative Agent
stating that such payment is exempt from Taxes. For purposes of this Section
5(d) and Section 5(e), the terms "UNITED STATES" and "UNITED STATES PERSON"
------------- --------------------
shall have the meanings specified in Section 7701 of the Internal Revenue Code.
(e) Upon the reasonable request in writing of any Guarantor, each
Guaranteed Party organized under the laws of a jurisdiction outside the United
States shall, on or prior to the date of its execution and delivery of the
Credit Agreement in the case of each Initial Lender and on the date of the
Assignment and Acceptance pursuant to which it became a Guaranteed Party in the
case of each other Guaranteed Party, and from time to time thereafter upon the
reasonable request in writing by any Guarantor or the Administrative Agent (but
only so long thereafter as such Guaranteed Party remains lawfully able to do
so), provide the Administrative Agent and such Guarantor with Internal Revenue
Service form 1001 (or W-8BEN) or 4224 (or W-8ECI), as appropriate, or any
successor form prescribed by the Internal Revenue Service, certifying that such
Guaranteed Party is exempt from United States withholding tax on payments under
the Credit Agreement or the Notes. If any form or document referred to in this
Section 5(e) requires the disclosure of information, other than information
necessary to compute the tax payable and information required on the date hereof
by Internal Revenue Service form 1001 (or W-8BEN) or 4224 (or W-8ECI), that the
Guaranteed Party reasonably considers to be confidential, the Guaranteed Party
shall give notice thereof such Guarantor and shall not be obligated to include
in such form or document such confidential information.
(f) For any period with respect to which a Guaranteed Party has failed
to provide such Guarantor with the appropriate form described in Section 5(e)
establishing an exemption from withholding tax (other than if such failure is
----- ----
due to a change in law occurring after the date on which a form originally was
required to be provided), such Guaranteed Party shall not be entitled to any
payments or amounts from such Guarantor under Section 5(a) or indemnification
under Section 5(c) with respect to Taxes imposed by the United States; provided,
--------
however, that should a Guaranteed Party become subject to Taxes because of its
- -------
failure to deliver a form required hereunder, such Guarantor shall take such
steps as such Guaranteed Party shall reasonably request to assist such
Guaranteed Party to recover such Taxes. Further, no party shall be entitled to
any payments or under Section 5 (a) or indemnification under Section 5(c) except
as a result of a change in law occurring after such party acquired any interest
in the Loans or the Notes. The foregoing sentence shall not apply to the extent
of any payments, amounts or indemnification that the assignor to such party was
entitled at the time of assignment or other transfer.
(g) Without prejudice to the survival of any other agreement of any
Guarantor hereunder or under any other Loan Document, the agreements and
obligations of each Guarantor contained in this Section 5 shall survive the
payment in full of the Guaranteed Obligations and all other amounts payable
under this Guaranty.
XI-7
<PAGE>
(h) If a Guarantor is required to pay any additional amount to a
Guaranteed Party or any taxing authority for the account of any Guaranteed Party
pursuant to this Section 5, such Guarantor shall have the right, upon reasonable
notice to the Guaranteed Party, to require such Guaranteed Party to use
reasonable efforts to designate a different lending office for funding or
booking its loan (or any loan participation) under the Credit Agreement or to
assign its rights and obligations hereunder to another of its offices, branches
or Affiliates, if, in the sole judgment of such Guaranteed Party, such
designation or assignment (A) would eliminate or reduce amounts payable pursuant
to Section 5, as the case may be, in the future and (B) would not cause such
Guaranteed Party to suffer any economic, legal or regulatory disadvantage. With
respect to the foregoing, each Guarantor hereby agrees to pay on demand all
reasonable costs and expenses incurred by any Guaranteed Party in connection
with any such designation or assignment.
SECTION 6. REPRESENTATIONS AND WARRANTIES.
------------------------------
Each Guarantor hereby represents and warrants as follows:
(a) Such Guarantor (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which it owns or leases property or in
which the conduct of its business requires it to so qualify or be licensed
except where the failure to so qualify or be licensed would not have a Material
Adverse Effect and (iii) has all requisite corporate power and authority to own
or lease and operate its properties and to carry on its business as now
conducted and as proposed to be conducted.
(b) The execution, delivery and performance by such Guarantor of this
Guaranty and each other Loan Document to which it is or is to be a party, and
the consummation of the transactions contemplated hereby and thereby, are within
such Guarantor's corporate powers, have been duly authorized by all necessary
corporate action, and do not (i) contravene such Guarantor's charter or by-laws,
(ii) violate any law, rule, regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System), order,
writ, judgment, injunction, decree, determination or award, (iii) conflict with
or result in the breach of, or constitute a default under, any contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument binding
on or affecting such Guarantor, any of its Subsidiaries or any of their
properties or (iv) except for the Liens created by the Collateral Documents,
result in or require the creation or imposition of any Lien upon or with respect
to any of the properties of such Guarantor or any of its Subsidiaries.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other third
party is required for (i) the due execution, delivery, recordation, filing or
performance by such Guarantor any Credit Party of this Guaranty or any other
Loan Document to which it is or is to be a party, or for the consummation of the
transactions contemplated hereby and thereby, (ii) the grant by any Credit Party
of the Liens granted by it pursuant to the Collateral Documents, (iii) the
perfection or maintenance of the Liens created by the Collateral Documents
(including the first priority nature
XI-8
<PAGE>
thereof) or (iv) the exercise by the Administrative Agent or any Lender of its
rights under the Loan Documents or the remedies in respect of the Collateral
pursuant to the Collateral Documents.
(d) This Guaranty has been, and each of the other Loan Documents to
which such Guarantor is a party have been, duly executed and delivered by such
Guarantor and constitute the legal, valid and binding obligation of such
Guarantor, enforceable against such Guarantor in accordance with their
respective terms.
(e) There are no conditions precedent to the effectiveness of this
Guaranty that have not been satisfied or waived.
(f) Such Guarantor has, independently and without reliance upon the
Administrative Agent or any other Guaranteed Party and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Guaranty, and such Guarantor has established
adequate means of obtaining from any other Credit Parties on a continuing basis
information pertaining to, and is now and on a continuing basis will be
completely familiar with, the financial condition, operations, properties and
prospects of such other Credit Parties.
SECTION 7. COVENANTS.
---------
(a) So long as any part of the Guaranteed Obligations shall remain
unpaid or any Lender shall have any Commitment, each Guarantor agrees that if,
under the terms of the Credit Agreement, the Borrower is required to cause such
Guarantor or any of such Guarantor's Subsidiaries to take, or to refrain from
taking, any action, or to comply with any requirements, obligations, limitations
or restrictions contained therein, in each case whether individually or together
with any other Credit Parties, such Guarantor shall, and shall cause each of its
Subsidiaries to, take or refrain from taking (as the case may be) any such
action and comply with all such requirements, obligations, limitations and
restrictions.
(b) Upon issuance of any Equity Interests by Holdings (other than (i)
the issuance of stock options issued to management and other employees of
Holdings and its Subsidiaries in the ordinary course of business and the
issuance of Capital Stock of Holdings upon the exercise of such options, (ii)
Equity Interests issued as Acquisition Consideration to the extent permitted
hereunder or (iii) Equity Interests used to repay the Domtar Note), Holdings
shall contribute the Net Cash Proceeds of such issuance to the Borrower as a
Capital Contribution substantially concurrently with the issuance of such Equity
Interests.
SECTION 8. AMENDMENTS, ETC.
----------------
(a) No amendment or waiver of any provision of this Guaranty and no
consent to any departure by any Guarantor therefrom shall in any event be
effective unless the same shall be in writing and signed by the Administrative
Agent (with the consent or at the direction of the Required Lenders except as
otherwise provided in this Section 8 and except as otherwise provided in the
Credit Agreement or the Intercreditor Agreement) and, in the case of any such
XI-9
<PAGE>
amendment, by each Guarantor (except as set forth in Section 8(b)), and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given; provided, however, that no amendment,
-------- -------
waiver or consent shall, unless in writing and signed by all of the Lenders (or
by the Administrative Agent with the consent or at the direction of all of the
Lenders), (i) further reduce or limit the liability of any Guarantor hereunder,
(ii) postpone any date fixed for payment hereunder or (iii) change the number or
percentage of Lenders required to take any action hereunder.
(b) Upon the execution and delivery to the Administrative Agent by any
Person of an Amendment to Guaranty in substantially the form of Exhibit XIV to
the Credit Agreement (each, an "AMENDMENT TO GUARANTY"), which Amendment to
---------------------
Guaranty need not be executed by any other Guarantor, and the acceptance thereof
by the Administrative Agent, such Person shall be and become a Guarantor
hereunder, and each reference in this Guaranty to a "Guarantor" shall include
such Person and each reference in any other Loan Document to a "Guarantor",
"Credit Party" or a "Loan Party" shall include such Person.
SECTION 9. NOTICES, ETC.
-------------
All notices and other communications provided for hereunder shall be
in writing (including telegraphic, telecopy or telex communication) and mailed,
telegraphed, telecopied, telexed or delivered to it, if to any Guarantor,
addressed to it at its address set forth on the applicable signature page hereto
or set forth in the Amendment to Guaranty pursuant to which such Guarantor
became a Guarantor, if to the Administrative Agent or any Guaranteed Party, at
its address specified in the Credit Agreement, or as to any party at such other
address as shall be designated by such party in a written notice to each other
party. All such notices and other communications shall, when mailed,
telegraphed, telecopied or telexed, be effective when deposited in the mails,
delivered to the telegraph company, transmitted by telecopier or confirmed by
telex answerback, respectively.
SECTION 10. NO WAIVER; REMEDIES.
-------------------
No failure on the part of the Administrative Agent or any other
Guaranteed Party to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.
SECTION 11. RIGHT OF SET-OFF.
----------------
Upon (a) the occurrence and during the continuance of any Event of
Default and (b) the making of the request or the granting of the consent
specified by Section 7.01 of the Credit Agreement to authorize the
Administrative Agent to declare the Loans and the Notes due and payable pursuant
to the provisions of such Section 7.01, each Guaranteed Party and each of its
respective Affiliates is hereby authorized, by each Guarantor, at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or
XI-10
<PAGE>
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Guaranteed Party or such Affiliate to or
for the credit or the account of such Guarantor against any and all of the
Obligations of such Guarantor now or hereafter existing under this Guaranty,
whether or not such Guaranteed Party shall have made any demand under this
Guaranty and although such Obligations may be unmatured. Each Guaranteed Party
agrees promptly to notify the applicable Guarantor after any such set-off and
application; provided, however, that the failure to give such notice shall not
-------- -------
affect the validity of such set-off and application. The rights of each
Guaranteed Party and its respective Affiliates under this Section are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) that such Guaranteed Party and its respective Affiliates may
have.
SECTION 12. INDEMNIFICATION.
---------------
Without limitation on any other Obligations of any Guarantor or
remedies of the Guaranteed Parties under this Guaranty, each Guarantor shall, to
the fullest extent permitted by law, indemnify, defend and save and hold
harmless each Guaranteed Party from and against, and shall pay on demand, any
and all losses, liabilities, damages, costs, expenses and charges (including the
fees and disbursements of such Guaranteed Party's legal counsel) suffered or
incurred by such Guaranteed Party as a result of any failure of any Guaranteed
Obligations to be the legal, valid and binding obligations of the Borrower
enforceable against the Borrower in accordance with their terms; provided,
however, that no Guarantor shall be liable to a Guaranteed Party for losses
directly caused by such Guaranteed Party's willful misconduct or gross
negligence.
SECTION 13. CONTINUING GUARANTY; ASSIGNMENTS UNDER THE CREDIT
-------------------------------------------------
AGREEMENT.
- ---------
This Guaranty is a continuing guaranty and shall (a) remain in full
force and effect until the later of the payment in full in cash of the
Guaranteed Obligations and all other amounts payable under this Guaranty and the
last to occur of (i) the Revolving Commitment Termination Date, (ii) the Term A
Termination Date, (iii) the Term B Termination Date and (iv) the expiration or
termination of all Bank Hedge Agreements, (b) be binding upon each Guarantor,
its successors and assigns and (c) inure to the benefit of and be enforceable by
the Administrative Agent and the other Guaranteed Parties and their successors,
transferees and assigns. Without limiting the generality of the foregoing
clause (c), any Guaranteed Party may assign or otherwise transfer all or any
portion of its rights and obligations under the Credit Agreement (including,
without limitation, all or any portion of its Commitments, the Loans owing to it
and any Note or Notes held by it) to any other Person, and such other Person
shall thereupon become vested with all the benefits in respect thereof granted
to such Guaranteed Party herein or otherwise, in each case as and to the extent
provided in Section 9.07 of the Credit Agreement.
SECTION 14. GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL, ETC.
-------------------------------------------------------
XI-11
<PAGE>
(a) THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
(b) EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR
ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE
COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN NEW YORK CITY,
AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH
IT IS OR IS TO BE A PARTY, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT,
AND EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS
IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY
SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL
COURT. EACH GUARANTOR AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS
GUARANTY SHALL AFFECT ANY RIGHT THAT ANY PARTY MAY OTHERWISE HAVE TO BRING ANY
ACTION OR PROCEEDING RELATING TO THIS GUARANTY OR ANY OF THE OTHER LOAN
DOCUMENTS TO WHICH IT IS OR IS TO BE A PARTY IN THE COURTS OF ANY JURISDICTION.
(c) EACH GUARANTOR IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS
TO WHICH IT IS OR IS TO BE A PARTY IN ANY NEW YORK STATE OR FEDERAL COURT. EACH
GUARANTOR HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING
IN ANY SUCH COURT.
(d) EACH GUARANTOR AND EACH GUARANTEED PARTY HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER
BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE
LOAN DOCUMENTS, THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF THE
ADMINISTRATIVE AGENT OR ANY OTHER GUARANTEED PARTY IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
XI-12
<PAGE>
[Remainder of page intentionally blank. Signature pages follow.]
XI-13
<PAGE>
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
PANOLAM INDUSTRIES HOLDINGS, INC.,
a Delaware corporation
By:_________________________
Title:
Address for Notice:
20 Progress Drive
Shelton, Connecticut 06484
Telecopier: (203) ___-____
Telephone: (203) 925-1556
Attention: [Robert J. Muller]
PANOLAM GROUP, INC.,
a Delaware corporation
By:
__________________________
Title:
Address for Notice:
20 Progress Drive
Shelton, Connecticut 06484
Telecopier: (203) ___-____
Telephone: (203) 925-1556
Attention: [Robert J. Muller]
XI-14
<PAGE>
PII SECOND, INC.,
a Delaware corporation
By:
__________________________
Title:
Address for Notice:
20 Progress Drive
Shelton, Connecticut 06484
Telecopier: (203) ___-____
Telephone: (203) 925-1556
Attention: [Robert J. Muller]
PANOLAM INDUSTRIES, INC.,
a Delaware corporation
By:
__________________________
Title:
Address for Notice:
20 Progress Drive
Shelton, Connecticut 06484
Telephone: (203) 925-1556
Attention: [Robert J. Muller]
XI-15
<PAGE>
PIONEER PLASTIC CORPORATION,
a Delaware corporation
By:__________________________
Title:
Address for Notice:
20 Progress Drive
Shelton, Connecticut 06484
Telecopier: (203) ___-____
Telephone: (203) 925-1556
Attention: [Robert J. Muller]
XI-16
<PAGE>
EXHIBIT XII
FORM OF MORTGAGE / ASSIGNMENT OF RENTS ON CANADIAN
PROPERTY OF BORROWER
[Contained in separate file.]
FORM OF DEED OF TRUST (MORTGAGE) / SECOND DEED OF TRUST (MORTGAGE) / LEASEHOLD
DEED OF TRUST (MORTGAGE)
(SUBJECT TO SUCH CHANGES AS MAY BE SATISFACTORY TO THE ADMINISTRATIVE AGENT FOR
MORTGAGE FORMS, LEASEHOLD FORMS AND LOCAL LAW ISSUES)
Recording at the Request of and
when Recorded Mail Original to:
Latham & Watkins
633 West 5th Street, Suite 4000
Los Angeles, California 90071
Attention: Nadia Shabaik
[SECOND] DEED OF TRUST AND ASSIGNMENT OF RENTS,
LEASES AND LEASEHOLD INTERESTS
THIS [SECOND] DEED OF TRUST AND ASSIGNMENT OF RENTS, LEASES AND
LEASEHOLD INTERESTS (hereafter, as amended, modified, replaced, consolidated and
extended, the "DEED OF TRUST") is made and entered into as of February 16, 1999
-------------
by and among [PANOLAM INDUSTRIES, INC.] [PIONEER PLASTICS CORPORATION], a
Delaware corporation ("GRANTOR"), [__________], as trustee ("TRUSTEE"), and
------- -------
CREDIT SUISSE FIRST BOSTON [CANADA], as Administrative Agent ("BENEFICIARY").
-----------
Recitals
--------
A. Panolam Industries [International, Inc.] [Ltd.] (the
"BORROWER") and Beneficiary are parties to that certain Credit
--------
Agreement, dated as of February 16, 1999, by and between
Borrower, Beneficiary and the other financial institutions named
therein as lenders (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "CREDIT
------
AGREEMENT"), under which Borrower will borrow Loans and will be
---------
afforded certain other financial accommodations. Unless
otherwise defined herein, all capitalized terms are used in this
Deed of Trust as they are defined in the Credit Agreement.
B. Pursuant to that certain Guaranty (as it may be
amended, supplemented or otherwise modified form time to time,
the "GUARANTY") of even date herewith, the Grantor has guaranteed
--------
all obligations of the Borrower under the Credit Agreement.
B. It is a condition precedent to the making of Loans by
the Lender Parties under the Credit Agreement that the
obligations of Grantor under the Guaranty be secured by liens and
security interests covering certain property of Grantor. In
connection therewith, Beneficiary has required that, and Grantor
has agreed to, execute and deliver this Deed of Trust.
XII-1
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and in order to secure all of the obligations of
Grantor under the Guaranty and the other Loan Documents (collectively with the
obligations set forth herein, the "OBLIGATIONS"), Grantor, Trustee and
-----------
Beneficiary agree as follows:
ARTICLE I - CONVEYANCE IN TRUST
1.01 Conveyance in Trust. Grantor does hereby convey to Trustee in
-------------------
trust, with power of sale, all of Grantor's right, title and interest in and to
all of the following property (collectively, the "TRUST PROPERTY") subject only
--------------
to Permitted Liens under the Credit Agreement:
(a) the real property described in Exhibit "A" attached hereto and by
this reference incorporated herein, including, without limitation, all air
rights with respect thereto (the "LAND");
----
(b) any and all buildings and all other improvements now on, or
hereafter constructed on, the Land, and all fixtures now or hereafter affixed
to, placed upon or used in connection with the Trust Property;
(c) any and all lands, fixtures, structures, improvements, tenements
and hereditaments of whatever kind or description and wherever situated, now
owned by, or at any time hereafter acquired by or for, Grantor and contiguous or
appurtenant to the Land, and all other things of whatsoever kind and in any way
or at any time belonging or appurtenant to, or used in connection with, any of
the other Trust Property;
(d) any and all leases and leasehold rights now held or hereafter
acquired by Grantor for use in connection with or belonging or appertaining to
any of Grantor's real property now or hereafter subject to the lien of this Deed
of Trust;
(e) any and all additions, betterments and improvements hereafter
acquired or constructed upon or in connection with any other property, real or
personal, now or at any time hereafter subject to the lien of this Deed of
Trust; and
(f) any and all rights, powers, franchises, privileges, immunities,
permits and licenses now or hereafter owned or possessed by Grantor that now or
at any time hereafter may be necessary for, or appurtenant to, the use,
operation, management, maintenance, renewal, alteration or improvement of any of
the other Trust Property.
This Deed of Trust is given for the purpose of securing in such order
of priority as Beneficiary may elect, the indebtedness and obligations described
in Section 1.03 hereof.
------------
1.02 Status of Title. Grantor has good right to mortgage and convey
---------------
the Trust Property to Trustee and Beneficiary and will warrant and defend the
same to Trustee, Beneficiary and their respective successors and assigns against
the lawful claims and demands of all persons except with respect to Permitted
Encumbrances. Grantor agrees to protect, preserve and defend Trustee's and
Beneficiary's interests in the Trust Property and title thereto; to appear and
defend this Deed of Trust in any action or proceeding affecting or purporting to
affect the Trust Property, the lien or security interest of this Deed of Trust
thereon, or any of the rights of Trustee or Beneficiary hereunder, and to pay
all costs and expenses incurred by Trustee or Beneficiary in or in connection
with any such action or proceeding, including reasonable attorneys' fees, at
trial and on appeal, whether or not any such action or proceeding progresses to
judgment and whether or not brought by or against Trustee or Beneficiary.
Beneficiary shall be reimbursed for any such costs and expenses in accordance
with the provisions of this Deed of Trust and the other Loan Documents. Trustee
or Beneficiary, after notice to Grantor, may, but shall not be under any
obligation to, appear or intervene in any such action or proceeding and retain
counsel therein and defend the same or otherwise take such action therein as it
be advised and may settle or compromise the same and, in that behalf and for any
of such purposes, may expend and advance such sums of money as it reasonably may
deem necessary, and shall be reimbursed therefor in accordance with the
provisions of this Deed of Trust and the other Loan Documents.
XII-2
<PAGE>
1.03 Obligations Secured. This Deed of Trust is made in trust,
-------------------
however, for the purpose of securing all of the Obligations. Grantor shall pay
and perform the Obligations at the times and places and in the manner specified
in the Loan Documents. This Deed of Trust shall secure unpaid balances of all
loans and other such extensions of credit made after this Deed of Trust is
recorded pursuant to the Loan Documents. All future advances will have the same
priority as the original advance. Any agreement hereafter made by Grantor and
Beneficiary pursuant to this Deed of Trust shall be superior to the rights of
the holder of any intervening lien or encumbrance to the extent allowed by law.
1.04 After-Acquired Property. If Grantor hereafter acquires (a) any
-----------------------
property that is of the kind or nature described in Section 1.01 hereof and is
------------
or is intended to become a part thereof, or (b) an interest in any of the Trust
Property greater than the interest now held, then such property or interest
shall, immediately upon such acquisition, become subject to the lien of this
Deed of Trust as fully and completely and with the same effect as though now
owned by Grantor and specifically described herein, without need for the
delivery and/or recording of a supplement to this Deed of Trust or any other
instrument; but nevertheless Grantor shall from time to time, if requested by
Trustee or Beneficiary, execute and deliver any and all such further assurances,
conveyances and assignments thereof as Trustee or Beneficiary may reasonably
require for the purpose of expressly and specifically subjecting to the lien of
this Deed of Trust any and all such property or interest.
ARTICLE II - COVENANTS CONCERNING THE TRUST PROPERTY
2.01 Taxes and Governmental Impositions.
----------------------------------
(a) Payment. Grantor will pay, or cause to be paid, promptly, when
-------
and as due, and, upon written request from Trustee or Beneficiary, will promptly
exhibit to Beneficiary receipts for the payment of, all taxes, assessments,
charges, fees, fines and impositions of every nature whatsoever charged,
imposed, levied or assessed or to be charged, imposed, levied or assessed upon
or against the Trust Property or any part thereof, or upon the interest of
Trustee or Beneficiary in the Trust Property, as well as all income taxes,
assessments and other governmental charges lawfully levied and imposed by the
United States or any state, county, municipality or other taxing authority in
respect of the Trust Property or any part thereof or any charge that, if unpaid,
would or could become a lien or charge upon the Trust Property, or any part
thereof (collectively, the "IMPOSITIONS").
-----------
(b) Contests. Grantor shall have the right before any delinquency
--------
occurs to contest or object to the amount or validity of any such Imposition by
appropriate legal proceedings, but such right shall not be deemed or construed
in any way as relieving, modifying or extending Grantor's covenant to pay any
such Imposition at the time and in the manner provided in Section 2.01(a)
---------------
hereof, unless Grantor has given prior written notice to Beneficiary of
Grantor's intent so to contest or object to an Imposition, and unless: (i) the
legal proceedings shall operate conclusively to prevent the sale of the Trust
Property, or any part thereof, to satisfy such Impositions prior to final
determination of such proceedings; or (ii) Grantor shall furnish a good and
sufficient bond or surety in the amount of the Impositions that are being
contested plus any interest and penalty that may be imposed thereon and that
could become a lien against the Trust Property and in a manner to stay or
prevent the sale, or other security reasonably satisfactory to Beneficiary; or
(iii) Grantor shall have provided a good and sufficient undertaking as may be
required or permitted by law to accomplish a stay of such proceedings; or (iv)
Grantor shall have paid such Impositions under protest and is suing to recover
any refunds thereof. Subject to the foregoing, and if Beneficiary shall so
request, within sixty days after the date when an Imposition is due and payable,
Grantor shall deliver to Beneficiary evidence reasonably acceptable to
Beneficiary showing the payment of such Imposition.
(c) Payment by Beneficiary. Beneficiary shall have the right, after
----------------------
demand to Grantor, to pay any Imposition after the date such Imposition shall
have become due, unless Grantor shall be contesting such Imposition pursuant to
Section 2.01(b) hereof, and to add to the Obligations the amount so paid,
- ---------------
together with interest thereon from the date of such payment at the Default Rate
of interest applicable under the Credit Agreement, and nothing herein contained
shall affect such right and such remedy. Any sums paid by Beneficiary in
discharge of any Impositions shall be (i) a future advance hereunder and a lien
on the Trust Property secured hereby prior to any
XII-3
<PAGE>
right or title to, interest in, or claim upon the Trust Property subordinate to
the lien of this Deed of Trust, and (ii) payable on demand.
(d) No Credit. Grantor shall not claim, demand or be entitled to
---------
receive any credit or credits towards the satisfaction of this Deed of Trust or
on any interest payable thereon for any taxes assessed against the Trust
Property or any part thereof, and shall not claim any deduction from the taxable
value of the Trust Property by reason of this Deed of Trust.
2.02 Mechanic's and Other Liens. Grantor will not suffer any
--------------------------
mechanic's, laborer's, materialmen's, statutory or other lien or any security
interest or encumbrance to be created or to remain outstanding (other than
Permitted Encumbrances).
2.03 Utilities. Grantor will pay, or cause to be paid, when due any
---------
charges for utilities, whether public or private, with respect to the Trust
Property or any part thereof.
2.04 Insurance.
---------
(a) Maintenance. Grantor will obtain and maintain insurance with
-----------
respect to the Trust Property in accordance with the provisions of the Credit
Agreement and the other Loan Documents. From and after the entry of judgment of
foreclosure, all rights and powers of Beneficiary to settle or participate in
the settlement of losses under policies of insurance or to hold and disburse or
otherwise control use of insurance proceeds shall continue in Beneficiary as
judgment creditor or mortgagee until confirmation of sale.
(b) Proceeds. If the Trust Property is materially damaged or
--------
destroyed, Grantor shall give prompt notice thereof to Beneficiary and all
insurance proceeds shall be delivered or applied in accordance with the
provisions of the Credit Agreement and the other Loan Documents.
2.05 Condemnation. If all or any part of the Trust Property shall be
------------
damaged, diminished in value or taken through condemnation proceedings, or if a
consent settlement is entered or a transfer is made under threat of such
proceedings, either temporarily or permanently, then any and all compensation,
awards and other payments or relief therefor to which Grantor is entitled shall
be applied in accordance with the provisions of the Credit Agreement and the
other Loan Documents.
2.06 Care of the Trust Property.
--------------------------
(a) Preservation and Maintenance. Grantor will preserve and maintain
----------------------------
the Trust Property in good condition and repair, will not commit or suffer any
waste thereof, and will keep the same in a clean, orderly and attractive
condition, making or causing to be made from time to time all needful or proper
replacements, repairs and renewals. Grantor will not abandon or leave the Trust
Property unprotected, unguarded, vacant or deserted. Grantor will not do or
suffer to be done anything that will materially increase the risk of fire or
other hazard to the Trust Property or any part thereof or take or omit to take
any action that will cause an increase in Beneficiary's fire insurance premiums.
(b) Notice of Damage. If the Trust Property or any part thereof is
----------------
materially damaged by fire or any other cause, Grantor will give prompt written
notice thereof to Beneficiary.
(c) Right to Inspect. Beneficiary or its representative is hereby
----------------
authorized, with reasonable advance notice to Grantor, to enter upon and inspect
the Trust Property at any time during normal business hours.
(d) Repair and Replacement. If all or any part of the Trust Property
----------------------
shall be damaged by fire or other casualty or condemnation, Grantor will
promptly restore the Trust Property to the equivalent of its condition
immediately before the occurrence of such casualty or condemnation.
XII-4
<PAGE>
ARTICLE III - ASSIGNMENT OF RENTS AND LEASES
3.01 Assignment of Rents and Leases. As additional consideration for
------------------------------
the Obligations, Grantor hereby absolutely assigns and transfers to Beneficiary
the following:
(a) all leases or subleases (if any) written or oral, now in
existence or hereafter arising and all agreements for the use and occupancy of
all or any portion of the Trust Property (the "LEASES");------
(b) any and all guaranties of the obligations of the tenants (the
"TENANTS") under any of such Leases; and
- --------
(c) the immediate and continuing right to collect and receive all of
the rents, income, receipts, revenues, issues and profits now due or that may
become due or to which Grantor may now or shall hereafter (whether during any
applicable period of redemption, or otherwise) become entitled or may demand or
claim, arising or issuing from or out of the Leases, or from or out of the Trust
Property or any part thereof (collectively, the "RENTS").
-----
3.02 Grantor's Limited License. Provided that no Event of Default
-------------------------
exists, Grantor shall have the right under a license granted hereby and
Beneficiary hereby grants to Grantor a license to collect, but not more than one
month in advance, all of the Rents arising from or out of the Leases or any
renewals or extensions thereof, or from or out of the Trust Property or any part
thereof, but only as trustee for the benefit of Beneficiary. Grantor shall apply
the Rents so collected first to payment of any and all amounts due and payable
under the Loan Documents. Thereafter, so long as no Event of Default exists and
no event has occurred that with notice, or lapse or time or both would
constitute an Event of Default, Grantor may use the Rents in any manner not
inconsistent with the Loan Documents. The license granted hereby shall be
revoked automatically upon the occurrence of an Event of Default.
3.03 Limitation. The acceptance by Beneficiary of the assignment
-----------
provided in this Article III, together with all of the rights, powers,
-----------
privileges and authority created in this Article III or elsewhere in this Deed
-----------
of Trust, shall not, prior to entry upon and taking possession of the Trust
Property by Beneficiary be deemed or construed to constitute Beneficiary a
"mortgagee in possession" nor thereafter or at any time or in any event obligate
Beneficiary to appear in or defend any action or proceeding relating to the
Leases, the Rents or the Trust Property or to take any action hereunder or to
expend any money or incur any expenses or perform or discharge any obligation or
responsibility for any security deposits or other deposits delivered to Grantor
by any Tenant and not assigned and delivered to Beneficiary, nor shall
Beneficiary be liable in any way for any injury or damage to person or property
sustained by any person or persons, firm or corporation in or about the Trust
Property.
ARTICLE IV - DEFAULT AND REMEDIES
4.01 Events of Default. Each of the following shall constitute an
-----------------
Event of Default ("EVENT OF DEFAULT"):
----------------
(a) Loan Documents. The occurrence of any Event of Default under, and
--------------
as defined in, any of the Loan Documents, including without limitation, the
Credit Agreement, which are incorporated herein by this reference.
(b) Other Defaults. The failure of Grantor to perform in any material
respect any covenant or agreement hereunder if such failure (i) would not, with
the giving of notice or the lapse of time or both, constitute an Event of
Default under Section 4.01(a) hereof and (ii) is not cured within 30 days after
---------------
such failure occurs.
4.02 Performance of Defaulted Acts. From and after the occurrence of
-----------------------------
an Event of Default, Beneficiary may, but need not, make any payment or perform
any act herein required of Grantor in any form and manner deemed expedient,
including, without limitation, making full or partial payments of principal or
interest on prior encumbrances, if any, and purchasing, discharging,
compromising or settling any tax lien or other prior lien or
XII-5
<PAGE>
title or claim thereof, or redeeming from any tax sale or forfeiture affecting
the Trust Property or contesting any tax or assessment. All moneys paid for any
of the purposes herein authorized and all expenses paid or incurred in
connection therewith, including reasonable attorneys' fees, shall be included
among the Obligations and shall be due and payable upon demand and with interest
thereon from the date of such payment or expense at the Default Rate. Inaction
of Beneficiary shall never be considered as a waiver of any right accruing to it
hereunder on account of any default on the part of Grantor. Beneficiary, making
any payment hereby authorized relating to taxes or assessments, may do so
according to any bill, statement or estimate procured from the appropriate
public office without inquiry into the accuracy of such bill, statement or
estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien
or title or claim thereof.
4.03 Foreclosure. When the Obligations shall become due whether by
-----------
acceleration or otherwise, Trustee shall have the right to foreclosure, in
either case in accordance with applicable law. If this Deed of Trust is
foreclosed by judicial procedure, Beneficiary will be entitled to a judgment
which will provide that if the foreclosure sale proceeds are insufficient to
satisfy the judgment, execution may issue for any amount by which the unpaid
balance of the obligations secured by this Deed of Trust exceeds the net sale
proceeds payable to Beneficiary. In the event of any foreclosure sale or
trustee's sale, to the extent permitted by applicable law, there shall be
allowed and included as part of the foreclosed indebtedness all expenditures and
expenses that may be paid or incurred by or on behalf of Beneficiary and/or
Trustee, as applicable, for court costs, fees of masters in chancery, reasonable
attorneys' fees (including charges for inside counsel), appraiser's fees,
outlays for documentary and expert evidence, stenographers' charges, publication
costs and costs (which may be estimated as to items to be expended after entry
of the decree) of procuring all such abstracts of title, title searches and
examinations, title insurance policies, Torrens certificates, and similar data
and assurances with respect to title as Beneficiary or Trustee, as applicable,
may deem to be reasonably necessary either to prosecute such suit or to evidence
to the holder at any foreclosure or trustee's sale the true conditions of the
title to or the value of the Trust Property. All expenditures and expenses of
the nature mentioned in this Section 4.03 shall become additional Obligations
------------
and shall be immediately due and payable, with interest thereon at the Default
Rate applicable under the Credit Agreement from and after an Event of Default
from and after the date when paid or incurred by Beneficiary or Trustee, as
applicable, in connection with (a) any proceeding, including probate and
bankruptcy proceedings, to which Beneficiary or Trustee, as applicable, shall be
a party, either as plaintiff, claimant or defendant, by reason of this Deed of
Trust or any of the Obligations; or (b) preparations for the commencement of any
suit for the foreclosure hereof after accrual of such right to foreclose whether
or not actually commenced; or (c) preparations for the defense of any threatened
suit or proceedings that might affect the Trust Property, whether or not
actually commenced.
4.04 Trustee's Sale
--------------
(a) Should Beneficiary elect to sell the Trust Property which is real
property pursuant to the power of sale granted hereby, upon such election,
Beneficiary or Trustee shall give such notice of an Event of Default and
election to sell as may then be required by law. Thereafter, upon the
expiration of such time and the giving and filing of such notice of sale as may
then be required by law, Trustee, at the time and place specified by the notice
of sale, shall sell such Trust Property or any portion thereof specified by
Beneficiary, at public auction to the highest bidder for cash in lawful money of
the United States, subject, however, to the provisions of Section 4.05 hereof.
------------
Trustee may, and upon request of Beneficiary shall, from time to time postpone
the sale by public announcement thereof at the time and place notified therefor.
If the Trust Property consists of several lots or parcels, Beneficiary may elect
to sell the Trust Property either as a whole or in separate lots or parcels. If
Beneficiary elects to sell in separate lots or parcels, Beneficiary may
designate the order in which such lots or parcels shall be offered for sale or
sold. Any person, including Grantor, Trustee or Beneficiary, may purchase at
the sale. To the extent permitted by law, upon any sale, Beneficiary shall
execute and deliver to the purchaser or purchasers a deed or deeds conveying the
property so sold, but without any covenant or warranty whatsoever, express or
implied, whereupon such purchaser or purchasers shall be let into immediate
possession.
(b) In the event of a sale or other disposition of the Trust
Property, or any part thereof, and the execution of a deed or other conveyance
pursuant thereto, the recitals therein of any facts, such as an Event of
Default, the giving of notice of such Event of Default and notice of sale,
demand that such sale should be made,
XII-6
<PAGE>
postponement of sale, terms of sale, sale, purchase, payments of purchase money,
and any other fact affecting the regularity or validity of such sale or
disposition shall be conclusive proof of the truth of such facts; and any such
deed or conveyance shall be conclusive against all persons as to such facts
recited therein.
4.05 Foreclosure Purchase. Upon any sale of the Trust Property,
--------------------
whether made under a power of sale herein granted or pursuant to judicial
proceedings, if the obligee under the Obligations is a purchaser at such sale,
it shall be entitled to use and apply all or any portion of the amounts then
secured hereby for or in settlement or payment of all or any portion of the
purchase price of the property purchased, and in such case, this Deed of Trust
and documents evidencing expenditures secured hereby shall be presented to the
person conducting the sale in order that the amount of said indebtedness so used
or applied may be credited thereon as having been paid.
4.06 Application of Proceeds of Foreclosure or Trustee's Sale. The
--------------------------------------------------------
proceeds of any foreclosure sale of the Trust Property shall be distributed and
applied in the following order or priority: first, on account of all costs and
expenses incident to the foreclosure proceedings, including all such items as
are mentioned in Sections 4.03 and 4.04 hereof; second, all other items that
------------- ----
under the terms hereof constitute Obligations in accordance with the Credit
Agreement or the other Loan Documents; and third, any excess to Grantor, its
successors and assigns, as their rights may appear.
4.07 Possession. Upon the occurrence of an Event of Default,
----------
Beneficiary shall, at its option, have the right, acting through its agents or
attorneys, to enter upon and take possession of the Trust Property, expel and
remove any persons, goods, or chattels, occupying or upon the same, and to
collect or receive all the rents, issues and profits thereof, and to manage and
control the same, and to lease the same or any part thereof from time to time,
and, after deducting all reasonable attorney's fees, and all reasonable expenses
incurred in the protection, care, maintenance, management and operation of the
Trust Property, apply the remaining net income upon the Obligations or upon any
deficiency decree entered in any foreclosure proceedings.
4.08 Appointment of Receiver. Upon the occurrence of an Event of
------------------------
Default, Beneficiary shall have the right to be placed in possession of the
Trust Property or at its request to have a receiver appointed, and such
receiver, or Beneficiary, if and when placed in possession, shall have, in
addition to any other powers provided in this Deed of Trust, all rights, powers,
immunities, and duties as provided by applicable law.
4.09 Rights Cumulative. No remedy or right of Beneficiary or Trustee
-----------------
shall be exclusive of, but each such remedy or right shall be in addition to,
every other remedy or right now or hereafter existing at law or in equity. No
delay in the exercise or omission to exercise of any remedy or right accruing on
any default shall impair any such remedy or right or be construed to be a waiver
of any such default or an acquiescence therein, nor shall it affect any
subsequent default of the same or a different nature. Every such remedy or right
may be exercised concurrently or independently, and when and as often as may be
deemed expedient by Beneficiary or Trustee, as applicable. Grantor agrees that
without affecting the liability of any person for payment of the Obligations or
affecting the lien of this Deed of Trust upon the Trust Property or any part
thereof Beneficiary may at any time and from time to time, on request of
Grantor, without notice to any person liable for payment of any Obligations,
extend the time or agree to alter the terms of payment of such indebtedness.
Acceptance by Beneficiary of any payment in an amount less than the amount then
due on the Obligations shall be deemed an acceptance on account only, and the
failure to pay the entire amount then due shall continue to be an Event of
Default. At any time thereafter and until the entire amount then due on the debt
has been paid, Beneficiary shall be entitled to exercise all rights conferred
upon it in this Deed of Trust upon the occurrence of an Event of Default.
4.10 Protective Advances. All advances, disbursements and expenditures
-------------------
made or incurred by Beneficiary or Trustee before and during a foreclosure, and
before and after judgment of foreclosure, and at any time prior to judicial or
nonjudicial sale, and, where applicable, after sale, and during the pendency of
any related proceedings, for the following purposes, in addition to those
otherwise authorized by this Deed of Trust or by applicable law (collectively
"PROTECTIVE ADVANCES"), shall have the benefit of all provisions of applicable
- --------------------
law and, to the extent permitted thereby, those provisions referred to below:
XII-7
<PAGE>
(a) all advances by Trustee or Beneficiary in accordance with the
terms of this Deed of Trust to: (i) preserve, maintain, repair, restore or
rebuild the improvements upon the Trust Property; (ii) preserve the lien of this
Deed of Trust or the priority hereof; or (iii) enforce this Deed of Trust;
(b) payments by Trustee or Beneficiary of: (i) principal, interest or
other obligations in accordance with the terms of any senior mortgage or other
prior lien or encumbrance on the Trust Property; (ii) real estate taxes and
assessments, general and special and other taxes and assessments of any kind or
nature whatsoever that are assessed or imposed upon the Trust Property or any
part thereof; (iii) other obligations authorized by this Deed of Trust; or (iv)
with court approval, any other amounts in connection with other liens,
encumbrances or interests reasonably necessary to preserve the status of title
to the Trust Property;
(c) advances by Beneficiary in settlement or compromise of any claims
asserted by claimants under senior mortgages or any other prior liens;
(d) reasonable attorneys' fees and other costs incurred: (i) in
connection with the judicial or nonjudicial foreclosure of this Deed of Trust;
(ii) in connection with any action, suit or proceeding brought by or against
Beneficiary for the enforcement of this Deed of Trust or arising from the
interest of Beneficiary hereunder; or (iii) in preparation for or in connection
with the commencement, prosecution or defense of any other action related to
this Deed of Trust or the Trust Property;
(e) Trustee's and Beneficiary's fees and costs, including reasonable
attorneys' fees, arising between the entry of judgment of foreclosure and the
confirmation hearing;
(f) expenses deductible from proceeds of sale;
(g) expenses incurred and expenditures made by Beneficiary for any one
or more of the following: (i) premiums for casualty and liability insurance paid
by Beneficiary whether or not Beneficiary or a receiver is in possession, if
reasonably required, in reasonable amounts, and all renewals thereof; (ii)
repair or restoration of damage or destruction in excess of available insurance
proceeds or condemnation awards; (iii) payments deemed by Beneficiary to be
required for the benefit of the Trust Property or required to be made by the
owner of the Trust Property under any grant or declaration of easement, easement
agreement, agreement with any adjoining land owners or instruments creating
covenants or restrictions for the benefit of or affecting the Trust Property;
and (iv) shared or common expense assessments payable to any association or
corporation in which the owner of the Trust Property is a member in any way
affecting the Trust Property.
All Protective Advances shall be additional Obligations secured by
this Deed of Trust, and shall become immediately due and payable upon demand and
with interest thereon from the date of the advance until paid at the Default
Rate. This Deed of Trust shall be a lien for all Protective Advances as to
subsequent purchasers and judgment creditors from the time this Deed of Trust is
recorded.
All Protective Advances shall, except to the extent, if any, that any
of the same is clearly contrary to or inconsistent with the applicable
provisions of law, apply to and be included in:
(a) any determination of the amount of indebtedness secured by this
Deed of Trust at any time;
(b) the indebtedness found due and owing to Beneficiary in the
judgment of foreclosure and any subsequent supplemental judgments, orders,
adjudications or finding by the court of any additional indebtedness becoming
due after such entry of judgment, it being agreed that in any foreclosure
judgment, the court may reserve jurisdiction for such purpose;
(c) if right of redemption has not been waived by this Deed of Trust,
computation of amounts required to redeem;
XII-8
<PAGE>
(d) determination of amounts deductible from sale proceeds;
(e) application of income in the hands of any receiver or mortgagee in
possession; and
(f) computation of any deficiency judgment pursuant to applicable law.
4.11 Environmental Matters.
---------------------
(a) Compliance. Grantor shall comply in all material respects with
----------
all local, state, and federal environmental laws, ordinances, rules,
regulations, and requirements (collectively, "ENVIRONMENTAL LAWS"). If Grantor
------------------
fails to so comply, after notice to Grantor and a reasonable opportunity to
comply, and if such failure by Grantor would constitute an Event of Default,
Beneficiary may (without limiting any other rights and remedies of Beneficiary)
protect its secured interest by causing the Trust Property to so comply at
Grantor's expense. Any amounts expended by Beneficiary to cause the Trust
Property to comply with Environmental Laws shall be paid by Grantor to
Beneficiary on demand, with interest on all such amounts expended from the date
of the expenditure until paid at the Default Rate.
(b) Hazardous Substances.
--------------------
(i) "HAZARDOUS SUBSTANCES" shall mean: (A) those substances included
--------------------
within the definitions of hazardous substances, hazardous materials, toxic
substances, or solid waste in CERCLA, RCRA, the Hazardous Materials
Transportation Act (49 U.S.C. Sections 1801 et seq.), or any other federal,
-- ---
state, or local laws, and in the regulations promulgated pursuant to said laws;
(B) those substances listed in the United States Department of Transportation
Table (49 C.F.R. 172.101 and amendments) or by the Environmental Protection
Agency (or any successor agency) as hazardous substances (40 C.F.R. Part 302 and
amendments); (C) such other substances, materials, and wastes that are or that
become regulated under Environmental Laws; and (D) any material, waste, or
substance that is (1) petroleum, (2) friable asbestos, (3) polychlorinated
biphenyls, (4) designated as a hazardous substance pursuant to Section 311 of
the Clean Water Act (33 U.S.C. Sections 1251 et seq.) or listed pursuant to
-- ---
Section 307 of the Clean Water Act (33 U.S.C. 1317); (5) flammable explosives;
or (6) radioactive materials.
(ii) Grantor shall promptly remove and clean up, or otherwise deal
with, any Hazardous Substances if any Environmental Laws so require except to
the extent that the failure to remove, clean up or otherwise deal with such
Hazardous Substances would not reasonably be expected to have a material adverse
effect upon the Trust Property. If Grantor fails to so comply after notice and a
reasonable opportunity to comply, Beneficiary may either declare this Deed of
Trust to be in default or protect its security interest by causing such
Hazardous Substances to be remediated to levels that are minimally acceptable to
all applicable regulators or agencies having jurisdiction over the Trust
Property at Grantor's expense.
(iii) Grantor shall keep the Trust Property free of (A) any Hazardous
Substances, if any Environmental Laws so require except to the extent that the
existence of such Hazardous Substances, would not reasonably be expected to have
a material adverse effect upon the Trust Property, and (B) any lien imposed
pursuant to any Environmental Laws.
(iv) Grantor shall notify Beneficiary immediately of Grantor's
discovery of (A) the presence or release of any Hazardous Substance
("CONTAMINATION") on the Trust Property or any property so situated as to pose a
-------------
material risk that such Hazardous Substance may spread onto the Trust Property
("ADJACENT PROPERTY") and/or (B) any past or present material violation of any
-----------------
Environmental Law on the Trust Property or any Adjacent Property.
XII-9
<PAGE>
(v) Grantor unconditionally assigns, transfers, and sets over to
Beneficiary all of Grantor's claims and rights to the payment of damages that
may arise from (A) any Contamination on the Trust Property caused by the spread
of such Contamination from any Adjacent Property and/or (B) the violation of any
Environmental Law on any Adjacent Property (the "ASSIGNED ENVIRONMENTAL
----------------------
RIGHTS"). Until the occurrence of an Event of Default, Grantor shall (without
- ------
limiting any other rights and remedies of Beneficiary) have the right to receive
such payments. If an Event of Default has occurred and is continuing,
Beneficiary shall have the right to elect either of the following options (which
election Beneficiary may change from time to time):
1. Beneficiary may proceed against the owner of such
Adjacent Property (or the receiver, trustee, custodian, or other
party) in Grantor's name or in Beneficiary's name as agent for
Grantor. Grantor agrees to cooperate with Beneficiary in such action
and shall execute any and all documents required in furtherance of
such action; or
2. At Beneficiary's option, Grantor may proceed in
Grantor's and Beneficiary's behalf in which event Beneficiary may
participate in any such proceedings and Grantor from time to time
shall deliver to Beneficiary all instruments that Beneficiary requests
or may require to permit such participation (provided that if the
original of any such instrument need not be delivered to Beneficiary
in order to permit such participation, Grantor may deliver to
Beneficiary a copy of the same).
However, Beneficiary shall not initiate such a proceeding, nor involve
itself in such an already existing proceeding, unless Grantor shall have failed
to proceed on Grantor's and Beneficiary's behalf promptly upon receiving notice
from Beneficiary to do so. Grantor shall, at its expense, diligently prosecute
any such proceedings, deliver to Beneficiary copies of all papers served in
connection with any such proceedings, and consult and cooperate with Beneficiary
and its respective attorneys and agents in carrying on the prosecution of any
such proceedings. Grantor shall not settle any such proceeding without
Beneficiary's consent, which consent shall not be unreasonably withheld. This
assignment constitutes a present, irrevocable, and unconditional assignment of
the foregoing claims, rights, and remedies, and shall continue in effect until
the Obligations have been satisfied in full. Any amounts that Beneficiary
receives as damages arising out of any Contamination of the Trust Property or
the violation of any Environmental Law on any Adjacent Property shall be applied
first to Beneficiary's costs and expenses incurred in connection with the
exercise of the Assigned Environmental Rights.
(c) Asbestos. Grantor shall not install nor permit to be installed on
--------
or in the Trust Property friable asbestos or any substance containing asbestos
and deemed hazardous by federal or state regulations respecting such material,
and with respect to any such material currently present on or in the Trust
Property shall promptly either (A) remove any material that such regulations
deem hazardous and require to be removed or (B) otherwise comply with such
federal and state regulations, at Grantor's expense. If Grantor shall fail to so
remove or otherwise comply, Beneficiary may, after notice to Grantor and a
reasonable opportunity to comply, do whatever is necessary to eliminate such
substances from the Trust Property to the extent required by applicable law or
otherwise comply with the applicable law, regulation, or order and the costs
thereof, together with interest thereon from the date of such payment at the
Default Rate, shall be added to the Obligations secured by this Deed of Trust.
Grantor shall give Beneficiary and its agents and employees access to the Trust
Property to remove, remediate, encapsulate or otherwise treat such asbestos or
substances. Grantor shall defend, indemnify and save Beneficiary harmless from
all costs and expenses (including consequential damages) asserted or proven
against Beneficiary by any party, as a result of the presence of such
substances, and any required removal or compliance with regulations. The
foregoing indemnification shall survive repayment of the Obligations.
(d) Environmental Inspections. Beneficiary may, at any time after the
-------------------------
occurrence of an Event of Default, enter the Trust Property to ascertain its
environmental condition and in so doing may sample
XII-10
<PAGE>
building materials, take soil samples, test borings and otherwise inspect the
Trust Property. The costs and expenses paid or incurred by Beneficiary in
connection with such inspections and activities shall be reimbursed by Grantor
and shall constitute additional Obligations secured by this Deed of Trust.
4.12 Multiple Collateral.
-------------------
(a) No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Trust Property or upon any property of
Grantor encumbered by any other Loan Document shall affect in any manner or to
any extent the lien of this Deed of Trust upon the Trust Property or any part
thereof, or any liens, rights, powers and remedies of Beneficiary shall continue
unimpaired.
(b) Grantor agrees that it shall not at any time insist upon, plead,
seek or in any manner whatever claim or take any benefit or advantage of a
judgment, declaration or a determination that:
(i) the Trust Property or any other property of Grantor
encumbered by a Loan Document represents, on an individual basis, an
allocable portion of the then outstanding aggregate principal amount of the
Obligations;
(ii) a surplus results from an action taken by Beneficiary
against the Trust Property or any other property of Grantor encumbered by a
Loan Document to recover the Obligations or any portion thereof, unless the
Obligations have been satisfied and paid in full;
(iii) The lien of this Deed of Trust or of any other Loan
Document has been released, unless the Obligations have been satisfied and
paid in full;
(iv) a deficiency judgment with respect to any action taken by
Trustee or Beneficiary against the Trust Property or any other property of
Grantor encumbered by a Loan Document extinguishes all or any portion of
the remaining Obligations, or precludes Trustee or Beneficiary from
proceeding against the Trust Property or to satisfy such remaining
Obligations; or
(v) Beneficiary's commencement, prosecution, or taking to
judgment of any action (including, without limitation, Beneficiary's
acceptance of a deed in lieu of foreclosure) or Beneficiary's application
for or use of any remedy (including, without limitation, the appointment of
a receiver for the Trust Property or any other property of Grantor
encumbered by a Loan Document) against the Trust Property or any other
property of Grantor encumbered by a Loan Document precludes or bars
Beneficiary (under a "single action" rule, "security first" rule or similar
------------- --------------
rule) from commencing, prosecuting or taking to judgment any other action
or applying for or using any remedy against the Trust Property or any other
property of Grantor encumbered by a Loan Document.
(c) Beneficiary may, at its option, in such order, and utilizing such
combinations of remedies with respect to the Trust Property and the other
property of Grantor encumbered by a Loan Document as Beneficiary shall so elect,
pursue its remedies against (i) the Trust Property, individually, or any other
property of Grantor encumbered by a Loan Document, individually, (ii) the Trust
Property and any combination of the other property of Grantor encumbered by a
Loan Document, (iii) the Trust Property and all of the other property of Grantor
encumbered by a Loan Document or (iv) all or any combination of the other
property of Grantor encumbered by a Loan Document, in separate proceedings or in
one proceeding in any order which Beneficiary deems appropriate.
XII-11
<PAGE>
ARTICLE V - GENERAL PROVISIONS
5.01 Release. Beneficiary shall cause the release of the lien hereof
-------
in accordance with the terms of the Loan Documents. Beneficiary shall have no
obligation to record any release or other instrument. All reconveyance fees and
costs shall be paid by Grantor.
5.02 Grantor. This Deed of Trust and all provisions hereof, shall
-------
extend to and be binding upon Grantor and all persons claiming under or through
Grantor and shall inure to the benefit of the Beneficiary's successors and
assigns and any successors and assigns of any party holding any interest in any
of the Obligations, as applicable. Whenever in this Deed of Trust there is
reference made to any of the parties hereto, such reference shall be deemed to
include, wherever applicable, a reference to the heirs, executors and
administrators or successors and assigns (as the case may be) of Grantor and
Beneficiary. Grantor's successors and assigns shall include, without
limitation, a receiver, trustee or debtor-in-possession of or for Grantor.
5.03 Waiver of Rights. To the extent permitted by applicable law,
----------------
Grantor waives and will not avail itself of any appraisement, valuation, stay,
moratorium, extension or exemption laws now existing or hereafter enacted and
waives any right to have the property comprising the Trust Property marshaled
upon any foreclosure and agrees that upon a foreclosure the Trust Property may
be sold as an entirety.
5.04 Additional Documents. Grantor agrees that upon request of
--------------------
Beneficiary it will from time to time execute, acknowledge and deliver all such
additional instruments and further assurances of title and will do or cause to
be done all such further acts and things as may be reasonably necessary fully to
effectuate the intent of this Deed of Trust.
5.05 Notices. All notices and other communications under this Deed of
-------
Trust shall be in writing, except as otherwise provided in this Deed of Trust. A
notice, if in writing, shall be considered as properly given if given in
accordance with the provisions of the Credit Agreement.
5.06 Governing Law. This Deed of Trust, the debts and obligations
-------------
secured hereunder, and all other obligations and agreements of the parties
hereunder, shall be governed by and construed in accordance with the laws of the
State of New York, subject only to those laws of the State of [_________] that
of necessity must apply to methods of foreclosure directly affecting interests
in the Trust Property.
5.07 Time of Essence. Time is of the essence of this Deed of Trust
---------------
and of every part hereof of which time is an element.
5.08 Severability. If any one or more of the provisions contained
------------
herein shall for any reason be held to be invalid, illegal or unenforceable in
any respect, such illegality or unenforceability shall, at the option of
Beneficiary, not affect any other provision hereof, but this Deed of Trust shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein.
5.09 Attorney's Fees. In the event suit or action is instituted in
---------------
connection with or to enforce any of the terms of this Deed of Trust or the
Credit Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys' fees (including charges for inside counsel) in bankruptcy
proceedings, at trial, on any appeal, and on any petition for review, in
addition to all other sums provided herein or by law.
5.10 Future Advances. Beneficiary may make advances pursuant to and
---------------
subject to the terms of the Credit Agreement, and the parties hereby acknowledge
and intend that all such advances, including future advances whenever hereafter
made, shall be a lien from the time this Deed of Trust is recorded.
5.11 Incorporation of Credit Agreement. The terms of the Credit
---------------------------------
Agreement are incorporated by reference herein as though set forth in full
detail. In the event of any conflict between the terms and provisions of this
Deed of Trust and the Credit Agreement, the terms and provisions of the Credit
Agreement shall control.
XII-12
<PAGE>
[5.12 Subordination. The lien of this Deed of Trust is subordinate
-------------
and subject to that certain Deed of Trust and Assignment of Rents, Leases and
Leasehold Interests by and between Grantor and Credit Suisse First Boston.]
[Signature page follows.]
XII-13
<PAGE>
IN WITNESS WHEREOF, Grantor has duly executed and delivered this Deed
of Trust as of the day and year first above written.
[PANOLAM INDUSTRIES, INC.] [PIONEER PLASTICS
CORPORATION], a Delaware corporation
By:____________________________
Name:__________________________
Title:_________________________
XII-1
<PAGE>
STATE OF __________)
) SS.
COUNTY OF _________)
BEFORE ME, a Notary Public, in and for said county and state,
personally appeared the above-named [PANOLAM INDUSTRIES, INC.] [PIONEER PLASTICS
CORPORATION], a Delaware corporation, by _________________, its __________, who
acknowledge that he/she did sign the foregoing instrument and that the same is
his/her free act and deed and the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal at
__________ this ____ day of ___________, 1999.
Notary Public
XII-2
<PAGE>
EXHIBIT XIV
FORM OF AMENDMENT TO US GUARANTY
[L&W MODIFYING FOR CANADIAN FACILITIES]
This Amendment to Guaranty (this "AMENDMENT"), dated as of [________],
---------
[____], relates to the Guaranty dated as of February 16, 1999, as amended,
amended and restated, modified and supplemented to date (as so amended, amended
and restated, supplemented or modified, the "GUARANTY"), among PANOLAM
--------
INDUSTRIES HOLDINGS, INC., a Delaware corporation, 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"), in favor of Credit Suisse
----------
First Boston, as Administrative Agent (in such capacity, together with any
successor appointed pursuant to Article VIII of the Credit Agreement referred to
below, the "ADMINISTRATIVE AGENT"), and the other Guaranteed Parties (as defined
--------------------
in the Guaranty).
In compliance with Section 6.01(n) of the Credit Agreement dated as of
February 16, 1999 (as amended, amended and restated, supplemented or otherwise
modified from time to time, the "CREDIT AGREEMENT") among the Borrower, the
----------------
Administrative Agent and the other financial institutions party thereto as
agents and lenders, and in conjunction with the execution of the Amendment to
Security Agreement dated of even date herewith, [NAME OF SUBSIDIARY], a
[_________] corporation (the "ADDITIONAL GUARANTOR"), hereby agrees as follows
--------------------
(capitalized terms used but not otherwise defined herein shall have the meanings
assigned to such terms in the Credit Agreement):
1. AMENDMENT. The Guaranty is hereby amended to add as a Guarantor
---------
thereunder the Additional Guarantor.
2. REPRESENTATIONS AND WARRANTIES. The Additional Guarantor
------------------------------
represents and warrants to the Administrative Agent and the Lenders that each of
the representations and warranties of a Guarantor contained in the Guaranty is
hereby made by the Additional Guarantor and is true and correct as to the
Additional Guarantor as of the date hereof.
3. ADDITIONAL GUARANTOR AS GUARANTOR. The Additional Guarantor (a)
---------------------------------
assumes all of the obligations and liabilities of a Guarantor under the
Guaranty, (b) makes all of the waivers and acknowledgments of a Guarantor under
the Guaranty, (c) agrees to be bound by the Guaranty as if the Additional
Guarantor were an original party to the Guaranty, and (d) shall be a Guarantor,
Credit Party and a Loan Party for all purposes under the Loan Documents.
4. EFFECTIVENESS. This Amendment shall become effective as of the
-------------
date hereof upon the execution hereof by the Additional Guarantor and delivery
hereof to, and acceptance hereof by, the Administrative Agent.
5. GOVERNING LAW. This Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York.
XIV-1
<PAGE>
[ADDITIONAL GUARANTOR]
By:___________________________
Title:
Notice Address:
______________________________
______________________________
Telecopier:____________
Telephone:_____________
Attention:____________________
ACCEPTED:
CREDIT SUISSE FIRST BOSTON,
as Administrative Agent
By:_____________________________________
Title:
XIV-2
<PAGE>
EXHIBIT XV
FORM OF AMENDMENT TO US SECURITY AGREEMENT
[L&W MODIFYING FOR CANADIAN FACILITIES]
This Amendment to Security Agreement (the "AMENDMENT"), dated as of
---------
__________, ____, relates to the Security Agreement dated as of February 16,
1999 as amended, amended and restated, modified and supplemented to date (as so
amended, amended and restated, supplemented and modified, the "AGREEMENT")
---------
executed by PANOLAM INDUSTRIES INTERNATIONAL, INC., a Delaware corporation with
an office at 20 Progress Drive, Shelton, Connecticut 06484 (the "BORROWER"),
--------
PANOLAM INDUSTRIES HOLDINGS, INC., a Delaware corporation with an office at 20
Progress Drive, Shelton, Connecticut 06484 ("HOLDINGS"), PANOLAM GROUP, INC., a
--------
Delaware corporation with an office at 20 Progress Drive, Shelton, Connecticut
06484 ("GROUP"), PII SECOND, INC., a Delaware corporation with an office at 20
-----
Progress Drive, Shelton, Connecticut 06484 ("PII SECOND"), PANOLAM INDUSTRIES,
----------
INC., a Delaware corporation with an office at 20 Progress Drive, Shelton,
Connecticut 06484 ("PANOLAM US"), PIONEER PLASTICS CORPORATION, a Delaware
----------
corporation with an office at 20 Progress Drive, Shelton, Connecticut 06484
("PIONEER"), and any future direct or indirect parent or subsidiary, if any, of
-------
the Borrower that would become a party to the Agreement as an additional Grantor
(as defined below), in favor of and for the benefit of CREDIT SUISSE FIRST
BOSTON, as administrative agent (in such capacity, together with any successor
in such capacity, the "ADMINISTRATIVE AGENT") for the Lender Parties (as defined
--------------------
in the Credit Agreement) that were or may thereafter become party to the Credit
Agreement (as hereinafter defined). Holdings, Group and PII Second are each
referred to herein as a "PARENT GRANTOR" and collectively as the "PARENT
-------------- ------
GRANTORS." Panolam US and Pioneer are each referred to herein as a "SUBSIDIARY
- -------- ----------
GRANTOR" and collectively as the "SUBSIDIARY GRANTORS." The Borrower, the
- ------- -------------------
Parent Grantors, the Subsidiary Grantors and any other Person agreeing to be
bound hereby as a Grantor are each individually referred to herein as a
"GRANTOR" and collectively as the "GRANTORS."
------- --------
In compliance with Section 6.01(n) of the Credit Agreement dated as of
February 16, 1999 (as amended, amended and restated, supplemented or otherwise
modified from time to time, the "CREDIT AGREEMENT," the terms defined therein
----------------
and not otherwise defined herein being used herein as therein defined) among the
Borrower, the Administrative Agent, DLJ Capital Funding, Inc., as syndication
agent, and the Lender Parties party thereto, and in conjunction with the
execution of the Amendment to Guaranty dated of even date herewith, [NAME OF
SUBSIDIARY] (the "ADDITIONAL GRANTOR") and the Administrative Agent hereby agree
------------------
as follows:
1. AMENDMENT. The Agreement is hereby amended to add as a party,
---------
and more specifically, as a Grantor thereunder, the Additional Grantor.
2. REPRESENTATIONS AND WARRANTIES. The Additional Grantor
------------------------------
represents and warrants to the Administrative Agent and the other Lender Parties
that each of the representations and warranties of a Subsidiary Grantor
contained in the Agreement is hereby
XV-1
<PAGE>
made by the Additional Grantor and is true and correct as to the Additional
Grantor. All capital stock owned or otherwise held by the Additional Grantor in
each Subsidiary, if any, of the Additional Grantor is set forth on the
supplement to Schedule I to the Agreement attached hereto.
3. GRANT OF SECURITY INTEREST. As security for the payment of the
--------------------------
Secured Obligations, the Additional Grantor hereby assigns to the Administrative
Agent for the ratable benefit of the Administrative Agent and the Lender
Parties, and grants to the Administrative Agent for the ratable benefit of the
Administrative Agent and the Lender Parties a continuing and first priority
security interest in, all of such Additional Grantor's right, title and interest
in and to the Collateral (as defined in the Agreement), whether now or hereafter
existing or owned by such Additional Grantor or in which such Additional Grantor
now owns or hereafter acquires an interest and wherever the same may be located.
4. SCHEDULE SUPPLEMENTS. The Additional Grantor has attached hereto
--------------------
supplements to Schedules I through VI to the Agreement, and the Additional
Grantor hereby certifies that such supplements have been prepared by the
Additional Grantor in substantially the form of the Schedules to the Agreement
and are accurate and complete as of the date first above written.
5. ASSUMPTION OF RIGHTS, OBLIGATIONS AND LIABILITIES. The
-------------------------------------------------
Additional Grantor assumes all of the rights, obligations and liabilities of a
Grantor under the Agreement and agrees to be bound thereby as if the Additional
Grantor were an original party to the Agreement.
6. EFFECTIVENESS. This Amendment shall become effective on the date
-------------
hereof upon the execution hereof by the Additional Grantor and the
Administrative Agent and delivery hereof to the Administrative Agent.
7. GOVERNING LAW. This Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York.
[ADDITIONAL GUARANTOR]
By:___________________________________
Title:
Notice Address:
________________________________________
________________________________________
Telecopier:___________________
Telephone:____________________
Attention:_______________________________
ACCEPTED:
CREDIT SUISSE FIRST BOSTON,
as Administrative Agent
XV-2
<PAGE>
By:_____________________________
Title:
XV-3
<PAGE>
EXHIBIT XVI
FORM OF INTERCREDITOR AGREEMENT
See attached.
XVI-1
<PAGE>
EXHIBIT XVII
FORM OF INTERCOMPANY NOTE/3/
INTERCOMPANY DEMAND PROMISSORY NOTE
Note Number: Dated: February 18, 1999
FOR VALUE RECEIVED, pursuant to this promissory note (this "PROMISSORY
----------
NOTE"), Panolam Industries International, Inc. ("PAYOR") promises to pay to
-----
the order of Panolam Industries Ltd. ("PAYEE"), on demand, in lawful money
-----
of [the United States of America] [Canada], in immediately available funds
and at the appropriate office of the Payee, the aggregate unpaid principal
amount of all loans and advances heretofore and hereafter made by Payee to
Payor now or hereafter owing by Payor to Payee as shown either on Schedule
A attached hereto (and any continuation thereof) or in the books and
records of Payee, which loans and advances constitute Designated
Intercompany Indebtedness (as hereinafter defined). Capitalized terms used
herein but not otherwise defined herein shall have the meanings given to
such terms in the Credit Agreement, dated as of February 18, 1999 (as
amended, restated, supplemented or otherwise modified from time to time,
the "CREDIT AGREEMENT"), among Panolam Industries Ltd., as Borrower (the
----------------
"BORROWER"), each financial institution and other entity from time to time
--------
party thereto as a lender or issuing bank (together with its successors and
permitted assigns pursuant to Section 9.07 of the Credit Agreement, each a
"LENDER PARTY"), Credit Suisse First Boston Canada, as an initial lender
------------
and as administrative agent for the Lenders (in such capacity, together
with any successor administrative agent appointed pursuant to Section 8.06
of the Credit Agreement, the "ADMINISTRATIVE AGENT"), and Royal Bank of
--------------------
Canada, as an initial lender and as Documentation Agent. This Promissory
Note evidences Designated Intercompany Indebtedness (as hereinafter
defined). For purposes hereof, the term "Designated Intercompany
Indebtedness" means (A) indebtedness in respect of any loan made directly
or indirectly by the Borrower or any of its Subsidiaries to the US Borrower
or any of its Domestic Subsidiaries, and (B) indebtedness in respect of any
loan made directly or indirectly by the US Borrower or any of its Domestic
Subsidiaries to another of the US Borrower's Domestic Subsidiaries or to
the US Borrower, respectively, with the proceeds of a loan made directly or
indirectly by the Borrower or any of its Subsidiaries to the US Borrower or
any of its Domestic Subsidiaries.
The unpaid principal amount hereof from time to time outstanding shall bear
interest at a rate equal to the rate as may be agreed upon from time to
time by the Payor and Payee or, at the Administrative Agent's option after
the occurrence and during the continuance of an Event of Default, at the
rate set forth in Section [2.05(e)(2)(a) (if the Note is denominated in
Canadian Dollars)] [2.05(e)(2)(b) (if the Note is denominated in US
Dollars)] of the Credit Agreement. Interest shall be due and payable on
the last day of each month commencing after the date hereof or at such
other times as may be agreed upon from time to time by the Payor and Payee.
Upon demand for payment of any principal amount hereof, accrued but unpaid
interest on such principal amount shall also be due and payable. Interest
shall be paid in lawful money of [the United States of America] [Canada]
and in immediately available funds. Interest shall be computed for the
actual number of days elapsed on the basis of a year consisting of 365 or
366 days, as
- ---------------------------
/3/ This form of Intercompany Note is to be used to evidence Designated
Intercompany Indebtedness owed to the Borrower by the US Borrower.
XVII-1
<PAGE>
the case may be. Payee shall not be entitled to any additional amounts or
indemnification in respect of any withholding taxes or other deductions
exigible on any interest payable hereunder in accordance with applicable
law.
Payor may repay all or any part of the principal amount hereof prior
to maturity without notice or penalty.
Payor and any endorser of this Promissory Note hereby waives presentment,
demand, protest and notice of any kind. No failure to exercise, and no
delay in exercising, any rights hereunder on the part of the holder hereof
shall operate as a waiver of such rights.
This Promissory Note has been pledged by Payee (i) to the Administrative
Agent, for the benefit of the Administrative Agent and the Lender Parties,
as security for Payee's Obligations, if any, under the Credit Agreement and
the other Loan Documents to which the Payee is a party, pursuant to the
terms of the Security Agreement to which the Payee is a party. Payor
acknowledges and agrees that the Administrative Agent may, to the extent
permitted under the Security Agreement to which Payee is party, exercise
all the rights of Payee under this Promissory Note and will not be subject
to any abatement, reduction, recoupment, defense, setoff or counterclaim
available to Payor.
If all or any part of the assets of Payor, or the proceeds thereof, are
subject to any distribution, division or application to the creditors of
Payor, whether partial or complete, voluntary or involuntary, and whether
by reason of liquidation, bankruptcy, arrangement, receivership, assignment
for the benefit of creditors or any other action or proceeding, or if the
business of Payor is dissolved or if (except as expressly permitted by the
Credit Agreement) substantially all of the assets of Payor are sold, then,
and in any such event, any payment or distribution of any kind or
character, either in cash, securities or other investment property or any
other property whatsoever, which shall be payable or deliverable upon or
with respect to any Debt of Payor to Payee ("PAYOR INDEBTEDNESS") shall be
------------------
paid or delivered directly to the Administrative Agent for application to
the Obligations of Payee in accordance with the terms of the Intercreditor
Agreement, until the later of the date on which such Obligations shall have
first been fully performed and paid in immediately available funds and the
Commitments under and as defined in the Credit Agreement shall have been
terminated. Payee irrevocably authorizes and empowers the Administrative
Agent, subject to the terms of the Security Agreement to which Payee is
party, to demand, sue for, collect and receive every such payment or
distribution and give acquittance therefor and to make and present for and
on behalf of Payee such proofs of claim and take such other action, in the
Administrative Agent's own name or in the name of Payee or otherwise, as
the Administrative Agent may deem necessary or advisable for the
enforcement of this Promissory Note. The Administrative may vote such
proofs of claim in any such proceeding, receive and collect any and all
dividends or other payments or disbursements made on Payor Indebtedness in
whatever form the same may be paid or issued and apply the same on account
of the Obligations of Payee in accordance with the terms of the
Intercreditor Agreement. Payee agrees that until the Obligations of have
been performed and paid in full in immediately available funds and the
Commitments have been terminated, Payee will not (i) assign or transfer to
any Person any claim Payee has or may have against any Payor, (ii) discount
or extend
XVII-2
<PAGE>
the time for payment of any Payor Indebtedness, or (iii) otherwise amend,
modify, supplement or waive any provision of this Promissory Note.
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS PROMISSORY NOTE AND
ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS PROMISSORY NOTE,
WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED
BY THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS) OF THE PROVINCE OF
ONTARIO. EACH PARTY HEREBY CONSENTS AND AGREES THAT THE COURTS LOCATED IN
THE PROVINCE OF ONTARIO SHALL HAVE NON-EXCLUSIVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIM OR DISPUTE PERTAINING TO THIS PROMISSORY NOTE.
This Promissory Note may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
IN WITNESS WHEREOF, Payor has caused this Demand Promissory Note to be
executed and delivered by its proper and duly authorized officer as of the
date set forth above.
PANOLAM INDUSTRIES INTERNATIONAL, INC.
By:___________________________________
Name:
Title:
By:___________________________________
Name:
Title:
XVII-3
<PAGE>
PANOLAM INDUSTRIES LTD.
By:____________________________
Name:
Title:
By:_____________________________
Name:
Title:
XVII-5
<PAGE>
FORM OF INTERCOMPANY NOTE/4/
INTERCOMPANY DEMAND PROMISSORY NOTE
Note Number: __________ Dated: February 18, 1999
FOR VALUE RECEIVED, each Loan Party which is a party to this promissory
note (the "PROMISSORY NOTE") promises to pay to the order of such other
---------------
Loan Party as makes loans to such Loan Party (each Loan Party which borrows
money pursuant to this Promissory Note is referred to herein as a "PAVOR"
-----
and each Loan Party which makes loans pursuant to this Promissory Note is
referred to herein as a "PAYEE"), on demand, in lawful money of the United
-----
States of America, in immediately available funds and at the appropriate
office of the Payee, the aggregate unpaid principal amount of all loans and
advances heretofore and hereafter made by such Payee to such Payor now or
hereafter owing by such Payor to such Payee as shown either on Schedule A
attached hereto (and any continuation thereof) or in the books and records
of such Payee, which loans and advances constitute Designated Intercompany
Indebtedness (as hereinafter defined). Capitalized terms used herein but
not otherwise defined herein shall have the meanings given to such terms in
the Credit Agreement, dated as of February 18, 1999 (as amended, restated,
supplemented or otherwise modified from time to time, the "CREDIT
------
AGREEMENT"), among Panolain Industries Ltd., as Borrower (the "BORROWER"),
--------
each financial institution and other entity from time to time party thereto
as a lender or issuing bank (together with its successors and permitted
assigns pursuant to Section 9.07 of the Credit Agreement, each a "LENDER
------
PARTY"), Credit Suisse First Boston Canada, as an initial lender and as
-----
administrative agent for the Lenders (in such capacity, together with any
successor administrative agent appointed pursuant to Section 8.06 of the
Credit Agreement, the "ADMINISTRATIVE AGENT"), and Royal Bank of Canada, as
--------------------
an initial lender and as Documentation Agent. This Promissory Note
evidences Designated Intercompany Indebtedness (as hereinafter defined).
For purposes hereof, the term "Designated Intercompany Indebtedness" means
(A) indebtedness in respect of any loan made directly or indirectly by the
Canadian Borrower or any of its Subsidiaries to the US Borrower or any of
its Domestic Subsidiaries, and (B) indebtedness in respect of any loan made
directly or indirectly by the US Borrower or any of its Domestic
Subsidiaries to another of the US Borrower's Domestic Subsidiaries or to
the US Borrower, respectively, with the proceeds of a loan made directly or
indirectly by the Canadian Borrower or any of its Subsidiaries to the US
Borrower or any of its Domestic Subsidiaries.
The unpaid principal amount hereof from time to time outstanding shall bear
interest at a rate equal to the rate as may be agreed upon from time to
time by the relevant Payor and Payee or, at the Administrative Agent's
option after the occurrence and during the continuance of an Event of
Default, at the Default Rate (as defined in the US Credit Agreement as in
effect on the Closing Date under the Credit Agreement). Interest shall be
due and payable on the last day of each month commencing after the date
hereof or at such other times as may be agreed upon from time to time by
the relevant Payor and Payee. Upon demand for payment of any principal
amount hereof, accrued but unpaid interest on such principal amount shall
also be due and payable. Interest shall be paid in lawful money of the
United States of America and in immediately available funds.
________________
/4/ This form of Intercompany Note is to be used to evidence Designated
Intercompany Indebtedness owed to the US Borrower or any of its Domestic
Subsidiaries by a Domestic Subsidiary or the US Borrower.
XVII-6
<PAGE>
Interest shall be computed for the actual number of days elapsed on the
basis of a year consisting of 365 or 366 days, as the case may be. None of
the Payees hereunder shall be entitled to any additional amounts or
indemnification in respect of any withholding taxes or other deductions
exigible on any interest payable hereunder in accordance with applicable
law.
Each Payor may repay all or any part of the principal amount hereof
prior to maturity without notice or penalty.
Each Payor and any endorser of this Promissory Note hereby waives
presentment, demand, protest and notice of any kind. No failure to
exercise, and no delay in exercising, any rights hereunder on the part of
the holder hereof shall operate as a waiver of such rights.
This Promissory Note has been pledged by each Payee (i) to the
Administrative Agent, for the benefit of the Administrative Agent and the
Lender Parties under and as defined in the Credit Agreement, as security
for such Payee's Obligations, if any, under the Credit Agreement, the
Guaranty and the other Loan Documents to which such Payee is a party, and
(ii) to the US Administrative Agent, for the benefit of the US
Administrative Agent and the lender parties under the US Credit Agreement,
as security for such Payee's Obligations (as defined in the US Credit
Agreement), if any, under the US Credit Agreement, the US Credit Agreement
Guaranty and the other US Loan Documents to which such Payee is a party, in
each case, pursuant to the terms of the Security Agreement to which such
Payee is a party. Each Payor acknowledges and agrees that the Acting
Administrative Agent under the Security Agreement to which any of its
Payees is party may, to the extent permitted under the Security Agreement
to which its Payee is party, exercise all the rights of such Payee under
this Promissory Note and will not be subject to any abatement, reduction,
recoupment, defense, set-off or counterclaim available to such Payor.
If all or any part of the assets of any Payor, or the proceeds thereof, are
subject to any distribution, division or application to the creditors of
any Payor, whether partial or complete, voluntary or involuntary, and
whether by reason of liquidation, bankruptcy, arrangement, receivership,
assignment for the benefit of creditors or any other action or proceeding,
or if the business of any Payor is dissolved or if (except as expressly
permitted by the Credit Agreement) substantially all of the assets of any
Payor are sold, then, and in any such event, any payment or distribution of
any kind or character, either in cash, securities or other investment
property or any other property whatsoever, which shall be payable or
deliverable upon or with respect to any Debt of such Payor to any Payee
("PAYOR INDEBTEDNESS") shall be paid or delivered directly to the Acting
------------------
Administrative Agent under the Security Agreement to which such Payee is
party for application to the Canadian Obligations (as defined in the
Intercreditor Agreement) and the US Obligations (as defined in the
Intercreditor Agreement) in accordance with the terms of the Intercreditor
Agreement, until the later of the date on which such obligations shall have
first been fully performed and paid in immediately available funds and the
Commitments under and as defined in each of the Canadian Credit Agreement
and the US Credit Agreement shall have been terminated. Each Payee
irrevocably authorizes and
XVII-7
<PAGE>
empowers the Acting Administrative Agent under the Security Agreement to
which such Payee is party, and subject to the terms thereof, to demand, sue
for, collect and receive every such payment or distribution and give
acquittance therefor and to make and present for and on behalf of such
Payee such proofs of claim and take such other action, in the Acting
Administrative Agent's own name or in the name of such Payee or otherwise,
as the Acting Administrative Agent may deem necessary or advisable for the
enforcement of this Promissory Note. The Acting Administrative Agent under
such Security Agreement may vote such proofs of claim in any such
proceeding, receive and collect any and all dividends or other payments or
disbursements made on Payor Indebtedness in whatever form the same may be
paid or issued and apply the same on account of the Canadian Obligations
(as defined in the Intercreditor Agreement) and the US Obligations (as
defined in the Intercreditor Agreement) in accordance with the terms of the
Intercreditor Agreement. Each Payee agrees that until the Canadian
Obligations (as defined in the Intercreditor Agreement) and the US
Obligations (as defined in the Intercreditor Agreement) in accordance with
the terms of the Intercreditor Agreement have been performed and paid in
full in immediately available funds and the Commitments under and as
defined in each of the Canadian Credit Agreement and the US Credit
Agreement have been terminated, such Payee will not (i) assign or transfer
to any Person any claim such Payee has or may have against any Payor, (ii)
discount or extend the time for payment of any Payor Indebtedness, or (iii)
otherwise amend, modify, supplement or waive any provision of this
Promissory Note.
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS PROMISSORY NOTE AND
ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS PROMISSORY NOTE,
WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED
BY THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS PROVISIONS OTHER THAN
THOSE CONTAINED IN NEW YORK GENERAL OBLIGATIONS LAW SECTION 5 1401) AND
DECISIONS OF THE STATE OF NEW YORK. EACH PARTY HEREBY CONSENTS AND AGREES
THAT THE COURTS LOCATED IN THE STATE OF NEW YORK SHALL HAVE NON-EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIM OR DISPUTE PERTAINING TO THIS
PROMISSORY NOTE.
From time to time after the date hereof, additional Subsidiaries of the
Loan Parties may become parties hereto by executing a counterpart signature
page to this Promissory Note (such additional Subsidiaries, each, an
"ADDITIONAL PAYOR"). Upon delivery of such counterpart signature page to
----------------
the Payees, notice of which is hereby waived by the other Payors, each
Additional Payor shall be a Payor and shall be as fully a party hereto as
if such Additional Payor were an original signatory hereof. Each Payor
expressly agrees that its obligations arising hereunder shall not be
affected or diminished by the addition or release of any other Payor
hereunder. This Promissory Note shall be fully effective as to any Payor
that is or becomes a party hereto regardless of whether any other Person
becomes or fails to become or ceases to be a Payor hereunder.
XVII-8
<PAGE>
This Promissory Note may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
[Signature Page Follows]
XVII-9
<PAGE>
IN WITNESS WHEREOF, each Payor has caused this Promissory Note to be
executed and delivered by its proper and duly authorized officer as of the
date set forth above.
PANOLAM INDUSTRIES INTERNATIONAL, INC.
By: ___________________________________
Name:
Title:
By: ___________________________________
Name:
Title:
PANOLAM INDUSTRIES, INC.
By: ___________________________________
Name:
Title:
By: ___________________________________
Name:
Title:
PIONEER PLASTIC CORPORATION
By: ___________________________________
Name:
Title:
By: ___________________________________
Name:
Title:
XVII-10
<PAGE>
ENDORSEMENT
FOR VALUE RECEIVED, each of the undersigned does hereby sell, assign and
transfer to ___________________________________________ all of its right,
title and interest in and to the Intercompany Demand Promissory Note dated
February 18, 1999 (the "PROMISSORY NOTE"), made by Panolam Industries
---------------
International, Inc. ("PANOLAM INTERNATIONAL"), and each other Domestic
---------------------
Subsidiary of Panolam International or any other Person that becomes a
party thereto, and payable to the undersigned. This endorsement is
intended to be attached to the Promissory Note and, when so attached, shall
constitute an endorsement thereof.
The initial undersigned shall be Panolam International and its Domestic
Subsidiaries party to the Credit Agreement on the date hereof From time to
time after the date hereof, additional Subsidiaries of those Loan Parties
may become parties to the Promissory Note (each, an "ADDITIONAL PAYEE") and
----------------
a signatory to this endorsement by executing a counterpart signature page
to the Promissory Note and to this endorsement. Upon delivery of such
counterpart signature pages to the Payors, notice of which is hereby waived
by the other Payees, each Additional Payee shall be a Payee and shall be as
fully a Payee under the Promissory Note and a signatory to this endorsement
as if such Additional Payee were an original Payee under the Promissory
Note and an original signatory hereof. Each Payee expressly agrees that
its obligations arising under the Promissory Note and hereunder shall not
be affected or diminished by the addition or release of any other Payee
under the Promissory Note or hereunder. This endorsement shall be fully
effective as to any Payee that is or becomes a signatory hereto regardless
of whether any other Person becomes or fails to become or ceases to be a
Payee to the Promissory Note or hereunder.
Dated: _____________________
PANOLAM INDUSTRIES INTERNATIONAL, INC.
By: ___________________________________
Name:
Title:
By: ___________________________________
Name:
Title:
XVII-11
<PAGE>
PANOLAM INDUSTRIES, INC.
By: ___________________________________
Name:
Title:
By: ___________________________________
Name:
Title:
PIONEER PLASTIC CORPORATION
By: ___________________________________
Name:
Title:
By: ___________________________________
Name:
Title:
XVII-12
<PAGE>
FORM OF INTERCOMPANY NOTE/5/
INTERCOMPANY SUBORDINATED DEMAND PROMISSORY NOTE
Note Number: _______ Dated: February 18, 1999
FOR VALUE RECEIVED, each Loan Party which is a party to this subordinated
promissory note (the "Promissory Note") promises to pay to the order of
such other Loan Party as makes loans to such Loan Party (each Loan Party
which borrows money pursuant to this Promissory Note is referred to herein
as a "Payor" and each Loan Party which makes loans pursuant to this
Promissory Note is referred to herein as a "Payee"), on demand, in lawful
money of the United States of America, in immediately available funds and
at the appropriate office of the Payee, the aggregate unpaid principal
amount of all loans and advances heretofore and hereafter made by such
Payee to such Payor and any other Debt now or hereafter owing by such Payor
to such Payee as shown either on Schedule A attached hereto (and any
continuation thereof) or in the books and records of such Payee.
Capitalized terms used herein but not otherwise defined herein shall have
the meanings ascribed such terms in the Credit Agreement, dated as of
February 18, 1999 (as amended, restated, supplemented or otherwise modified
from time to time, the "Credit Agreement"), among Panolam Industries
International, Inc., as Borrower (the "US Borrower"), each financial
institution from time to time party thereto (together with its successors
and permitted assigns pursuant to Section 9.07 of the Credit Agreement, a
"Lender Party"), DLJ Capital Funding, Inc., as syndication agent for the
Lenders, and Credit Suisse First Boston, as administrative agent for the
Lenders (in such capacity, together with any successor administrative agent
appointed pursuant to Section 8.06 of the Credit Agreement, the
"Administrative Agent"). Notwithstanding any contrary provision of this
Promissory Note, this Promissory Note shall not evidence any Designated
Intercompany Indebtedness (as hereinafter defined) or any Specified
Intercompany Debt (as hereinafter defined). For purposes hereof, (i) the
term "Designated Intercompany Indebtedness" means (A) indebtedness in
respect of any loan made directly or indirectly by the Canadian Borrower or
any of its Subsidiaries to the US Borrower or any of its Domestic
Subsidiaries, and (B) indebtedness in respect of any loan made directly or
indirectly by the US Borrower or any of its Domestic Subsidiaries to any of
their respective Domestic Subsidiaries or the US Borrower with the proceeds
of a loan made by the Canadian Borrower or any of its Subsidiaries to the
US Borrower or any of its Domestic Subsidiaries, and (ii) the term
"Specified Intercompany Debt" means the debt evidenced by that certain
promissory note of even date herewith executed by the Canadian Borrower in
favor of the US Borrower in the principal amount of [$10,000,000].
The unpaid principal amount hereof from time to time outstanding shall bear
interest at a rate equal to the rate as may be agreed upon from time to
time by the relevant Payor and Payee or, at the Administrative Agent's
option after the occurrence and during the continuance of an Event of
Default, at the Default Rate. Interest shall be due and payable on the
last day of each month commencing after the date hereof or at such other
times as may be agreed upon from time to time by the relevant Payor and
Payee. Upon demand
_______________________
/5/ This form of Intercompany Note is to be used to evidence indebtedness owed
by any of the Loan Parties to each other.
XVII-13
<PAGE>
for payment of any principal amount hereof, accrued but unpaid interest on
such principal amount shall also be due and payable. Interest shall be paid
in lawful money of the United States of America and in immediately
available funds. Interest shall be computed for the actual number of days
elapsed on the basis of a year consisting of 365 or 366 days, as the case
may be.
Each Payor and any endorser of this Promissory Note hereby waives
presentment, demand, protest and notice of any kind. No failure to
exercise, and no delay in exercising, any rights hereunder on the part of
the holder hereof shall operate as a waiver of such rights.
This Promissory Note has been pledged by each Payee (i) to the
Administrative Agent, for the benefit of the Administrative Agent and the
Lender Parties, as security for such Payee's Obligations, if any, under the
Credit Agreement, the Guaranty and the other Loan Documents to which such
Payee is a party, and (ii) to the Canadian Administrative Agent, for the
benefit of the Canadian Administrative Agent and the Lender Parties under
and as defined in the Canadian Credit Agreement (the "Canadian Lenders"),
as security for such Payees Obligations, if any, under the Canadian Credit
Agreement, the Canadian Credit Agreement Guarantee and the other Canadian
Loan Documents to which such Payee is a party, in each case pursuant to the
terms of the Security Agreement. Each Payor acknowledges and agrees that
the Acting Administrative Agent under the Security Agreement may exercise
all the rights of the Payees under this Promissory Note and will not be
subject to any abatement, reduction, recoupment, defense, setoff or
counterclaim available to such Payor.
Each Payee agrees that any and all claims of such Payee against the US
Borrower, or against any of its properties, shall be subordinate and
subject in right of payment to the prior performance and payment, in full
and in immediately available funds, of all Obligations of the US Borrower
under the Loan Documents (the "US Obligations"), all Obligations of the US
Borrower under the Canadian Loan Documents (the "Canadian Obligations") and
all Obligations of the US Borrower under the Subordinated Notes (the
"Subordinated Note Obligations" and, together with the US Obligations and
the Canadian Obligations, the "Senior Obligations") and termination of the
Commitments under and as defined in the US Credit Agreement and the
Canadian Credit Agreement; provided, that the US Borrower (and each other
Payor) may make payments to the applicable Payees at any time or times when
such Payor does not have any outstanding Obligations in respect of Loans or
other outstanding Senior Obligations which are then due and payable.
If all or any part of the assets of any Payor, or the proceeds thereof, are
subject to any distribution, division or application to the creditors of
any Payor, whether partial or complete, voluntary or involuntary, and
whether by reason of liquidation, bankruptcy, arrangement, receivership,
assignment for the benefit of creditors or any other action or proceeding,
or if the business of any Payor is dissolved or if (except as expressly
permitted by the Credit Agreement) substantially all of the assets of any
Payor are sold, then, and in any such event, any payment or distribution of
any kind or character, either in cash, securities or other investment
property or any other property whatsoever, which shall be payable or
deliverable upon or with respect to any Debt of such Payor to any
XVII-14
<PAGE>
Payee ("PAYOR INDEBTEDNESS") shall be paid or delivered directly to the
Acting Administrative Agent under the Security Agreement to which such
Payee is party for application to the Canadian Obligations (as defined in
the Intercreditor Agreement) and the US Obligations (as defined in the
Intercreditor Agreement) in accordance with the terms of the Intercreditor
Agreement, until the later of the date on which such obligations shall have
first been fully performed and paid in immediately available funds and the
Commitments under and as defined in each of the Canadian Credit Agreement
and the US Credit Agreement shall have been terminated. Each Payee
irrevocably authorizes and empowers the Acting Administrative Agent under
the Security Agreement to which such Payee is party, and subject to the
terms thereof, to demand, sue for, collect and receive every such payment
or distribution and give acquittance therefor and to make and present for
and on behalf of such Payee such proofs of claim and take such other
action, in the Acting Administrative Agent's own name or in the name of
such Payee or otherwise, as the Acting Administrative Agent may deem
necessary or advisable for the enforcement of this Promissory Note. The
Acting Administrative Agent under such Security Agreement may vote such
proofs of claim in any such proceeding, receive and collect any and all
dividends or other payments or disbursements made on Payor Indebtedness in
whatever form the same may be paid or issued and apply the same on account
of the Canadian Obligations (as defined in the Intercreditor Agreement) and
the US Obligations (as defined in the Intercreditor Agreement) in
accordance with the terms of the Intercreditor Agreement. Each Payee agrees
that until the Canadian Obligations (as defined in the Intercreditor
Agreement) and the US Obligations (as defined in the Intercreditor
Agreement) in accordance with the terms of the Intercreditor Agreement have
been performed and paid in full in immediately available funds and the
Commitments under and as defined in each of the Canadian Credit Agreement
and the US Credit Agreement have been terminated, such Payee will not (i)
assign or transfer to any Person any claim such Payee has or may have
against any Payor, (ii) discount or extend the time for payment of any
Payor Indebtedness, or (iii) otherwise amend, modify, supplement or waive
any provision of this Promissory Note.
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS PROMISSORY NOTE AND
ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS PROMISSORY NOTE,
WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED
BY THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS PROVISIONS OTHER THAN
THOSE CONTAINED IN NEW YORK GENERAL OBLIGATIONS LAW SECTION 5 1401) AND
DECISIONS OF THE STATE OF NEW YORK. EACH PARTY HEREBY CONSENTS AND AGREES
THAT THE COURTS LOCATED IN THE STATE OF NEW YORK SHALL HAVE NON-EXCLUSIVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIM OR DISPUTE PERTAINING TO THIS
PROMISSORY NOTE.
From time to time after the date hereof, additional Subsidiaries of the
Loan Parties may become parties hereto by executing a counterpart signature
page to this Promissory Note (such additional Subsidiaries, each, an
"ADDITIONAL PAYOR"). Upon delivery of such counterpart signature page to
the Payees, notice of which is hereby waived by the other Payors, each
Additional Payor shall be a Payor and shall be as fully a party hereto as
if such Additional Payor were an original signatory hereof. Each Payor
expressly agrees that its obligations arising hereunder shall not be
affected or diminished by the addition or release of any other Payor
hereunder. This Promissory Note shall be fully effective as to any Payor
that is or becomes a party hereto regardless of whether any other Person
becomes or fails to become or ceases to be a Payor hereunder.
XVII-15
<PAGE>
This Promissory Note may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
[Signature Page Follows]
XVII-16
<PAGE>
IN WITNESS WHEREOF, each Payor has caused this Promissory Note to be
executed and delivered by its proper and duly authorized officer as of the
date set forth above.
PANOLAM INDUSTRIES INTERNATIONAL, INC.
By:___________________________________
Name:
Title:
PANOLAM INDUSTRIES LTD.
By:___________________________________
Name:
Title:
PANOLAM INDUSTRIES HOLDINGS,INC.
By:____________________________________
Name:
Title:
PANOLAM GROUP,INC.
By:_____________________________________
Name:
Title:
PII SECOND,INC.
By:______________________________________
Name:
Title
XVII-17
<PAGE>
PANOLAM INDUSTRIES,INC.
By:______________________________________
Name:
Title
PIONEER PLASTIC CORPORATION
By:______________________________________
Name:
Title:
XVII-18
<PAGE>
ENDORSEMENT
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and transfer to
__________________________________________ all of its right, title and interest
in and to the Intercompany Demand Promissory Note dated February 18, 1999 (the
"PROMISSORY NOTE"), made by Panolam Industries International, Inc. ("PAYOR") and
---------------- -----
payable to the undersigned. This endorsement is intended to be attached to the
Promissory Note and, when so attached, shall constitute an endorsement thereof
The initial undersigned shall be the Loan Parties party to the Credit
Agreement on the date hereof. From time to time after the date hereof,
additional Subsidiaries of the Loan Parties may become parties to the Promissory
Note (each, an "Additional Payee") and a signatory to this endosrement by
executing a counterpart signature page to the Promissory Note and to this
endorsement. Upon delivery of such counterpart signature pages to the Payors,
notice of which is hereby waived by the other Payees, each Additional Payee
shall be a Payee and shall be as fully a Payee under the Promissory Note and a
signatory to this endorsement as if such Additional Payee were an original Payee
under the Promissory Note and an original signatory hereof. Each Payee expressly
agrees that its obligations arising under the Promissory Note and hereunder
shall not be affected or diminished by the addition or release of any other
Payee under the Promissory Note or hereunder. This endorsement shall be fully
effective as to any Payee that is or becomes a signatory hereto regardless of
whether any other Person becomes or fails to become or ceases to be a Payee to
the Promissory Note or hereunder.
Dated: _____________________
PANOLAM INDUSTRIES INTERNATIONAL,INC.
By:_____________________________________
Name:
Title:
XVII-19
<PAGE>
PANOLAM INDUSTRIES LTD.
By:_________________________________
Name:
Title
PANOLAM INDUSTRIES HOLDINGS, INC.
By:___________________________________
Name:
Title
PANOLAM GROUP, INC.
By:___________________________________
Name:
Title
PII SECOND, INC.
By:
---------------------------------------
Name:
Title
PANOLAM INDUSTRIES, INC.
By:____________________________________
Name:
Title
PIONEER PLASTIC CORPORATION
By:___________________________________
Name:
Title
XVII-20
<PAGE>
EXHIBIT X-A
FORM OF CANADIAN SECURITY AGREEMENT
This SECURITY AGREEMENT (as it may be amended, supplemented, restated or
otherwise modified from time to time, this "AGREEMENT") is dated as of
---------
February 18, 1999 and made by PANOLAM INDUSTRIES LTD., an Ontario
corporation with its principal place of business at Muskoka Road 3, Box
7500, Huntsville, Ontario P1H 2J7 (the "GRANTOR") in favour of and for the
-------
benefit of CREDIT SUISSE FIRST BOSTON CANADA, as administrative agent (in
such capacity, together with any successor in such capacity, the
"ADMINISTRATIVE AGENT") for the Lender Parties (as defined in the Credit
--------------------
Agreement (as hereinafter defined)) that are or may hereafter become party
to the Credit Agreement. The Administrative Agent and the Lender Parties
are each referred to herein as a "SECURED PARTY" and are collectively
-------------
referred to herein as the "SECURED PARTIES".
---------------
PRELIMINARY STATEMENTS
(1) The Lender Parties, the Administrative Agent, Royal Bank of Canada, for
itself as an Initial Lender and as Documentation Agent, the Grantor, as
borrower, and the other Loan Parties thereto have entered into a Credit
Agreement dated as of February 18, 1999 (said agreement, as it may
hereafter be amended, supplemented, restated or otherwise modified from
time to time, being the "CREDIT AGREEMENT".
----------------
(2) The Grantor is the owner of the shares (the "PLEDGED SHARES") of stock
--------------
and other certificated securities described in Part I of Schedule I hereto
----------
and issued by the Persons named therein and of the indebtedness described
in Part II of such Schedule I (the "PLEDGED DEBT") and issued by the
---------- ------------
obligors named therein.
(3) It is a condition precedent to the making of Loans by the Lender
Parties and the issuance of Letters of Credit by the Issuing Banks under
the Credit Agreement that the Grantor shall have granted the security
interest and made the pledge and assignment contemplated by this Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Grantor hereby agrees with the Administrative Agent for
its benefit and the ratable benefit of the Lender Parties as follows:
SECTION 1. DEFINITIONS.
(a) CERTAIN TERMS. Capitalized terms defined in the preamble and the
-------------
recitals to this Agreement have the meanings set forth therein.
Capitalized terms defined in the Credit Agreement and used and not
otherwise defined herein have the meanings assigned to such terms in the
Credit Agreement. As used in this Agreement, the following terms have the
meanings specified below:
"ACCOUNT COLLATERAL" has the meaning set forth in Section 2(a)(ix).
------------------
X-A-1
<PAGE>
"CASH COLLATERAL ACCOUNT" means any account established by the
-----------------------
Administrative Agent for purposes of holding any cash proceeds of
Collateral, insurance proceeds, amounts required to cash collateralize
Letters of Credit, Bankers' Acceptances or any other amounts deposited from
time to time by any Loan Party for purposes of, or otherwise held by the
Administrative Agent for purposes of, securing the Secured Obligations.
"COLLATERAL" has the meaning set forth in Section 2(a).
----------
"COPYRIGHTS" means all copyrights that the Grantor now or hereafter owns
----------
(whether registered or unregistered) in all Works, whether published or
unpublished, including, without limitation, those listed on Part I of
Schedule IV, all registrations and recordings thereof, and all applications
-----------
in connection therewith, including, without limitation, all registrations,
recordings and applications in the Canadian Intellectual Property Office or
in any similar office in any other country, and all renewals thereof.
"COPYRIGHT LICENSES" means all agreements, written or oral, providing for
------------------
the grant by or to the Grantor of any license with respect to a copyright,
including, without limitation, the agreements set forth on Part II of
Schedule IV.
-----------
"DESIGNS" means all industrial designs, design patents and other designs
-------
that the Grantor now or hereafter owns including, without limitation, those
listed on Part I of Schedule V, all registrations and recordings thereof,
----------
and all applications in connection therewith, including, without
limitation, all registrations, recordings and applications in the Canadian
Intellectual Property Office or in any similar office in any other country,
and all reissues, extensions, or renewals thereof.
"DESIGN LICENSES" means all agreements, written or oral, providing for the
---------------
grant by or to the Grantor of any right to use any design, including,
without limitation, the agreements set forth on Part II of Schedule V.
----------
"EXCLUDED ASSETS" means rights, licenses and franchises granted by any
---------------
governmental authority in which it is unlawful to create a Lien.
"INTELLECTUAL PROPERTY" means all Copyrights, Copyright Licenses, Designs,
---------------------
Design Licenses, Patents, Patent Licenses, Trademarks and Trademark
Licenses.
"LETTER OF CREDIT CASH COLLATERAL ACCOUNT" means a Cash Collateral Account
----------------------------------------
established for purposes of maintaining amounts deposited to cash
collateralize Letters of Credit.
"PATENTS" means all letters patent of invention that the Grantor now or
-------
hereafter owns in Canada or any other country and all registrations and
recordings thereof and all reissues and extensions thereof, including,
without limitation, any thereof referred to in Part I of Schedule II
-----------
hereto, and all applications for letters patent of invention in Canada or
any other country and all divisions, continuations and continuations-in-
part thereof, including, without limitation, any thereof referred to in
Part I of Schedule II hereto.
-----------
X-A-2
<PAGE>
"PATENT LICENSES" means all agreements, whether written or oral, providing
---------------
for the grant by or to the Grantor of any right to manufacture, use or sell
any invention covered by a patent, including, without limitation, any
thereof referred to in Part II of Schedule II.
-----------
"PPSA" means the Personal Property Security Act (Ontario) as amended from
----
time to time and any Act substituted therefor and amendments thereto.
"RELATED CONTRACTS" means all security agreements, leases and other
-----------------
contracts and agreements of every type included in the Collateral, whether
relating to an Account or otherwise.
"SECURED OBLIGATIONS" is defined in Section 2(b).
-------------------
"SECURITY COLLATERAL" has the meaning set forth in Section 2(a)(viii).
-------------------
"SOFTWARE" means all computer programs, databases and portions of each of
--------
the foregoing that the Grantor now or hereafter owns in whatever form and
on whatever medium those programs or databases are expressed, fixed,
embodied or stored from time to time including both the object code and
(except in respect of readily available commercial software) source code
versions of each such program and portions thereof and all corrections,
updates, enhancements, translations, modifications, adaptations and new
versions thereof together with the media upon or in which such programs,
databases and portions thereof are expressed, fixed, embodied or stored
(such as disks, diskettes, tapes and semiconductor chips) and all flow
charts, manuals, instructions, documentation and other material relating
thereto.
"SOFTWARE LICENSE" means all agreements, written or oral, providing for the
----------------
grant by or to the Grantor of any right to use, have access to or obtain
possession of, any software including, without limitation, any thereof
referred to in Schedule VI.
-----------
"TRADEMARKS" mean all trademarks, trade names, corporate names, business
----------
names, trade styles, service marks, logos, designs and other source or
business identifiers, and the goodwill associated therewith that the
Grantor now or hereafter owns, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in
connection therewith, whether in the Canadian Intellectual Property Office
or in any similar office in any other country, including, without
limitation, any thereof referred to in Part I of Schedule III, and all
------------
renewals thereof.
"TRADEMARK LICENSES" means all agreements, written or oral, providing for
------------------
the grant by or to the Grantor of any right to use any trademark,
including, without limitation, any thereof referred to in Part II of
Schedule III.
------------
"WORK" has the meaning set forth in Section 11(p).
----
(b) TERMS DEFINED IN THE PPSA. The terms "Account", "Goods", "Equipment",
-------------------------
"Instrument", "Intangible", "Security", "Accession", "Money", "Proceeds",
"financing statement" and "financing change statement" whenever used herein
shall be interpreted in
X-A-3
<PAGE>
accordance with their respective meanings given to them in the PPSA. The
term "Goods" when used herein shall not include "consumer goods" of the
Grantor as that term is defined in the PPSA.
GRANT OF SECURITY; SECURED OBLIGATIONS.
(a) As continuing collateral security for the due payment and performance
by the Grantor of all of the Secured Obligations, the Grantor hereby grants
to the Administrative Agent for itself and for the ratable benefit of the
Lender Parties a security interest in the undertaking of the Grantor and in
all of the Grantor's present and after acquired personal property
including, without limitation, in all Goods (including all parts,
accessories, attachments, special tools, additions and accessions thereto),
Chattel Paper, Documents of Title (whether negotiable or not), Instruments,
Intangibles, Money and Securities now owned or hereafter owned or acquired
by or on behalf of the Grantor (including such as may be returned to or
repossessed by the Grantor) and in all Proceeds and renewals thereof,
accretions thereto and substitutions therefor, and including, without
limitation, all of the following now owned or hereafter owned or acquired
by or on behalf of the Grantor:
(i) all Inventory of whatever kind and wherever situate;
(ii) all Equipment of whatever kind and wherever situate;
(iii) all Accounts and book debts and generally all debts, dues,
claims, choses in action and demands of every nature and kind
howsoever arising or secured including letters of credit and advices
of credit, which are now due, owing or accruing or growing due to or
owned by or which may hereafter become due, owing or accruing or
growing due to or owned by the Grantor ("DEBTS");
(iv) all deeds, documents, writings, papers, books of account
and other books relating to or being records of Debts, Chattel Paper
or Documents of Title or by which such are or may hereafter be
secured, evidenced, acknowledged or made payable;
(v) all contractual rights and insurance claims;
(vi) all Intellectual Property;
(vii) all of the following (the "SECURITY COLLATERAL"): all
-------------------
Securities, whether constituting certificated Securities or
uncertificated Securities, including specifically the Pledged Shares
described in Schedule I and all other Equity Interests, and all
----------
dividends, distributions, cash, instruments, rights and other property
or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged
Shares.
(viii) all of the following (the "ACCOUNT COLLATERAL"): (a) each
------------------
Cash Collateral Account, the Letter of Credit Cash Collateral Account,
all funds held therein and all certificates and instruments, if any,
from time to time representing or evidencing any Cash Collateral
Account or the Letter of Credit Cash Collateral Account, (b) all other
deposit accounts of the Grantor, all funds held therein and all
certificates and instruments, if any from time to time representing or
evidencing such deposit accounts, (c) all Pledged Debt described in
Schedule I and all notes, certificates of deposit, deposit
disbursement and operating accounts, cheques and other instruments
from time to time hereafter delivered to or otherwise possessed by the
Administrative Agent for or on behalf of the Grantor in substitution
for or in addition to any or all of the then existing Account
Collateral, and (d) all interest, dividends, cash, instruments and
other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the then
existing Account Collateral, EXCEPT AND EXCLUDING, HOWEVER, each item
of property that is an Excluded Asset, for as long as it remains an
Excluded Asset.
The foregoing undertaking and property are collectively referred to as
the "COLLATERAL". In addition, to secure the prompt and complete
payment, performance and observance of the Secured Obligations, the
Grantor hereby grants
X-A-4
<PAGE>
to the Administrative Agent, for itself and for the benefit of the Lender
Parties, a right of set-off against Collateral held by the Administrative
Agent or any Lender Party for any purpose.
Without limiting the foregoing, as continuing collateral security for the
due payment and performance by the Grantor of all the Secured Obligations
(as defined in Section 2(b) below), the Grantor hereby irrevocably pledges
and assigns to the Administrative Agent for itself and for the ratable
benefit of the Secured Parties all of the Security Collateral and Account
Collateral now owned or hereafter owned or acquired by or on behalf of the
Grantor.
(b) SECURITY FOR OBLIGATIONS. This Agreement secures with respect to the
------------------------
Grantor, and the Collateral of the Grantor is collateral security for, the
prompt payment and performance in full when due, whether on a specified
payment date, at stated maturity, by acceleration or otherwise of all
Obligations of the Grantor now or hereafter arising under, pursuant to or
in connection with the Loan Documents, whether for principal, interest
(including, without limitation, interest that, but for the commencement of
any case or proceeding in bankruptcy would accrue on such obligations),
fees, expenses or otherwise (all such Obligations being the "SECURED
-------
OBLIGATIONS"). Without limiting the generality of the foregoing, this
-----------
Agreement secures the payment of all amounts that constitute part of the
Secured Obligations and would be owed by the Grantor to the Secured Parties
under the Loan Documents but for the fact that they are unenforceable or
not allowable due to the existence of a bankruptcy, reorganization or
similar proceeding.
GRANTOR REMAINS LIABLE.
Anything herein to the contrary notwithstanding, (a) the Grantor shall
remain liable under the Related Contracts to the extent set forth therein
to perform all of its duties and obligations thereunder to the same extent
as if this Agreement had not been executed, (b) the exercise by the
Administrative Agent of any of the rights hereunder shall not release the
Grantor from any of its duties or obligations under the Related Contracts
and (c) neither the Administrative Agent nor any other Secured Party shall
have any obligation or liability under the Related Contracts by reason of
this Agreement, nor shall the Administrative Agent or any Lender Party be
obligated to perform any of the obligations or duties of the Grantor
thereunder, to take any action to collect or enforce any claim for payment
assigned hereunder, to make any payment or to make any inquiry as to the
nature or the sufficiency of any payment received by it or as to the
sufficiency of any performance by any party in respect of any Account or
any Related Contract.
DELIVERY OF SECURITY COLLATERAL AND ACCOUNT COLLATERAL.
In order to better perfect the Administrative Agent's security in the
Security Collateral, all certificates, if any, representing or evidencing
Security Collateral shall be registered in the name of the Administrative
Agent, or, at the Administrative Agent's option, in the name of its
nominee, and all notes or instruments which evidence Account Collateral
shall be duly endorsed in favour of the Administrative Agent, or, at the
Administrative Agent's option, the name of its nominee. All certificates
representing or evidencing Security Collateral and all notes or instruments
evidencing Account Collateral shall be delivered to and held by or on
behalf of the Administrative Agent pursuant hereto (a) on
X-A-5
<PAGE>
or prior to the Closing Date, with respect to such Collateral in existence
on the Closing Date, and (b) within three Business Days of the Grantor
obtaining rights thereto with respect to any other such Collateral. Grantor
shall cause any corporation whose Shares form part of the Pledged Shares to
record on its share register the Pledged Shares in the name of the
Administrative Agent, or, at the Administrative Agent's option, its nominee
and shall promptly deliver to the Administrative Agent following such
recordation a photocopy of the applicable share register to evidence such
registration. The Administrative Agent shall have the right, at any time in
its discretion and without notice to the Grantor, to transfer to or to
register in the name of the Administrative Agent or, at the Administrative
Agent's option, any of its nominees, any or all of the Account Collateral
or, in any case where the Administrative Agent has initially expressly
waived its rights set out in the first sentence of this Section 4, Security
Collateral, subject only to the revocable rights specified in Section
10(a). In addition, the Administrative Agent shall have the right at any
time to exchange certificates or instruments representing or evidencing
Security Collateral or Account Collateral for certificates or instruments
of smaller or larger denominations.
REPRESENTATIONS AND WARRANTIES.
The Grantor represents and warrants as follows:
(a) All of the Equipment, Inventory and records concerning Accounts are
located at the places specified in Schedule VIII hereto. The principal
-------------
place of business, chief executive office and domicile (within the meaning
of the Quebec Civil Code) of the Grantor and the office where the Grantor
keeps its records concerning the Accounts, and the original copies of the
Related Contracts and all originals of all Chattel Paper, are located at
the addresses so designated in Schedule VIII. All motor vehicles owned by
-------------
the Grantor are identified in Schedule VIII. Except for Intercompany
-------------
Notes, none of the Accounts or the Account Collateral is evidenced by a
promissory note or other Instrument.
(b) The correct legal name of the Grantor is Panolam Industries Ltd. (or
Panolam Industries Ltee. in the French language).
(c) The Grantor is the legal and beneficial owner of the Collateral free
and clear of any Lien, except for the security interests created by this
Agreement and Permitted Liens. No effective financing statement or other
instrument similar in effect covering all or any part of the Collateral is
on file in any recording office, except such as may have been filed in
favour of the Administrative Agent relating to this Agreement and except as
otherwise permitted under the Credit Agreement. The Grantor has the trade
names listed on Part I of Schedule III.
------------
(d) The Grantor has exclusive possession and control of the Equipment
constituting Collateral and Inventory constituting Collateral.
(e) The Pledged Shares have been duly authorized and validly issued and
are fully paid and non-assessable. The Pledged Debt has been duly
authorized, authenticated or
X-A-6
<PAGE>
issued and delivered, is the legal, valid and binding obligation of the
issuers thereof and is not in default.
(f) The Pledged Shares constitute the percentage of the issued and
outstanding shares of stock of the issuers thereof indicated on Schedule I.
----------
The Pledged Debt is, as of the date hereof, outstanding in the principal
amount indicated on Schedule I.
----------
(g) This Agreement, the pledge of the Security Collateral pursuant hereto
and the pledge and assignment of the certificates, if any, representing the
Account Collateral pursuant hereto create a valid and perfected first
priority security interest in such Collateral, securing the payment of the
Secured Obligations, and all filings and other actions necessary or
desirable to perfect and protect such security interests have been duly
taken. Upon the filing of financing statements under the PPSA in each of
the jurisdictions listed on Schedule VII with respect to the Grantor, which
------------
financing statements have been duly filed or executed in appropriate form
for filing and delivered to the Administrative Agent, the security interest
of the Administrative Agent in respect of all other Collateral will be
perfected to the extent a security interest in such Collateral may be
perfected by the filing of financing statements.
(h) No consent of any other Person and no authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body or other third party is required (i) for the grant by the
Grantor of the assignment and security interest granted or purported to be
granted hereby, for the pledge by the Grantor of the Security Collateral
pursuant hereto or for the execution, delivery or performance of this
Agreement by the Grantor, (ii) for the perfection or maintenance of the
pledge, assignment and security interest created or purported to be created
hereby (including the first priority nature of such pledge, assignment or
security interest), except for the filing of financing statements under the
PPSA in each of the jurisdictions listed on Schedule VII, which financing
------------
statements have been duly filed, and the recording of this Agreement in the
applicable intellectual property office, which Agreement has been duly
filed or executed in appropriate form for filing and delivered to the
Administrative Agent, or (iii) for the exercise by the Administrative Agent
of its voting or other rights provided for in this Agreement or the
remedies in respect of the Collateral pursuant to this Agreement, except as
may be required in connection with the disposition of any portion of the
Security Collateral by laws affecting the offering and sale of securities
generally.
(i) All Excluded Assets of the Grantor, the absence or termination of
which would have a Material Adverse Effect, are listed on Schedule IX.
FURTHER ASSURANCES.
(a) The Grantor agrees that from time to time, at the expense of the
Grantor, the Grantor will promptly execute and deliver all further
instruments and documents, and take all further action, that may be
necessary or desirable, or that the Administrative Agent may reasonably
request, in order to perfect and protect any pledge, assignment or security
interest granted or purported to be granted hereby, to enable the
Administrative Agent to exercise and enforce its rights and remedies
hereunder with respect to any
X-A-7
<PAGE>
Collateral or to create validly perfected security in any Collateral in any
jurisdiction in which this Agreement may not create such security. Without
limiting the generality of the foregoing, the Grantor will: (i) mark
conspicuously all Chattel Paper, and, at the request of the Administrative
Agent, each Related Contract and each of its records pertaining to the
Collateral with a legend, in form and substance satisfactory to the
Administrative Agent, indicating that such document, Chattel Paper, Related
Contract or Collateral is subject to the security interest granted hereby;
(ii) if any Collateral shall be evidenced by a promissory note or other
instrument, deliver and pledge to the Administrative Agent hereunder such
note or instrument duly endorsed or accompanied by duly executed
instruments of transfer or assignment, all in form and substance
satisfactory to the Administrative Agent; (iii) execute and deliver such
security documents as the Administrative Agent may reasonably request in
order to obtain the full benefit of the Loan Documents (including validly
created security on the Collateral) along with duly executed officer's
certificates and legal opinions in form and substance reasonably
satisfactory to the Administrative Agent; and (iv) execute and file such
financing or financing change statements, or amendments thereto, and such
other instruments or notices, as may be necessary or desirable, or as the
Administrative Agent may reasonably request, in order to perfect and
preserve the assignment, pledge and security interest granted or purported
to be granted hereby.
(b) The Grantor hereby authorizes the Administrative Agent to file one or
more financing or financing change statements, and amendments thereto,
relating to all or any part of the Collateral without the signature of the
Grantor where permitted by law. A photocopy or other reproduction of this
Agreement or any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement where permitted by
law.
(c) The Grantor will furnish to the Administrative Agent, upon the
reasonable request of the Administrative Agent, from time to time
statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral as the
Administrative Agent may reasonably request, all in reasonable detail.
AS TO EQUIPMENT AND INVENTORY.
The Grantor shall keep the Equipment and Inventory (other than Inventory
sold in the ordinary course of business) at the places therefor specified
in Section 5(a) or, upon 30 days' prior written notice to the
Administrative Agent, at such other places in a jurisdiction where all
action required by Section 6 shall have been taken with respect to the
Equipment and Inventory.
INSURANCE.
(a) The Grantor shall, at its own expense, maintain the insurance required
pursuant to the Credit Agreement and with such insurers, as shall be
reasonably satisfactory to the Administrative Agent from time to time.
Each policy for liability insurance shall provide for all losses to be paid
on behalf of the Administrative Agent (and the Lenders with respect to
Quebec coverages) and the Grantor as their interests may appear, and each
X-A-8
<PAGE>
policy for property damage insurance shall provide for all losses (except
for losses of less than US$10,000,000, or the Equivalent Amount thereof,
per occurrence) to be paid directly to the Administrative Agent in
accordance with Section 6.01(d) of the Credit Agreement. Each such policy
shall be subject to such loss payee endorsements and additional insured
provisions as the Administrative Agent may reasonably require (including,
without limitation, the Insurance Bureau of Canada's standard mortgage
clause and that the Lenders be named loss payees and additional insureds in
respect of Quebec coverages). The Grantor shall, if so requested by the
Administrative Agent, deliver to the Administrative Agent original or
duplicate policies of such insurance and, as often as the Administrative
Agent may reasonably request, a report of a reputable insurance broker with
respect to such insurance. Further, the Grantor shall, at the request of
the Administrative Agent, duly exercise and deliver instruments of
assignment of such insurance policies to comply with the requirements of
Section 6 and cause the insurers to acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by the Grantor
pursuant to this Section 8 may be paid directly to the Person who shall
have incurred liability covered by such insurance. In case of any loss
involving damage to Equipment or Inventory when subsection (c) of this
Section 8 is not applicable, the Grantor shall make or cause to be made the
necessary repairs to or replacements of such Equipment or Inventory, and
any proceeds of insurance maintained by the Grantor pursuant to this
Section 8 shall be paid to the Grantor as reimbursement for the costs of
such repairs or replacements in accordance with Section 6.01(d) of the
Credit Agreement.
(c) Upon the occurrence and during the continuance of any Event of Default
or the actual and constructive total loss of any Equipment or Inventory,
all insurance payments in respect of such Equipment or Inventory shall be
paid to and applied by the Administrative Agent as specified in Section
16(c).
PLACE OF PERFECTION; RECORDS; COLLECTION OF ACCOUNTS.
(a) The Grantor shall keep its principal place of business and chief
executive office and the office where it keeps its records concerning the
Collateral, and the original copies of the Related Contracts and all
originals of all Chattel Paper, at the locations therefor specified in
Section 5(a) or, upon 30 days' prior written notice to the Administrative
Agent, at such other locations in a jurisdiction where all actions required
by Section 6 shall have been taken with respect to the Collateral. The
Grantor will hold and preserve such records, Related Contracts and Chattel
Paper and will permit representatives of the Administrative Agent at any
time during normal business hours to inspect and make abstracts from such
records, Related Contracts and Chattel Paper.
(b) The Grantor will not change its name, identity or corporate structure
to such an extent that any financing statement filed by the Administrative
Agent in connection with this Agreement would become seriously misleading,
unless it shall have given the Administrative Agent at least 30 days' prior
written notice of such change and shall have taken any action required by
the Administrative Agent in connection therewith (including compliance with
the requirements of Section 6).
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<PAGE>
(c) Except as otherwise provided in this subsection (c), the Grantor shall
continue to collect, at its own expense, all amounts due or to become due
to the Grantor under the Accounts. In connection with such collections,
the Grantor may take (and, at the direction of the Administrative Agent,
acting reasonably, shall take) such action as the Grantor or the
Administrative Agent may deem necessary or advisable to enforce collection
of the Accounts; provided, however, that the Administrative Agent shall
-------- -------
have the right at any time after the occurrence and during the continuance
of an Event of Default, upon written notice to the Grantor of its intention
to do so, to notify the Obligors under any Accounts of the assignment of
such Accounts to the Administrative Agent and to direct such Obligors to
make payment of all amounts due or to become due to the Grantor thereunder
directly to the Administrative Agent and, upon such notification and at the
expense of the Grantor, to enforce collection of any such Accounts, and to
adjust, settle or compromise the amount or payment thereof, in the same
manner and to the same extent as the Grantor might have done. After
receipt by the Grantor of the notice from the Administrative Agent referred
to in the proviso to the preceding sentence, (i) all amounts and proceeds
-------
(including instruments) received by the Grantor in respect of the Accounts
shall be received in trust for the benefit of the Administrative Agent
hereunder, shall be segregated from other funds of the Grantor and shall be
forthwith paid over to the Administrative Agent in the same form as so
received (with any necessary or requested endorsement) and either (A)
released to the Grantor so long as no Default or Event of Default shall
have occurred and be continuing or (B) if any Default or Event of Default
shall have occurred and be continuing, applied as provided by Section 16(b)
and (ii) the Grantor shall not adjust, settle or compromise the amount or
payment of any Account, release wholly or partly any obligor thereof, or
allow any credit or discount thereon. At the Administrative Agent's
request the Grantor shall deliver to the Administrative Agent all original
and other documents evidencing, and relating to, the agreements and
transactions which gave rise to the Accounts, including, without
limitation, all original orders, invoices and shipping receipts.
VOTING RIGHTS; DIVIDENDS; ETC.
(a) So long as no Event of Default shall have occurred and be continuing:
(i) The Grantor shall be entitled to exercise any and all voting
and other consensual rights pertaining to the Security Collateral or
any part thereof for any purpose not inconsistent with the terms of
this Agreement or the other Loan Documents; provided, however, that
-------- -------
the Grantor shall not exercise or refrain from exercising any such
right if it could reasonably be expected to have a Material Adverse
Effect on the value of the Security Collateral or any part thereof or
adversely affect (A) the validity, perfection or priority of the
security interest and pledge granted or purported to be granted by
this Agreement or (B) the rights and remedies of the Administrative
Agent or the Secured Parties hereunder;
(ii) The Grantor shall be entitled to receive and retain any and
all dividends and interest paid in respect of the Security Collateral;
provided, however, unless the Credit Agreement expressly permits
-------- -------
otherwise, any and all
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<PAGE>
(A) dividends and interest paid or payable other than in
cash in respect of, and instruments and other property received,
receivable or otherwise distributed in respect of, or in exchange
for, any Security Collateral,
(B) dividends and other distributions paid or payable in
cash in respect of any Security Collateral in connection with a
partial or total liquidation or dissolution or in connection with
a reduction of capital, capital surplus or paid-in-surplus, and
(C) cash paid, payable or otherwise distributed in respect
of principal of, or in redemption of, or in exchange for, any
Security Collateral
shall be, and shall be forthwith delivered to the Administrative Agent
to hold as, Security Collateral and shall, if received by the Grantor,
be received in trust for the benefit of the Administrative Agent, be
segregated from the other property or funds of the Grantor and be
forthwith delivered to the Administrative Agent as Security Collateral
in the same form as so received (with any necessary or requested
endorsement).
(iii) The Administrative Agent shall execute and deliver (or
cause to be executed and delivered) to the Grantor all such proxies
and other instruments as the Grantor may reasonably request for the
purpose of enabling the Grantor to exercise the voting and other
rights that it is entitled to exercise pursuant to paragraph (i) above
and to receive the dividends or interest payments that it is
authorized to receive and retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuance of a Default or Event
of Default:
(i) All rights of the Grantor (x) to exercise or refrain from
exercising the voting and other consensual rights that it would
otherwise be entitled to exercise pursuant to Section 10(a)(i) shall,
upon notice to the Grantor by the Administrative Agent, cease and (y)
to receive the dividends and interest payments that it would otherwise
be authorized to receive and retain pursuant to Section 10(a)(ii)
shall automatically cease, and all such rights shall thereupon become
vested in the Administrative Agent, which shall thereupon have the
sole right to exercise or refrain from exercising such voting and
other consensual rights and to receive and hold as Security Collateral
such dividends and interest payments.
(ii) All dividends and interest payments that are received by
the Grantor contrary to the provisions of paragraph (i) of this
Section 10(b) shall be received in trust for the benefit of the
Administrative Agent and the Secured Parties, shall be segregated from
other funds of the Grantor and shall be forthwith paid over to the
Administrative Agent as Security Collateral in the same form as so
received (with any necessary or requested endorsement).
AS TO PATENTS, TRADEMARKS, COPYRIGHTS, DESIGNS AND SOFTWARE LICENSES.
(a) Schedule II includes all Patents and Patent Licenses on the date
-----------
hereof.
(b) Schedule III includes all Trademarks and Trademark Licenses on the
------------
date hereof.
(c) Schedule IV includes all Copyrights and Copyright Licenses on the
-----------
date hereof.
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<PAGE>
(d) Schedule V includes all Designs and Design Licenses on the date hereof.
----------
(e) Schedule VI includes all Software Licenses on the date hereof.
-----------
(f) Except as set forth on Schedule II, III, IV or V, to the best of the
-------------------------
Grantor's knowledge, each Patent, Trademark, Copyright and Design is on the
date hereof valid, subsisting, unexpired, enforceable and has not been
abandoned.
(g) Except as set forth in Schedule II, III, IV or V, none of such Patents,
-------------------------
Trademarks, Copyrights or Designs is on the date hereof the subject of any
licensing or franchise agreement.
(h) Except as set forth on Schedule II, III, IV or V, no holding, decision
-------------------------
or judgment has been rendered by any governmental authority which would
limit, cancel or question the validity of any Patent, Trademark, Copyright
or Design in any respect that could reasonably be expected to have a
Material Adverse Effect.
(i) Except as set forth on Schedule II, III, IV or V, no action or
-------------------------
proceeding is pending on the date hereof (i) seeking to limit, cancel or
question the validity of any Patent, Trademark, Copyright or Design, or
(ii) which, if adversely determined, would have a material adverse effect
on the value of any material Patent, Trademark, Copyright or Design.
(j) The Grantor (either itself or through licensees) will (i) continue to
use each material Trademark of the Grantor on each and every trademark
class of goods applicable to its current line as reflected in its current
catalogs, brochures and price lists in order to maintain such Trademark in
full force free from any claim of abandonment for non-use, (ii) maintain as
in the past the quality of products and services offered under such
material Trademark, (iii) when using such material Trademark, mark the
products and services with the appropriate notice of registration, (iv) not
adopt or use any mark which is confusingly similar or a colorable imitation
of such material Trademark unless the Administrative Agent, for the ratable
benefit of the Secured Parties, shall obtain a perfected first priority
security interest in such mark pursuant to this Agreement, and (v) not (and
not permit any licensee or sublicensee thereof to) do any act or knowingly
omit to do any act whereby such material Trademark may become invalidated.
(k) The Grantor will not do any act, or omit to do any act, whereby any
material Patent or Design may become abandoned or dedicated.
(1) The Grantor will notify the Administrative Agent and the Secured
Parties immediately if it knows, or has reason to know, that any
application or registration relating to any material Patent or Trademark or
Design may become abandoned or dedicated, or of any adverse determination
or development (including, without limitation, the institution of, or any
such determination or development in, any proceeding in the Canadian
Intellectual Property Office or in a similar office in any other country or
any court or tribunal in any country) regarding the Grantor's ownership of
any material Patent or Trademark or Design or its right to register the
same or to keep and maintain the same.
X-A-12
<PAGE>
(m) Whenever the Grantor, either by itself or through any agent, employee,
licensee or designee, shall file an application for the registration of any
Patent or Trademark or Design with the Canadian Intellectual Property
Office or any similar office or agency in any other country or any
political subdivision thereof, the Grantor shall report such filing to the
Administrative Agent and the Lender Parties within five Business Days after
the last day of the fiscal quarter in which such filing occurs. Upon
request of the Administrative Agent, the Grantor shall execute and deliver
any and all agreements, instruments, documents, and papers as the
Administrative Agent may reasonably request to evidence the Administrative
Agent's and the Secured Parties' security interest in any Patent or
Trademark or Design and the goodwill and general intangibles of the Grantor
relating thereto or represented thereby.
(n) The Grantor will take all reasonable and necessary steps, including,
without limitation, in any proceeding before the Canadian Intellectual
Property Office, or any similar office or agency in any other country or
any political subdivision thereof, to maintain and pursue each application
(and to obtain the relevant registration) and to maintain each registration
of the material Patents and Trademarks and Designs, including, without
limitation, filing of applications for renewal, affidavits of use and
affidavits of incontestability.
(o) In the event that any material Patent or Trademark or Design included
in the Collateral is infringed, misappropriated or diluted by a third
party, the Grantor shall (i) take such actions as the Grantor shall
reasonably deem appropriate under the circumstances to protect such Patent
or Trademark or Design and (ii) if such Patent or Trademark or Design is of
material economic value, promptly notify the Administrative Agent and the
Lender Parties after it learns thereof and sue for infringement,
misappropriation or dilution, to seek injunctive relief where appropriate
and to recover any and all damages for such infringement, misappropriation
or dilution.
(p) The Grantor (either itself or through licensees) will (i) employ the
appropriate notice of copyright for each published work which is or may be
subject to copyright protection under the Copyright Act (Canada), Title 17
of the U.S. Code and other similar legislation in any other country (each
such published work, a "WORK") to the extent necessary to protect the
----
Copyright relating to such Work and (ii) not (and not permit any licensee
or sublicensee thereof to) do any act or knowingly omit to do any act
whereby any material Copyright may become invalidated, except where the
failure to take any such action would not reasonably be expected to have a
Material Adverse Effect.
(q) The Grantor will not (either itself or through licensees) do any act,
or omit to do any act, whereby any material Copyright may become injected
into or fall into the public domain, except where such action or the
failure to take any such action would not have a Material Adverse Effect.
(r) The Grantor will notify the Administrative Agent immediately if it
knows, or has reason to know, that any material Copyright may become
injected into or fall into the public domain or of any adverse
determination or development (including, without limitation, the
institution of, or any such determination or development in, any
X-A-13
<PAGE>
proceeding in any court or tribunal in any country) regarding the Grantor's
ownership of any such Copyright or its validity and of any action the
Grantor is taking in respect of such event.
(s) Whenever the Grantor, either by itself or through any agent, employee,
licensee or designee, shall file an application for the registration of any
Copyright with the Canadian Intellectual Property Office or any similar
office in any other country or political subdivision thereof, the Grantor
shall report such filing to the Administrative Agent within five Business
Days after the last day of the fiscal quarter in which such filing occurs.
The Grantor shall execute and deliver any and all agreements, instruments,
documents and papers as shall be necessary or appropriate or as the
Administrative Agent reasonably may request to evidence the security
interest granted or purported to be granted to the Administrative Agent for
its benefit and the ratable benefit of the Secured Parties in such
Copyright and shall deliver to the Administrative Agent an officer's
certificate of the Grantor, in form and substance satisfactory to the
Administrative Agent as to compliance with this Section 11(s).
(t) The Grantor will take all reasonable and necessary steps, as it shall
deem appropriate under the circumstances, in accordance with its reasonable
business judgment, to maintain and pursue each application (and to obtain
the relevant registration) and to maintain to the extent permitted by law
each registration of each material Copyright owned by the Grantor
including, without limitation, filing of applications for renewal, where
necessary.
(u) The Grantor will promptly notify the Administrative Agent of any
material infringement of any material Copyright owned by it of which it
becomes aware and will take such actions as it shall reasonably deem
appropriate under the circumstances to protect such Copyright, including,
where appropriate in its reasonable business judgment, the bringing of suit
or the settling of actual or potential suits for infringement, seeking
injunctive relief and seeking to recover any and all damages for such
infringement.
TRANSFERS AND OTHER LIENS; ADDITIONAL SHARES.
(a) The Grantor shall not, except as otherwise permitted by the Credit
Agreement (i) sell, assign (by operation of law or otherwise) or otherwise
dispose of, or grant any option with respect to, any of the Collateral, or
(ii) create or suffer to exist any Lien upon or with respect to any of the
Collateral except for the pledges, assignments and security interests
created by this Agreement.
(b) The Grantor shall (i) cause each issuer of the Pledged Shares not to
issue any shares or other Securities in addition to or in substitution for
the Pledged Shares issued by such issuer, except to the Grantor, and (ii)
pledge hereunder, immediately upon its acquisition (directly or indirectly)
thereof, any and all additional shares of capital or other Securities of
each issuer of the Pledged Shares.
X-A-14
<PAGE>
ADMINISTRATIVE AGENT APPOINTED ATTORNEY-IN-FACT.
The Grantor hereby irrevocably appoints the Administrative Agent and any
officer or agent thereof, with full power of substitution, the Grantor's
attorney-in-fact, with full authority in the place and stead of the Grantor
and in the name of the Grantor or otherwise, from time to time in the
Administrative Agent's discretion, to take any action and to execute any
instrument that the Administrative Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation:
(a) to obtain and adjust insurance required to be paid to the
Administrative Agent pursuant to the Credit Agreement or Section 8,
(b) to ask for, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral,
(c) to receive, endorse and collect any drafts or other Instruments,
Documents of Title and Chattel Paper, in connection with clause (a) or (b)
above,
(d) in the case of any Patent, Trademark, Copyright or Design, execute and
deliver any and all agreements, instruments, documents, and papers as the
Administrative Agent may request to evidence the Administrative Agent's and
the Secured Parties' security interest in such Patent, Trademark, Copyright
or Design and the goodwill and general intangibles of the Grantor relating
thereto or represented thereby; and
(e) to file any claims or take any action or institute any proceedings that
the Administrative Agent may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce compliance with the terms
and conditions of any Related Contract or the rights of the Administrative
Agent with respect to any of the Collateral.
Anything in this Section 13 to the contrary notwithstanding, the Administrative
Agent agrees that it will not exercise any rights under the power of attorney
provided for in this Section 13 unless an Event of Default shall have occurred
and be continuing. The Grantor hereby ratifies all that said attorney shall
lawfully do or cause to be done by virtue hereof. All powers, authorizations
and agencies contained in this Agreement are coupled with an interest and are
irrevocable until this Agreement is terminated and the security interests
created hereby are released.
ADMINISTRATIVE AGENT MAY PERFORM.
If the Grantor fails to perform any agreement contained herein, the
Administrative Agent may itself perform, or cause performance of, such
agreement, and the expenses of the Administrative Agent incurred in
connection therewith shall be payable by the Grantor under Section 17(b).
THE ADMINISTRATIVE AGENT'S DUTIES.
The powers conferred on the Administrative Agent hereunder are solely to
protect its interest in the Collateral and shall not impose any duty upon
it to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the
X-A-15
<PAGE>
accounting for money actually received by it hereunder, the Administrative
Agent shall have no duty as to any Collateral , as to ascertaining or
taking action with respect to calls, conversions, exchanges, maturities,
tenders or other matters relative to any Security Collateral, whether or
not the Administrative Agent or any other Secured Party has or is deemed to
have knowledge of such matters, or as to the taking of any necessary steps
to preserve rights against any parties or any other rights pertaining to
any Collateral. The Administrative Agent shall be deemed to have exercised
reasonable care in the custody and preservation of any Collateral in its
possession if such Collateral is accorded treatment substantially equal to
that which the Administrative Agent accords its own property.
REMEDIES
If any Event of Default shall have occurred and be continuing:
(a) The Administrative Agent may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise
available to it, all the rights and remedies of a secured party under the
PPSA and other applicable laws and also may (i) require the Grantor to, and
the Grantor hereby agrees that it will at its expense and upon request of
the Administrative Agent forthwith, assemble all or part of the Collateral
as directed by the Administrative Agent and make it available to the
Administrative Agent at a place to be designated by the Administrative
Agent that is reasonably convenient to both parties and (ii) without notice
except as specified below, sell the Collateral or any part thereof in one
or more parcels at public or private sale, at any of the Administrative
Agent's offices or elsewhere, for cash, on credit or for future delivery,
and upon such other terms as the Administrative Agent may deem commercially
reasonable. The Grantor agrees that, to the extent notice of sale shall be
required by law, fifteen days' notice to the Grantor of the time and place
of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. The Administrative Agent shall
not be obligated to make any sale of Collateral regardless of notice of
sale having been given. The Administrative Agent may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned.
(b) The Administrative Agent may appoint or reappoint by instrument in
writing, any person or persons, whether an officer or officers or an
employee or employees of the Administrative Agent or not, to be a receiver
or receivers (hereinafter called a "RECEIVER", which term when used herein
shall include a receiver and manager) of Collateral (including any
interest, income or profits therefrom) and may remove any Receiver so
appointed and appoint another in his/her stead. Any such Receiver shall,
so far as concerns responsibility for his/her acts, be deemed the agent of
the Grantor and not of the Administrative Agent or any Lender Parties, and
neither the Administrative Agent nor any Lender Parties shall be in any way
responsible for any misconduct, negligence or non-feasance on the part of
any such Receiver, his/her servants, agents or employees. Subject to the
provisions of the instrument appointing him/her, any such Receiver shall
have power to take possession of Collateral, to preserve Collateral or its
value, to carry
X-A-16
<PAGE>
on or concur in carrying on all or any part of the business of the Grantor
and to sell, lease, license or otherwise dispose of or concur in selling,
leasing, licensing or otherwise disposing of Collateral. To facilitate the
foregoing powers, any such Receiver may, to the exclusion of all others,
including the Grantor, enter upon, use and occupy all premises owned or
occupied by the Grantor wherein Collateral may be situate, maintain
Collateral upon such premises, borrow money on a secured or unsecured basis
and use Collateral directly in carrying on the Grantor's business or as
security for loans or advances to enable the Receiver to carry on the
Grantor's business or otherwise, as such Receiver shall, in its discretion,
determine. Except as may be otherwise directed by the Administrative Agent,
all Money received from time to time by such Receiver in carrying out
his/her appointment shall be received in trust for and paid over to the
Administrative Agent. Every such Receiver may, in the discretion of the
Administrative Agent, be vested with all or any of the rights and powers of
the Administrative Agent. The Administrative Agent may, either directly or
through its agents or nominees, exercise any or all of the powers and
rights given to a Receiver by virtue of this Section 16.
(c) All cash proceeds received by the Administrative Agent in respect of
any sale of, collection from, or other realization upon all or any part of
the Collateral may, in the discretion of the Administrative Agent, be held
by the Administrative Agent as collateral for, and/or then or at any time
thereafter applied (after payment of any amounts payable to the
Administrative Agent pursuant to Section 17) in whole or in part by the
Administrative Agent for the ratable benefit of the Lender Parties against,
all or any part of the Secured Obligations in such order as the
Administrative Agent shall elect. Any surplus of such cash or cash proceeds
held by the Administrative Agent and remaining after payment in full of all
the Secured Obligations shall be paid over to the Grantor or to whomsoever
may be lawfully entitled to receive such surplus.
(d) The Administrative Agent may exercise any and all rights and remedies
of the Grantor under or in connection with the Related Contracts or
otherwise in respect of the Collateral, including, without limitation, any
and all rights of the Grantor to demand or otherwise require payment of any
amount under, or performance of any provision of, any Related Contract.
(e) All payments received by the Grantor under or in connection with any
Related Contract or otherwise in respect of the Collateral shall be
received in trust for the benefit of the Administrative Agent, shall be
segregated from other funds of the Grantor and shall be forthwith paid over
to the Administrative Agent in the same form as so received (with any
necessary or requested endorsement).
(f) The Administrative Agent may, without notice to the Grantor except as
required by law and at any time or from time to time, charge, set-off and
otherwise apply all or any part of the Secured Obligations against the
Letter of Credit Cash Collateral Account or any part thereof.
X-A-17
<PAGE>
INDEMNITY AND EXPENSES.
(a) The Grantor agrees to indemnify the Administrative Agent, and any
Receiver appointed by it, and each other Secured Party from and against any
and all claims, losses and liabilities growing out of or resulting from
this Agreement (including, without limitation, enforcement of this
Agreement), except to the extent such claims, losses or liabilities result
from the Administrative Agent's, Receiver's or Secured Parties' gross
negligence or willful misconduct as determined by a final judgment of a
court of competent jurisdiction.
(b) The Grantor agrees upon demand to pay to the Administrative Agent the
amount of any and all reasonable expenses, including the reasonable fees
and expenses of counsel and of any experts and agents, that the
Administrative Agent or its Receiver may incur in connection with (i) the
administration of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from or other realization upon,
any of the Collateral, (iii) the exercise or enforcement of any of the
rights of the Administrative Agent or any Secured Party hereunder or (iv)
the failure by the Grantor to perform or observe any of the provisions
hereof.
WAIVERS; DEFICIENCY.
The Grantor waives protest of any Instrument constituting Collateral at any
time held by Administrative Agent on which the Grantor is in any way
liable. The Grantor shall remain liable for any deficiency if the proceeds
of any sale or other disposition of the Collateral are insufficient to pay
the Secured Obligations and the fees and disbursements of legal counsel
employed by the Administrative Agent or any Secured Party to collect such
deficiency.
AMENDMENTS; WAIVERS; ETC.
Subject to the Intercreditor Agreement, no amendment or waiver of any
provision of this Agreement, and no consent to any departure by the Grantor
herefrom, shall in any event be effective unless the same shall be in
writing and signed by the Administrative Agent (with the consent or at the
direction of the Required Lenders or, if required pursuant to the Credit
Agreement, all Lender Parties), and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given. No failure on the part of the Administrative Agent to
exercise, and no delay in exercising any right hereunder, shall operate as
a waiver thereof; nor shall any single or partial exercise of any such
right preclude any other or further exercise thereof or the exercise of any
other right.
ADDRESSES FOR NOTICES.
All notices and other communications provided for hereunder shall be in
writing (including telecopier, telegraphic, telex or cable communication)
and, mailed, telegraphed, telecopied, telexed, cabled or delivered to the
Grantor or to the Administrative Agent, as the case may be, in each case
addressed to it at its address
X-A-18
<PAGE>
specified in the Credit Agreement or, as to any party, at such other
address as shall be designated by such party in a written notice to each
other party complying as to delivery with the terms of this Section 20. All
such notices and other communications shall, when mailed, telecopied,
telegraphed, telexed or cabled, respectively, be effective when deposited
in the mails, telecopied, delivered to the telegraph company, confirmed by
telex answerback or delivered to the cable company, respectively, addressed
as aforesaid.
CONTINUING SECURITY INTEREST; ASSIGNMENTS UNDER THE CREDIT AGREEMENT.
This Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and effect until the last to
occur of (i) the payment in full in cash of the Secured Obligations, (ii)
the Revolving Commitment Termination Date, (iii) the Term A Termination
Date, (iv) the Term B Termination and (v) the expiration or termination of
all Bank Hedge Agreements (as defined in the Credit Agreement), (b) be
binding upon the Grantor, its successors and assigns and (c) inure,
together with the rights and remedies of the Administrative Agent
hereunder, to the benefit of the Administrative Agent, the Secured Parties
and their respective successors, transferees and assigns. Without limiting
the generality of the foregoing clause (c), any Secured Party may assign or
otherwise transfer all or any portion of its rights and obligations under
this Agreement to any person to whom any portion of the Secured Obligations
is transferred in accordance with the Credit Agreement (including, without
limitation, all or any portion of its Commitments, the Loans owing to it
and the Note or Notes (if any) held by it to any other Person, and such
other Person shall thereupon become vested with all the benefits in respect
thereof granted to such Lender Party herein or otherwise, in each case to
the extent provided in Section 9.07 of the Credit Agreement.
X-A-19
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RELEASE AND TERMINATION.
(a) Upon any sale, lease, transfer or other disposition of any item of
Collateral permitted in accordance with the terms of the Loan Documents
(other than sales of Inventory in the ordinary course of business), the
Administrative Agent will, at the Grantor's expense, execute and deliver to
the Grantor such documents as the Grantor shall reasonably request to
evidence the release of such item of Collateral from the assignment and
security interest granted hereby; provided, however, that (i) at the time
of such request and such release no Event of Default shall have occurred
and be continuing, (ii) the Grantor shall have delivered to the
Administrative Agent, at least ten Business Days prior to the date of the
proposed release, a written request for release describing the item of
Collateral and the terms of the sale, lease, transfer or other disposition
in reasonable detail, including the price thereof and any expenses in
connection therewith, together with a form of release for execution by the
Administrative Agent and a certification by the Grantor to the effect that
the transaction is permitted in compliance with the Loan Documents and as
to such other matters as the Administrative Agent may request, (iii) the
proceeds of any such sale, lease, transfer or other disposition required to
be applied in accordance with Section 2.04 of the Credit Agreement shall be
paid to, or in accordance with the instructions of the Administrative
Agent.
(b) Subject to Section 22(c) below, upon the last to occur of (i) the
payment in full in cash of the Secured Obligations, (ii) the Revolving
Commitment Termination Date, (iii) the Term A Termination Date, (iv) the
Term B Termination Date, and (v) the expiration or termination of all Bank
Hedge Agreements (as defined in the Credit Agreement), the pledge,
assignment and security interest granted hereby shall terminate and all
rights to the Collateral shall revert to the Grantor. Upon any such
termination, the Administrative Agent will, at the Grantor's expense,
execute and deliver to the Grantor such documents as the Grantor shall
reasonably request to evidence such termination.
(c) This Agreement shall continue to be effective or be reinstated, as the
case may be, if at any time any amount received by the Administrative Agent
or any Secured Party in respect of the Secured Obligations is rescinded or
must otherwise be restored or returned by the Administrative Agent or any
Secured Party upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Grantor or any other Person or upon the appointment
of any Receiver, intervenor, conservator, trustee or similar official for
the Grantor or any other Person or any substantial part of its assets, or
otherwise, all as though such payments had not been made.
ACKNOWLEDGEMENT RESPECTING PLEDGE AND LIEN ON SHARES OF GRANTOR
The Grantor acknowledges that it has received a copy of the Security
Agreement dated as of the date hereof executed by all of the Loan Parties
other than the Grantor in favour of the Administrative Agent and the US
Administrative Agent (as amended, supplemented, restated and otherwise
modified from time to time, the "US SECURITY AGREEMENT") and the Grantor
---------------------
hereby acknowledges and consents to all provisions of the US Security
Agreement relating to all Security Collateral (as defined in the US
Security Agreement)
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<PAGE>
in the Grantor which is pledged, or in which a Lien is granted, to the
Administrative Agent.
SECURITY INTEREST ABSOLUTE.
The obligations of the Grantor under this Agreement are independent of the
Secured Obligations, and a separate action or actions may be brought and
prosecuted against the Grantor to enforce this Agreement, irrespective of
whether any action is brought to enforce the Secured Obligations or whether
the Grantor is joined in any such action or actions. All rights of the
Administrative Agent and the other Secured Parties and the pledge,
assignment and security interest hereunder, and all obligations of the
Grantor hereunder, shall be absolute and unconditional, irrespective of:
(a) any lack of validity or enforceability of any Loan Document or any
other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Secured Obligations or any other amendment or
waiver of or any consent to any departure from any Loan Document,
including, without limitation, any increase in the Secured Obligations
resulting from the extension of additional credit to the Grantor or any of
its Subsidiaries or otherwise;
(c) any taking, exchange, release or non-perfection of any other
collateral, or any taking, release or amendment or waiver of or consent to
departure from any guaranty, for all or any of the Secured Obligations;
(d) any manner of application of collateral, or proceeds thereof, to all or
any of the Secured Obligations, or any manner of sale or other disposition
of any collateral for all or any of the Secured Obligations or any other
assets of the Grantor or any of its Subsidiaries;
(e) any change, restructuring or termination of the corporate structure or
existence of the Grantor or any of its Subsidiaries or any Loan Party; or
(f) any other circumstance that might otherwise constitute a defense
available to, or a discharge of, the Grantor or a third party grantor of a
security interest.
GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario except to the extent that the validity or
perfection of the security interest hereunder, or remedies hereunder, in
respect of any particular Collateral are governed by the laws of a
jurisdiction other than the Province of Ontario.
X-A-21
<PAGE>
IN WITNESS WHEREOF, the Grantor has caused this Agreement to be duly
executed and delivered by its officer thereunto duly authorized as of the
date first above written.
PANOLAM INDUSTRIES LTD.
an Ontario corporation
By:_________________________________________
Name:
Title:
X-A-22
<PAGE>
EXHIBIT XIII-A
FORM OF OPINION OF BORROWER'S CANADIAN COUNSEL
34228
February , 1999
Credit Suisse First Boston Canada, as an - and -
Initial Lender and as
Administrative Agent Each of the US Lenders
One First Canadian Place party to the US Credit Agreement
Credit Agreement
Suite 3000, P.O. Box 301
Toronto, Ontario M5X 1C9 - and-
- - and- DLJ Capital Funding, Inc., as
Syndication Agent
Royal Bank of Canada, as an
Initial Lender and as - and-
Documentation Agent
1 Place Ville Marie McMillan Binch
8th Floor, East Wing Suite 3800, South Tower
Montreal, Quebec H3C 3A9 Royal Bank Plaza
Toronto, Ontario M5J 2J7
- - and-
- and-
Each of the other Initial Lenders party to
the Credit Agreement Latham & Watkins
633 West 5th Street
- - and - Suite 4000
Los Angeles, CA 90071-2007
Credit Suisse First Boston, as U.S.A.
US Administrative Agent
Dear Sirs:
PANOLAM INDUSTRIES LTD.
-----------------------
We have acted as counsel to Panolam Industries Ltd. (the "Borrower")
and Canadian counsel to Panolam Industries Holdings, Inc. ("Holdings"), Panolam
Group, Inc. ("Group"), PII
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Second, Inc. ("PII Second"), Panolam Industries International, Inc. ("Panolam
International"), Panolam Industries, Inc. ("Panolam U.S.") and Pioneer Plastics
Corporation ("Pioneer") (Holdings, Group, PII Second, Panolam International,
Panolam U.S. and Pioneer are collectively referred to as the "Guarantors" and
individually as a "Guarantor"), in connection with the credit agreement made as
of February 16, 1999 between the Borrower, the other Loan Parties signatory
thereto, the financial institutions and other entities listed on the signature
pages as initial Lenders ("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 (the "Credit
Agreement") and the transactions contemplated thereby. Unless otherwise
indicated, all capitalized terms used but not otherwise defined in this opinion
letter have the respective meanings given to them in the Credit Agreement.
In our capacity as counsel to the Borrower and the Guarantors, we have
participated in the preparation and settlement of the following documents (the
"Documents"), each of which is dated, unless otherwise specified, on or as of
February 16, 1999:
(a) the Credit Agreement;
(b) the Notes dated February , 1999;
(c) the Security Agreement made by the Borrower in favour of the
Administrative Agent;
(d) the Agreement Respecting Intellectual Property;
(e) the Charge/Mortgage of land made by the Borrower in favour of the
Administrative Agent (the "Charge/Mortgage");
(f) the general assignment of rents made by the Borrower in favour of the
Administrative Agent (the "Assignment of Rents");
(g) the intercompany subordinated demand promissory note of the Borrower
in favour of Panolam International in the principal amount of US$
(the "Borrower Note");
(h) the Intercreditor Agreement;
(i) the Acknowledgement Respecting Sales Agreements; and
(j) the confidential fee letter dated January 4, 1999 between DLJ Capital
Funding, Inc., Donaldson, Lufkin & Jenrette Securities Corporation,
Credit Suisse First Boston, Panolam International and the Borrower.
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<PAGE>
Items (a), (b), (c), (d), (e), (f) and (i) above are collectively
referred to below as the "Ontario Documents". The Documents other than the
Ontario Documents, together with the Guaranty and the US Security Agreement (as
hereinafter defined), are collectively referred to below as the "US Documents".
Items (a) and (c) above are referred to below as the "PPSA Security Documents".
Items (e) and (f) above are referred to below as the "Real Property Security
Documents".
We have also examined such corporate records of the Borrower,
including without limitation the unanimous shareholder agreement executed by
Panolam International in respect of the Borrower (the "USA"), such certificates
of officers of the Borrower and of other Loan Parties (copies of which have been
provided to you), public officials and others and originals, copies or
facsimiles of such other agreements, instruments, certificates and documents as
we have deemed necessary or advisable as a basis for the opinions expressed
below. In particular, as to certain matters of fact relevant to the opinions
expressed below, we have relied on a certificate of an officer of the Borrower,
a copy of which is attached hereto.
[We attended at the Land Registry Office for the Registry Division of
Muskoka (No. 35) on , 1999 and registered the Charge/Mortgage as Instrument No.
and the Assignment of Rents as Instrument No. .] In rendering the opinion below
in paragraph 6 as it relates to enforceability of the Real Property Security
Documents, we express no opinion as to title to the real property (the
"Huntsville Property") charged by the Charge/Mortgage and we have assumed that
the Borrower has good and marketable title to the Huntsville Property. In this
regard, we refer you to the lender's policies of title insurance dated February
, 1999 in respect of the Huntsville Property issued by First American Title
Insurance Company in favour of the Administrative Agent.
We have also examined the following materials in connection with the
opinions expressed below:
(a) a certificate with a currency date of February m, 1999 issued under
the Personal Property Security Act (Ontario) (the "PPSA") with respect
to the financing statement filed by or on behalf of the Administrative
Agent to perfect the security interests of the Administrative Agent
and the Lenders under the PPSA Security Documents under Reference File
No. 847650699 with Registration No. 990113 1721 1590 8915, as amended
by financing change statement Registration No. 990122 1452 1590 9085
and financing change statement Registration No. 990127 1734 1590 9174
(the "Financing Statement");
(b) for the purposes only of our opinions in paragraphs 16, 17 and 18
below, the US Credit Agreement;
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<PAGE>
(c) for the purposes only of our opinions in paragraphs 16, 17 and 18
below, the Guaranty; and
(d) for the purposes only of our opinions in paragraphs 11, 13, 14, 16, 17
and 18 below, the Security Agreement made by the Guarantors in favour
of the US Administrative Agent and the Administrative Agent (the "US
Security Agreement").
For the purposes of the opinions expressed below, we have, without
independent investigation or verification, assumed:
(a) the genuineness of all signatures, the legal capacity of all
individuals, the authenticity of all documents submitted to us as
originals and the conformity to authentic originals of all documents
submitted to us as certified or photostatic copies or as facsimiles;
(b) each of the Guarantors is a corporation incorporated and existing
under the laws of its jurisdiction of incorporation;
(c) each of the Guarantors has the corporate power to execute and deliver
each of the Ontario Documents to which it is a party and to perform
its obligations thereunder and, in the case of Panolam International,
to endorse the Pledged Shares (as hereinafter defined) and the
Borrower Note pursuant to the US Security Agreement(collectively, the
"Endorsements");
(d) all necessary corporate action has been taken by each of the
Guarantors to authorize the execution and delivery by it of each of
the Ontario Documents to which it is a party and the performance by it
of its respective obligations thereunder and, in the case of Panolam
International, the Endorsements;
(e) each of the Guarantors has duly executed and delivered each of the
Ontario Documents to which it is a party and Panolam International has
duly executed and delivered the Endorsements, under the laws of its
respective jurisdiction of incorporation and the laws of any
jurisdiction other than the Province of Ontario in which such
execution and/or delivery occurred;
(f) the execution, delivery and performance by any Guarantor of the Credit
Agreement and the other Documents to which it is a party and the
performance by it of its obligations thereunder and, in the case of
Panolam International, the Endorsements, do not contravene, result in
a breach of or constitute a default under (i) its articles or by-laws,
(ii) any resolution of its directors (or any committee of directors)
or shareholders or (iii) any laws of any jurisdiction other than the
Province of Ontario
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<PAGE>
in which any of the obligations of any Loan Party under any of the
Ontario Documents may be performed;
(g) each of the Documents has been duly authorized, executed and delivered
by, and constitutes a legal, valid, binding and enforceable obligation
of, each party thereto other than the Borrower or the Guarantors;
(h) each item of collateral referred to in the PPSA Security Documents
exists or, in the case of after-acquired property, will exist, and the
Borrower has or, in the case of after-acquired property, will have
sufficient rights in each such item for the security interest of the
Administrative Agent to attach;
(i) none of the Collateral constitutes consumer goods within the meaning
of the PPSA; and
(j) the US Security Agreement (i) constitutes a legal, valid, binding and
enforceable obligation of Panolam International, (ii) creates a
security interest in favour of the Administrative Agent for the
rateable benefit of the Administrative Agent and the Lenders in all
the issued and outstanding shares of the capital of the Borrower (the
"Pledged Shares"), (iii) subject to the security interest referred to
in (ii) above and the Intercreditor Agreement, creates a security
interest in favour of the US Administrative Agent for the rateable
benefit of the US Administrative Agent and the US Lenders in 65% of
the Pledged Shares and (iv) creates a security interest in the
Borrower Note, on the terms set out therein and in the Intercreditor
Agreement.
We understand you will receive an opinion of Brobeck, Phleger &
Harrison LLP dated this date in respect of items (b) through (f) and (j) above.
The opinions expressed below are also subject to the following
limitations, qualifications and restrictions:'
(a} the enforceability of the Ontario Documents is subject to bankruptcy,
insolvency and other laws affecting the rights of creditors generally;
(b) equitable remedies, including, without limitation, specific
performance and injunction, may be granted only in the discretion of a
court of competent jurisdiction;
(c) the costs of and incidental to all proceedings authorized to be taken
in court or before a judge are in the discretion of the court or a
judge, and the court or judge has full power to determine by whom and
to what extent such costs shall be paid;
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<PAGE>
(d) a judgment of a Canadian court may be awarded only in Canadian
currency(provided, however, that an Ontario court would give effect to
Section 9.12 of the Credit Agreement in accordance with subsection 121
(4) of the Courts of Justice Act(Ontario));
(e) if the Administrative Agent or the Lenders declare any of the
indebtedness of the Borrower under the Ontario Documents to be
forthwith due and payable by reason of the occurrence of an Event of
Default or demand repayment of any indebtedness of the Borrower
expressed to be payable on demand under the Ontario Documents, the
Administrative Agent or the Lenders may be required to give the
Borrower a reasonable time to pay such indebtedness prior to taking
any action to enforce their right to repayment or before exercising
any of the rights and remedies available to the Administrative Agent
or the Lenders as a result of the occurrence of such Event of Default
or as a result of such demand, as the case may be;
(f) the Ontario Documents may be unenforceable to the extent that a court
determines that an amount payable under the Ontario Documents
constitutes a penalty and not a reasonable pre-estimate of damages;
(g) as to the ranking or priority of any of the security interests or
charges created by the PPSA Security Documents in the Collateral, or
(ii) as to the right, title and interest of any person in and to any
real or personal property;
(h) the enforceability of any provision of any of the Ontario Documents
exculpating a person from a liability or duty otherwise owed by it,
waiving legal and equitable defences, agreeing not to challenge the
validity or enforceability of remedies or that provides that a
determination or calculation made by a person is conclusive and
binding on any other person may be limited by law;
(i) notwithstanding that provisions of the Ontario Documents provide that
any receiver appointed under such Ontario Documents shall for all
purposes deemed to be the agent of the Borrower and not the agent of
the Administrative Agent or any of the Lenders, in certain
circumstances the receiver may be held by a court to be acting as an
agent of the Administrative Agent or of the Lenders and not the
Borrower;
(j) no opinion is expressed as to whether the Ontario Documents comply
with Part VII of the Financial Administration Act (Canada) in respect
of any assignment of Crown debts (as defined in such Act) and, to our
knowledge, no steps have been taken to provide the notices or obtain
the acknowledgements provided for in Part VII of that Act. An
assignment of Crown debts to which Part VII of that Act applies that
does
XIIIA-6
<PAGE>
not comply with, that Act is ineffective as between assignor and
assignee and as against the Crown and therefore the Administrative
Agent and the Lenders would not have a valid assignment of such Crown
debts and the Ontario Documents may not create an effective security
interest in such Crown debts unless that Act is complied with;
(k) insofar as any of the security provided for in the PPSA Security
Documents consists of a mortgage, pledge, charge or assignment of or
upon any lease, agreement or other-document or any rent, income or
other interest derived from any lease, agreement or other document,
our opinion pertaining thereto is subject to the qualification that
notice of such security interest may have to be given to the obligor
thereunder, and further that the party intended to be secured thereby
may be affected by the equities between the immediate parties thereto;
(l) while registration of a financing statement pursuant to the PPSA may
perfect a security interest in the trade-marks, patents, copyrights
and industrial designs of the Borrower, the security interest therein
may be subject to the interest of a third party who registers a
transfer or assignment of a trade-mark, patent, copyright or
industrial design of the Borrower, or of an interest therein, pursuant
to the applicable federal statute governing such property, unless the
interest of the Administrative Agent and the Lenders has been
registered by way of a transfer or assignment pursuant to such statute
prior to the registration made by such third party;
(m) the exercise of certain remedies provided in the Documents may be
affected by the provisions of Part V of the PPSA, but such provisions
do not make the Documents legally inadequate for the practical
realization of the principal benefits of the security purported to be
provided thereby;
(n) no opinion is given as to whether it may be necessary, in connection
with the enforcement of any of the PPSA Security Documents, for any
person proposing to acquire or own all or any part of the Collateral
to obtain any licence, franchise, permit, consent, approval,
registration or other authorization or exemption;
(o) [other than with respect to the Huntsville Property against which the
Administrative Agent has registered the Real Property Security
Documents,] if the collateral subject to the security interest granted
under the PPSA Security Documents includes fixtures or goods that may
become fixtures or rights to payment under a lease, mortgage or charge
of real property to which the PPSA applies, a notice in the prescribed
form under the PPSA must be registered in the appropriate land
registry office in order to preserve the priority of the security
interest in relation to the rights of other persons with interests in
the real property;
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<PAGE>
(p) where the collateral under the PPSA Security Documents includes a
motor vehicle classified as equipment of the Borrower (other than a
motor vehicle, the vehicle identification number of which is set out
in the Financing Statement) that is sold by the Borrower out of the
ordinary course of business, the buyer of such motor vehicle will take
it free and clear of the security interest created in the PPSA
Security Documents unless the vehicle identification number of the
motor vehicle is set out in a financing statement registered by the
Administrative Agent;
(q) each of the Ontario Documents (other than the Credit Agreement) may be
subject to the provisions of the Credit Agreement, and the face amount
of the indebtedness expressed to be owing under the Charge/Mortgage,
the Notes and the Borrower Note may be greater than the actual amount
of indebtedness owing by the Borrower thereunder;
(r) our opinion expressed in paragraph 16 below is based on the provisions
of the Income Tax Act (Canada) in effect on this date and on our
understanding of the current administrative practices of Revenue
Canada; and
(s) we express no opinion on paragraphs 24, 30, 31, 33 and 36 of the
standard charge terms attached to the Charge/Mortgage.
The opinions expressed below are limited to the laws of the Province
of Ontario and the federal laws of Canada applicable in that province
(collectively, "Applicable Laws"). In particular, without limiting the
generality of the immediately preceding sentence, no opinion is expressed with
respect to the laws of any other jurisdiction to the extent such laws may govern
the validity, perfection, effect of perfection or non-perfection or enforcement
of the security interests created by the PPSA Security Documents as a result of
the application of Ontario conflict of laws rules, including, without
limitation, the provisions of the PPSA. In addition, we express no opinion as to
whether Ontario law governs the validity, perfection, effect of perfection or
non-perfection or enforcement of such security interests.
Based and relying upon and subject to the foregoing, we are of the
opinion that:
1. The Borrower is incorporated and existing under the Business
Corporations Act (Ontario).
2. The Borrower has all necessary corporate power and authority to carry
on its business as presently conducted, to own or lease its existing
property and assets, to execute and deliver each of the Documents and to
perform its obligations under the Documents.
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3. The execution and delivery of each of the Documents by the Borrower
and the performance of its obligations thereunder have been duly authorized
by all necessary corporate action on the part of the Borrower.
4. The execution and delivery of the Documents by each of the Loan
Parties and the performance by each of the Loan Parties of its obligations
thereunder do not contravene, result in a breach of or constitute a default
under (i) the articles or by-laws of the Borrower, (ii) the USA, (iii) any
resolution of the directors (or any committee of directors) or shareholders
of the Borrower, (iv) any Material Contract to which the Borrower is a
party listed on Schedule 5.01(t) to the Credit Agreement, or (v) any
Applicable Laws.
5. To the extent only that delivery of the Credit Agreement by the
Guarantors is a matter of Ontario law, the Credit Agreement has been duly
delivered by each of the Guarantors.
6. Each Ontario Document has been duly executed and delivered by the
Borrower and constitutes a legal, valid and binding obligation of the
Borrower, enforceable against the Borrower by the Administrative Agent and
(to the extent applicable) the Lender Parties, in accordance with its
respective terms .
7. Each of the Ontario Documents to which any of the Guarantors is a
party constitutes a legal, valid and binding obligation of such Guarantor,
enforceable by the Administrative Agent and the Lender Parties against such
Guarantor in accordance with its terms.
8. Each PPSA Security Document creates in favour of the Administrative
Agent for itself and on behalf of the Lender Parties, a security interest
under the PPSA in all right, title and interest of the Borrower in and to
the collateral referred to therein to which the PPSA is applicable to
secure payment and performance of the obligations referred to therein.
9. The security interest created under each PPSA Security Document in the
right, title and interest of the Borrower in and to the collateral referred
to therein has, to the extent capable of perfection by registration under
the PPSA, been duly perfected, and no further registration, recording or
filing in any office of public record maintained under the laws of the
Province of Ontario is required at this time to perfect such security
interest under the PPSA.
10. The authorized capital of the Borrower consists 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 have been issued and are outstanding as fully paid and non-
assessable. The said 100,000 issued and outstanding Class
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A common shares of the Borrower are registered in the books of the Borrower
in the name of Panolam International.
11. All consents, approvals or authorizations required under the articles
or by- laws of the Borrower or Applicable Laws and all necessary action by
the Borrower or its shareholders or directors has been obtained or taken to
authorize the transfer on the share register of the Borrower of all of the
Pledged Shares to the Administrative Agent or its nominee, or of up to 65%
of the Pledged Shares to the US Administrative Agent or its nominee, and a
subsequent transfer on the share register of the Borrower by the
Administrative Agent or its nominee, or (as to up to 65% of the Pledged
Shares) by the US Administrative Agent or its nominee, to any other party
the Administrative Agent or the US Administrative Agent may determine in
connection with any sale or other proceedings in respect of the Pledged
Shares pursuant to the US Security Agreement.
12. Other than filings required to preserve or perfect the security
interests granted under the Ontario Documents (as to which we refer to our
opinion in paragraph 9 above), no authorization, consent, approval, or
licence of, or other action by, or filing with, any Ontario or Canadian
federal government or regulatory authority or agency is required to be
obtained by the Borrower at this time in connection with the execution and
delivery by the Borrower of the Documents and the performance of its
obligations thereunder.
13. Assuming that the Administrative Agent has given value to Panolam
International in respect of the Pledged Shares pursuant to the US Security
Agreement and the Administrative Agent is acting in good faith (as such
term is defined in the Business Corporations Act (Ontario)) and has no
notice of any adverse claim (as defined in the Business Corporations Act
(Ontario)) affecting the Pledged Shares, upon delivery to the
Administrative Agent by Panolam International of share certificates
evidencing the Pledged Shares bearing the applicable Endorsement, the
Administrative Agent will acquire a security interest in the Pledged Shares
free from any adverse claim. To the extent that the Endorsement of the
Pledged Shares is governed by Ontario law, such Endorsement has been duly
made.
14. Assuming that the US Administrative Agent has given value to Panolam
International in respect of the Borrower Note pursuant to the US Security
Agreement and the US Administrative Agent is acting in good faith (as such
term is defined in the Business Corporations Act (Ontario)) and has no
notice of any adverse claim (as defined in the Business Corporations Act
(Ontario)) affecting the Borrower Note, upon delivery to the US
Administrative Agent by Panolam International of a security certificate
evidencing the Borrower Note bearing the applicable Endorsement, the US
Administrative Agent will acquire a security interest in the Borrower Note
free from any adverse claim. To the extent
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that the Endorsement of the Borrower Note is governed by Ontario law, such
Endorsement has been duly made.
15. The form of the share certificates representing the Pledged Shares
complies with the provisions of the Business Corporations Act (Ontario).
16. Under the Income Tax Act (Canada), the Borrower is not required to
deduct or withhold tax from interest paid or credited by the Borrower to
any non-resident Lender with whom the Borrower is dealing at arm's length
within the meaning of such Act on the principal of Term B Loans, whether or
not evidenced by Term B Notes, under the Credit Agreement.
17. In any proceeding brought by the US Administrative Agent or the
Administrative Agent (or Panolam International, in the case of the Borrower
Note) before a court of competent jurisdiction in the Province of Ontario
for the enforcement of any of the US Documents that is expressed to be
governed by the laws of the State of New York, the laws of the State of New
York would, to the extent specifically pleaded and proven as a fact by
expert evidence, be applied by such court, in accordance with the parties'
choice of the laws of the State of New York as the governing law of such US
Document, to all issues which under the conflict of laws rules of the
Province of Ontario are to be determined in accordance with the proper or
governing law of a contract, except that in any such proceeding such court:
(i) will apply those laws of the Province of Ontario which such court
would characterize as procedural and will not apply those laws of
the State of New York which such court would characterize as
procedural;
(ii) will not apply those laws of the State of New York which such
court would characterize as revenue, expropriatory, penal or
similar laws; and
(iii) will not apply those laws of the State of New York the application
of which would be inconsistent with public policy, as such term is
interpreted under the law of the Province of Ontario.
18. The courts of the Province of Ontario would give a judgment in
Canadian dollars based upon a final and conclusive in personam judgment for
a sum certain obtained in a New York court by the US Administrative Agent
or the Administrative Agent against a Guarantor with respect to a claim
pursuant to any of the US Documents that contains an express submission by
such Guarantor in such US Document to the jurisdiction of the courts of New
York, in accordance with such submission, without reconsideration of the
merits, if:
XIIIA-11
<PAGE>
(a) such judgment was'
(i) not obtained by fraud or in any manner contrary to the
principles of natural justice;
(ii) not for a claim in respect of any laws of the State of New York
or of any other jurisdiction other than the Province of Ontario
which a court of the Province of Ontario would characterize as
revenue, expropriatory, penal or similar laws;
(iii) not contrary to public policy, as such term is interpreted
under the laws of the Province of Ontario, or contrary to any
order made by the Attorney General of Canada under the Foreign
Extraterritorial Measures Act (Canada) or by the Competition
Tribunal under the Competition Act (Canada) in respect of
certain judgments referred to therein; and (iv) not impeachable
as void or voidable under New York law;
(b) there has been compliance with the Limitations Act (Ontario), which
has the effect that any action to enforce a foreign judgment must be
commenced within six years of the date of the foreign judgment; and
(c) no new admissible evidence relevant to the action is discovered prior
to the rendering of judgment by an Ontario court.
____________________________
We have conducted or caused to be conducted the searches against the
Borrower and its assets under the statutes and at the offices of public record
set out in Schedule A annexed to this opinion letter. No registrations or
entries were discovered as a result of such searches that gave notice of any
lien against, encumbrance on or security interest in the assets of the Borrower
under its present name except as set out in Schedule A.
In addition to the foregoing opinions, we wish to draw to your
attention the fact that a security interest perfected by registration under the
PPSA will remain effective only for the registration period specified (or deemed
to be specified) in a financing statement filed in respect thereof under the
PPSA. The registration period of a security interest may be extended by
successive registrations under the PPSA of an appropriate form of financing
change statement, in each case, effected prior to the expiry of a then current
registration. In addition, the PPSA requires (subject to certain exceptions)
that if there is a change in the name of the debtor (as defined in the PPSA) or
a
XIIIA-12
<PAGE>
transfer of the debtor's interest in the collateral subject to a security
interest, timely registration must be effected of a financing change statement
in prescribed form. Failure to comply with any of the foregoing requirements
will result in a security interest becoming unperfected under the PPSA.
The opinions and advice expressed herein are provided solely for the
benefit of the addressees in connection with the Loan Documents and may not be
used, relied upon or referred to by the addressees for any other purpose or by
any other person for any purpose whatsoever, in each case, without our prior
written consent; provided any permitted assignee or participant of the rights of
the Lenders under the Credit Agreement and any future agent of the Lenders
pursuant to the Credit Agreement and Donaldson, Lufkin & Jenrette Securities
Corporation and Credit Suisse First Boston Corporation, as the initial
purchasers of certain 11 1/2% Series A Senior Subordinated Notes due 2009 of
Panolam International, may rely upon such opinions and advice as if this letter
were addressed to them.
Yours very truly,
XIIIA-13
<PAGE>
CERTIFICATE
TO: DAVIES, WARD & BECK
Reference is made to the credit agreement dated as of February 18,
1999 between Panolam Industries Ltd. (the "Corporation"), the other Loan Parties
signatory thereto, the Initial Lenders named therein, Credit Suisse First Boston
Canada, as Initial Lender and as Administrative Agent, and Royal Bank of Canada,
as Initial Lender and as Documentation Agent (the "Credit Agreement"). The
capitalized terms used in paragraphs 7, 8 and 9 below and not otherwise defined
herein have the respective meanings given to them in the Credit Agreement.
The undersigned, being the Secretary of the Corporation, hereby
certifies for and on behalf of the Corporation and not in her personal capacity
that'
1. The undersigned has reviewed such books and records of the Corporation and
other documents and has made such inquiries and investigations as the
undersigned considered necessary or advisable for the purpose of verifying
the matters set out below.
2. The minute books and corporate records of the Corporation in the possession
of Davies, Ward & Beck are the original minute books and corporate records
of the Corporation and contain all articles and by-laws of the Corporation
and all resolutions and minutes of all meetings or other proceedings of the
shareholders and directors (or any committee thereof) of the Corporation to
the date hereof. Such minute books and corporate records are true and
complete in all respects.
3. The Corporation has not taken any steps to terminate its existence, to
amalgamate, to continue into any other jurisdiction or to change its
corporate existence in any way.
4. The Corporation is not insolvent and no acts or proceedings have been taken
by or against the Corporation in connection with, the Corporation has not
received any notice in respect of and the Corporation is not in the course
of, liquidation, winding-up, dissolution, bankruptcy or reorganization.
5. The Corporation has not received any notice or other communication from any
governmental authority or other person indicating that there exists any
situation which, unless remedied, could result in the termination of the
existence of the Corporation.
6. The Corporation is subject to a declaration dated February 11, 1999 made by
Panolam International, in its capacity as the beneficial owner of all the
issued shares of the Corporation, which declaration is a unanimous
shareholder agreement within the meaning of subsection 108(3) of the
Business Corporations Act (Ontario).
XIIIA-14
<PAGE>
7. No director or officer of the Corporation is a director or officer
of, or has a material interest in, any party to any of the Loan Documents other
than the Loan Parties.
8. The only motor vehicles owned or leased by the Corporation are those
identified by vehicle identification numbers in the financing statement filed by
or on behalf of the Administrative Agent to perfect the security interests of
the Administrative Agent and the Lenders under reference file no. 847650699 with
registration no. 990113 1721 1590 8915, as amended by financing change statement
with registration no. 9900122 1452 1590 9085 and as further amended by financing
change statement with registration no. 990127 1734 1590 9174.
9. The Events of Default set out in Sections 7.01(1), (m) and (n) of the
Credit Agreement were agreed upon as a result of arm's length negotiations and
bargaining between the Corporation and the Administrative Agent, each of whom
was represented by counsel, and each is an event which would have a material
adverse effect on the creditworthiness of Panolam International and its
Subsidiaries.
The undersigned acknowledges that this certificate is to be relied
upon by you for purposes of the opinion to be given by you today pursuant to the
Credit Agreement.
DATED the day of February, 1999.
By ____________________________
Sara M. Foster,
Secretary
XIIIA-15
<PAGE>
SPEAR STREET TOWER
TELEPHONE: (415) 442-0900 ONE MARKET
FACSIMILE: (415) 442-1010 SAN FRANCISCO
CALIFORNIA 94105
www.brobeck.com
February 18, 1999
DLJ Capital Funding, Inc., as an Initial Lender and as Syndication Agent
Credit Suisse First Boston, as an Initial Lender and as Administrative Agent
Royal Bank of Canada, as an Initial Lender and as Documentation Agent
Each of the Initial Lenders party to the
Credit Agreement referred to below
Credit Suisse First Boston Canada, as an Initial Lender and as Administrative
Agent
Royal Bank of Canada, as an Initial Lender and Documentation Agent
Each of the Initial Lenders party to the
Canadian Credit Agreement referred to below
Re: Panolam Industries International, Inc.
Ladies and Gentlemen:
This opinion letter is furnished to you pursuant to Section
4.01(k)(xxv)of the Credit Agreement, dated as of February 18, 1999 (the "Credit
Agreement"), among Panolam Industries International, Inc., a Delaware
corporation, as borrower (the "Borrower"), the financial institutions party
thereto (the "Lenders"), DLJ Capital Funding, Inc., as a Lender and as
syndication agent (the "Syndication Agent"), Royal Bank of Canada, as Initial
Lender and documentation agent, and Credit Suisse First Boston, as a Lender and
as administrative agent (the "Administrative Agent," and together with the
Syndication Agent, the "Agents"). We have acted as counsel for the Borrower,
Panolam Industries Holdings, Inc., a Delaware corporation ("Holdings"), Panolam
Group, Inc., a Delaware corporation ("Group"), PII Second, Inc., a Delaware
corporation ("PII Second"), Panolam Industries, Inc., a Delaware corporation
("Panolam US"), and Pioneer Plastics Corporation, a Delaware corporation
("Pioneer" and together with the Borrower, Holdings, Group, PII Second, and
Panolam US, the "Credit Parties") in connection with the Credit Agreement.
Unless otherwise defined herein, terms used herein shall have the meanings
assigned to them in the Credit Agreement.
In connection with this opinion letter, we have examined originals, or
copies certified or otherwise identified to our satisfaction, of such documents,
corporate records, certificates, including certificates of public officials, and
other instruments as we have deemed necessary or advisable for purposes of this
opinion letter. In addition, we have examined the following documents (the items
referred to in subclauses (i) through (vi) below herein referred to as the
"Credit Party Agreements," the items referred to in subclauses (i) through
(viii) below
XIIIA-16
<PAGE>
February 18, 1999
Page 2
herein referred to as the "Credit Documents," the items referred to in
subclauses (vii) and (viii) below herein referred to as the "Financing
Statements," and the item referred to in subclause (xiii) below herein referred
to as the "Pioneer Acquisition Agreement"):
(i) an executed copy of the Credit Agreement and the Notes executed
in connection therewith;
(ii) an executed copy of the Guaranty;
(iii) an executed copy of the Security Agreement;
(iv) US Guaranty among the Canadian Administrative Agent, Holdings,
Group, PII Second, Borrower, Panolam US and Pioneer;
(v) an executed copy of the Intercreditor Agreement;
(vi) an executed copy of each of the Mortgages;
(vii) the financing statements, on Form UCC-1, each executed by a
Credit Party as debtor, naming the Administrative Agent as secured party, to be
filed in the Office of the Secretary of State of the State of California and the
Office of the Secretary of State of Connecticut (the "Filing Offices"), attached
hereto as Annex A;
-------
(viii) the financing statements, on Form UCC-1, each executed by a
Credit Party as debtor, naming the Canadian Administrative Agent as secured
party, to be filed in the Filing Offices, attached hereto as Annex B;
-------
(ix) the stock certificates (the "Pledged Shares") set forth on
Annex C;
- -------
(x) the Intercompany Note (the "Pledged Debt") set forth on Annex
-----
D;
- -
(xi) an executed copy of the certificate of the secretary of each
Credit Party, dated February 18, 1999, certifying, among other things: (A) a
tree copy of the resolutions of the Board of Directors of each Credit Party
authorizing, among other things, the execution, delivery and performance of the
Credit Documents and Canadian Loan Documents to which it is a party, and (B) the
incumbency, authority and tree signatures of the officers of each Credit Party
authorized to sign the Credit Documents and Canadian Loan Documents to which
such Credit Party is a party and any other documents and certificates delivered
in connection therewith;
(xii) an executed copy of the certificate (each an "Officers'
Certificate") of the secretary and president of each Credit Party, dated
February 18, 1999, copies of which are attached hereto as Annex E;
-------
XIIIA-17
<PAGE>
February 18, 1999
Page 3
(xiii) the Stock Purchase Agreement, dated as of July 17, 1998,
between Panolam Industries, Inc. and Rugby U.S.A., Inc., as amended by Amendment
No. 1, dated as of September 16, 1998, Amendment No. 2, dated as of October 16,
1998 and Amendment No. 3, dated as of November 30, 1998;
(xiv) an executed copy of the Panolam Industries Ltd. Credit
Agreement, dated as of February 16, 1999, among Panolam Industries Ltd. and the
other parties thereto (the "Canadian Credit Agreement"); and
(xv) such other documents as we have deemed necessary or appropriate
as a basis for the opinions hereinafter expressed.
For the purposes of this opinion, the term "Canadian Loan Documents"
means the "Loan Documents" as defined in the Canadian Credit Agreement.
We have also examined photostatic or facsimile copies of the
agreements identified in Exhibit B to each of the Officers' Certificates (the
---------
"Material Agreements"). In our examination and review we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of the documents submitted to us as originals, the conformity to
the original documents of all documents submitted to us as certified, facsimile
or photostatic copies, and the authenticity of the originals of such copies. As
to any facts material to the opinions hereinafter expressed which we did not
independently establish or verify, we have relied without investigation upon
certificates, statements and representations of representatives of each Credit
Party. Regarding documents executed by parties other than the Credit Parties, we
have assumed (i) that each such other party had the power to enter into and
perform all its obligations thereunder, (ii) the due authorization, execution
and delivery of such documents by each such party, and (iii) that such documents
constitute the legal, valid, binding and enforceable obligations of each such
party.
With respect to our opinion in paragraph 1 (a) below, we are relying
solely on our review and examination of the certificates received from the
Secretary of State of the State of Delaware without further investigation of the
corporate records of any Credit Party.
With respect to our opinion in paragraph 2 below, we are relying
solely on the representations of such Credit Party set forth in the Officers'
Certificate and the good standing certificates issued by the states specified in
Annex F hereto, without further investigation as to the criteria for
- -------
qualification or any related legal issues with respect to those states or any
other jurisdictions.
Based upon and subject to the foregoing, and subject to the further
assumptions, limitations, qualifications and exceptions set forth herein, we are
of the opinion that:
XIIIA-18
<PAGE>
February 18, 1999
Page 4
1. Each Credit Party (a) is a corporation, validly existing and in
good standing under the laws of the State of Delaware and Co) has the corporate
power and authority to own its properties and to carry on its business as, to
our knowledge, it is now conducted.
2. Each Credit Party is duly qualified and in good standing as a
foreign corporation under the laws of the states listed on Annex F attached
-------
hereto.
3. Each Credit Party has the corporate power and corporate authority
to enter into and perform the Credit Documents and Canadian Loan Documents to
which it is a party, and has taken all necessary corporate action to authorize
the execution, delivery and performance of such Credit Documents and such
Canadian Loan Documents.
4. No consents, approvals or authorizations of, or notices to or
filings with, any governmental authority or agency under the Delaware General
Corporation Law, the laws of the State of New York or the laws of the United
States are required or necessary on the part of any Credit Party in connection
with the execution, delivery and performance by such Credit Party of the Credit
Documents and Canadian Loan Documents to which it is a party, except for such
filings as are necessary in connection with the security interests in the
Collateral granted by such Credit Party to the Administrative Agent and the
Canadian Administrative Agent (as to which we express no opinion in this
paragraph 4).
5. Each of the Credit Documents and Canadian Loan Documents has been
duly executed and delivered by each Credit Party that is a party thereto. Each
of the Credit Party Agreements is a legal, valid and binding obligation of each
Credit Party that is a party thereto, enforceable against such Credit Party in
accordance with its respective terms.
6. Neither the execution, delivery nor performance by each Credit
Party of the Credit Documents and Canadian Loan Documents to which it is a party
will (i) violate or be in conflict with any provision of the certificate of
incorporation or bylaws of such Credit Party, (ii) violate or be in conflict
with any federal or New York law having applicability to such Credit Party,
(iii) to our knowledge, violate or contravene any judgment, decree, injunction
or order of any federal or New York court, or any arbitrator or governmental
agency or authority, having jurisdiction over such Credit Party or its
properties or by which such Credit Party may be bound, or (iv) constitute a
material breach of, or result in a material default under or the creation of any
Lien pursuant to, any term or provision of the Material Agreements.
7. We have no knowledge of any pending litigation or other
proceedings against any Credit Party or the properties of any Credit Party
before any court, arbitrator or governmental agency or authority that challenge
the legality, validity or enforceability of the Credit Documents and the
Canadian Loan Documents, or any of the transactions contemplated by the Pioneer
Acquisition Agreement.
XIIIA-19
<PAGE>
February 18, 1999
Page 5
8. The Security Agreement creates in favor of the Administrative
Agent and the Canadian Administrative Agent, each as a secured party, as
security for the obligations of each Credit Party purported to be secured in the
Security Agreement, a security interest in the Collateral described therein to
which Article 9 of the New York Uniform Commercial Code ("NYUCC") is applicable
(the "UCC Collateral").
9. (a) The Financing Statements are in appropriate form for filing in
the respective Filing Offices, and upon the filing of the Financing Statements
with the respective Filing Offices, the Administrative Agent and the Canadian
Administrative Agent, each as a secured party, will have a perfected security
interest in that portion of the UCC Collateral in which a security interest may
be perfected by the filing of financing statements under the Uniform Commercial
Code as in effect on the date hereof in the State of California and the State of
Connecticut, respectively (the "Relevant UCC"), with respect to Financing
Statements filed in such states.
(b) At the request of the Administrative Agent under the Canadian
Credit Agreement, we have reviewed the financing statements on Form UCC-1,
naming the Canadian Administrative Agent as secured party and purporting to be
executed by certain obligors under the Security Agreement (as defined in the
Canadian Credit Agreement, the "Canadian Security Agreement"), to be filed in
the Office of the Secretary of State of the State of Connecticut, attached
hereto as Annex G (the "Canadian UCCs"). The Canadian UCCs are in appropriate
form for filing with the Secretary of State of Connecticut, and upon the filing
of the Canadian UCCs therewith, the Canadian Administrative Agent will have a
perfected security interest in that portion of the collateral covered by the
Canadian Security Agreement that constitutes "accounts" and "general
intangibles" as defined in the Connecticut UCC and which can be perfected by the
filing of the Canadian UCCs with the Secretary of State of Connecticut. We
express no opinion regarding the validity or enforceability of the Canadian
Security Agreement, nor with regard to the creation of any security interest
thereunder or the law purportedly governing the creation, perfection and
priority of any lien purported to be created thereby. For the purposes of our
assumptions, limitations and exceptions that follow at the close of this opinion
letter, please review these as if the collateral covered by the Canadian
Security Agreement were "Collateral" and as if the Canadian UCCs were governed
by the "Relevant UCC."
10. The provisions of the Security Agreement create in favor of the
Administrative Agent and the Canadian Administrative Agent, as a secured party,
a security interest in the Pledged Shares and the Pledged Debt to the extent
provided for in the Security Agreement. Upon delivery to and possession by the
Administrative Agent of the certificates representing the Pledged Shares and the
Pledged Debt in New York, the Administrative Agent will have a perfected, first
priority security interest in the Pledged Shares and Pledged Debt, as security
for the obligations of each Credit Party to the Administrative Agent and Lenders
purported to be secured in the Security Agreement.
XIIIA-20
<PAGE>
February 18, 1999
Page 6
11. To the extent that the Lanham Act, 15 U.S.C. (S)(S) 1051 et seq.,
-- ---
is interpreted to require recordation with the United States Patent and
Trademark Office (the "PTO") in order to perfect the security interest of the
Administrative Agent and the Canadian Administrative Agent in Collateral
consisting of federally registered trademarks described in the schedules to the
Security Agreement (the "Trademark Collateral"), and each Credit Party has duly
registered such Trademark Collateral with the PTO, then the recordation of the
Security Agreement in accordance with recording requirements of the PTO
(together with the filings referred to in paragraph 9 above) is sufficient for
such purpose of perfection with respect to such Trademark Collateral.
12. The Loans and other extensions of credit under the Credit
Agreement and any extensions of credit under the Canadian Loan Documents do not
violate the provisions of Regulations U, T or X of the Board of Governors of the
Federal Reserve System.
13. No Credit Party is (i) an "investment company," as such term is
defined in the Investment Company Act of 1940, as amended, or (i) a "holding
company," a "subsidiary company" of a holding company, or an "affiliate" of a
holding company, as such terms are defined in the Public Utility Holding Act of
1935, as amended.
14. The "Closing" under the Pioneer Acquisition Agreement has
occurred.
15. The authorized capital stock of Holdings consists of 150,000 shares of
class A common stock, par value $0.01 per share, and 150,000 shares of class B
common stock, par value $0.01 per share. As of the date hereof, there are
110,814 shares of class A common stock and no shares of class B stock of
Holdings issued and outstanding. The authorized capital stock of Group consists
of 1,000 shares of common stock, par value $0.01 per share. As of the date
hereof, there are 1,000 shares of common stock of Group issued and outstanding.
The authorized capital stock of PII Second consists of 200 shares of common
stock, par value $0.01 per share. As of the date hereof, there are 200 shares of
common stock of PII Second issued and outstanding. The authorized capital stock
of the Borrower consists of 200 shares of common stock, par value $0.01 per
share. As of the date hereof, there are 200 shares of common stock of the
Borrower issued and outstanding. The authorized capital stock of Panolam US
consists of 1,000 shares of common stock, par value $0.01 per share. As of the
date hereof, there are 1,000 shares of common stock of Panolam US issued and
outstanding. Except as set forth in Schedule 5.01 Co) to the Credit Agreement,
(i) to our knowledge, there are no outstanding securities of any Credit Party
convertible into, or evidencing the right to purchase or subscribe for, any
shares of capital stock of any Credit Party; (ii) to our knowledge, there are no
outstanding or authorized options, warrants, calls, subscriptions, rights,
commitments or any other agreements of any character obligating any Credit Party
to issue any shares of its capital stock or any securities convertible into or
evidencing the right to purchase or subscribe for any shares of such capital
stock; and (iii) there are no restrictions upon voting or transfer of shares of
XIIIA-21
<PAGE>
February 18, 1999
Page 7
capital stock of any Credit Party pursuant to any certificate of incorporation
or bylaws, or to our knowledge, any agreements or instruments of such Credit
Party.
16. Except as set forth on Schedule I to the Security Agreement,
Holdings or a wholly-owned Subsidiary of Holdings owns of record in the
aggregate 100% of the capital stock of each Subsidiary of Holdings. All such
capital stock has been duly authorized and validly issued and is fully paid and
nonassessable.
17. The Obligations (as defined in the Credit Agreement and Canadian
Credit Agreement) of the Credit Parties under the Credit Agreement and the
Canadian Credit Agreement, and the payment obligations of the Credit Parties
under the Guaranty and US Guaranty, constitute "Senior Debt" within the
definition of that term contained in the Subordinated Note Indenture.
Whenever a statement herein is qualified by the expressions "known to
us," "to our knowledge," "we are not aware" or a similar phrase or expression
with respect to our knowledge of matters of fact, it is intended to mean that
our knowledge is based upon the records, documents, instruments and certificates
described above and the current actual knowledge of the attorneys in this Finn
who have devoted substantive attention to the transactions contemplated by the
Credit Documents (but not including any constructive or imputed notice of any
information) and that we have not otherwise undertaken any independent
investigations for the purpose of rendering this opinion letter. Without
limiting the generality of the foregoing, in rendering the opinion set forth in
paragraph 6 above, we have not verified or otherwise reviewed the compliance by
any Credit Party with any financial covenants or other financial tests contained
in the Material Agreements.
This opinion letter is limited to the laws of the State of New York,
the General Corporation Law of the State of Delaware, applicable federal laws of
the United States and, with respect to our opinion in paragraph 9, Division 9 of
the California Uniform Commercial Code and, subject to the succeeding sentence,
Article 9 of the Connecticut Uniform Commercial Code (as defined below), and we
express no opinion herein with respect to the effect or applicability of the
laws of other jurisdictions. With your permission, we have based our opinions
set forth in paragraph 9 above with respect to the Financing Statements to be
filed with the Office of the Secretary of State of Connecticut, solely upon our
review of Article 9 (as enumerated under the Connecticut UCC) of the Uniform
Commercial Code as in effect on the date hereof in the State of Connecticut as
set forth in the CCH Secured Transactions Guide, which is referred to herein as
------------------------------
the "Connecticut UCC." We have assumed that the provisions of the Connecticut
UCC are in effect on the date hereof in the State of Connecticut and have not
been modified in any respect by any other statute, regulation or decision with
respect to the laws of the State of Connecticut; and we call to your attention
that we are not licensed to practice in the State of Connecticut, nor do we
profess expertise with respect to the laws thereof. Our opinion in the second
sentence of paragraph 5 is expressed only under New York law.
XIIIA-22
<PAGE>
February 18, 1999
Page 8
Our opinions in paragraph 4 above and in clause (ii) of paragraph 6
above are limited to laws and regulations normally applicable to transactions of
the type contemplated in the Credit Documents and do not extend to licenses,
permits and approvals necessary for the conduct of any Credit Party's business.
In addition and without limiting the previous sentence, we express no opinion
herein with respect to the effect of any pension, employee benefit or tax laws,
any land use, environmental or similar law, any state or federal antitrust law,
state or federal securities laws, or any local law. Further, we express no
opinion as to compliance or noncompliance by the Agents or any Lender with any
federal, state or other law (i) requiting the Agents or any Lender to be
licensed as a bank, finance company or other type of financial institution, (ii)
pertaining to matters regulating the assets held by the Agents or any Lender on
the basis of portfolio requirements or the Lender's capitalization, such as loan
limits and capital adequacy requirements, and (iii) otherwise applicable to the
Agents or any Lender and relating to its legal or regulatory status or the
nature of its business (other than Regulations T, U and X of the Board of
Governors of the Federal Reserve Board).
The opinions set forth above are subject to the following
qualifications, assumptions, limitations and exceptions:
(a) The enforceability of each Credit Party's obligations under
the Credit Party Agreements may be subject to or limited by (i) bankruptcy,
insolvency, reorganization, arrangement, moratorium, fraudulent transfer and
other similar laws affecting the rights of creditors generally; and (ii) general
equitable principles (whether relief is sought in a proceeding at law or in
equity), including, without limitation, concepts of materiality, reasonableness,
good faith, and fair dealing.
(b) We express no opinion as to provisions of the Credit Party
Agreements purporting to establish an evidentiary standard or to authorize
conclusive determinations by the Agents, any Lender or any other Person or
allowing the Agents, any Lender or any other Person to make determinations in
its sole discretion.
(c) We call to your attention that under the NYUCC and Relevant
UCC events occurring subsequent to the date hereof may affect any security
interest subject thereto. Without limiting the generality of the foregoing,
additional filings with respect to the Collateral may be necessary to continue
perfection of all or certain of the Collateral if a Credit Party changes its
name so as to cause the Financing Statements to become seriously misleading (or
the Financing Statements otherwise become seriously misleading), if any item of
Collateral located in the State of California or the State of Connecticut is
removed from that state or if a Credit Party changes the jurisdiction in which
its chief executive office is located to a jurisdiction other than the State of
Connecticut.
XIIIA-23
<PAGE>
February 18, 1999
Page 9
(d) To the extent that any of the Collateral consists of or
constitutes "proceeds" as such term is defined in (S) 9-306 of the NYUCC or the
Relevant UCC, the security interest therein is limited and conditioned as set
forth in such section.
(e) We wish to advise you that the effectiveness of the
Financing Statements will lapse five years from the date they are filed unless
continuation statements are filed within six months prior to the expiration of
that five year period.
(f) The opinions expressed in paragraphs 8 through 10 above are
limited to the Collateral specifically described therein which is governed by
relevant provisions as currently in effect of Articles 8 and 9 of the NYUCC or
the Relevant UCC. Further, except to the extent expressly stated in paragraphs 8
through 11 of this opinion letter, the opinions given above as to the perfection
of the security interests apply only to Collateral with respect to which
security interests may be perfected by the filing of financing statements. We
have assumed that the Financing Statements will be duly accepted for filing.
(g) We also express no opinion as to the title of any Credit
Party to any Collateral, the description or classification of the Collateral or,
except as expressly stated in this opinion letter, regarding the creation,
attachment, perfection or priority of any security interests in any Collateral.
(h) We have assumed for purposes of the opinions in paragraphs 8
through 11 that each Credit Party has "rights" in the Collateral within the
meaning of Section 9-203 of the NYUCC, that, subject to our opinions in
paragraph 6(iv), all required consents of third parties to the grant of security
interests in the Collateral have been obtained, that the Agent and the Lenders
have given "value" within the meaning of Section 9-203 of the NYUCC, that the
Pledged Shares and the Pledged Debt will be "located" in New York for purposes
of Section 9-103(6) of the NYUCC, and that the Administrative Agent as secured
party will acquire its interest in the Pledged Shares and the Pledged Debt in
good faith and without notice or knowledge of any adverse claims.
(i) Our opinions in paragraph 10 above are also subject to the
qualification that we express no opinions as to the priority of the security
interests in the Pledged Shares and the Pledged Debt as against any lien
creditor (as defined in Section 9-301 (3) of the NYUCC) to the extent set forth
in Section 9-301(4) of the NYUCC.
(j) Our opinion in paragraph 11 is limited to the Collateral
specifically identified in Schedule III to the Security Agreement as federally
registered trademarks and in connection with such opinion we assume that the
Administrative Agent and the Canadian Administrative Agent will comply with all
applicable recording requirements of the PTO and the statutes and regulations
related thereto.
XIIIA-24
<PAGE>
February 18, 1999
Page 10
(k) We express no opinion (i) with respect to any UCC Collateral
of a type described in Section 9-401(1)(a) or 9-401(1)(a) or (b) of the
Connecticut UCC or California Uniform Commercial Code, respectively, or
represented by any certificate of title and (ii) regarding the accuracy of the
descriptions or locations of the Collateral or any real property in the
Financing Statements and the Security Agreement.
(l) The enforceability of certain remedial and other provisions
of the Credit Party Agreements, including, without limitation, certain of the
waivers therein, may be limited by applicable state and federal laws (including
judicial decisions), but such laws do not, in our opinion, render the Credit
Party Agreements, taken as a whole, invalid or unenforceable, and each Credit
Party Agreement, taken as a whole, contains adequate provisions for the
practical realization by the Administrative Agent and the Canadian
Administrative Agent of the material rights and benefits afforded thereby.
(m) We also express no opinion as to:
(1) the enforceability of provisions of the Credit Party
Agreements pursuant to which any Credit Party which is a party thereto
agrees to make payments without set-off, defense or counterclaim;
(2) the enforceability of provisions relating to
indemnification, contribution or exculpation, to the extent any such
provision is contrary to public policy or prohibited by federal or New
York law (including, without limitation, federal and New York
securities laws);
(3) any provision providing for the exclusive jurisdiction
of a particular court or purporting to waive rights to trial by jury,
service of process or objections to the laying of venue or to forum on
the basis of forum non conveniens, in connection with any litigation
--------------
arising out of or pertaining to the Credit Documents;
(4) any Collateral which is an accession to, or commingled
or processed with, other goods to the extent that the priority of the
security interest of the Administrative Agent and the Canadian
Administrative Agent are limited by Section 9-314 or 9-315 of the
Relevant UCC;
(5) provisions contained in the Credit Party Agreements
purporting to waive either illegality as a defense to the performance
of contract obligations or any other defense to such performance which
cannot, as a matter of law, be effectively waived;
XIIIA-25
<PAGE>
BROBECK
PHLEGER &
HARRISON FEBRUARY 18, 1999
LLP Page 11
ATTORNEYS AT LAW
(6) any provision of any Credit Party Agreement insofar as
it provides that any Person purchasing a participation from either
Agent, any Lender or other Person may exercise set-off or similar
rights with respect to such participation or that either Agent, any
Lender or other Person may exercise set-off or similar rights other
than in accordance with applicable law;
(7) provisions of the Security Agreement purporting to
limit the standards imposed upon the Administrative Agent and the
Canadian Administrative Agent for the care of Collateral in the
Administrative Agent's possession to the extent such provisions are
not permissible under applicable provisions of Article 9 of the NYUCC;
(8) any provision of the Credit Party Agreements permitting
modification thereof only by means of an agreement in writing signed
by the parties thereto;
(9) any provision of the Credit Party Agreements requiting
payment of attorneys' fees, except to the extent a court determines
such fees to be reasonable; and
(10) the effect of the law of any jurisdiction other than
the State of New York which limits the rates of interest legally
chargeable or collectible.
(n) The enforceability of any provisions of the Credit Party
Agreements which are deemed to constitute a subordination of the rights of any
Credit Party may be limited by exoneration and other defenses similar to those
that may be asserted by a guarantor.
(o) Provisions of the Guaranty and Security Agreement, which
provide, in each case, that certain liabilities of the Credit Parties party
thereto shall not be affected by amendments to or waivers of any Credit Party
Agreements, may be enforceable only to the extent that such amendments or
waivers are not so material as to constitute a new contract among the parties.
(p) Our opinion expressed in Paragraph 12 above assumes that the
proceeds of the Loans will be used in accordance with Section 2.11 of the Credit
Agreement.
(q) We wish to point out that any Lender, as holder of any Note,
may be required to prove the outstanding amount thereof.
XIIIA-26
<PAGE>
BROBECK
PHLEGER &
HARRISON FEBRUARY 18, 1999
LLP Page 12
ATTORNEYS AT LAW
(r) Except as is set forth in opinions in Paragraphs 3 through 7
above, we express no opinion regarding the Mortgages (including, without
limitation, regarding the perfection or priority of any Lien purported to be
created thereby), and we understand that you are receiving separate opinions
from local counsel regarding matters related to the Mortgages.
The opinions expressed herein are solely for your benefit and for the
benefit of your successors and assigns pursuant to the Credit Agreement and the
Canadian Credit Agreement and any permitted participant thereunder in connection
with the above transactions, and such opinions may not be relied on in any
manner or for any purpose by any other Person. In addition, this opinion is
rendered as of the date hereof, and it shall not be deemed to have been updated
to any date upon which any Person may rely. Further, we do not undertake to
advise you or any other Person of matters which occur subsequent to the date
hereof and which affect the opinions expressed herein.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
XIIIA-27
<PAGE>
Annex A
-------
Financing Statements
--------------------
XIIIA-28
<PAGE>
Annex B
-------
Financing Statements
--------------------
XIIIA-29
<PAGE>
BROBECK
PHLEGER &
HARRISON FEBRUARY 18, 1999
LLP Page 2
ATTORNEYS AT LAW
Annex C
-------
Stock Certificates
------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Class Stock Number
of Par Certificate of
Stock Issuer Stock Value Numbers Shares
- ------------ ------------------ ------------ ------------ --------
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Panolam Group, Inc. Common Stock $0.01 2 1,000
- ------------------------------------------------------------------------ -------------
PII Second, Inc. Common Stock $0.01 2 200
- ------------------------------------------------------------------------ -------------
Panolam Industries Common Stock $0.01 2 200
International, Inc.
- ------------------------------------------------------------------------ -------------
Panolam Industries, Inc. Common Stock $0.01 4 1,000
- ------------------------------------------------------------------------ -------------
Panolam Industries Ltd. Class A -- CA-4 65,000
Common Stock
Class A -- CA-5 35,000/1/
Common Stock
- ------------------------------------------------------------------------ -------------
Pioneer Plastics Corporation Common Stock $1.00 [_] 1,000
- --------------------------------------------------------------------------------------------
</TABLE>
___________________
/1/Borrower is not required to pledge to the Administrative Agent, it its
capacity as such, the shares of Class A Common Stock represented by this
certificate.
XIIIA-30
<PAGE>
Annex D
-------
Intercompany Notes
------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Debt Issuer Original
- -----------
Description Note Principal
of Debt Number Amount
---------------------------------- ------------ -----------------
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Panolam Industries Ltd. $10,594,374.90 owed to 1 $10,594,374.90
Panolam Industries
International, Inc.
- -------------------------------------------------------------------------------------------------
</TABLE>
XIIIA-31
<PAGE>
Annex E
-------
Officers' Certificates
----------------------
XIIIA-32
<PAGE>
Annex F
-------
Foreign Qualifications
----------------------
Panolam Industries Holdings, Inc.: Connecticut
Panolam Group, Inc.: Connecticut
PII Second, Inc.: California, Connecticut
Panolam Industries International, Inc.: Connecticut
Panolam Industries, Inc.: Arizona, California, Connecticut, Florida, Georgia,
Oregon
Pioneer Plastics Corporation: California, Connecticut, Georgia, Indiana, Maine,
Tennessee
XIIIA-33
<PAGE>
EXHIBIT XIII-B
FORM OF OPINION OF BORROWER'S US LOCAL COUNSEL
See attached
XIIIB-1
<PAGE>
EXHIBIT 10.2
================================================================================
$75,000,000
CREDIT AGREEMENT
DATED AS OF FEBRUARY 18, 1999
AMONG
PANOLAM INDUSTRIES INTERNATIONAL, INC.,
AS BORROWER,
THE FINANCIAL INSTITUTIONS NAMED HEREIN,
AS INITIAL LENDERS,
DLJ CAPITAL FUNDING, INC.,
AS SYNDICATION AGENT,
CREDIT SUISSE FIRST BOSTON,
AS ADMINISTRATIVE AGENT
AND
ROYAL BANK OF CANADA,
AS DOCUMENTATION AGENT
LEAD ARRANGED BY:
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS.......................................................................2
Section 1.01. Certain Defined Terms......................................................................2
Section 1.02. Computation of Time Periods...............................................................41
Section 1.03. Accounting Terms..........................................................................41
Section 1.04. Other Definitional Provisions.............................................................42
ARTICLE II. AMOUNTS AND TERMS OF THE LOANS.......................................................................42
Section 2.01. The Loans.................................................................................42
Section 2.02. Making the Loans..........................................................................43
Section 2.03. Scheduled Repayment.......................................................................47
Section 2.04. Prepayments; Reduction of Revolving Commitments and Swing Line Commitment.................50
Section 2.05. Interest..................................................................................55
Section 2.06. Fees 58
Section 2.07. Increased Costs, Etc......................................................................59
Section 2.08. Payments and Computations.................................................................60
Section 2.09. Taxes.....................................................................................62
Section 2.10. Sharing of Payments, Etc..................................................................64
Section 2.11. Use of Proceeds...........................................................................65
Section 2.12. Evidence of Debt..........................................................................66
ARTICLE III. AMOUNTS AND TERMS OF LETTERS OF CREDIT..............................................................66
Section 3.01. The Letter of Credit Subfacility..........................................................66
Section 3.02. Issuance of Letters of Credit.............................................................67
Section 3.03. Drawing and Reimbursement.................................................................68
Section 3.04. Obligations Absolute......................................................................68
Section 3.05. Letter of Credit Fees.....................................................................69
Section 3.06. Use of Letters of Credit..................................................................70
ARTICLE IV. CONDITIONS OF LENDING................................................................................70
Section 4.01. Conditions Precedent to Initial Borrowings................................................70
Section 4.02. Conditions Precedent to Each Borrowing and Issuance.......................................76
Section 4.03. Determinations Under Section 4.01.........................................................77
ARTICLE V. REPRESENTATIONS AND WARRANTIES........................................................................77
Section 5.01. Representations and Warranties of the Borrower............................................77
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI. COVENANTS OF THE BORROWER............................................................................86
Section 6.01. Affirmative Covenants.....................................................................86
Section 6.02. Negative Covenants........................................................................92
Section 6.03. Reporting Requirements...................................................................101
Section 6.04. Financial Covenants......................................................................104
ARTICLE VII. EVENTS OF DEFAULT..................................................................................107
Section 7.01. Events of Default........................................................................107
Section 7.02. Actions in Respect of the Letters of Credit Upon Default.................................109
ARTICLE VIII. THE ADMINISTRATIVE AGENT..........................................................................110
Section 8.01. Authorization and Action.................................................................110
Section 8.02. Administrative Agent's Reliance, Etc.....................................................110
Section 8.03. Agents and Affiliates....................................................................111
Section 8.04. Lender Credit Decision...................................................................111
Section 8.05. Indemnification..........................................................................111
Section 8.06. Successor Administrative Agents..........................................................112
Section 8.07. Documentation Agent......................................................................113
Section 8.08. Ministerial Acts.........................................................................113
ARTICLE IX. MISCELLANEOUS.......................................................................................113
Section 9.01. Amendments, Etc.; Release of Collateral..................................................113
Section 9.02. Notices, Etc.............................................................................114
Section 9.03. No Waiver, Remedies......................................................................115
Section 9.04. Costs and Expenses.......................................................................115
Section 9.05. Right of Set-Off.........................................................................117
Section 9.06. Binding Effect...........................................................................117
Section 9.07. Assignments and Participations...........................................................117
Section 9.08. Governing Law; Jurisdiction; Waiver of Jury Trial, Etc...................................121
Section 9.09. Execution in Counterparts................................................................122
Section 9.10. No Liability of the Issuing Banks........................................................122
Section 9.11. Confidentiality..........................................................................122
Section 9.12. Waiver of Jury Trial.....................................................................123
</TABLE>
ii
<PAGE>
SCHEDULES AND EXHIBITS
- ----------------------
SCHEDULES
- ---------
Schedule I Commitments, Etc.
Schedule II Collateral Reports
Schedule 1.01(a) Historical Restructuring Costs
Schedule 1.01(b) Future Restructuring Costs
Schedule 2.04(c)(iii) Equipment
Schedule 4.01(k)(ii) jurisdictions of Incorporation; Foreign
Qualifications
Schedule 4.01(k)(vii) Government and Third-Party Approvals
Schedule 4.01(k)(xv) Secured Properties
Schedule 4.01(k)(xxi) Environmental Reports
Schedule 5.01(b) Capital Stock
Schedule 5.01(d) Approvals and Consents
Schedule 5.01(j) Pension Plans
Schedule 5.01(l)(i) Environmental Law and Permit Exceptions
Schedule 5.01(l)(ii) Environmental Disclosure
Schedule 5.01(l)(iii) Hazardous Materials Disposals and Releases
Schedule 5.01(m) Open Years
Schedule 5.01(q)(i) Existing Debt
Schedule 5.01(q)(ii) Surviving Debt
Schedule 5.01(s) Real Property
Schedule 5.01(t) Material Contracts
Schedule 5.01(v) Investments
Schedule 5.01(w) Intellectual Property
Schedule 5.01(x) Other Agreements
Schedule 6.01(d) Policies of Insurance
Schedule 6.02(a)(iii) Existing Liens
Schedule 6.02(e) Sale of Assets
Schedule 6.02(r) Affiliate Transactions
EXHIBITS
- --------
Exhibit I Form of Assignment and Acceptance
Exhibit II Form of Notice of Borrowing
Exhibit III Form of Notice of Conversion/Continuation
Exhibit IV Form of Notice of Issuance
Exhibit V Form of Notice of Swing Line Borrowing
Exhibit VI Form of Borrowing Base Certificate
Exhibit VII-A Form of Revolving Note
Exhibit VII-B Form of Term A Note
iii
<PAGE>
Exhibit VII-C Form of Term B Note
Exhibit VII-D Form of Swing Line Note
Exhibit VIII Form of Compliance Certificate / Quarterly
Compliance Certificate
Exhibit IX Form of Security Agreement
Exhibit X Form of Guaranty
Exhibit XI Form of Deed of Trust / Mortgage /
Leasehold Deed of Trust /
Leasehold Mortgage
Exhibit XII Form of Opinion of Borrower's Counsel
Exhibit XIII-A Form of Intercompany Subordinated Demand
Promissory Note
Exhibit XIII-B Form of Intercompany Promissory Note
Exhibit XIV Form of Amendment to Guaranty
Exhibit XV Form of Amendment to Security Agreement
Exhibit XVI Form of Intercreditor and Subordination
Agreement
iv
<PAGE>
PANOLAM INDUSTRIES INTERNATIONAL, INC.
CREDIT AGREEMENT
DATED AS OF FEBRUARY 18, 1999
This CREDIT AGREEMENT (this "AGREEMENT") is dated as of
---------
February 18, 1999, and entered into among PANOLAM INDUSTRIES INTERNATIONAL,
INC., a Delaware corporation (the "BORROWER"), the financial institutions and
--------
other entities listed on the signature pages hereof as initial Lenders (the
"INITIAL LENDERS"), DLJ CAPITAL FUNDING, INC. ("DLJ CAPITAL FUNDING"), for
--------------- -------------------
itself as an Initial Lender and as Syndication Agent, CREDIT SUISSE FIRST BOSTON
("CSFB"), 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.
RECITALS
A. The Borrower has requested the Lenders to extend certain
credit facilities to the Borrower of up to $75,000,000 in the aggregate in US
Dollars to provide funds (i) to consummate the Pioneer Acquisition (this and the
other capitalized terms used in these recitals without definition being used as
defined in Section 1.01 hereof), (ii) to refinance certain existing indebtedness
of the Company, (iii) to pay fees and expenses in connection with the
Transactions, (iv) for the Borrower's working capital requirements, (v) for
Permitted Acquisitions and (vi) for other general corporate purposes of the
Borrower and its Subsidiaries.
B. The Borrower has requested, on the terms and conditions set
forth herein, (a) that the Lenders make Revolving Loans to the Borrower from
time to time in an aggregate principal amount not to exceed at any time
outstanding the lesser of (1) the Borrowing Base Amount and (2) the aggregate
Revolving Commitments of the Lenders (less the Letter of Credit Usage at such
time and the Swing Line Loans outstanding at such time), (b) that the Term A
Lenders make Term A Loans to the Borrower on the Closing Date in an aggregate
principal amount not to exceed the aggregate Term A Commitments of the Term A
Lenders, (c) that the Term B Lenders make Term B Loans to the Borrower on the
Closing Date in an aggregate principal amount not to exceed the Term B
Commitments of the Term B Lenders, (d) that the Swing Line Lender make Swing
Line Loans to the Borrower from time to time in an aggregate principal amount
not to exceed at any time outstanding the Swing Line Sublimit and (e) that the
Letter of Credit Bank and the other Issuing Banks issue Letters of Credit for
the account of the Borrower from time to time up to an aggregate Letter of
Credit Usage not to exceed the Letter of Credit Sublimit.
C. The Borrower desires to secure all of its obligations under
the Loan Documents by granting to Administrative Agent, for the benefit of the
Agents and the Lender Parties, a security interest in and Lien upon
substantially all of its existing and after-acquired personal and real property
and to pledge to the Administrative Agent, for the benefit of the
<PAGE>
Agents and the Lender Parties, all of the Capital Stock of its existing and
future Domestic Subsidiaries and 65% of the capital stock of its existing and
future Foreign Subsidiaries, including without limitation, a second priority
lien with respect to 65% of the Capital Stock of Panolam Canada.
D. Each of the Borrower's Parents and Domestic Subsidiaries
has agreed to guarantee all of the obligations of the Borrower to the Lender
Parties under the Loan Documents and to pledge to the Administrative Agent, for
the benefit of the Agents and the Lender Parties, all of the Capital Stock of
each of their respective existing and future Domestic Subsidiaries and 65% of
the Capital Stock of each of their existing and future Foreign Subsidiaries to
secure such guarantees.
E. Subject to the terms and conditions set forth in this
Agreement, (a) the Revolving Lenders have agreed severally to make such
Revolving Loans to the Borrower, (b) the Term A Lenders have agreed severally to
make such Term A Loans to the Borrower, (c) the Term B Lenders have agreed
severally to make such Term B Loans to the Borrower, (d) the Swing Line Lender
has agreed to make such Swing Line Loans to the Borrower and (e) the Letter of
Credit Bank has agreed to issue such Letters of Credit for the account of the
Borrower.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements contained herein, and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. CERTAIN DEFINED TERMS. 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):
"ACQUISITION" means the acquisition, in one transaction or a
-----------
series of transactions, by Holdings or any of its Subsidiaries or the Excluded
Acquisition Sub of all or substantially all the stock, partnership or other
Equity Interests or assets of any other Person or all or substantially all of
the assets of any division or business of any other Person.
"ACQUISITION CONSIDERATION" means the purchase consideration
-------------------------
for any Permitted Acquisition and all other payments made and liabilities
incurred by Holdings or any of its Subsidiaries in exchange for, or as part of,
or in connection with, any Permitted Acquisition, whether paid in cash or in
Capital Stock or by exchange of assets or otherwise and whether payable at or
prior to the consummation of such Permitted Acquisition or deferred for payment
at any future time, whether or not any such future payment is subject to the
occurrence of any contingency, and includes any and all payments and liabilities
representing the purchase price and any assumption of Debt, "earn-outs" and
other Profit Payment Agreements, consulting
2
<PAGE>
agreements, services agreements and non-competition agreements and other
liabilities of every type and description.
"ADDITIONAL MORTGAGES" has the meaning specified in Section
--------------------
6.01(n)(i).
"ADMINISTRATIVE AGENT" means Credit Suisse First Boston, as
--------------------
administrative agent under this Agreement, and its successors and assigns in
such capacity.
"ADMINISTRATIVE AGENT'S ACCOUNT" means the US Dollar account
------------------------------
of the Administrative Agent maintained by the Administrative Agent with Bank of
New York, ABA 021000018, Account No. 8900387645, Reference: Panolam, or such
other account or accounts as may be specified by the Administrative Agent in a
written notice to the Borrower and the Lender Parties from time to time.
"AFFECTED LENDER" has the meaning specified in Section
---------------
2.07(c).
"AFFILIATE" means, as to any Person, any other Person that,
---------
directly or indirectly, controls, is controlled by or is under common control
with such Person or is a director or officer of such Person. For purposes of
this definition, the term "control" (including the terms "controlling",
"controlled by" and "under common control with") of a Person means the
possession, direct or indirect, of the power either (a) to vote 5% or more (or,
in the case of limited partners or members of Genstar Capital, 25% or more) of
the Voting Equity Interests of such Person or to direct or cause the direction
of the management and policies of such Person, whether through the ownership of
Voting Equity Interests, by contract or otherwise. Notwithstanding the
foregoing, no Lender Party or any Affiliate thereof shall be deemed an
"Affiliate" of any Loan Party for any reason.
"AGENTS" means the Syndication Agent, the Administrative Agent
------
and the Documentation Agent.
"APPLICABLE BASE RATE MARGIN" means, as of any date of
---------------------------
determination, (i) with respect to Revolving Loans, Swing Line Loans and Term A
Loans, (A) from the Closing Date through and including the six-month anniversary
of the Closing Date, a rate per annum equal to 1.75%, and (B) thereafter, with
respect to each such Type of Loan, a rate per annum equal to the percentage set
forth in the table below opposite the Applicable Leverage Ratio in effect as of
such date, any change in the Applicable Base Rate Margin to be effective on the
date of any corresponding change in the Applicable Leverage Ratio; and (ii) with
respect to Term B Loans, a rate per annum equal to 2.50%.
3
<PAGE>
<TABLE>
<CAPTION>
APPLICABLE BASE RATE MARGIN
WITH RESPECT TO REVOLVING
APPLICABLE LOANS, SWING LINE LOANS AND
LEVERAGE RATIO TERM A LOANS
--------------------------------------------------------------------------
<S> <C>
4.0:1.0 or greater 1.75%
3.5:1.0 or greater, but less than 1.50%
4.0:1.0
3.0:1.0 or greater, but less than 1.25%
3.5:1.0
2.5:1.0 or greater, but less than 1.00%
3.0:1.0
less than 2.5:1.0 0.75%
--------------------------------------------------------------------------
</TABLE>
"APPLICABLE EURODOLLAR RATE MARGIN" means, as of any date of
---------------------------------
determination, (i) with respect to Revolving Loans and Term A Loans, (A) from
the Closing Date through and including the six-month anniversary of the Closing
Date, a rate per annum equal to 2.75%, and (B) thereafter, with respect to each
such Type of Loan, a rate per annum equal to the percentage set forth in the
table below opposite the Applicable Leverage Ratio in effect as of such date,
any change in the Applicable Eurodollar Rate Margin to be effective on the date
of any corresponding change in the Applicable Leverage Ratio; and (ii) with
respect to Term B Loans, a rate per annum equal to 3.50%.
<TABLE>
<CAPTION>
APPLICABLE EURODOLLAR RATE
MARGIN WITH RESPECT TO
APPLICABLE REVOLVING LOANS AND
LEVERAGE RATIO TERM A LOANS
----------------------------------------------------------------------------
<S> <C>
4.0:1.0 or greater 2.75%
3.5:1.0 or greater, but less than 2.50%
4.0:1.0
3.0:1.0 or greater, but less than 2.25%
3.5:1.0
2.5:1.0 or greater, but less than 2.00%
3.0:1.0
less than 2.5:1.0 1.75%
----------------------------------------------------------------------------
</TABLE>
"APPLICABLE LENDING OFFICE" means, with respect to each
-------------------------
Lender, such Lender's Domestic Lending Office in the case of a Base Rate Loan
and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate
Loan.
"APPLICABLE LEVERAGE RATIO" means, with respect to any date of
-------------------------
determination, the Consolidated Leverage Ratio for the Borrower and its
Subsidiaries set forth in the Effective Quarterly Compliance Certificate (as
defined below) in respect of the Pricing Period (as defined below) in which such
date of determination occurs. For purposes of this definition, (i) "PRICING
-------
PERIOD" means each period commencing on the third Business Day after the
- ------
delivery (or deemed delivery as provided below) to the Administrative Agent of a
Quarterly Compliance Certificate (the "EFFECTIVE QUARTERLY COMPLIANCE
------------------------------
CERTIFICATE" in respect of such Pricing Period) and ending on the second
- -----------
Business Day after the next Quarterly Compliance Certificate is delivered (or
deemed to be delivered as provided below) to the Administrative Agent; provided
--------
that, in the event the Borrower fails to deliver to the Administrative Agent a
Quarterly Compliance Certificate on or before the 45th day after the end of any
of the first three fiscal quarters of any Fiscal Year or the
4
<PAGE>
90th day after the end of the fourth fiscal quarter of any Fiscal Year (the
"CUTOFF DATE" with respect to any such fiscal quarter), the Borrower shall be
-----------
deemed, for purposes of this definition, to have delivered to the Administrative
Agent, on the Cutoff Date, a Quarterly Compliance Certificate which establishes
that the Consolidated Leverage Ratio for the Borrower and its Subsidiaries as of
the last day of such fiscal quarter was 4.0:1.0; provided further that if the
-------- -------
Borrower delivers to the Administrative Agent a Quarterly Compliance Certificate
after the Cutoff Date, then commencing with the third Business Day after the
date of such delivery the Applicable Leverage Ratio shall be the Consolidated
Leverage Ratio set forth in such Quarterly Compliance Certificate.
"APPLICABLE US FACILITY PERCENTAGE" means, as of any date of
---------------------------------
determination, the quotient (expressed as a percentage) obtained by dividing (a)
--------
the sum of (i) the aggregate principal amount of Loans and Letter of Credit
Obligations outstanding at such time, plus (ii) the aggregate Unused Revolving
----
Commitments in effect at such time, by (b) the sum of (i) the amount determined
according to the foregoing clause (a), plus (ii) the aggregate principal amount
----
of loans and letter of credit obligations outstanding under the Canadian Credit
Agreement at such time, plus (iii) the aggregate unused revolving commitments in
----
effect under the Canadian Credit Agreement at such time.
"APPROPRIATE LENDER" means, at any time, (a) with respect to
------------------
either of the Term Facilities, a Lender that has a Term Loan outstanding under
such Term Facility at such time, (b) with respect to the Revolving Facility, a
Revolving Lender, (c) with respect to the Letter of Credit Subfacility, (i) any
Issuing Bank and (ii) any other Revolving Lender that has paid on any Letter of
Credit Drawings pursuant to Section 3.01 which are outstanding at such time, and
(d) with respect to the Swing Line Facility, (i) the Swing Line Lender and (ii)
any other Revolving Lender that has funded its participation in any Swing Line
Loans pursuant to Section 2.02(f) which are outstanding at such time.
"APPROVED COST ADJUSTMENTS" means, for any period, charges
-------------------------
against the income of any business or Person acquired in a Permitted Acquisition
for the portion of such period prior to the consummation of such Permitted
Acquisition, but only if and to the extent such charges would be adjusted
pursuant to Article 11 of Regulation S-X of the Securities and Exchange
Commission subject to agreed upon procedures to be performed by the Borrower's
independent accountants, if prior to the consummation of such Permitted
Acquisition the Borrower delivers to the Administrative Agent and the Lenders a
certificate signed by the Chief Financial Officer of the Borrower describing
such adjustments in reasonable detail and stating that such procedures have been
performed by such officer and that such adjustments are permitted under Article
11 of Regulation S-X.
"APPROVED FUND" means, with respect to any Lender that is a
-------------
fund that invests in commercial loans, any other fund that invests in commercial
loans and is managed or advised by the same investment advisor as such Lender or
by an Affiliate of such investment advisor.
5
<PAGE>
"ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance
-------------------------
entered into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in accordance with Section 9.07 and substantially in the
form of Exhibit I hereto.
---------
"BANK HEDGE AGREEMENT" means an Interest Rate Contract or
--------------------
Currency Hedging Agreement entered into between the Borrower and a Lender.
"BASE AMOUNT" has the meaning specified in Section 6.04(d).
-----------
"BASE RATE" means a fluctuating interest rate per annum in
---------
effect from time to time, which rate per annum shall at all times be equal to
the higher of: (a) the rate of interest announced publicly by the Administrative
Agent from time to time as the Administrative Agent's prime rate in effect for
United States borrowers at its principal office in New York City; and (b) 1/2 of
one percent per annum above the Federal Funds Rate. Any change in the Base Rate
due to a change in the Administrative Agent's prime rate or the Federal Funds
Rate shall be effective as of the opening of business on the effective day of
such change in the Administrative Agent's prime rate or the Federal Funds Rate,
as the case may be.
"BASE RATE LOAN" means a Loan that bears interest as provided
--------------
in Section 2.05(a).
"BORROWER" has the meaning set forth in the introduction to
--------
this Agreement.
"BORROWER'S ACCOUNT" means the US Dollar account of the
------------------
Borrower maintained by the Borrower with Mellon Bank (ABA No. 043-000-261,
Account No. 005-7314) or such other account or accounts as may be specified from
time to time by the Administrative Agent and the Borrower in a written notice to
the Lenders.
"BORROWING" means a Term Borrowing, a Revolving Borrowing or a
---------
Swing Line Borrowing.
"BORROWING BASE AMOUNT" means, as at any date of
---------------------
determination, (i) the sum of 60% of Eligible Inventory plus 85% of Eligible
Receivables less (ii) any Reserves.
"BORROWING BASE CERTIFICATE" means a certificate of the
--------------------------
Borrower in the form attached hereto as Exhibit VI.
"BUSINESS DAY" means a day of the year on which banks are not
------------
required or authorized by law to close in New York, New York and, if the
applicable Business Day relates to any Eurodollar Rate Loans, a day of the year
on which dealings in US Dollars are carried on in the London interbank market.
"CANADIAN ADMINISTRATIVE AGENT" means the Administrative Agent
-----------------------------
under the Canadian Credit Agreement.
"CANADIAN CREDIT AGREEMENT" means the Credit Agreement dated
-------------------------
as of the date hereof, and entered into among Panolam Canada, the financial
institutions and other entities
6
<PAGE>
party thereto as Canadian Lenders, and Credit Suisse First Boston Canada, as
Administrative Agent thereunder.
"CANADIAN CREDIT AGREEMENT GUARANTY" means the US Guaranty
----------------------------------
dated as of the date hereof, and entered into among Holdings, Group, PII Second,
the Borrower, Panolam US and Pioneer, and acknowledged by Panolam Canada and the
Canadian Administrative Agent, as the same may be amended, supplemented or
otherwise modified from time to time.
"CANADIAN HEDGE AGREEMENTS" means "Hedge Agreements" as
-------------------------
defined in the Canadian Credit Agreement.
"CANADIAN LENDERS" means the lenders under the Canadian Credit
----------------
Agreement.
"CANADIAN LOAN DOCUMENTS" means the Canadian Credit Agreement,
-----------------------
the Canadian Credit Agreement Guaranty, the notes (if any), the other
guaranties, the collateral documents, the letter of credit agreements and each
bank hedge agreement in each case in connection with the Canadian Credit
Agreement executed and delivered to, or in favor of, the Canadian Administrative
Agent and/or any of the Canadian Lenders.
"CANADIAN OBLIGATIONS" means all Obligations of Panolam Canada
--------------------
and any other Loan Party of any kind or nature, present or future, whether or
not evidenced by any note, agreement or other instrument, arising under or
pursuant to the Canadian Credit Agreement or any of the other Canadian Loan
Documents.
"CANADIAN SECURITY AGREEMENT" means the Security Agreement
---------------------------
dated as of the date hereof, made by Panolam Canada in favor of the Canadian
Administrative Agent for the benefit of itself and the Canadian Lenders, as the
same may be amended, supplemented or otherwise modified from time to time.
"CAPITAL EXPENDITURES" means, for any period, the sum of all
--------------------
expenditures during such period by the Borrower and its Subsidiaries for
equipment, fixed assets, real property or improvements, or for replacements or
substitutions therefor or additions thereto, that have a useful life of more
than one year and that are required to be capitalized under generally accepted
accounting principles. For purposes of calculating Capital Expenditures for any
period that includes periods prior to the Closing Date, Capital Expenditures of
Pioneer for such periods shall be included as if Pioneer was a Subsidiary of the
Borrower during such periods.
"CAPITAL LEASE" means, with respect to any Person, any lease
-------------
of any property (whether real, personal or mixed) by such Person as lessee that,
in accordance with GAAP, would be required to be classified and accounted for as
a capital lease on a balance sheet of such Person.
"CAPITAL LEASE OBLIGATION" means, with respect to any Capital
------------------------
Lease of any Person, the amount of the obligation of the lessee thereunder that,
in accordance with GAAP, would appear on a balance sheet of such lessee in
respect of such Capital Lease.
7
<PAGE>
"CAPITAL STOCK" means, with respect to any corporation, any
-------------
and all shares, interests, rights to purchase (other than convertible or
exchangeable Debt 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 COLLATERAL ACCOUNT" has the meaning specified in the
-----------------------
Security Agreement.
"CASH EQUIVALENTS" means any of the following, to the extent
----------------
owned by a Loan Party free and clear of all Liens: (i) marketable direct
obligations issued or unconditionally guaranteed by the United States of America
or any agency thereof maturing within one year from the date of acquisition
thereof; (ii) commercial paper maturing no more than nine months from the date
of creation thereof and currently having the highest rating obtainable from
either Standard & Poor's Ratings Services or Moody's Investors Service, Inc.;
and (iii) certificates of deposit or time deposits, maturing no more than nine
months from the date of creation thereof, issued by (A) commercial banks
incorporated under the laws of the United States of America, each having
combined capital, surplus and undivided profits of not less than $300,000,000
and having a senior unsecured rating of "A" or better by a nationally recognized
rating agency, (B) the Administrative Agent or (C) any Lender.
"CERCLA" means the Comprehensive Environmental Response,
------
Compensation and Liability Act of 1980, as amended or supplemented from time to
time, and the regulations promulgated pursuant thereto.
"CHANGE OF CONTROL" means:
-----------------
(a) prior to consummation of an Initial Public Equity
Offering, Genstar Capital shall cease beneficially to own, directly or
indirectly, at least 60% of the voting power of the Voting Equity Interests of
Holdings; or
(b) following the consummation of an Initial Public Equity
Offering:
(i) Genstar Capital shall cease beneficially to own at
least 40% of the voting power of the Voting Equity Interests of Holdings;
(ii) 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 Genstar Capital) is or becomes the "beneficial owner",
directly or indirectly, of more than 35% of the total voting power in the
aggregate of all classes of Capital Stock of the Borrower then outstanding
normally entitled to vote in elections of directors; or
(iii) during any period of 12 consecutive months after
the Closing Date, individuals who at the beginning of any such 12-month period
constituted the Board of Directors of the Borrower (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Borrower was approved by a vote of a
majority of the directors then still in office who were either directors at the
beginning of such
8
<PAGE>
period or whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of Directors of the
Borrower then in office; or
(c) a "Change of Control" occurs under and as defined in the
Subordinated Note Indenture; or
(d) Holdings shall cease to own, directly or indirectly, 100%
of the Capital Stock of the Borrower or of any Parent; or
(e) The Borrower shall cease to own 100% of the Capital Stock
of Panolam Canada, Panolam US or Pioneer.
"CHATTEL PAPER" means any "chattel paper", as such term is
-------------
defined in the Code, now owned or hereafter acquired by any Credit Party,
wherever located.
"CHIEF FINANCIAL OFFICER" means the Chief Financial Officer of
-----------------------
the Borrower, or at any time that there is no chief financial officer, the
director of finance or the treasurer of the Borrower.
"CLOSING DATE" means the date on or before February 26, 1999,
------------
on which each of the conditions in Section 4.01 is satisfied or waived and the
initial Borrowings are made.
"CODE" means the Uniform Commercial Code as the same may, from
----
time to time, be enacted and in effect in the State of New York; provided,
--------
however, in the event that, by reason of mandatory provisions of law, any or all
- -------
of the attachment, perfection or priority of the Administrative Agent's or any
Lender's security interest in any Collateral is governed by the Uniform
Commercial Code as enacted and in effect in a jurisdiction other than the State
of New York, the term "CODE" shall mean the Uniform Commercial Code as enacted
----
and in effect in such other jurisdiction solely for purposes of the provisions
hereof relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.
"COLLATERAL" means all "Collateral" referred to in the
----------
Collateral Documents and all other property that is subject to any Lien in favor
of the Administrative Agent, the Lenders or any Issuing Bank.
"COLLATERAL DOCUMENTS" means the Security Agreement, the
--------------------
Mortgages and any other instrument or agreement purporting to create a Lien to
secure the Obligations under the Loan Documents.
"COLLATERAL REPORTS" means the Borrower's reports required as
------------------
set forth in Schedule II.
"COMMITMENT" means a Term A Commitment, a Term B Commitment, a
----------
Revolving Commitment, a Swing Line Commitment or a Letter of Credit Commitment.
"COMPANY" means Holdings together with its direct and indirect
-------
Subsidiaries, including, but not limited to, the Borrower and Pioneer.
9
<PAGE>
"COMPLIANCE CERTIFICATE" means a certificate of the Chief
----------------------
Financial Officer of the Borrower substantially in the form attached as Exhibit
-------
VIII hereto, certifying (i) the truth, accuracy and completeness in all material
- ----
respects of all financial information provided therewith pursuant to Section
6.03(b), (c) or (d) or in connection with a Permitted Acquisition, (ii) that all
financial information provided therewith has been prepared in accordance with
generally accepted accounting principles and that such information presents
fairly in accordance with generally accepted accounting principles (subject to
normal year-end adjustments) the financial position and results of operations of
the Borrower and its Subsidiaries, on a Consolidated and consolidating basis, in
each case as at the end of the relevant period and for the period then ended,
(iii) that no Default or Event of Default has occurred and is continuing at such
time or, if a Default or Event of Default has occurred and is continuing,
describing the nature thereof and the action that the Borrower has taken and
proposes to take with respect thereto, and (iv) when required, setting forth the
computations used by the Borrower in determining compliance with the covenants
contained in Section 6.04.
"CONFIDENTIAL INFORMATION" means information that a Loan Party
------------------------
furnishes to the Administrative Agent or any Lender in a writing designated as
confidential, but does not include any such information (i) that is or becomes
generally available to the public through no action or inaction by the
Administrative Agent or any Lender in violation of Section 9.11 or (ii) that is
or becomes available to the Administrative Agent or such Lender from a source
other than a Loan Party, which source, to the knowledge of the recipient, is not
bound by and in breach of an obligation of confidentiality to such Loan Party or
any of its Affiliates.
"CONSOLIDATED" refers to the consolidation of accounts in
------------
accordance with GAAP.
"CONSOLIDATED EBITDA" means, for any period, the EBITDA for
-------------------
the Borrower and its Subsidiaries determined on a Consolidated basis in
conformity with GAAP for such period. For purposes of calculating Consolidated
EBITDA for any period that includes periods prior to the Closing Date, the
EBITDA of Pioneer for such prior periods shall be included as if Pioneer was a
Subsidiary of the Borrower during such periods. For purposes of calculating
Consolidated EBITDA for any period prior to the end of the fourth full fiscal
quarter of the Borrower ending after the consummation of any Permitted
Acquisition, the pro forma EBITDA (reflecting only such adjustments to actual
EBITDA as would constitute Approved Cost Adjustments) of or attributable to the
Person or assets acquired in such Permitted Acquisition for periods prior to the
date of the consummation of such Permitted Acquisition shall be included as if
such Person was or such assets were held by a Subsidiary of the Borrower during
such periods.
"CONSOLIDATED FIXED CHARGES" means, for any period, the sum of
--------------------------
Consolidated Interest Expense, Capital Expenditures (excluding any portion
thereof constituting Debt), cash tax expense, principal payments due in respect
of Funded Debt in the period of four consecutive fiscal quarters following the
end of such period, amounts paid or accrued pursuant to any earn-out or similar
provisions in connection with any Acquisition (including without limitation,
pursuant to Section 2(e)(v) of the Pioneer Acquisition Agreement), amounts paid
for any share repurchases by any Loan Party and cash dividends paid, in each
case determined for such period for the Borrower and its Subsidiaries on a
Consolidated basis in conformity with GAAP.
10
<PAGE>
Consolidated Fixed Charges for periods prior to the completion of four full
fiscal quarters following the Closing Date, shall be determined on a pro forma
--- -----
basis by annualizing the cash tax expense of the Borrower and its Subsidiaries
for the period following the Closing Date. Consolidated Fixed Charges shall be
adjusted with respect to any Person or assets acquired in a Permitted
Acquisition for the period prior to the completion of four fiscal quarters
following the consummation of such Permitted Acquisition by including in the
calculation thereof cash tax expense of such Person or assets determined by
annualizing such cash tax expense for the period following the consummation of
such Permitted Acquisition.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, total
-----------------------------
cash Interest Expense (including the interest component of Capital Leases) of
the Borrower and its Subsidiaries on a Consolidated basis for such period in
conformity with GAAP, including (without duplication) interest accrued and/or
paid with respect to the Subordinated Notes. Consolidated Interest Expense for
periods prior to the completion of four full fiscal quarters following the
Closing Date shall be determined on a pro forma basis by annualizing the actual
--- -----
Consolidated Interest Expense of the Borrower and its Subsidiaries (including
Pioneer) for the period from the Closing Date through the end of the most recent
fiscal quarter. Consolidated Interest Expense shall be adjusted with respect to
any Person or assets acquired in a Permitted Acquisition for the period prior to
the completion of four fiscal quarters following the consummation of such
Permitted Acquisition by adding to the actual Consolidated Interest Expense of
the Borrower and its Subsidiaries (other than the newly-acquired Person or
assets) for such period the annualized amount of Interest Expense on Debt
assumed or otherwise incurred in connection with such Permitted Acquisition with
interest calculated at the average weighted interest rate on the Debt incurred
and assumed (including Borrowings hereunder and borrowings under the Canadian
Credit Agreement) for such Permitted Acquisition on the closing date thereof.
"CONSOLIDATED LEVERAGE RATIO" means, as of any date of
---------------------------
determination, the ratio of (i) Consolidated Total Debt as of the last day of
the most recently completed fiscal quarter in respect of which the Borrower has
delivered (or is then required to have (but has not yet) delivered) to
Administrative Agent the financial statements required to be delivered pursuant
to Section 6.03(c) or (in the case of the last fiscal quarter of any Fiscal
Year) Section 6.03(d), to (ii) Consolidated EBITDA for the four fiscal quarter
period ending on the last day of the applicable fiscal quarter specified under
clause (i) above.
"CONSOLIDATED NET INCOME" means, for any period, the net
-----------------------
earnings (or loss) after taxes of the Borrower and its Subsidiaries on a
Consolidated basis determined for such period in conformity with GAAP.
"CONSOLIDATED TOTAL DEBT" means, as of any date of
-----------------------
determination, the aggregate stated balance sheet amount of all Debt (excluding
the items described in clauses (b)(ii) and (b)(iii) of the definition of "Debt"
and excluding any Permitted Seller Financing) of the Borrower and its
Subsidiaries, as determined on a Consolidated basis in conformity with GAAP.
11
<PAGE>
"CONVERSION", "CONVERT" and "CONVERTED" each refer to a
---------- ------- ---------
conversion of Loans of one Interest Type into Loans of the other Interest Type
pursuant to Section 2.05.
"CREDIT PARTY" means the Borrower and each Guarantor.
------------
"CURRENCY HEDGING AGREEMENTS" means currency swap agreements,
---------------------------
currency future or option contracts and other similar agreements.
"CURRENT ASSETS" means, with respect to any Person, all
--------------
current assets of such Person as of any date of determination calculated in
accordance with GAAP, but excluding cash, Cash Equivalents and debts due from
Affiliates.
"CURRENT LIABILITIES" means, with respect to any Person, all
-------------------
liabilities which should, in accordance with GAAP, be classified as current
liabilities, and in any event shall include all Debt payable on demand or within
one year from any date of determination without any option on the part of the
obligor to extend or renew beyond such year, all accruals for federal or other
taxes based on or measured by income and payable within such year, but excluding
the current portion of long-term debt required to be paid within one year and,
in the case of the Borrower and Panolam Canada, the aggregate outstanding
principal balances of the Revolving Loans, Swing Line Loans and Letters of
Credit advanced or Issued under this Agreement, and the aggregate outstanding
principal balances of the revolving loans, swing line loans and letters of
credit advanced or issued under the Canadian Credit Agreement.
"DEBT" of any Person means, without duplication, (a) all
----
indebtedness of such Person for borrowed money, (b) all Obligations of such
Person for the deferred purchase price of property or services (other than (i)
trade payables not overdue by more than 90 days incurred in the ordinary course
of such Person's business, (ii) amounts owing under the Genstar Agreements, and
(iii) any earn-outs or similar obligations pursuant to the Pioneer Acquisition
Agreement or arising in connection with any Permitted Acquisition (including,
without limitation, pursuant to any Profit Payment Agreements) but in each case
only for so long as payment thereof is contingent, (c) all Obligations of such
Person evidenced by notes, bonds, debentures or other similar instruments, (d)
all Obligations of such Person created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person
(even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (e) all Obligations of such Person as lessee under Capital Leases,
(f) all Obligations, contingent or otherwise, of such Person under acceptance,
letter of credit or similar facilities, (g) all Obligations of such Person to
purchase, redeem, retire, defease or otherwise make any payment in respect of
any Capital Stock of or other ownership or profit interest in such Person or any
other Person or any warrants, rights or options to acquire such Capital Stock,
valued, in the case of Redeemable Preferred Stock, at the greater of its
voluntary or involuntary liquidation preference plus accrued and unpaid
dividends, (h) all net obligations of such Person in respect of Hedge
Agreements, (i) all Debt of others referred to in clauses (a) through (h) above
guaranteed directly or indirectly in any manner by such Person, or in effect
guaranteed directly or indirectly by such Person through an agreement (i) to pay
or purchase such Debt or to advance or supply funds for the payment or purchase
of
12
<PAGE>
such Debt, (ii) to purchase, sell or lease (as lessee or lessor) property, or to
purchase or sell services, primarily for the purpose of enabling the debtor to
make payment of such Debt or to assure the holder of such Debt against loss,
(iii) to supply funds to or in any other manner invest in the debtor (including
any agreement to pay for property or services irrespective of whether such
property is received or such services are rendered) or (iv) otherwise to assure
a creditor against loss, and (j) all Debt referred to in clauses (a) through (h)
above secured by (or for which the holder of such Debt has an existing right,
contingent or otherwise, to be secured by) any Lien on property (including,
without limitation, accounts and contract rights) owned by such Person, even
though such Person has not assumed or become liable for the payment of such
Debt.
"DEFAULT" means any Event of Default or any event that would
-------
constitute an Event of Default but for the requirement that notice be given or
time elapse or both.
"DEFAULT RATE" has the meaning specified in Section 2.05(d).
------------
"DEFAULTING LENDER" means a Lender that has a Revolving
-----------------
Commitment and fails to make all the Revolving Loans required pursuant to
Section 2.01(c), or fails to fully fund the purchase of its participation
obligations pursuant to Section 2.02 or 3.03.
"DISQUALIFIED CAPITAL STOCK" means (a) except as set forth in
--------------------------
(b) below, with respect to any Person, any Equity Interest of such Person that,
by its terms or by the terms of any security into which it is convertible,
exercisable or exchangeable is, or upon the happening of an event (other than
customary change of control provisions) or the passage of time or both would be,
required to be redeemed or repurchased (including at the option of the holder
thereof) by such Person or any of its Subsidiaries, in whole or in part, other
than solely for Qualified Capital Stock of the Borrower, on or prior to 91 days
following the stated maturity of the Subordinated Notes and (b) with respect to
any Subsidiary of such Person (including with respect to any Subsidiary of the
Borrower), any Equity Interests other than any common equity with no preference,
privileges or redemption or repayment provisions.
"DOCUMENTATION AGENT" means Royal Bank of Canada, as
-------------------
documentation agent under this Agreement, and its successors and assigns in such
capacity.
"DOCUMENTS" means any "documents," as such term is defined in
---------
the Code, now owned or hereafter acquired by any Credit Party, wherever located.
"DOMESTIC LENDING OFFICE" means, with respect to any Lender,
-----------------------
the office of such Lender specified as its "Domestic Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance pursuant to
which it became a Lender, or such other office of such Lender as such Lender may
from time to time specify in writing to the Borrower and the Administrative
Agent.
"DOMESTIC SUBSIDIARY" means any direct or indirect Subsidiary
-------------------
of the Borrower that is not a Foreign Subsidiary.
"DOMTAR" means Domtar Inc.
------
13
<PAGE>
"DOMTAR LITIGATION" means the lawsuit commenced by Panolam
-----------------
Canada against Domtar in the Ontario Court (General Division) in respect of a
claim for breach of warranty pursuant to the Asset Purchase Agreement dated
February 15, 1996 between Panolam Canada and Domtar, as amended.
"DOMTAR NOTE" means the $8,000,000 Promissory Note due
-----------
December 10, 2001, executed by Holdings in favor of Domtar Industries Inc. on
June 12, 1996.
"EBITDA" means, with respect to any Person for any fiscal
------
period, an amount equal to (a) Consolidated Net Income of such Person for such
period, minus (b) the sum, without duplication, and to the extent otherwise
-----
included in determining Consolidated Net Income in accordance with GAAP for such
period, of (i) income tax credits, (ii) interest income, (iii) gain from
extraordinary items for such period, (iv) any aggregate net gain during such
period arising from the sale, exchange or other disposition of capital assets by
such Person (including any fixed assets, all inventory sold in conjunction with
the disposition of fixed assets and all securities), and (v) any other non-cash
gains which have been added in determining Consolidated Net Income, minus (c)
-----
without duplication, and to the extent not otherwise deducted from Consolidated
Net Income in accordance with GAAP for such period, fees paid under any Genstar
Agreement, plus (d) the sum, without duplication, and to the extent deducted in
----
determining Consolidated Net Income in accordance with GAAP for such period, of
(i) any provision for income taxes for such period, (ii) Consolidated Interest
Expense, (iii) loss from extraordinary items for such period, (iv) the amount of
non-cash charges (including depreciation and amortization) for such period, (v)
amortized debt discount for such period, (vi) any aggregate net loss during such
period arising from the sale, exchange or other disposition of capital assets by
such Person (including any fixed assets, all inventory sold in conjunction with
the disposition of fixed assets and all securities), (vii) for the periods
indicated on Schedule 1.01(a) hereto, the amounts indicated on such Schedule
1.01(a) relating to historical restructuring charges and (viii) any applicable
Restructuring Costs, plus (e) without duplication, and to the extent not
----
otherwise included in determining Consolidated Net Income in accordance with
GAAP for such period, the amount of business interruption insurance proceeds
actually received by such Person during such period.
"ELIGIBLE ASSIGNEE" means (a) any Lender and any Affiliate or
-----------------
Approved Fund of any Lender, and the investment advisor of any Approved Fund,
and (b) any commercial bank, savings and loan association, savings bank, finance
company, insurance company, mutual fund or other financial institution, fund or
investor which has been approved in writing (or, in the case of the Borrower,
deemed approved as provided below) by the Borrower and the Administrative Agent
as an Eligible Assignee for purposes of this Agreement, provided in each such
--------
case that (x) such approval shall not be unreasonably withheld, (y) if the
Borrower is requested in writing at any time to approve any Person as an
Eligible Assignee hereunder and the Administrative Agent has not received
written notice from the Borrower, within three Business Days of such request to
the Borrower, that the Borrower does not approve such Person as an Eligible
Assignee, the Borrower shall be deemed to have approved such Person as an
Eligible Assignee, and (z) such approval of the Borrower shall not be required
if an Event of Default has occurred and is
14
<PAGE>
continuing. Neither the Borrower nor any Affiliate of the Borrower shall qualify
as an Eligible Assignee under clause (a) or (b) of this definition.
"ELIGIBLE INVENTORY" means only such Inventory of the Borrower
------------------
and its Domestic Subsidiaries as the Administrative Agent, in its reasonable
credit judgment and in good faith, shall from time to time elect to consider
Eligible Inventory for purposes of this Agreement. The value of such Inventory
shall be determined by the Administrative Agent in its reasonable credit
judgment and in good faith taking into consideration, among other factors, the
lowest of its cost, its book value determined in accordance with GAAP and its
liquidation value. The Administrative Agent reserves the right, at any time and
from time to time after the Closing Date, to adjust any such criteria, to
establish new criteria or to impose and modify Reserves against the Borrowing
Base Amount, in its reasonable credit judgment and in good faith, based on
changes in the salability of or access to Inventory, and otherwise in accordance
with this Agreement, subject to the approval of Supermajority Lenders in the
case of adjustments or new criteria which have the effect of making more credit
available (except in the case of any modification of Reserves referred to in
clause (a) of the definition of "Reserves" in which case no such approval shall
be required). By way of example only, and without limiting the discretion of the
Administrative Agent to consider any Inventory not to be Eligible Inventory,
Eligible Inventory shall not include Inventory:
(a) that is not owned by the Borrower or a Domestic Subsidiary
free and clear of all Liens and rights of any other Person (including
the rights of a purchaser that has made progress payments and the
rights of a surety that has issued a bond to assure the Borrower's or
the applicable Domestic Subsidiary's performance with respect to that
Inventory), except the Liens in favor of the Administrative Agent, on
behalf of itself and the Lender Parties, and Permitted Liens;
(b) that is (i) not located on premises owned, leased or
operated by the Borrower or a Domestic Subsidiary or (ii) stored with a
bailee, warehouseman or similar Person, unless the Administrative Agent
has given its prior written consent thereto and unless (x) a
satisfactory bailee letter or landlord waiver has been delivered to the
Administrative Agent, or (y) Reserves satisfactory to the
Administrative Agent have been established with respect thereto;
(c) that is placed on consignment or is in transit unless it
meets the criteria for not being ineligible under (d) below;
(d) that is covered by a negotiable document of title, unless
such document has been delivered to the Administrative Agent with all
necessary endorsements, free and clear of all Liens except Permitted
Liens;
(e) that consists of display items or packing or shipping
materials, manufacturing supplies, work-in-process Inventory or
replacement parts (other than 65% of the value of belts and plates used
in the finishing process less the disposal costs thereof);
15
<PAGE>
(f) that consists of goods which have been returned by the
buyer;
(g) that is not of a type held for sale in the ordinary course
of the Borrower's or a Domestic Subsidiary's business;
(h) as to which the Administrative Agent's Lien, on behalf of
itself and the Lender Parties, therein is not a first priority
perfected Lien;
(i) as to which any of the representations or warranties
pertaining to Inventory set forth in this Agreement or the Security
Agreement is untrue;
(j) that consists of any costs associated with "freight-in"
charges;
(k) that consists of Hazardous Materials or goods that can be
transported or sold only with licenses that are not readily available;
or
(l) that is not covered by casualty insurance that complies
with Section 6.01(d).
"ELIGIBLE RECEIVABLES" means only such Receivables of the
--------------------
Borrower and its Domestic Subsidiaries as the Administrative Agent, in its
reasonable credit judgment and in good faith, shall from time to time elect to
consider Eligible Receivables for purposes of this Agreement. The value of such
Receivables shall be determined by the Administrative Agent in its reasonable
credit judgment and in good faith taking into consideration, among other
factors, their book value determined in accordance with GAAP. The Administrative
Agent reserves the right, at any time and from time to time after the Closing
Date, to adjust any such criteria, to establish new criteria or to impose and
modify Reserves against the Borrowing Base Amount, in its reasonable credit
judgment and in good faith, based on changes following the Closing Date in the
collectibility by the Administrative Agent of such Receivables and, otherwise,
in accordance with this Agreement, subject to the approval of Supermajority
Lenders in the case of adjustments or new criteria that have the effect of
making more credit available. By way of example only, and without limiting the
discretion of the Administrative Agent to consider any Receivables not to be
Eligible Receivables, Eligible Receivables shall not include any Receivable:
(a) that does not arise from the sale of goods or the
performance of services by the Borrower or any of its Domestic
Subsidiaries in the ordinary course of its business;
(b) (i) upon which the Borrower's or the applicable Domestic
Subsidiary's right to receive payment is not absolute or is contingent
upon the fulfillment of any condition whatsoever or (ii) upon which the
Borrower or the applicable Domestic Subsidiary is not able to bring
suit or otherwise enforce its remedies against the Receivables Debtor
through judicial process or binding arbitration, or (iii) if the
Receivable represents a progress billing consisting of an invoice for
goods sold or used or services rendered pursuant to a contract under
which the Receivables Debtor's obligation to pay that invoice is
subject to the Borrower's or the applicable Domestic Subsidiary's
16
<PAGE>
completion of further performance under such contract other than usual
ordinary course warranties or as may be covered by Reserves;
(c) to the extent any defense, counterclaim, setoff or dispute
is asserted as to such Receivable;
(d) that is not a true and correct statement of bona fide
indebtedness incurred in the amount of the Receivable for merchandise
sold and shipped, or services rendered, to the applicable Receivables
Debtor;
(e) with respect to which an invoice, acceptable to the
Administrative Agent in form and substance, has not been sent to the
applicable Receivables Debtor;
(f) that (i) is not owned by the Borrower or any of its
Domestic Subsidiaries or (ii) is subject to any right, claim, security
interest or other interest of any other Person, other than Liens in
favor of the Administrative Agent, on behalf of itself and the Lender
Parties, and Permitted Liens;
(g) that arises from a sale to any director, officer, other
employee or Affiliate of any Loan Party;
(h) that is the obligation of a Receivables Debtor that is the
U.S. government or a state government or a political subdivision of any
thereof, or any department, agency or instrumentality of any thereof
unless the Administrative Agent, in its sole discretion, has agreed to
the contrary in writing and the Borrower or the applicable Domestic
Subsidiary, if necessary or desirable, has complied with the Federal
Assignment of Claims Act of 1940, and any amendments thereto and any
analogous provisions of state law, with respect to such obligation;
(i) that is the obligation of a Receivables Debtor located in
a foreign country other than Canada (excluding the Province of
Newfoundland and the Northwest Territories, unless a perfected first
priority Lien in favor of the Administrative Agent is obtained therein
under the laws of such jurisdiction) unless payment thereof is assured
by a letter of credit assigned and delivered to the Administrative
Agent, satisfactory to the Administrative Agent as to form, amount and
issuer;
(j) to the extent a Loan Party or any holding company or any
Subsidiary thereof is liable for goods sold or services rendered by the
applicable Receivables Debtor to such Loan Party or holding company or
Subsidiary thereof, but only to the extent of the potential offset;
(k) that arises with respect to goods which are delivered on a
bill-and-hold, cash-on-delivery basis or placed on consignment,
guaranteed sale or other terms by reason of which the payment by the
Receivables Debtor is or may be conditional;
17
<PAGE>
(l) that is in default; provided that, without limiting the
generality of the foregoing, a Receivable shall be deemed in default
upon the occurrence of any of the following:
(i) that is not paid within the earlier of 60 days
following its due date or 90 days following its original invoice date;
(ii) if any Receivables Debtor obligated upon such
Receivable suspends business, makes a general assignment for the
benefit of creditors or fails to pay its debts generally as they come
due; or
(iii) if any assignment or petition is filed by or
against any Receivables Debtor obligated upon such Receivable under any
bankruptcy law or any other federal, state or foreign (including any
provincial) receivership, insolvency relief or other law or laws for
the relief of debtors;
(m) that is the obligation of a Receivables Debtor if 50% or
more of the dollar amount of all Receivables owing by that Receivables
Debtor are ineligible under the criteria set forth in clause (l) above;
(n) as to which the Administrative Agent's Lien thereon, on
behalf of itself and the Lender Parties, is not a first priority
perfected Lien;
(o) as to which any of the representations or warranties
pertaining to Receivables set forth in this Agreement or in any of the
Loan Documents is untrue;
(p) to the extent such Receivable is evidenced by a judgment,
instrument or chattel paper;
(q) of any Receivables Debtor if, when aggregated with all
other Receivables of such Receivables Debtor owed to the Borrower or
any of its Domestic Subsidiaries, the Receivable exceeds 10% (or, with
respect to Rugby U.S.A., Inc. only, 20%) in face value of all
Receivables of the Borrower and its Domestic Subsidiaries then
outstanding, to the extent of such excess; or
(r) that is payable in any currency other than US Dollars.
"ELKHART PROPERTY" has the meaning set forth in Section
----------------
6.01(p)(i).
"ENVIRONMENTAL ACTION" means any administrative, regulatory or
--------------------
judicial action, suit, demand, demand letter, claim, notice of non-compliance or
violation, investigation, proceeding, consent order or consent agreement
relating in any way to any Environmental Law or any Environmental Permit
including, without limitation, (a) any claim by any governmental or regulatory
authority for enforcement, cleanup, removal, response, remedial or other actions
or damages pursuant to any Environmental Law and (b) any claim by any third
party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief
18
<PAGE>
resulting from Hazardous Materials or arising from alleged injury or threat of
injury to health, safety or the environment.
"ENVIRONMENTAL LAW" means any domestic or foreign, federal,
-----------------
state or local law, rule, regulation, order or judgment relating to the
environment, occupational health and safety or Hazardous Materials, including,
without limitation, CERCLA, the Resource Conservation and Recovery Act, the
Hazardous Materials Transportation Act, the Clean Water Act, the Toxic
Substances Control Act, the Clean Air Act, the Safe Drinking Water Act, the
Atomic Energy Act, the Federal Insecticide, Fungicide and Rodenticide Act and
the Occupational Safety and Health Act.
"ENVIRONMENTAL PERMIT" means any permit, approval,
--------------------
identification number, license or other authorization required under any
Environmental Law.
"EQUITY INTERESTS" means, with respect to any Person, any
----------------
Capital Stock of such Person or membership interests, partnership interests
(whether general or limited), participations or other equity interests (however
designated) in such Person, regardless of type, class, preference or
designation, and all warrants, options, purchase rights, conversion or exchange
rights, voting rights, calls or claims of any character with respect thereto, in
each case whether outstanding on the date of this Agreement or issued or granted
at any time thereafter.
"ERISA" means the Employee Retirement Income Security Act of
-----
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA AFFILIATE" of any Person means any other Person that
---------------
for purposes of Title IV of ERISA is a member of such Person's controlled group,
or under common control with such Person, within the meaning of Section 414 (b),
(c), (m) or (o) of the Internal Revenue Code.
"ERISA EVENT" with respect to any Person means (a) the
-----------
occurrence of a reportable event, within the meaning of Section 4043 of ERISA,
with respect to any Plan of such Person or any of its ERISA Affiliates unless
the 30-day notice requirement with respect to such event has been waived by the
PBGC; (b) the provision by the administrator of any Plan of such Person or any
of its ERISA Affiliates of a notice of intent to terminate such Plan, pursuant
to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan
amendment referred to in Section 4041(e) of ERISA); (c) the cessation of
operations at a facility of such Person or any of its ERISA Affiliates in the
circumstances described in Section 4062(e) of ERISA; (d) the withdrawal by such
Person or any of its ERISA Affiliates from a Multiple Employer Plan during a
plan year for which it was a substantial employer, as defined in Section
4001(a)(2) of ERISA; (e) the failure by such Person or any of its ERISA
Affiliates to make a payment to a Plan required under Section 302(f)(1) of
ERISA; (f) the adoption of an amendment to a Plan of such Person or any of its
ERISA Affiliates requiring the provision of security to such Plan, pursuant to
Section 307 of ERISA; or (g) the institution by the PBGC of proceedings to
terminate a Plan of such Person or any of its ERISA Affiliates, pursuant to
Section 4042 of ERISA, or the occurrence of any event or condition described in
Section 4042 of ERISA, other than subsection (a)(4) thereof, that could
constitute grounds for the termination of, or the appointment of a trustee to
administer, such Plan.
19
<PAGE>
"EUROCURRENCY LIABILITIES" has the meaning specified in
------------------------
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"EURODOLLAR LENDING OFFICE" means, with respect to any Lender,
-------------------------
the office of such Lender specified as its "Eurodollar Lending Office" opposite
its name on Schedule I hereto or in the Assignment and Acceptance pursuant to
which it became a Lender (or, if no such office is specified, its Domestic
Lending Office), or such other office of such Lender as such Lender may from
time to time specify in writing to the Borrower and the Administrative Agent.
"EURODOLLAR RATE" means for any Eurodollar Rate Loan for any
---------------
Interest Period therefor, an interest rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) equal to the rate per annum obtained by
dividing (a) the rate per annum determined by the Administrative Agent at
approximately 11:00 a.m. (London time) on the date which is two Business Days
prior to the beginning of the relevant Interest Period (as specified in the
applicable Notice of Borrowing or Notice of Conversion/Continuation) by
reference to the British Bankers' Association Interest Settlement Rates for
deposits in US Dollars (as set forth by any service selected by the
Administrative Agent which has been nominated by the British Bankers'
Association as an authorized information vendor for the purpose of displaying
such rates) for a period equal to such Interest Period by (b) a percentage equal
to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period;
-----
provided that, to the extent that an interest rate is not ascertainable pursuant
- --------
to the foregoing provisions of this definition, the "Eurodollar Rate" shall be
an interest rate per annum (rounded upwards, if necessary, to the nearest 1/100
of 1%) equal to the rate per annum obtained by dividing (a) the interest rate
per annum determined by the Administrative Agent to be the rate per annum at
which deposits in US Dollars are offered for such relevant Interest Period to
major banks in the London interbank market in London, England by the Eurodollar
Reference Lender at approximately 11:00 a.m. (London time) on the date which is
two Business Days prior to the beginning of such Interest Period by (b) a
percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such
-----
Interest Period.
"EURODOLLAR RATE LOAN" has the meaning specified in Section
--------------------
2.05(b).
"EURODOLLAR RATE RESERVE PERCENTAGE" means, for any Interest
----------------------------------
Period for any Eurodollar Rate Loan, the reserve percentage applicable two
Business Days before the first day of such Interest Period under regulations
issued from time to time by the Board of Governors of the Federal Reserve System
(or any successor) for determining the maximum reserve requirement (including,
without limitation, any emergency, supplemental or other marginal reserve
requirement) for a member bank of the Federal Reserve System in New York City
with respect to liabilities or assets consisting of or including Eurocurrency
Liabilities (or with respect to any other category of liabilities that includes
deposits by reference to which the interest rate on Eurodollar Rate Loans is
determined) having a term equal to such Interest Period.
"EURODOLLAR REFERENCE LENDER" means CSFB.
---------------------------
"EVENTS OF DEFAULT" has the meaning specified in Section 7.01.
-----------------
20
<PAGE>
"EXCESS CASH FLOW" means, without duplication, with respect to
----------------
any Fiscal Year of the Borrower, (a) Consolidated Net Income, plus (b) to the
----
extent deducted from or not otherwise included in Consolidated Net Income in
accordance with GAAP for such period (i) depreciation, amortization and
Consolidated Interest Expense, (ii) the amount of any insurance proceeds
received during such Fiscal Year and not applied (or committed to be applied) to
restore or replace property (but only to the extent not otherwise required to be
applied to prepayments hereunder), (iii) taxes deducted in determining
Consolidated Net Income to the extent not paid for in cash, (iv) settlement
amounts received from Domtar in connection with the final settlement of the
Domtar Litigation to the extent not used to offset or reduce the Domtar Note,
and (v) restructuring reserves minus (c) to the extent not deducted in
-----
determining Consolidated Net Income in accordance with GAAP for such period (i)
Capital Expenditures during such Fiscal Year (excluding the portion thereof
financed by third party credit sources and excluding any Capital Expenditures in
such Fiscal Year to the extent in excess of the amount permitted to be made in
such Fiscal Year pursuant to Section 6.04(d) (unless financed with the proceeds
of casualty insurance)), (ii) Consolidated Interest Expense paid or accrued
(excluding any original issue discount, interest paid in kind or amortized debt
discount, to the extent included in determining Interest Expense) and scheduled
principal payments paid or payable in respect of Funded Debt, (iii) voluntary
prepayments paid pursuant to Section 2.04(a) or Section 2.04(b), (iv) earn-out
payments made to Rugby U.S.A., Inc. pursuant to the Pioneer Acquisition
Agreement, (v) the cash portion of restructuring costs incurred and (vi) that
portion of the fees paid under the Genstar Agreements but not deducted in the
calculation of Consolidated Net Income, plus or minus (as the case may be) (d)
---- -----
to the extent otherwise included or deducted or to the extent not otherwise
included or deducted (as the case may be), in determining Consolidated Net
Income in accordance with GAAP for such period (i) decreases or increases (as
the case may be) in Working Capital, (ii) extraordinary gains or losses which
are cash items, and (iii) foreign currency unrealized gains or losses. For
purposes of this definition, "WORKING CAPITAL" means Current Assets less Current
---------------
Liabilities.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
------------
amended.
"EXCLUDED ACQUISITION" means the Acquisition by the Excluded
--------------------
Acquisition Sub of a Person disclosed to the Lenders prior to the date hereof on
substantially the terms disclosed to the Lenders prior to the date hereof.
"EXCLUDED ACQUISITION SUB" means a wholly owned Domestic
------------------------
Subsidiary of the Borrower that (a) has no Debt other than Non-Recourse Debt,
(b) is not party to any agreement, contract, arrangement or understanding with
any Loan Party unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to such Loan Party than those that might be
obtained at the time from Persons who are not Affiliates of the Borrower, (c) is
a Person with respect to which no Loan Party has any direct or indirect
obligation (i) to subscribe for additional Equity Interests, or (ii) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results, (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Debt of a Loan Party, and
(e) constitutes an "Unrestricted Subsidiary" as defined in the Subordinated Note
Indenture.
21
<PAGE>
"EXCLUDED FOREIGN SUBSIDIARY" means a Foreign Subsidiary other
---------------------------
than the Canadian Borrower and its Subsidiaries.
"EXCLUDED MELAMINE SUBS" means The Melamine Group Inc.,
----------------------
Melamine Decorative Laminate, Inc. and any successor to either of them; provided
--------
that any such Person shall cease to be an "Excluded Melamine Sub" if and to the
extent that the Loan Parties and such Person have complied with all applicable
provisions of Section 6.01(n) as if such Person were a newly acquired Domestic
Subsidiary of the Borrower.
"EXEMPTED AFFILIATE TRANSACTION" means (a) customary employee
------------------------------
compensation arrangements approved by a majority of independent (as to such
transactions) members of the Board of Directors of the Borrower, (b) dividends
permitted by Section 6.02(g) and payable, in form and amount, on a pro rata
basis to all holders of common stock of the Borrower, (c) transactions solely
between the Borrower and any of its Subsidiaries or solely among Subsidiaries of
the Borrower, (d) any issuance of securities, or other payments, awards or
grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans approved by a
majority of members of the Board of Directors of the Borrower and, if any, a
majority of the independent members of such Board consistent with industry
practice, (e) the grant of stock options or similar rights to employees and
directors of the Borrower and its Subsidiaries pursuant to plans approved by a
majority of members of the Board of Directors of the Borrower and, if any, a
majority of the independent members of such Board, (f) loans or advances to
employees in the ordinary course of business in accordance with applicable law
and the past practices of the Borrower or its Subsidiaries, but in any event not
to exceed $1,500,000 in the aggregate outstanding at any one time, (g) the
payment of reasonable fees and indemnities to directors of the Borrower and its
Subsidiaries who are not employees of the Borrower or its Subsidiaries, and (h)
transactions (including, subject to Section 6.02(r), the payment of fees)
pursuant to the Genstar Agreements. For the avoidance of doubt, no transaction
with the Excluded Acquisition Sub shall constitute an Exempted Affiliate
Transaction.
"EXISTING CANADIAN CREDIT AGREEMENT" means the Credit
----------------------------------
Agreement dated as of November 19, 1997, by and among Panolam Industries Ltd.,
as Borrower, the other credit parties signatory thereto, General Electric
Capital Canada Inc., as a lender and as agent for the lenders thereunder, and
the other entities signatory thereto as lenders, as the same may have been
amended or otherwise modified to date.
"EXISTING CREDIT AGREEMENT" means the Credit Agreement dated
-------------------------
as of November 19, 1997, by and among Panolam Industries, Inc., as Borrower,
Holdings, the other credit parties signatory thereto, General Electric Capital
Corporation, as a lender and as agent for the lenders thereunder, and the other
financial institutions signatory thereto as lenders, as the same may have been
amended or otherwise modified to date.
"EXISTING CREDIT DOCUMENTATION" means, collectively, the
-----------------------------
Existing Credit Agreement, the Existing Canadian Credit Agreement and all
ancillary documents.
"EXISTING DEBT" means all preexisting Debt of Holdings and its
-------------
Subsidiaries set forth on Schedule 5.01(q)(i).
22
<PAGE>
"EXISTING LENDERS" means, collectively, the agent and lenders
----------------
under the Existing Credit Agreement and the agent and lenders under the Existing
Canadian Credit Agreement.
"FACILITY" means either of the Term Facilities, the Revolving
--------
Facility, the Swing Line Facility or the Letter of Credit Subfacility, and
"FACILITIES" means all of them collectively.
----------
"FEDERAL FUNDS RATE" means, for any period, a fluctuating
------------------
interest rate per annum 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 next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day that is a Business Day, the average of the quotations for such day
for such transactions received by the Administrative Agent from three Federal
funds brokers of recognized standing selected by it.
"FISCAL MONTH" shall mean any calendar month.
------------
"FISCAL YEAR" means a fiscal year of the Borrower and its
-----------
Subsidiaries, which currently ends on December 31 of each calendar year.
"FOREIGN ACQUISITION" means any Acquisition of a Person not
-------------------
organized under the laws of the United States of America, Canada or any state or
province of either of them, as applicable.
"FOREIGN SUBSIDIARY" means (i) Panolam Canada and its
------------------
Subsidiaries and (ii) any "controlled foreign corporation" within the meaning of
Section 957(a) of the Internal Revenue Code as to which Holdings or any of its
Subsidiaries is a "United States shareholder" as defined in Section 951(b) of
the Internal Revenue Code.
"FUNDED DEBT" means, with respect to any Person, all Debt for
-----------
borrowed money evidenced by notes, bonds, debentures, or similar evidences of
Debt and which by its terms matures more than one year from the date of
determination, or is directly or indirectly renewable or extendible at such
Person's option under a revolving credit or similar agreement obligating the
lender or lenders to extend credit over a period of more than one year from the
date of determination, and specifically including Capital Lease Obligations,
current maturities of long-term debt, revolving credit and short-term debt
extendible beyond one year at the option of the debtor, and also including, in
the case of Borrower, all Debt for borrowed money which is part of the
Obligations under the Loan Documents or the Canadian Loan Documents.
"GAAP" has the meaning specified in Section 1.03.
----
"GENSTAR AGREEMENTS" means the Transaction Fee Agreement and
------------------
the Management Services Agreement.
"GENSTAR CAPITAL" means Genstar Capital Partners II, L.P. and
---------------
any Person who controls, is controlled by or is under common control with
Genstar Capital Partners II, L.P.;
23
<PAGE>
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.
"GRANTING LENDER" has the meaning specified in Section
---------------
9.07(h).
"GROUP" means Panolam Group, Inc., a Delaware corporation.
-----
"GUARANTORS" means Holdings, Group, PII Second, Panolam US,
----------
Pioneer and each other Person, if any, that executes or otherwise becomes a
party to the Guaranty or any other guaranty or other similar agreement in favor
of the Administrative Agent, the Lender Parties and the other Agents in
connection with the transactions contemplated by this Agreement and the other
Loan Documents.
"GUARANTY" has the meaning specified in Section 4.01(k)(xvi).
--------
"HAZARDOUS MATERIALS" means (a) petroleum or petroleum
-------------------
products, natural or synthetic gas, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation and radon gas, (b) any substances
defined as or included in the definition of "hazardous substances", "hazardous
wastes", "hazardous materials", "extremely hazardous wastes", "restricted
hazardous wastes", "toxic substances", "toxic pollutants", "dangerous goods",
"contaminants" or "pollutants", or words of similar import, under any
Environmental Law and (c) any other substance exposure to which is regulated
under any Environmental Law.
"HEDGE AGREEMENTS" means Interest Rate Contracts and Currency
----------------
Hedging Agreements.
"HOLDINGS" means Panolam Industries Holdings, Inc., a Delaware
--------
corporation.
"INDEMNIFIED PARTY" has the meaning specified in Section
-----------------
9.04(b).
"INFORMATION MEMORANDUM" means the information memorandum
----------------------
dated January 1999 used by the Syndication Agent and the Administrative Agent in
connection with the syndication of the Commitments.
"INITIAL LENDERS" has the meaning specified in the recital of
---------------
parties to this Agreement.
"INITIAL PUBLIC EQUITY OFFERING" means an initial Public
------------------------------
Equity Offering following which the common stock of the Borrower or any of the
Borrower's Parents, as the case may be, is listed on a national securities
exchange or quoted on the national market system of the Nasdaq stock market. For
purposes of this definition, (i) a "PUBLIC EQUITY OFFERING" means an
----------------------
underwritten public offering pursuant to a registration statement filed with the
Securities and Exchange Commission in accordance with the Securities Act of
1933, as amended, of (a) Qualified Capital Stock of the Borrower or (b)
Qualified Capital Stock of any of the Borrower's Parents, to the extent that the
cash proceeds therefrom are used as a Capital Contribution to the
24
<PAGE>
Borrower; (ii) "QUALIFIED CAPITAL STOCK" means any Capital Stock of the Borrower
-----------------------
that is not Disqualified Capital Stock; and (iii) "CAPITAL CONTRIBUTION" means
--------------------
any contribution to the equity of the Borrower from any of its Parents for which
no consideration other than the issuance of Qualified Capital Stock is given.
"INSTRUMENTS" means any "instruments", as such term is defined
-----------
in the Code, now owned or hereafter acquired by any Credit Party, wherever
located, and, in any event, including without limitation, all certificated
securities, all certificates of deposit, and all notes and other evidences of
indebtedness, other than instruments that constitute, or are a part of a group
of writings that constitute, Chattel Paper.
"INSUFFICIENCY" means, with respect to any Plan, the amount,
-------------
if any, of its unfunded benefit liabilities, as defined in Section 4001(a)(18)
of ERISA.
"INSURANCE/CONDEMNATION PROCEEDS" means any cash payments or
-------------------------------
proceeds received by Holdings or its Domestic Subsidiaries (i) under any
business interruption or casualty insurance policy in respect of a covered loss
thereunder or (ii) as a result of the taking of any assets of Holdings or any of
its Domestic Subsidiaries by any Person pursuant to the power of eminent domain,
condemnation or otherwise, or pursuant to a sale of any such assets to a
purchaser with such power under threat of such a taking, in each case net of any
actual and reasonable documented costs (including commissions and reasonable
attorneys' fees) incurred by Holdings or any of its Domestic Subsidiaries in
connection with the adjustment or settlement of any claims of Holdings or such
Domestic Subsidiary in respect thereof. Cash payments or proceeds payable in
respect of any loss incurred by Holdings or any of its Domestic Subsidiaries or
any taking of assets of Holdings or any of its Domestic Subsidiaries of the
nature described above shall be deemed to be received by the Borrower for the
purposes of this Agreement notwithstanding that such cash payments or proceeds
may actually be paid to Holdings or another Domestic Subsidiary of Holdings.
"INTERCOMPANY NOTE" means a promissory note in the form of
-----------------
Exhibit XIII-A or Exhibit XIII-B hereto or Exhibit XVII to the Canadian Credit
- -------------- -------------- ------------
Agreement, as applicable, evidencing intercompany Debt and pledged to the
Administrative Agent or the Canadian Administrative Agent in accordance with the
Security Agreement or the Canadian Security Agreement and subject to the
Intercreditor Agreement.
"INTERCREDITOR AGREEMENT" has the meaning specified in Section
-----------------------
4.01(k)(xxviii).
"INTEREST EXPENSE" means, with respect to any Person for any
----------------
fiscal period, interest expense (whether cash or non-cash) of such Person
determined in accordance with GAAP for the relevant period ended on such date,
including, in any event, interest expense with respect to any Funded Debt of
such Person and interest expense for the relevant period that has been
capitalized on the balance sheet of such Person.
"INTEREST PERIOD" has the meaning specified in Section
---------------
2.05(b).
25
<PAGE>
"INTEREST RATE CONTRACTS" means interest rate swap, cap or
-----------------------
collar agreements, interest rate future or option contracts and other similar
agreements.
"INTEREST TYPE" refers to the distinction between Loans
-------------
bearing interest based on the Base Rate and Loans bearing interest based on the
Eurodollar Rate.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of
---------------------
1986, as amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"INVENTORY" means any "inventory", as such term is defined in
---------
the Code, now or hereafter owned or acquired by any Credit Party, wherever
located, and in any event including inventory, merchandise, goods and other
personal property which are held by or on behalf of any Credit Party for sale or
lease or are furnished or are to be furnished under a contract of service, or
which constitute raw materials, work in process or materials used or consumed or
to be used or consumed in such Credit Party's business or in the processing,
production, packaging, promotion, delivery or shipping of the same, including
other supplies.
"INVESTMENT" in any Person means any loan or advance to such
----------
Person, any purchase or other acquisition of any Capital Stock, warrants,
rights, options, obligations or other securities of such Person, any capital
contribution to such Person or any other investment in such Person, including,
without limitation, any arrangement pursuant to which the investor incurs Debt
of the types referred to in clauses (i) and (j) of the definition of "Debt" in
----
respect of such Person.
"ISSUE" means, with respect to any Letter of Credit, issue
-----
such Letter of Credit, extend the expiration of such Letter of Credit (other
than any such extension occurring pursuant to the terms of such Letter of
Credit), renew such Letter of Credit (other than any such renewal occurring
pursuant to the terms of such Letter of Credit), or increase the amount of such
Letter of Credit, and the terms "ISSUED", "ISSUING" and "ISSUANCE" shall have
------ ------- --------
corresponding meanings.
"ISSUING BANK" means the Letter of Credit Bank and any other
------------
Revolving Lender that is a commercial bank, acting through a domestic branch, as
issuer of a Letter of Credit.
"LEAD ARRANGER" means Donaldson, Lufkin & Jenrette Securities
-------------
Corporation, as lead arranger under this Agreement.
"LENDER PARTY" means any Lender or any Issuing Bank.
------------
"LENDERS" means the Initial Lenders, the Swing Line Lender and
-------
each Eligible Assignee that shall become a party hereto pursuant to Section
9.07.
"LETTER OF CREDIT" means any letter of credit issued
----------------
hereunder.
"LETTER OF CREDIT AGREEMENT" has the meaning specified in
--------------------------
Section 3.02(a).
"LETTER OF CREDIT BANK" means CSFB in its capacity as an
---------------------
Issuing Bank.
26
<PAGE>
"LETTER OF CREDIT CASH COLLATERAL ACCOUNT" has the meaning
----------------------------------------
specified in the Security Agreement.
"LETTER OF CREDIT COMMITMENT" means, with respect to any
---------------------------
Issuing Bank at any time, the amount set forth opposite such Issuing Bank's name
on Schedule I hereto under the caption "Letter of Credit Commitment" or, if such
Issuing Bank has entered into one or more Assignments and Acceptances, set forth
for such Issuing Bank in the Register maintained by the Administrative Agent
pursuant to Section 9.07(c) as such Issuing Bank's "Letter of Credit
Commitment", as such amount may be reduced at or prior to such time pursuant to
Section 2.04.
"LETTER OF CREDIT DOCUMENTS" has the meaning specified in
--------------------------
Section 3.04(a).
"LETTER OF CREDIT DRAWING" means a payment made by an Issuing
------------------------
Bank against a drawing under a Letter of Credit.
"LETTER OF CREDIT OBLIGATIONS" means, as of any date of
----------------------------
determination with respect to any Letter of Credit, the sum of (a) the then
outstanding amount of such Letter of Credit available for drawing plus (b) the
aggregate amount of the Unreimbursed Letter of Credit Liability thereunder.
"LETTER OF CREDIT SUBFACILITY" has the meaning specified in
----------------------------
Section 3.01.
"LETTER OF CREDIT SUBLIMIT" has the meaning specified in
-------------------------
Section 3.01.
"LETTER OF CREDIT USAGE" means, as at any date of
----------------------
determination, the sum of (i) the maximum aggregate amount which is or at any
time thereafter may become available for drawing under all Letters of Credit
then outstanding plus (ii) the aggregate amount of all Letter of Credit Drawings
not theretofore reimbursed by the Borrower.
"LIEN" means any lien, mortgage, pledge, security interest,
----
charge, assignment, hypothecation or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest) and any other
agreement intended to create any of the foregoing.
"LOAN" means a Term Loan, a Revolving Loan, a Swing Line Loan
----
or the Issuance of a Letter of Credit.
"LOAN DOCUMENTS" means this Agreement, the Notes (if any), the
--------------
Guaranties, the Intercreditor Agreement, the Collateral Documents, each Letter
of Credit Agreement and each Bank Hedge Agreement.
"LOAN PARTIES" means the Borrower, each of the Guarantors and
------------
each of their respective present and future Subsidiaries.
"MANAGEMENT SERVICES AGREEMENT" means the Amended and Restated
-----------------------------
Management Advisory and Consulting Agreement dated as of January 24, 1999,
between
27
<PAGE>
Panolam US, Panolam Canada and Genstar Capital, as in effect on the date hereof
and as thereafter amended to the extent permitted by Section 6.02(n).
"MARGIN STOCK" has the meaning specified in Regulation T or
------------
Regulation U, as applicable.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on,
-----------------------
or change in, (a) the business, condition (financial or otherwise), operations,
assets, liabilities, performance, properties or prospects of Holdings and its
Subsidiaries, taken as a whole, (b) the rights and remedies of the
Administrative Agent or any Lender under any Loan Document or Related Document
or (c) the ability of any Loan Party to perform its Obligations under any Loan
Document or Related Document to which it is or is to be a party.
"MATERIAL CONTRACT" means, with respect to any Person, each
-----------------
contract to which such Person is a party involving aggregate consideration
payable to or by such Person of $1,000,000 or more in any year or otherwise
material to the business, condition (financial or otherwise), operations,
performance, properties or prospects of such Person and which is not cancelable
without penalty (or with a penalty of $50,000 or less) on three months or less
notice.
"MATERIAL LEASES" means, as of any date of determination, all
---------------
leases of real property that are subject to any Mortgage or Additional Mortgage.
"MORTGAGES" has the meaning specified in Section 4.01(k)(xv)
---------
and shall also include any Additional Mortgages.
"MORTGAGE POLICIES" has the meaning specified in Section
-----------------
4.01(k)(xv)(B).
"MULTIEMPLOYER PLAN" of any Person means a multiemployer plan,
------------------
as defined in Section 4001(a)(3) of ERISA, to which such Person or any of its
ERISA Affiliates is making or accruing an obligation to make contributions, or
has within any of the preceding five plan years made or accrued an obligation to
make contributions.
"MULTIPLE EMPLOYER PLAN" of any Person means a single employer
----------------------
plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of such Person or any of its ERISA Affiliates and at least one Person
other than such Person and its ERISA Affiliates or (b) was so maintained and in
respect of which such Person or any of its ERISA Affiliates could have liability
under Section 4064 or 4069 of ERISA in the event such plan has been or were to
be terminated.
"NET BORROWING AVAILABILITY" shall mean, as of any date of
--------------------------
determination (a) the lesser of the amount of the Revolving Facility and the
amount of the Borrowing Base Amount, less (b) the Total Utilization of Revolving
Commitments.
"NET CASH PROCEEDS" means, with respect to any sale, lease,
-----------------
transfer or other disposition of any asset or the sale or issuance of any Debt
or Capital Stock, any securities convertible into or exchangeable for Capital
Stock or any warrants, rights or options to acquire
28
<PAGE>
Capital Stock by any Person, the aggregate amount of cash received from time to
time by or on behalf of such Person in connection with such transaction after
deducting therefrom only (a) reasonable and customary brokerage commissions,
underwriting fees and discounts, legal fees, finder's fees and other similar
fees and commissions, (b) the amount of taxes payable in connection with or as a
direct result of such transaction and (c) the amount of any Debt secured by a
Lien on such asset that, by the terms of such transaction, is required to be
repaid upon such disposition, in each case with respect to the foregoing clauses
(a) and (c) to the extent, but only to the extent, that the amounts so deducted
are, at the time of receipt of such cash, actually paid to a Person that is not
an Affiliate of Holdings (unless such payments are permitted hereunder) and are
properly attributable to such transaction or to the asset that is the subject
thereof.
"NON-RECOURSE DEBT" means Debt which satisfies each of the
-----------------
following requirements: (a) no Loan Party (i) provides credit support of any
kind (including any undertaking, agreement or instrument that would constitute
Debt), (ii) is directly or indirectly liable as a guarantor or otherwise, or
(iii) constitutes the lender; (b) no default with respect to such Debt
(including any rights that the holders thereof may have to take enforcement
action against the Excluded Acquisition Sub) would permit upon notice, lapse of
time or both any holder of any other Debt (other than the Obligations under this
Agreement and the Canadian Credit Agreement) of any Loan Party to declare a
default on such other Debt or cause the payment thereof to be accelerated or
payable prior to its stated maturity; (c) the lenders with respect to such Debt
have been notified, and have acknowledged in writing or pursuant to the terms of
the instruments and agreements governing such Debt, in each case prior to the
incurrence of such Debt, that they will not have any recourse to the stock or
assets of any Loan Party; (d) the Administrative Agent and the Lenders have
received notice of the amount and principal terms of such Debt prior to its
incurrence; and (e) such Debt is otherwise on terms and conditions reasonably
satisfactory to the Syndication Agent and the Administrative Agent.
"NOTE" means a Term A Note, a Term B Note, a Revolving Note or
----
a Swing Line Note.
"NOTICE OF BORROWING" means a notice in substantially the form
-------------------
of Exhibit II hereto.
----------
"NOTICE OF CONVERSION/CONTINUATION" means a notice in
---------------------------------
substantially the form of Exhibit III hereto.
-----------
"NOTICE OF ISSUANCE" means a notice in substantially the form
------------------
of Exhibit IV hereto.
----------
"NOTICE OF SWING LINE BORROWING" means either (i) a notice
------------------------------
substantially in the form of Exhibit V hereto, or (ii) notice by
---------
teletransmission or telephonic notice of the information required by Exhibit V.
---------
"OBLIGATION" means, with respect to any Person, any obligation
----------
of such Person of any kind, including, without limitation, any liability of such
Person on any claim, whether or not the right of any creditor to payment in
respect of such claim is reduced to judgment, liquidated,
29
<PAGE>
unliquidated, fixed, contingent, matured, disputed, undisputed, legal,
equitable, secured or unsecured, and whether or not such claim is discharged,
stayed or otherwise affected by any proceeding referred to in Section 7.01(g).
Without limiting the generality of the foregoing, the Obligations of the Credit
Parties under the Loan Documents include (a) the obligation to pay principal,
interest, Letter of Credit commissions, charges, expenses, fees, attorneys' fees
and disbursements, indemnities and other amounts payable by any Credit Party
under any Loan Document and (b) the obligation to reimburse any amount in
respect of any of the foregoing that any Lender, in its sole discretion, may
elect to pay or advance on behalf of such Credit Party.
"OFFICERS' CERTIFICATE" means, as applied to any corporation,
---------------------
a certificate executed on behalf of such corporation by its Chairman of the
Board (if an officer), its President, one of its Vice Presidents, the Chief
Financial Officer, its Director of Finance, its Treasurer, any of its Assistant
Treasurers, its Controller or any of its Assistant Controllers; provided that
--------
every Officers' Certificate with respect to the compliance with a condition
precedent to the making of any Loans hereunder shall include (a) a statement
that the officer or officers making or giving such Officers' Certificate have
read such condition and any definitions or other provisions contained in this
Agreement relating thereto, (b) a statement that, in the opinion of the signers,
they have made or have caused to be made such examination or investigation as is
necessary to enable them to express an informed opinion as to whether or not
such condition has been complied with, and (c) a statement as to whether, in the
opinion of the signers, such condition has been complied with.
"OPEN YEAR" has the meaning specified in Section 5.01(m)(ii).
---------
"OTHER TAXES" has the meaning specified in Section 2.09(b).
-----------
"PANOLAM CANADA" means Panolam Industries Ltd., an Ontario
--------------
corporation .
"PANOLAM US" means Panolam Industries, Inc., a Delaware
----------
corporation.
"PARENT" means each of Holdings, Group, PII Second and any
------
other direct or indirect parent company of the Borrower now or hereafter
existing.
"PBGC" means the Pension Benefit Guaranty Corporation.
----
"PERMITTED ACQUISITION" means any non-hostile Acquisition made
---------------------
after the date hereof by the Borrower or any of its Subsidiaries if all of the
following conditions are met:
(a) before and immediately after giving effect thereto, (i) no
Default has occurred and is continuing or would result therefrom and
(ii) the representations and warranties of each Loan Party set forth in
the Loan Documents and in the Canadian Loan Documents shall be true and
correct in all material respects on and as of the date of such
Acquisition, as though made on and as of such date, other than any such
representations or warranties that by their terms refer to a date other
than the date of such Acquisition, in which case such representations
and warranties shall be true and correct as of such other date;
30
<PAGE>
(b) such Acquisition has not been preceded by an unsolicited
tender offer for such Person by the Borrower or any of its Affiliates;
(c) all transactions related thereto shall be consummated in
accordance with applicable laws;
(d) in the case of any Acquisition of shares or other Equity
Interests in any Person, such Acquisition is an Acquisition of 100% of
the Equity Interests (less directors qualifying and similar shares) in
such Person and, after giving effect to such Acquisition, such Person
becomes a wholly-owned direct or indirect Subsidiary of the Borrower;
(e) all actions required to be taken, if any, with respect to
any acquired or newly formed Subsidiary under Section 6.01(n) shall
have been taken;
(f) such assets are used for, or such Person is engaged in, a
line of business permitted under Section 6.02(h);
(g) at least (i) 30 days prior to entering into such
Acquisition, or any agreement therefor, the Borrower delivers notice
thereof to the Administrative Agent and (ii) 15 days prior to the
consummation of such Acquisition, the Borrower delivers to the
Administrative Agent and the Lenders a Compliance Certificate
containing the computations used to determine compliance with the
covenants in Section 6.04 on a pro forma basis so as to give effect to
such Acquisition (including any deferred Acquisition consideration
therefor) and all Debt assumed or incurred by any Loan Party in
connection therewith, and attaching the Borrower's then-current good
faith and reasonable financial projections for the first fiscal quarter
ending after the consummation of such Acquisition and the succeeding
three fiscal quarters, demonstrating (to the reasonable satisfaction of
the Administrative Agent) that, after giving effect to such
Acquisition, (A) the Borrower and its Subsidiaries would have been in
compliance with the covenants set forth in Section 6.04 as of the last
day of the fiscal quarter most recently ended prior to the consummation
of such Acquisition and there would have been no increase in the
Consolidated Leverage Ratio, or if there is an increase, not above
3.0:1 and (B) the Borrower can reasonably be expected to remain in
compliance with such covenants, with no increase in the Consolidated
Leverage Ratio, or if there is an increase, not above 3.0:1, for the
12-month period following the consummation of such Acquisition, and to
have sufficient cash liquidity to conduct its business, to support
working capital requirements and to make required income tax
distributions and pay its debts and other liabilities as they become
due;
(h) no Loan Party shall incur, assume or otherwise become
liable for or subject to (i) any Debt in connection with such
Acquisition (except for Debt permitted by Section 6.02(b)), or (ii) any
material contingent liabilities, except for those constituting Debt
permitted by Section 6.02(b);
(i) the aggregate Acquisition Consideration payable by the
Loan Parties in connection with all such Acquisitions does not exceed
$25,000,000 in the aggregate plus
----
31
<PAGE>
up to an additional $5,000,000 in the aggregate of Permitted Seller
Financing and Holdings common stock (valued, prior to an Initial Public
Equity Offering, at fair market value as determined in good faith by
the Board of Directors of Holdings);
(j) the Net Borrowing Availability after giving effect to the
Acquisition shall be at least $3,000,000;
(k) except for Acquisitions consummated when the Applicable
Leverage Ratio is 3.0:1 or less, such business or Person being acquired
shall have had a positive pro forma operating cash flow (reflecting
only such adjustments to actual operating cash flow as would constitute
Approved Cost Adjustments) for the 12-month period prior to the
proposed Acquisition;
(l) the aggregate Acquisition Consideration payable by the
Loan Parties in connection with all Foreign Acquisitions does not
exceed $5,000,000 in the aggregate; and
(m) in the case of an Acquisition of an entity organized under
the laws of Canada, the acquiror shall be Panolam Canada or any of its
Subsidiaries.
"PERMITTED LIENS" means such of the following as to which no
---------------
enforcement, collection, execution, levy or foreclosure proceeding shall have
been commenced: (a) Liens for taxes, assessments and governmental charges or
levies to the extent not required to be paid under Section 6.01(b) hereof; (b)
Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's
and repairmen's Liens and other similar possessory Liens arising in the ordinary
course of business securing obligations that are not overdue for a period of
more than 30 days except to the extent contested in good faith and properly
reserved against; (c) Liens in favor of depository banks arising in the ordinary
course of business in connection with the maintenance and administration of
depository and disbursement accounts; (d) pledges or deposits to secure
obligations under workers' compensation, unemployment insurance, social security
or public liability laws or similar legislation; (e) easements, rights of way
and other minor irregularities in title to real property (including
encroachments and leasehold title) that do not render title to the property
encumbered thereby unmarketable or materially impair the use, value, or
marketability of such property or that would adversely affect the Administrative
Agent's and the Lenders' abilities to exercise their rights and remedies under
the Loan Documents; (f) pledges or deposits of money securing bids, tenders,
contracts (other than contracts for the payment of money) or leases to which any
Loan Party is a party as lessee made in the ordinary course of business; (g)
deposits of money securing statutory obligations of any Loan Party for workers
compensation, unemployment compensation and similar costs (excluding Liens under
ERISA); (h) deposits securing, or in lieu of, surety, appeal or customs bonds in
proceedings to which any Loan Party is a party; (i) any attachment or judgment
lien not constituting an Event of Default under Section 7.01, so long as such
Lien does not attach to any Inventory or Receivables; and (j) presently existing
or hereafter created Liens in favor of the Administrative Agent, on behalf of
the Administrative Agent and the Lender Parties, or in favor of the
Administrative Agent and the Lender Parties.
32
<PAGE>
"PERMITTED RESTRICTIONS", with respect to any consensual
----------------------
restriction on the ability of any Subsidiary of the Borrower to pay dividends or
make other distributions to or on behalf of, or to pay any obligation to or on
behalf of, or otherwise to transfer assets or property to or on behalf of, or
make or pay loans or advances to or on behalf of, the Borrower or any of its
Subsidiaries, means:
(a) restrictions imposed pursuant to this Agreement, the
Canadian Credit Agreement, any of the Loan Documents or any of the
Canadian Loan Documents;
(b) restrictions imposed by the Subordinated Notes or the
Subordinated Note Indenture or by other Debt of the Borrower permitted
hereunder; provided that such restrictions are no more restrictive
-------- ----
taken as a whole than those imposed by this Agreement or the Canadian
Credit Agreement or by the Subordinated Notes or the Subordinated Note
Indenture as in effect on the Closing Date;
(c) restrictions imposed by applicable law;
(d) existing restrictions under any Debt of the Borrower or
its Subsidiaries existing on the date hereof;
(e) restrictions under any Debt or Disqualified Capital Stock
of any Person existing at the time such Person becomes a Subsidiary of
the Borrower or is merged or consolidated with or into the Borrower or
one of its Subsidiaries, and which is not incurred in violation of this
Agreement, the Canadian Credit Agreement, the Subordinated Note
Indenture or any agreement relating to any property, asset, or business
acquired by the Borrower or any of its Subsidiaries, which restrictions
in each case existed at the time of acquisition, were not put in place
in connection with or in anticipation of such acquisition and are not
applicable to any Person, other than the Person acquired, or to any
property, asset or business, other than the property, assets and
business so acquired;
(f) restrictions solely with respect to a Subsidiary of the
Borrower 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 (to the extent such sale
or disposition is permitted hereunder); 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 Capital Leases and
purchase money Debt permitted by Section 6.02(b); provided that such
-------- ----
restrictions relate only to the transfer of the property acquired with
the proceeds of such purchase money Debt or subject to such Capital
Leases; and
(h) in connection with and pursuant to permitted refinancings,
replacements of restrictions imposed pursuant to paragraphs (a), (b),
(d), (e) or (g) of this definition that are not more restrictive taken
as a whole than those being replaced and do not apply to
33
<PAGE>
any other Person or assets than those that would have been covered by
the restrictions in the Debt so refinanced.
"PERMITTED SELLER FINANCING" means Debt of the Borrower owing
--------------------------
to a seller in a Permitted Acquisition in respect of Acquisition Consideration
so long as (i) such Debt is expressly subordinated in right of payment to the
prior payment in full in cash of all Obligations hereunder, under the other Loan
Documents and under the Canadian Loan Documents on terms and conditions
reasonably satisfactory to the Administrative Agent and the Required Lenders,
and (ii) such Debt requires no payment of principal or interest (other than
payments in kind) prior to six months after the last to occur of (A) the
Revolving Commitment Termination Date, (B) the Term A Termination Date and (C)
the Term B Termination Date.
"PERSON" means an individual, partnership, limited liability
------
company, corporation (including a business trust), joint stock company, trust,
unincorporated association, joint venture or other entity, or a government or
any political subdivision or agency thereof.
"PII SECOND" means PII Second, Inc., a Delaware corporation.
----------
"PIONEER" means Pioneer Plastics Corporation, a Delaware
-------
corporation.
"PIONEER ACQUISITION" means the acquisition by the Borrower
--------------------
of 100% of the equity securities of Pioneer pursuant to the Pioneer Acquisition
Agreement.
"PIONEER ACQUISITION AGREEMENT" means the Stock Purchase
-----------------------------
Agreement dated as of July 17, 1998 by and between Rugby U.S.A., Inc. and the
Borrower, as in effect on July 17, 1998, and as subsequently amended by (i) the
Amendment No. 1 to Stock Purchase Agreement dated as of September 11, 1998, (ii)
the Amendment No. 2 to Stock Purchase Agreement dated as of October 16, 1998,
and (iii) the Amendment No. 3 to Stock Purchase Agreement dated as of November
30, 1998, and as such agreement may have been further amended, supplemented or
otherwise modified from time to time on or prior to the Closing Date as
permitted hereunder.
"PIONEER ACQUISITION CONSIDERATION" means the aggregate
---------------------------------
purchase price set forth in the Pioneer Acquisition Agreement, subject to
adjustment as provided therein.
"PIONEER ACQUISITION DOCUMENTS" means the Pioneer Acquisition
-----------------------------
Agreement, any non-competition agreements delivered thereunder and each
non-competition agreement and each other material document and agreement entered
into in connection therewith.
"PLAN" means a Single Employer Plan or a Multiple Employer
----
Plan.
"PREFERRED STOCK" means, with respect to any corporation,
---------------
capital stock issued by such corporation that is entitled to a preference or
priority over any other capital stock issued by such corporation upon any
distribution of such corporation's assets, whether by dividend or upon
liquidation.
34
<PAGE>
"PROFIT PAYMENT AGREEMENT" means any agreement to make any
------------------------
payment the amount of which is, or the terms of payment of which are, in any
respect subject to or contingent upon the revenues, income, cash flow or profits
(or the like) of any Person or business.
"PROJECTIONS" means the Borrower's forecasted Consolidated and
-----------
consolidating: (a) balance sheets; (b) profit and loss statements; (c) cash flow
statements; and (d) capitalization statements, all prepared on a Subsidiary by
Subsidiary or division by division basis, if applicable, and otherwise
consistent with the historical financial statements of the Borrower, together
with appropriate supporting details and a statement of underlying assumptions.
"QUARTERLY COMPLIANCE CERTIFICATE" means a Compliance
--------------------------------
Certificate of the Borrower, substantially in the form attached as Exhibit VIII
------------
hereto and otherwise satisfactory to the Administrative Agent, including all of
the certifications required in the Compliance Certificate and also setting forth
the computations used by the Borrower in determining compliance with the
covenants contained in Section 6.04.
"RECEIVABLES" means all "accounts", as such term is defined in
-----------
the Code, now owned or hereafter acquired by any Credit Party and, in any event,
including (a) all accounts receivable, other receivables, book debts and other
forms of obligations (other than forms of obligations evidenced by Chattel
Paper, Documents or Instruments) now owned or hereafter received or acquired by
or belonging or owing to any Credit Party, whether arising out of goods sold or
services rendered by it or from any other transaction (including any such
obligations which may be characterized as an account or contract right under the
Code), (b) all of each Credit Party's rights in, to and under all purchase
orders or receipts now owned or hereafter acquired by it for goods sold or
services rendered, (c) all of each Credit Party's rights to any goods
represented by any of the foregoing (including unpaid sellers' rights of
rescission, replevin, reclamation and stoppage in transit and rights to
returned, reclaimed or repossessed goods), (d) all monies due or to become due
to any Credit Party, under all purchase orders and contracts for the sale of
goods or the performance of services or both by such Credit Party or in
connection with any other transaction (whether or not yet earned by performance
on the part of such Credit Party) now or hereafter in existence, including the
right to receive the proceeds of said purchase orders and contracts, and (e) all
collateral security and guarantees of any kind, now or hereafter in existence,
given by any Person with respect to any of the foregoing.
"RECEIVABLES DEBTOR" means any Person who may become obligated
------------------
to any Credit Party under, with respect to, or on account of, a Receivable.
"REDEEMABLE" means, with respect to any Capital Stock, Debt or
other right or Obligation, any such right or Obligation that (a) the issuer has
undertaken to redeem at a fixed or determinable date or dates, whether by
operation of a sinking fund or otherwise, or upon the occurrence of a condition
not solely within the control of the issuer or (b) is redeemable at the option
of the holder.
"REGISTER" has the meaning specified in Section 9.07(c).
--------
35
<PAGE>
"REGULATION T" means Regulation T of the Board of Governors of
------------
the Federal Reserve System, as in effect from time to time.
"REGULATION U" means Regulation U of the Board of Governors
------------
of the Federal Reserve System, as in effect from time to time.
"RELATED DOCUMENTS" means the Pioneer Acquisition Documents,
-----------------
the Subordinated Debt Documents and the Canadian Loan Documents .
"REPLACEMENT LENDER" has the meaning specified in Section
------------------
2.07(c).
"REQUIRED LENDERS" means at any time Lenders owed or holding
----------------
at least 51% of the sum of (a) the aggregate principal amount of the Loans
outstanding at such time, (b) the aggregate Letter of Credit Usage at such time
and (c) the aggregate unused Commitments under the Term Facilities plus the
-----
aggregate Unused Revolving Commitments at such time, without duplication. For
purposes of this definition, the amount of the Letter of Credit Usage and the
aggregate principal amount of all outstanding Swing Line Loans shall be
considered to be owed to the Revolving Lenders ratably in accordance with their
respective Revolving Pro Rata Shares.
"RESERVES" means, with respect to the Borrowing Base Amount of
--------
the Borrower, (a) reserves for Inventory that is excess, obsolete, unsaleable,
shopworn, seconds, damaged or unfit for sale and (b) reserves established and
modified by the Administrative Agent from time to time against Eligible
Inventory and/or Eligible Receivables in accordance with this Agreement.
"RESTRUCTURING COSTS" means non-recurring charges up to the
-------------------
maximum amount and meeting the criteria set forth on Schedule 1.01(b), properly
characterized as "restructuring" charges under generally accepted accounting
principles in connection with the Pioneer Acquisition and related to the closure
of plants, related severance costs and integration, provided that such costs
--------
occur within two years after the closing of the Pioneer Acquisition.
"REVOLVING BORROWING" means a borrowing consisting of
-------------------
simultaneous Revolving Loans of the same Interest Type made by the Revolving
Lenders.
"REVOLVING COMMITMENT" means (i) with respect to any Revolving
--------------------
Lender listed on Schedule I, the amount set forth opposite such Lender's name on
Schedule I under the caption "Revolving Commitment", (ii) with respect to any
Revolving Lender not listed on Schedule I hereto, the amount set forth in the
Assignment and Acceptance pursuant to which such Person became a Lender
hereunder, or (iii) if any of such Lenders has entered into one or more
Assignments and Acceptances, the amount set forth for such Lender in the
Register maintained by the Administrative Agent pursuant to Section 9.07(c) as
such Lender's "Revolving Commitment", in the case of each of the foregoing
clauses (i), (ii) and (iii), as such amount may be reduced at or prior to such
time pursuant to Section 2.04.
"REVOLVING COMMITMENT TERMINATION DATE" means the earlier of
-------------------------------------
(i) the fifth anniversary of the Closing Date and (ii) the date of termination
in whole of the Total Commitments pursuant to Section 2.04 or 7.01.
36
<PAGE>
"REVOLVING FACILITY" means, at any time, the aggregate amount
------------------
of the Revolving Lenders' Revolving Commitments at such time.
"REVOLVING LENDER" means any Lender that has a Revolving
----------------
Commitment.
"REVOLVING LOAN" has the meaning specified in Section 2.01(c).
--------------
"REVOLVING NOTE" means a promissory note of the Borrower
--------------
payable to the order of any Revolving Lender, in substantially the form of
Exhibit VII-A hereto, evidencing the aggregate indebtedness of the Borrower to
- -------------
such Lender resulting from the Revolving Loans made by such Lender.
"REVOLVING PRO RATA SHARE" means, with respect to any
------------------------
Revolving Lender at any time, a fraction the numerator of which is such
Revolving Lender's Revolving Commitment (without giving effect to any
termination thereof pursuant to Section 7.01) at such time and the denominator
of which is the amount of the total Revolving Facility (without giving effect to
any termination of Commitments pursuant to Section 7.01) at such time.
"SECURED OBLIGATIONS" has the meaning specified in the
-------------------
Security Agreement.
"SECURITIES" means any stock, shares, partnership interests,
----------
voting trust certificates, certificates of interest or participation in any
profit-sharing agreement or arrangement, options, warrants, bonds, debentures,
notes, or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as
"securities" or any certificates of interest, shares or participations in
temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire, any of the foregoing.
"SECURITY AGREEMENT" has the meaning specified in Section
------------------
4.01(k)(xiv).
"SINGLE EMPLOYER PLAN" of any Person means a single employer
--------------------
plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of such Person or any of its ERISA Affiliates and no Person other than
such Person and its ERISA Affiliates or (b) was so maintained and in respect of
which such Person or any of its ERISA Affiliates could have liability under
Section 4069 of ERISA in the event such plan has been or were to be terminated.
"SOLVENT" and "SOLVENCY" mean, with respect to any Person on a
------- --------
particular date, that on such date (a) the fair value of the property of such
Person is greater than the total amount of liabilities, including, without
limitation, contingent liabilities, of such Person, (b) the present fair salable
value of the assets of such Person is not less than the amount that will be
required to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature and (d) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute an unreasonably
small capital. The amount of contingent liabilities at any time shall be
computed as the amount that, in the light of all the facts
37
<PAGE>
and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"SPV" has the meaning specified in Section 9.07(h).
---
"STANDBY LETTER OF CREDIT" means any Letter of Credit issued
------------------------
under the Letter of Credit Subfacility, other than a Trade Letter of Credit.
"SUBORDINATED DEBT" means the Debt evidenced by the
-----------------
Subordinated Notes and any Permitted Seller Financing.
"SUBORDINATED DEBT DOCUMENTS" means the Subordinated Note
---------------------------
Indenture, the Subordinated Notes, and all other agreements, indentures and
instruments pursuant to which Subordinated Debt is issued.
"SUBORDINATED NOTE INDENTURE" means the Subordinated Note
---------------------------
Indenture dated as of February 18, 1999, between the Borrower and State Street
Bank and Trust Company of Connecticut, N.A., as trustee, as amended from time to
time, pursuant to which the Subordinated Notes are being issued.
"SUBORDINATED NOTES" means the Series A 11 1/2% Senior
------------------
Subordinated Notes due 2009 of the Borrower issued pursuant to the Subordinated
Note Indenture and the Series B 11 1/2% Senior Subordinated Notes due 2009
issued in exchange therefor pursuant to the Exchange Offer (as defined in the
Subordinated Note Indenture), in the aggregate principal amount of $135,000,000.
"SUBSIDIARY" of any Person means any corporation, partnership,
----------
limited liability company, joint venture, trust or estate of which (or in which)
more than 50% of (a) the issued and outstanding capital stock having ordinary
voting power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such partnership,
limited liability company or joint venture or (c) the beneficial interest in
such trust or estate is at the time directly or indirectly owned or controlled
by such Person, by such Person and one or more of its other Subsidiaries or by
one or more of such Person's other Subsidiaries. Notwithstanding the foregoing,
the Excluded Acquisition Sub and the Excluded Melamine Subs shall not be
Subsidiaries of any Loan Party for purposes hereof or of any of the other Loan
Documents.
"SUPERMAJORITY LENDERS" means at any time Lenders owed or
---------------------
holding at least 66 2/3% of the sum of (a) the aggregate principal amount of the
Loans outstanding at such time, (b) the aggregate Letter of Credit Usage at such
time and (c) the aggregate unused Commitments under the Term Facilities plus the
----
aggregate Unused Revolving Commitments at such time, without duplication. For
purposes of this definition, the amount of the Letter of Credit Usage and the
aggregate principal amount of all outstanding Swing Line Loans shall be
considered to be owed to the Revolving Lenders ratably in accordance with their
respective Revolving Pro Rata Shares.
38
<PAGE>
"SURVIVING DEBT" has the meaning specified in Section 4.01(g).
--------------
"SWING LINE BORROWING" means a borrowing of Swing Line Loans
--------------------
made by the Swing Line Lender.
"SWING LINE COMMITMENT" means, with respect to the Swing Line
---------------------
Lender at any time, the amount set forth opposite such Lender's name on Schedule
I hereto under the caption "Swing Line Commitment" or, if the Swing Line Lender
has entered into one or more Assignments and Acceptances with respect to the
Swing Line Commitment, the amount set forth for the Swing Line Lender in the
Register maintained by the Administrative Agent pursuant to Section 9.07(c) as
such Lender's "Swing Line Commitment", in each case as such amount may be
reduced at or prior to such time pursuant to Section 2.04.
"SWING LINE FACILITY" means, at any time, the aggregate amount
-------------------
of the Swing Line Lender's Swing Line Commitment at such time.
"SWING LINE LENDER" means CSFB and any assignee of the Swing
-----------------
Line Commitment that assumes such Swing Line Commitment in accordance with the
terms of Section 9.07.
"SWING LINE LOAN" means a Loan by the Swing Line Lender to the
---------------
Borrower pursuant to Section 2.01(d).
"SWING LINE NOTE" means a promissory note of the Borrower
---------------
payable to the order of the Swing Line Lender, in substantially the form of
Exhibit VII-D hereto, evidencing the aggregate indebtedness of the Borrower to
- --------------------
such Lender under the Swing Line Facility.
"SWING LINE SUBLIMIT" means $5,000,000.
-------------------
"SYNDICATION AGENT" means DLJ Capital Funding, Inc., as
-----------------
syndication agent under this Agreement, and its successors and assigns in such
capacity.
"TAXES" means any and all present or future taxes, levies,
-----
assessments, imposts, duties, deductions, fees, withholdings or similar charges,
and all liabilities with respect thereto, excluding, in the case of each Lender
Party and the Administrative Agent, each assignee of a Lender Party, each
participant under a participation and each SPV, respectively, (a) income,
capital or franchise taxes imposed on (or measured by) its net income or capital
taxes imposed, in each case, (i) by the United States, (ii) by the jurisdiction
under the laws of which such recipient is organized or in which its principal
office is located, (iii) by any jurisdiction solely as a result of such party's
activities in or contact with such jurisdiction unrelated to the transactions
contemplated by this Agreement, or (iv) by the jurisdiction in which the lending
office of the recipient is located, and (b) any branch profits taxes imposed by
the United States or any similar tax imposed by any other jurisdiction in which
any recipient is located.
"TERM A COMMITMENT" means, with respect to any Term A Lender,
-----------------
the amount set forth opposite such Lender's name on Schedule I hereto under the
caption "Term A
39
<PAGE>
Commitment"; provided that upon making of the Term A Loans on the Closing Date,
--------
the Term A Commitment of each Term A Lender shall thereafter be zero.
"TERM A FACILITY" means, at any time, the aggregate amount of
---------------
the Term A Loans outstanding at such time.
"TERM A LENDER" means any Lender that has a Term A Loan
-------------
outstanding.
"TERM A LOAN" has the meaning specified in Section 2.01(a).
-----------
"TERM A LOAN PAYMENT DATE" has the meaning specified in
------------------------
Section 2.03(a).
"TERM A NOTE" means a promissory note of the Borrower payable
-----------
to the order of any Term A Lender, in substantially the form of Exhibit VII-B
-------------
hereto, evidencing the indebtedness of the Borrower to such Lender resulting
from the Term A Loan made by such Lender.
"TERM A PRO RATA SHARE" means, with respect to any Term A
---------------------
Lender at any time, a fraction the numerator of which is the principal amount of
Term A Loans made by such Lender and outstanding at such time and the
denominator of which is the aggregate principal amount of Term A Loans made by
all Term A Lenders and outstanding at such time.
"TERM A TERMINATION DATE" means the earlier of (i)
-------------------------
December 31, 2003 and (ii) the date of termination in whole of the Total
Commitments pursuant to Section 2.04 or 7.01.
"TERM B COMMITMENT" means, with respect to any Term B Lender
-----------------
at any time, the amount set forth opposite such Lender's name on Schedule I
hereto under the caption "Term B Commitment"; provided that upon the making of
Term B Loans on the Closing Date, the Term B Commitment of each Term B Lender
shall thereafter be zero.
"TERM B FACILITY" means, at any time, the aggregate amount of
---------------
the Term B Loans outstanding at such time.
"TERM B LENDER" means any Lender that has a Term B Loan
-------------
outstanding.
"TERM B LOAN" has the meaning specified in Section 2.01(b).
-----------
"TERM B LOAN PAYMENT DATE" has the meaning specified in
------------------------
Section 2.03(b).
"TERM B NOTE" means a promissory note of the Borrower payable
-----------
to the order of any Term B Lender, in substantially the form of Exhibit VII-C
hereto, evidencing the indebtedness of the Borrower to such Lender resulting
from the Term B Loan made by such Lender.
"TERM B PRO RATA SHARE" means, with respect to any Term B
---------------------
Lender at any time, a fraction the numerator of which is the principal amount of
Term B Loans made by such
40
<PAGE>
Lender and outstanding at such time and the denominator of which is the
aggregate principal amount of Term B Loans made by all Term B Lenders and
outstanding at such time.
"TERM B TERMINATION DATE" means the earlier of (i) December 31, 2005
------------------------
and (ii) the date of termination in whole of the Total Commitments pursuant to
Section 2.04 or 7.01.
"TERM BORROWING" means a borrowing consisting of simultaneous Term
--------------
Loans of the same Interest Type made by the Term Lenders.
"TERM FACILITIES" means the Term A Facility and Term B Facility,
---------------
collectively.
"TERM LENDER" means any Term A Lender or Term B Lender, and "TERM
----------- ----
LENDERS" means all such lenders collectively.
- -------
"TERM LOAN" means any Term A Loan or Term B Loan, and "TERM LOANS"
----------- ------------
means all such loans collectively.
"TOTAL COMMITMENT" means, with respect to each Lender at any time, the
----------------
aggregate of such Lender's outstanding Term Loans and Revolving Commitment at
such time.
"TOTAL UTILIZATION OF REVOLVING COMMITMENTS" means, as at any date of
------------------------------------------
determination, the sum of (i) the aggregate principal amount of all outstanding
Revolving Loans (other than Revolving Loans made, but not yet applied, for the
purpose of repaying any Swing Line Loans or reimbursing the applicable Issuing
Bank for any Letter of Credit Drawing) plus (ii) the aggregate principal amount
----
of all outstanding Swing Line Loans plus (iii) the Letter of Credit Usage.
----
"TRADE LETTER OF CREDIT" means any Letter of Credit that is issued
----------------------
under the Letter of Credit Subfacility for the benefit of a supplier of
Inventory to the Borrower or any of its Domestic Subsidiaries to effect payment
for such Inventory, the conditions to drawing under which include the
presentation to the Issuing Bank of negotiable bills of lading, invoices and
related documents sufficient, in the judgment of the Issuing Bank, to create a
valid and perfected Lien on such Inventory.
"TRANSACTION FEE AGREEMENT" means the engagement letter between the
-------------------------
Borrower and Genstar Capital LLC, dated as of January 24, 1999, as in effect on
the date hereof and as thereafter amended to the extent permitted by Section
6.02(n).
"TRANSACTIONS" means, collectively, the Pioneer Acquisition, the
------------
refinancing effected pursuant to this Agreement and the other Loan Documents,
and the payment of fees and expenses in connection with the foregoing.
"TYPE" refers to the distinction between Revolving Loans, Swing Line
----
Loans, Term A Loans and Term B Loans.
"UNREIMBURSED LETTER OF CREDIT LIABILITY" means, as of any date of
---------------------------------------
determination with respect to any Letter of Credit, the aggregate amount of all
Letter of Credit
41
<PAGE>
Drawings which have been paid by, and not reimbursed to, the Issuing Bank under
such Letter of Credit.
"UNUSED REVOLVING COMMITMENT" means, with respect to any
---------------------------
Revolving Lender at any time, (a) such Lender's Revolving Commitment at such
time, minus (b) the sum of (i) the aggregate principal amount of all Revolving
-----
Loans of such Lender outstanding at such time, plus (ii) such Lender's Revolving
----
Pro Rata Share of the aggregate Letter of Credit Obligations outstanding at such
time, plus (iii) such Lender's Revolving Pro Rata Share of the aggregate
----
principal amount of all Swing Line Loans outstanding at such time.
"UNUSED SWING LINE COMMITMENT" means, with respect to the
----------------------------
Swing Line Lender at any time, the lesser of (i) the remainder of (a) the Swing
Line Commitment at such time, minus (b) the aggregate principal amount of all
-----
Swing Line Loans outstanding at such time, and (ii) the aggregate Unused
Revolving Commitments at such time.
"VOTING EQUITY INTERESTS" means Equity Interests which are
-----------------------
ordinarily entitled to vote in the election of, as applicable, directors,
members or partners generally, whether or not the right so to vote has been
suspended by the happening of any contingency.
"WELFARE PLAN" means a welfare plan, as defined in Section 3(1) of
------------
ERISA.
"WITHDRAWAL LIABILITY" has the meaning specified in Part I of
--------------------
Subtitle E of Title IV of ERISA.
SECTION 1.02. COMPUTATION OF TIME PERIODS. In this Agreement
---------------------------
in the computation of periods of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each mean "to but excluding".
SECTION 1.03. ACCOUNTING TERMS. All accounting terms not
----------------
specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistent with those applied in the preparation
of the financial statements referred to in Section 5.01(f) ("GAAP").
----
SECTION 1.04. OTHER DEFINITIONAL PROVISIONS. References to
-----------------------------
Articles, Sections, subsections, Schedules and Exhibits shall be to Articles,
Sections, subsections, Schedules and Exhibits, respectively, of this Agreement
unless otherwise specified. The term "including" means including without
limitation.
ARTICLE II.
AMOUNTS AND TERMS OF THE LOANS
SECTION 2.01. THE LOANS.
---------
(A) THE TERM A LOANS. Each Term A Lender severally agrees, on the
----------------
terms and conditions hereinafter set forth, to make a single term A loan (each,
a "TERM A LOAN" and, collectively, the "TERM A LOANS") to the Borrower on the
----------- ------------
Closing Date in an amount not to
42
<PAGE>
exceed such Lender's total Term A Commitment on such Business Day. Amounts
borrowed under this Section 2.01(a) and repaid or prepaid may not be reborrowed.
(B) THE TERM B LOANS. Each Term B Lender severally agrees, on the
----------------
terms and conditions hereinafter set forth, to make a single term B loan (each,
a "TERM B LOAN" and, collectively, the "TERM B LOANS") to the Borrower on the
----------- ------------
Closing Date in an amount not to exceed such Lender's total Term B Commitment on
such Business Day. Amounts borrowed under this Section 2.01(b) and repaid or
prepaid may not be reborrowed.
(C) REVOLVING LOANS. Each Revolving Lender severally agrees, on the
---------------
terms and conditions hereinafter set forth, to make loans (each, a "REVOLVING
---------
LOAN" and, collectively, the "REVOLVING LOANS") to the Borrower from time to
- ---- ---------------
time on any Business Day during the period from the Closing Date until the
Revolving Commitment Termination Date in an amount for each such Revolving Loan
not to exceed the lesser of (i) such Lender's Unused Revolving Commitment on
such Business Day (after giving effect to any repayment of Swing Line Loans made
or to be made with the proceeds thereof pursuant to a designation therefor set
forth by the Borrower in a Notice of Borrowing for such Borrowing or pursuant to
a Notice of Borrowing given by the Administrative Agent in accordance with
Section 2.02(f)) and (ii) such Lender's Revolving Pro Rata Share of the
remainder of (x) the Borrowing Base Amount as of such date minus (y) the sum of
-----
(A) the then outstanding Letter of Credit Obligations and (B) the then
outstanding Swing Line Loans; provided, however, that (1) the foregoing clause
-------- -------
(ii) shall not limit any Lender's obligations under Section 2.02(f), and (2)
except with respect to a Borrowing the proceeds of which will be applied to
repay outstanding Swing Line Loans or reimburse Letter of Credit Drawings
pursuant to a designation therefor set forth by the Borrower in a Notice of
Borrowing for such Borrowing or pursuant to a Notice of Borrowing given by the
Administrative Agent pursuant to Section 2.02(f), the Borrower shall not
request, and no Lender shall be required to make Revolving Loans in respect of,
any Borrowing if after giving effect thereto the aggregate principal amount of
all outstanding Revolving Loans would exceed the remainder of (x) the Borrowing
Base Amount at such time minus (y) the sum of (A) the then outstanding Letter of
-----
Credit Obligations and (B) the greater of the aggregate Swing Line Commitment in
effect at such time and the aggregate principal amount of all outstanding Swing
Line Loans at such time. Each Revolving Borrowing of Eurodollar Rate Loans shall
be in an aggregate amount of $1,000,000 or an integral multiple of $100,000 in
excess thereof and each Revolving Borrowing of Base Rate Loans shall be in an
aggregate amount of $500,000 or an integral multiple of $100,000 in excess
thereof. Each Revolving Borrowing shall consist of Revolving Loans made by the
Revolving Lenders ratably according to their respective Revolving Commitments.
Within the foregoing limits, the Borrower may borrow under this Section 2.01(c),
prepay pursuant to Section 2.04 and reborrow under this Section 2.01(c).
(D) SWING LINE LOANS. The Swing Line Lender agrees, on the terms and
----------------
conditions hereinafter set forth, to make loans (each, a "SWING LINE LOAN" and,
---------------
collectively, the "SWING LINE LOANS") to the Borrower from time to time on any
----------------
Business Day during the period from the Closing Date until the Revolving
Commitment Termination Date in an amount not to exceed the Unused Swing Line
Commitment on such Business Day; provided, however, that the Swing Line Lender
--------- -------
shall not make any Swing Line Loans, if after giving effect to such Swing
43
<PAGE>
Line Loans, the aggregate principal amount of all outstanding Swing Line Loans
would exceed the remainder of (x) the Borrowing Base Amount then in effect minus
-----
(y) the sum of (A) the aggregate amount of the Letter of Credit Obligations then
outstanding, and (B) the aggregate principal amount of the Revolving Loans then
outstanding. Each Swing Line Borrowing shall consist of Base Rate Loans, shall
be in an amount equal to $500,000 or an integral multiple of $100,000 in excess
thereof (or such other amount or integral multiple as may be agreed between the
Swing Line Lender, the Administrative Agent and the Borrower), and shall consist
of Swing Line Loans made by the Swing Line Lender. Immediately upon the making
of each Swing Line Loan by the Swing Line Lender, the Swing Line Lender shall be
deemed to have sold and transferred to each Revolving Lender, and each Revolving
Lender shall be deemed to have purchased and received from the Swing Line
Lender, in each case irrevocably and without any further action by any party, an
undivided interest and participation in such Swing Line Loan and the Obligations
of the Borrower under this Agreement in respect thereof in an amount equal to
such Lender's Revolving Pro Rata Share of such Swing Line Loan, provided,
--------
however, that (i) no Lender shall be required to fund its participation in any
- -------
such Swing Line Loan until demand therefor is made by the Administrative Agent
pursuant to Section 2.02(f)(ii) hereof, and (ii) no Lender shall be entitled to
share in any payments of principal or interest in respect of its participation
in any such Swing Line Loan except to the extent set forth in Section
2.02(f)(ii) hereof with respect to any such participation which has been funded
by such Lender as provided therein. Within the limits of the Unused Swing Line
Commitment in effect from time to time, the Borrower may borrow under this
Section 2.01(d), prepay pursuant to Section 2.04 and reborrow under this Section
2.01(d).
SECTION 2.02. MAKING THE LOANS.
----------------
(A) INITIAL BORROWINGS. The initial Borrowings hereunder shall be made
------------------
on the Closing Date and shall be made on notice received by the Administrative
Agent from the Borrower (pursuant to an irrevocable Notice of Borrowing) not
later than 11:00 a.m. (New York City time) (or such later time as the
Administrative Agent may agree) on the Business Day immediately preceding the
Closing Date. Such Notice of Borrowing shall be irrevocable upon receipt by the
Administrative Agent. Each Appropriate Lender shall, before 11:00 a.m. (New York
City time) on the Closing Date, make available for the account of its Applicable
Lending Office to the Administrative Agent such Lender's ratable share of such
Borrowings by depositing same day funds in the Administrative Agent's Account.
Notwithstanding any contrary provision hereof, the initial Borrowings may
consist only of Base Rate Loans.
(B) SUBSEQUENT REVOLVING BORROWINGS. Each Revolving Borrowing
-------------------------------
occurring after the Closing Date shall be made on notice received by the
Administrative Agent from the Borrower (pursuant to an irrevocable Notice of
Borrowing) not later than 11:00 a.m. (New York City time) (a) on the Business
Day prior to the date of such Borrowing if such Borrowing consists of Base Rate
Loans, and (b) on the third Business Day prior to the date of such Borrowing if
such Borrowing consists of Eurodollar Rate Loans. Each such Notice of Borrowing
shall be irrevocable upon receipt by the Administrative Agent and, in the case
of any Notice of Borrowing for Eurodollar Rate Loans, the Borrower shall
indemnify each Lender against any loss, cost or expense incurred by such Lender
as a result of any failure to fulfill on or
44
<PAGE>
before the date specified by such Notice of Borrowing the applicable conditions
set forth in this Section 2.02 or Article IV, including, without limitation, any
loss, cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such Lender to fund the Loan to be made by
such Lender as a part of such Borrowing when such Loan, as a result of such
failure, is not made on such date.
(C) SWING LINE BORROWINGS. Each Swing Line Borrowing shall be made on
---------------------
notice received by the Administrative Agent from the Borrower (pursuant to a
Notice of Swing Line Borrowing) not later than 11:00 a.m. (New York City time)
on the date of such Borrowing. Each such Notice of Swing Line Borrowing shall be
irrevocable upon receipt by the Administrative Agent.
(D) LOANS BY LENDERS. If the Administrative Agent receives a Notice of
----------------
Borrowing or a Notice of Swing Line Borrowing (or if the Administrative Agent
gives a Notice of Borrowing pursuant to Section 2.02(f)), the Administrative
Agent shall promptly on the Business Day prior to the date of such Borrowing or,
if such Borrowing consists of Eurodollar Rate Loans, the third Business Day
prior to the date of such Borrowing give each Appropriate Lender notice of such
Notice of Borrowing or Notice of Swing Line Borrowing. Each Appropriate Lender
shall (i) before 11:00 a.m. (New York City time) on the date of such Borrowing
in the case of any Revolving Borrowing to be made on such date, make available
for the account of its Applicable Lending Office to the Administrative Agent
such Lender's ratable portion of such Borrowing by depositing same day funds in
the Administrative Agent's Account, or (ii) before 2:00 p.m. (New York City
time) on the date of such Borrowing in the case of a Swing Line Borrowing, make
available for the account of its Applicable Lending Office to the Administrative
Agent such Borrowing by depositing same day funds in the Administrative Agent's
Account. Unless the Administrative Agent shall have received written notice from
a Revolving Lender prior to the date of any Revolving Borrowing hereunder that
such Lender will not make available to the Administrative Agent such Lender's
ratable portion of such Borrowing, the Administrative Agent may assume that such
Lender has made such ratable portion available to the Administrative Agent on
the date of such Borrowing in accordance with the terms hereof and the
Administrative Agent may, in reliance upon such assumption, but shall not be
required to, make available to or for the account of the Borrower on such date a
corresponding amount. If and to the extent that such Lender shall not have so
made such ratable portion available to the Administrative Agent and the
Administrative Agent makes such ratable portion available to the Borrower, such
Lender and the Borrower, without prejudice to any rights or remedies that the
Borrower may have against such Lender, severally agree to repay to the
Administrative Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made available to or
for the account of the Borrower until the date such amount is repaid to the
Administrative Agent, at (A) in the case of the Borrower, the interest rate
applicable at the time to the Loans comprising such Borrowing, and (B) in the
case of such Lender, the Federal Funds Rate. If such Lender shall pay to the
Administrative Agent such amount, such amount so paid shall constitute such
Lender's Loan as part of the relevant Borrowing for purposes of this Agreement
and, to the extent that the Borrower previously paid such amount to the
Administrative Agent, the Administrative Agent will refund to the Borrower
45
<PAGE>
such amount so paid (it being understood that such amount so refunded shall
accrue interest only from the day on which such amount is refunded to the
Borrower), but without interest.
(E) DISBURSEMENT OF LOANS. Upon fulfillment of the applicable
---------------------
conditions set forth in Article IV (which fulfillment the Administrative Agent
may assume in the absence of actual knowledge, or notice received from the
Borrower or any Appropriate Lender, to the contrary), the Administrative Agent
will make funds for any Borrowing available to the Borrower by crediting the
Borrower's Account, subject to the Administrative Agent's receipt of funds from
-------
the Lenders, and provided that the Administrative Agent shall first make a
--------
portion of such funds equal to any unreimbursed Letter of Credit Drawing under
any Letter of Credit, and any interest accrued and unpaid thereon to and as of
such date, available to the applicable Issuing Bank for reimbursement of such
Letter of Credit Drawing and payment of such interest.
(F) SETTLEMENT OF SWING LINE LOANS. (i) The Administrative Agent may,
------------------------------
and upon request by the Swing Line Lender the Administrative Agent shall, at any
time and from time to time, give to the Revolving Lenders and the Borrower, on
behalf of the Borrower, a Notice of Borrowing for a Borrowing of Revolving Loans
which are Base Rate Loans, in each case in an amount equal to the aggregate
amount of Swing Line Loans then owing by the Borrower, and the proceeds of which
are to be used to prepay such Swing Line Loans on the date of such Borrowing.
Upon receipt of any such Notice of Borrowing, each Revolving Lender (other than
the Swing Line Lender) shall (subject to Section 2.02(f)(iv)), on or before the
time specified by the Administrative Agent (which in no event shall be earlier
than 11:00 a.m. nor later than 2:00 p.m. (New York City time) on the Business
Day following the date on which such Notice of Borrowing is given), make
available for the account of its Applicable Lending Office to the Administrative
Agent such Lender's Revolving Pro Rata Share of such Borrowing by depositing
same day funds in the Administrative Agent's Account. Notwithstanding any
contrary provision of this Agreement, (A) the proceeds of any such Borrowing
shall be distributed by the Administrative Agent to the Swing Line Lender
(subject to Section 2.02(f)(iv)) as a prepayment of all or a portion of the then
outstanding Swing Line Loans, and (B) the outstanding Swing Line Loans of the
Swing Line Lender, in each case in an amount equal to the Swing Line Lender's
Revolving Pro Rata Share of the aggregate amount of the Swing Line Loans to be
prepaid on such date, shall be deemed to be prepaid with the proceeds of a
Revolving Loan made by the Swing Line Lender and such portion of the Swing Line
Loans deemed to be so prepaid shall no longer be outstanding as Swing Line Loans
but shall be outstanding as Revolving Loans made by the Swing Line Lender.
(ii) In addition to the right of the Swing Line Lender to require
a Borrowing under Section 2.02(f)(i), the Swing Line Lender may at any time
and from time to time request (by notice to the Administrative Agent and the
Borrower) the Administrative Agent to, and upon receipt of such request the
Administrative Agent shall, make demand on each Revolving Lender for payment
of its participation in each Swing Line Loan then outstanding, and upon
receipt of any such demand each Revolving Lender shall (subject to Section
2.02(f)(iv)) promptly fund such participation by paying to the Administrative
Agent, for the account of the Swing Line Lender (subject to Section
2.02(f)(iv)), the amount of such participation in same day funds. With
respect to each
46
<PAGE>
such participation in any Swing Line Loan which is funded by any Lender,
the Swing Line Lender shall promptly pay to the Administrative Agent, and
the Administrative Agent shall promptly pay to such Lender, in lawful money
of the United States and in the kind of funds so received, an amount equal
to such Lender's ratable share of all payments (other than payments
pursuant to Section 2.04(c)(ix)) received by the Swing Line Lender in
respect of (A) the principal of such Swing Line Loan, and (B) interest on
such Swing Line Loan for the period from and after the date on which such
participation was funded. If any payment received by any Swing Line Lender
on account of any Swing Line Loan and distributed to any Lender as a
participant under the preceding sentence is thereafter recovered from the
Swing Line Lender in connection with any bankruptcy or insolvency
proceeding relating to the Borrower or otherwise, each Lender that received
such distribution shall, upon demand by the Swing Line Lender through the
Administrative Agent, repay to the Swing Line Lender such Lender's ratable
share of the amount so recovered together with such Lender's ratable share
(according to the proportion of (1) the amount of such Lender's required
prepayment to (2) the total amount so recovered) of any interest or other
amount paid or payable by the Swing Line Lender in respect of the total
amount so recovered. The Borrower agrees that any Lender purchasing a
participation in any Swing Line Loan from the Swing Line Lender hereunder
may, to the fullest extent permitted by law, exercise all its rights of
payment with respect to such participation as fully as if such Lender were
the direct creditor of the Borrower in the amount of such participation.
(iii) Anything contained herein to the contrary notwithstanding
(but subject to Section 2.02(f)(iv)), the obligation of each Revolving
Lender to make any Revolving Loan pursuant to Section 2.02(f)(i) or to fund
its participation in any Swing Line Loans pursuant to Section 2.02(f)(ii)
shall be absolute and unconditional and shall not be subject to any
conditions set forth in Article IV hereof or otherwise affected by any
circumstance including, without limitation, (A) any set-off, counterclaim,
recoupment, defense or other right which such Lender may have against the
Swing Line Lender or any Loan Party; (B) the occurrence or continuance of a
Default or Event of Default; (C) any adverse change in the business,
condition (financial or otherwise), operations, performance, properties or
prospects of any Loan Party; (D) any breach of any Loan Document by the
Borrower, any other Loan Party or any other Lender Party; or (E) any other
circumstance, happening or event whatsoever, whether or not similar to any
of the foregoing.
(iv) Notwithstanding Section 2.02(f)(iii), if at the time that
any Revolving Lender is required to make any Revolving Loan or fund any
participation pursuant to Section 2.02(f)(i) or 2.02(f)(ii), the Borrower
would not otherwise be entitled to obtain a Borrowing as a result of the
failure of any of the conditions set forth in Article IV hereof, the
obligation of each Revolving Lender to make any such Revolving Loan or to
fund any such participation with respect to any Swing Line Loan owing to
the Swing Line Lender shall be subject to the condition that at least one
of the following is true: (A) the Swing Line Lender shall have believed in
good faith that all conditions under Article IV to the making of such Swing
Line Loan were satisfied at the time such Swing
47
<PAGE>
Line Loan was made, or (B) such Lender shall have had actual knowledge,
by receipt of the statements required pursuant to Section 6.03 or
otherwise, that any such condition had not been satisfied and failed to
notify the Swing Line Lender and the Administrative Agent in writing
that it had no obligation to make Revolving Loans until such condition
was satisfied (which notice shall be effective as of the date of
receipt by the Swing Line Lender and the Administrative Agent), or (C)
the satisfaction of any such condition not satisfied shall have been
waived by the Required Lenders prior to or at the time such Swing Line
Loan was made. Anything contained in this Section 2.02(f) to the
contrary notwithstanding, the amount to be distributed by the
Administrative Agent to the Swing Line Lender under this Section
2.02(f) shall be reduced to the extent that any Lender shall refuse to
fund its portion of any Revolving Loan or participation with respect to
the Swing Line Lender as a result of the failure of the conditions set
forth above.
(v) The Borrower irrevocably authorizes (A) the Administrative
Agent to give any Notice of Borrowing pursuant to Section 2.02(f)(i)
(with a copy to the Borrower), (B) the Lenders to make the Revolving
Loans pursuant to such Notice of Borrowing, and (C) the Administrative
Agent to distribute the proceeds thereof as provided herein.
(G) NATURE OF LENDERS' OBLIGATIONS. The failure of any Lender to make
------------------------------
the Loan to be made by it as part of any Borrowing shall not relieve any other
Lender of its obligation, if any, hereunder to make its Loan on the date of such
Borrowing, but no Lender shall be responsible for the failure of any other
Lender to make the Loan to be made by such other Lender on the date of any
Borrowing.
SECTION 2.03. SCHEDULED REPAYMENT.
-------------------
(A) TERM A LOANS. The Borrower shall repay to each Term A Lender (in
------------
accordance with the provisions of Section 2.08(a)) the aggregate principal
amount of all Term A Loans owing to such Lender in consecutive quarterly
installments according to the amortization schedule set forth below (as the same
may be adjusted for prepayments pursuant to Section 2.04) until such principal
amount has been paid in full. Such installments (other than the last installment
owing hereunder with respect to the Term A Loans, which shall be due and payable
on the Term A Termination Date) shall be due and payable on the last Business
Day of each March, June, September and December of each year (each a "TERM A
------
LOAN PAYMENT DATE"), commencing March 31, 2000, and each such installment
- -----------------
payable to each Term A Lender shall be in an amount equal to such Term A
Lender's Term A Pro Rata Share of the amount set forth below opposite the date
on which such Term A Loan Payment Date is stated to occur:
48
<PAGE>
TERM A LOANS
<TABLE>
<CAPTION>
TERM A LOAN PAYMENT DATE QUARTERLY INSTALLMENT
------------------------ ---------------------
<S> <C>
March 2000 $ 562,500
June 2000 562,500
September 2000 562,500
December 2000 562,500
March 2001 843,750
June 2001 843,750
September 2001 843,750
December 2001 843,750
March 2002 1,031,250
June 2002 1,031,250
September 2002 1,031,250
December 2002 1,031,250
March 2003 1,312,500
June 2003 1,312,500
September 2003 1,312,500
December 2003 1,312,500
TOTAL $15,000,000
</TABLE>
provided, however that the last such installment shall be in the amount
- -------- -------
necessary to repay in full the aggregate unpaid principal amount of all
outstanding Term A Loans and shall, in any event, be due and payable on the Term
A Termination Date.
(B) TERM B LOANS. The Borrower shall repay to each Term B Lender (in
------------
accordance with the provisions of Section 2.08(a)) the aggregate principal
amount of all Term B Loans owing to such Lender in consecutive quarterly
installments according to the amortization schedule set forth below (as the same
may be adjusted for prepayments pursuant to Section 2.04) until such principal
amount has been paid in full. Such installments (other than the last installment
owing hereunder with respect to the Term B Loans, which shall be due and payable
on the Term B Termination Date) shall be due and payable on the last Business
Day of each March, June, September and December of each year (each a "TERM B
------
LOAN PAYMENT DATE"), commencing March 31, 1999, and each such installment
- -----------------
payable to each Term B Lender shall be in an amount equal to such Term B
Lender's Term B Pro Rata Share of the amount set forth below opposite the date
on which such Term B Loan Payment Date is stated to occur:
49
<PAGE>
TERM B LOANS
<TABLE>
<CAPTION>
TERM B LOAN PAYMENT DATE QUARTERLY INSTALLMENT
------------------------ ---------------------
<S> <C>
March 1999 $ 100,000
June 1999 100,000
September 1999 100,000
December 1999 100,000
March 2000 100,000
June 2000 100,000
September 2000 100,000
December 2000 100,000
March 2001 100,000
June 2001 100,000
September 2001 100,000
December 2001 100,000
March 2002 100,000
June 2002 100,000
September 2002 100,000
December 2002 100,000
March 2003 100,000
June 2003 100,000
September 2003 100,000
December 2003 100,000
March 2004 100,000
June 2004 100,000
September 2004 100,000
December 2004 100,000
March 2005 9,400,000
June 2005 9,400,000
September 2005 9,400,000
December 2005 9,400,000
TOTAL $40,000,000
</TABLE>
provided, however that the last such installment shall be in the amount
- -------- -------
necessary to repay in full the aggregate unpaid principal amount of all
outstanding Term B Loans and shall, in any event, be due and payable on the Term
B Termination Date.
(C) REVOLVING LOANS. The Borrower shall repay to each Revolving Lender
---------------
(in accordance with the provisions of Section 2.08(a)) on the Revolving
Commitment
50
<PAGE>
Termination Date the aggregate principal amount of all Revolving Loans owing to
such Lender outstanding on the Revolving Commitment Termination Date.
(D) LETTER OF CREDIT DRAWINGS. The Borrower shall repay each Letter
-------------------------
of Credit Drawing as provided in Section 3.03.
(E) SWING LINE LOANS. The Borrower shall repay to the Swing Line
----------------
Lender (in accordance with the provisions of Section 2.08(a)) on the Revolving
Commitment Termination Date the aggregate principal amount of all Swing Line
Loans owing to such Lender outstanding on the Revolving Commitment Termination
Date.
SECTION 2.04. PREPAYMENTS; REDUCTION OF REVOLVING COMMITMENTS AND
---------------------------------------------------
SWING LINE COMMITMENT.
---------------------
(A) OPTIONAL PREPAYMENTS. The Borrower may, upon prior notice to the
--------------------
Administrative Agent (which may be given by 11:00 a.m. (New York City time) on
the date of prepayment in the case of prepayment of Swing Line Loans and which
shall be given at least one Business Day in advance in the case of prepayment of
Revolving Loans which consist of Base Rate Loans and three Business Days in
advance in the case of prepayment of any Revolving Loans which are Eurodollar
Rate Loans or any Term Loans of any Interest Type), stating the proposed date
and aggregate principal amount of the prepayment and the Type and Interest Type
of Loans to be prepaid (and if such notice is given the Borrower shall), prepay
in whole or in part the outstanding principal of Loans of such Type and Interest
Type, together with, in the case of any prepayment of Eurodollar Rate Loans,
interest thereon to the date of such prepayment on the principal amounts prepaid
(plus, in the case of prepayment of Eurodollar Rate Loans prior to the end of
the applicable Interest Period, any additional amount for which the Borrower
shall be obligated pursuant to Section 9.04(c)); provided, however, that each
-------- -------
partial prepayment of Eurodollar Rate Loans shall be in an aggregate principal
amount of $1,000,000 or an integral multiple of $100,000 in excess thereof, and
each partial prepayment of Base Rate Loans shall be in an aggregate principal
amount of $500,000 or an integral multiple of $100,000 in excess thereof (it
being understood that the amount of such prepayment shall be rounded upwards to
the nearest multiple of $100,000 after giving effect to the next sentence).
Notwithstanding anything to the contrary herein, an optional prepayment of Term
Loans under this Section 2.04(a) may only be made if a simultaneous optional
prepayment of term loans is made under the Canadian Credit Agreement, and the
aggregate amount of such prepayments is such that the Applicable US Facility
Percentage of such amount is equal to at least $500,000. Each optional
prepayment of any Term Loans under this Section 2.04(a) shall be applied to the
installments thereof in the following order of priority:
(i) subject to clause (ii) below, to the Term A Loans and Term B
Loans to the full extent thereof on a pro rata basis in direct order of
maturity (and ratably among the Term A Lenders and Term B Lenders,
respectively, as applicable); and
(ii) notwithstanding the foregoing clause (i), so long as (and to
the extent that) any Term A Loans are outstanding, the Borrower may offer
the Term B Lenders the option to, and any Term B Lender may elect to, waive
its ratable share of any
51
<PAGE>
optional prepayment under this Section 2.04(a). In the event that any Term
B Lender elects by 2:00 p.m. (New York City time) on the day prior to the
date of prepayment to waive such right with respect to an optional
prepayment under Section 2.04(a)(i), 100% of that Term B Lender's ratable
share of such prepayment shall be applied to the prepayment of Term A Loans
ratably to the Term A Lenders in direct order of maturity. If no Term A
Loans are outstanding, such option to offer and election to waive
application of prepayments to the Term B Loans shall not be available.
(B) OPTIONAL REDUCTIONS. The Borrower shall have the right, upon at
-------------------
least five Business Days' notice to the Administrative Agent, to terminate in
whole or reduce in part the aggregate unused portion of the Revolving Facility,
with the corresponding termination in whole or ratable reduction in part of the
unused portions of the respective Revolving Commitments of the Revolving
Lenders; provided, however, that (i) each partial reduction shall be in an
-------- -------
amount of $500,000 or any integral multiple of $100,000 in excess thereof, and
(ii) the aggregate amount of the Revolving Commitments shall not be reduced
pursuant to this Section 2.04 to an amount less than the sum of (A) the
aggregate principal amount of all Revolving Loans then outstanding, plus (B) the
aggregate amount of all Letter of Credit Obligations then outstanding, plus (C)
----
the aggregate principal amount of all Swing Line Loans then outstanding.
(C) MANDATORY PREPAYMENTS AND COMMITMENT REDUCTIONS.
-----------------------------------------------
(I) PREPAYMENTS AND REDUCTIONS FROM EXCESS CASH FLOW. Within the
------------------------------------------------
earlier of five days after delivery of the Annual Financials pursuant to
Section 6.03(d) and 95 days following the end of each Fiscal Year, the
Borrower shall prepay the Term Loans and/or the Revolving Loans, and/or the
Revolving Commitments shall be permanently reduced (in each case, as and to
the extent set forth in Section 2.04(c)(xiii)), in an aggregate principal
amount equal to the product of (A) the Applicable US Facility Percentage of
the amount of the total Excess Cash Flow of the Borrower and its
Subsidiaries for such Fiscal Year and (B) the prepayment percentage set
forth below opposite the applicable Consolidated Leverage Ratio as of the
end of such Fiscal Year as set forth in the Effective Quarterly Compliance
Certificate delivered pursuant to Section 6.03(d); provided, however, if no
-------- -------
Quarterly Compliance Certificate has been delivered at the time required by
Section 6.03(d), the Consolidated Leverage Ratio shall be deemed to be
greater than 3.50:1.00 for purposes of this clause (i):
<TABLE>
<CAPTION>
EXCESS CASH FLOW
CONSOLIDATED LEVERAGE RATIO PREPAYMENT PERCENTAGE
--------------------------- ---------------------
<S> <C>
3.50:1.00 50%
3.00:1.00 less than 3.50:1.00 35%
less than 3.00:1.00 0%
</TABLE>
(II) PREPAYMENTS AND REDUCTIONS FROM ASSET SALE PROCEEDS. On the
---------------------------------------------------
date of receipt by Holdings or any of its Domestic Subsidiaries of any Net
Cash Proceeds in respect of any asset sale (other than a sale in accordance
with Section 6.02(e)(i) or (ii)), the Borrower shall prepay the Term Loans
and/or the Revolving Loans, and/or the Revolving Commitments shall be
permanently reduced (in each case, as and to the extent
52
<PAGE>
set forth in Section 2.04(c)(xiii)), in an aggregate principal amount equal
to the amount of such Net Cash Proceeds.
(III) PREPAYMENTS AND REDUCTIONS FROM INSURANCE/CONDEMNATION
------------------------------------------------------
PROCEEDS. On the date of receipt by Holdings or any of its Domestic
--------
Subsidiaries of any Insurance/Condemnation Proceeds in excess of (A)
$15,000,000 with respect to any single occurrence or event (or any series
of related occurrences or events) other than amounts in respect of
equipment described on Schedule 2.04(c)(iii), or (B) $10,000,000 with
respect to any single occurrence or event (or any series of related
occurrences or events) with respect to equipment described on Schedule
2.04(c)(iii), the Borrower shall prepay the Term Loans and/or the Revolving
Loans, and/or the Revolving Commitments shall be permanently reduced (in
each case, as and to the extent set forth in Section 2.04(c)(xiii)), in an
aggregate principal amount equal to the amount of any such
Insurance/Condemnation Proceeds.
(IV) PREPAYMENTS AND REDUCTIONS FROM DEBT SECURITIES PROCEEDS. On
--------------------------------------------------------
the date of receipt by Holdings or any of its Subsidiaries of any Net Cash
Proceeds from any sale or issuance of debt Securities by Holdings or any of
its Subsidiaries after the Closing Date (excluding any intercompany Debt
permitted hereunder), the Borrower shall prepay the Term Loans and/or the
Revolving Loans, and/or the Revolving Commitments shall be permanently
reduced (in each case, as and to the extent set forth in Section
2.04(c)(xiii)), in an aggregate principal amount equal to the Applicable US
Facility Percentage of the amount of such Net Cash Proceeds received;
provided, however, that for purposes of this clause (iv), Capital Leases
and purchase money Debt shall not be deemed to be debt Securities.
(V) PREPAYMENTS AND REDUCTIONS FROM EQUITY SECURITIES PROCEEDS.
----------------------------------------------------------
On the date of receipt by Holdings or any of its Subsidiaries of any Net
Cash Proceeds (excluding proceeds from the exercise of Holdings employee
stock options permitted hereunder, proceeds used to pay off the Domtar Note
and up to $5,000,000 in Capital Stock of Holdings issued to sellers as
Acquisition Consideration in connection with Permitted Acquisitions and
excluding the proceeds of any intercompany Investment in the Borrower or
any of its Subsidiaries permitted hereunder) from any sale or issuance of
equity Securities by Holdings or any of its Subsidiaries after the Closing
Date, the Borrower shall prepay the Term Loans and/or the Revolving Loans,
and/or the Revolving Commitments shall be permanently reduced (in each
case, as and to the extent set forth in Section 2.04(c)(xiii)), in an
aggregate principal amount equal to the Applicable US Facility Percentage
of the amount of such Net Cash Proceeds received; provided, however, that
-------- -------
(A) during any period in which the Effective Quarterly Compliance
Certificate delivered pursuant to Section 6.03(c) or (d), as applicable,
indicates that the Applicable Leverage Ratio is less than 3.0:1.0, the
prepayment and/or reduction required shall be 50% of the Applicable US
Facility Percentage of such Net Cash Proceeds, (B) if no Quarterly
Compliance Certificate has been delivered at the time required by Section
6.03(c) or (d), as applicable, the Consolidated Leverage Ratio shall be
deemed to be greater than 3.0:1.0 for purposes of this clause (v), and (C)
if, in connection with and
53
<PAGE>
prior to the date of any such prepayment, the Borrower shall deliver an
Officer's Certificate demonstrating that after giving effect to such
prepayment the Applicable Leverage Ratio would have been (and will as of
the end of each of the next three fiscal quarters be) reduced to less than
3.0:1.0, then that portion of such prepayment that results in the reduction
of the Applicable Leverage Ratio to 3.0:1.0 shall be paid in an amount
equal to 100% of the Applicable US Facility Percentage of the Net Cash
Proceeds and any remaining portion of such Net Cash Proceeds shall be
applied to such prepayment in an amount equal to 50% of the Applicable US
Facility Percentage of such Net Cash Proceeds.
(VI) CHANGE OF CONTROL. On the date any Change of Control
-----------------
occurs, the Borrower shall prepay in full the Loans, the Revolving
Commitments shall be terminated in full and the Borrower shall cash
collateralize any outstanding Letters of Credit on terms reasonably
satisfactory to the Administrative Agent.
(VII) EXCESS LOANS. The Borrower shall from time to time prepay
------------
first the Swing Line Loans and second the Revolving Loans to the extent
----- ------
necessary so that the Total Utilization of Revolving Commitments shall not
at any time exceed either of the following: (A) the Revolving Commitments
then in effect or (B) the Borrowing Base Amount then in effect. If, at any
time, the then outstanding aggregate amount of all Swing Line Loans shall
exceed either (i) the Swing Line Commitment, or (ii) the aggregate amount
of the Revolving Commitments of the Lenders minus the sum of (A) the Letter
-----
of Credit Usage at such time, and (B) the aggregate principal amount of the
Revolving Loans then outstanding, the Borrower shall thereupon prepay, for
the account of the Swing Line Lender, the outstanding principal amount of
Swing Line Loans in an aggregate amount equal to such excess.
(VIII) CALCULATIONS; ADDITIONAL PREPAYMENTS AND REDUCTIONS.
---------------------------------------------------
Concurrently with any prepayment of the Term Loans, Revolving Loans and/or
reduction of the Revolving Commitments pursuant to clauses (i) through
(vii) above, the Borrower shall deliver to the Administrative Agent an
Officers' Certificate demonstrating the calculation in reasonable detail of
the amount of the excess Loans, Net Cash Proceeds, Insurance/Condemnation
Proceeds or Excess Cash Flow, as applicable, that gave rise to such
prepayment and/or reduction and specifying the application thereof (in
accordance with Section 2.04(c)(xiii)) to the prepayment of the Term Loans
and/or any prepayment of the Revolving Loans (to the extent Revolving Loans
will be repaid) and/or the reduction of the Revolving Commitments. In the
event that the Borrower shall subsequently determine that the actual amount
of such excess Loans, Net Cash Proceeds, Insurance/Condemnation Proceeds or
Excess Cash Flow, as applicable, was greater than the amount set forth in
such Officers' Certificate, the Borrower shall promptly make an additional
prepayment of the Term Loans and/or the Revolving Loans and/or, if
applicable, the Revolving Commitments shall be permanently reduced (in each
case, as and to the extent set forth in Section 2.04(c)(xiii)), in an
amount equal to the amount of such excess, and the Borrower shall
concurrently therewith deliver to the Administrative
54
<PAGE>
Agent an Officers' Certificate demonstrating the derivation of the
additional amounts resulting in such excess and specifying the application
thereof as provided above.
(IX) INCOMPLETE SETTLEMENT. If any Lender shall for any reason
---------------------
fail to pay any amount payable by it (including the funding of any
participation in any Swing Line Loans), or fail to make any Revolving Loan
to be made by it, pursuant to Section 2.02(f), the Borrower shall, on
demand by the Administrative Agent, prepay the Swing Line Loans then
outstanding in an amount equal to such amount.
(X) REDUCTION OF SWING LINE COMMITMENTS. The Swing Line
-----------------------------------
Commitment shall be (i) terminated automatically and simultaneously upon
any termination in whole of the Revolving Commitments, and (ii) reduced
ratably in an aggregate amount equal to the amount by which, as a result of
any partial reduction of the Revolving Commitments of the Lenders, the
aggregate Revolving Commitments of the Lenders are reduced below the Swing
Line Sublimit.
(XI) LETTER OF CREDIT CASH COLLATERAL. If, at any time, the
--------------------------------
Letter of Credit Usage exceeds the Letter of Credit Sublimit in effect at
such time, the Borrower shall immediately pay to the Administrative Agent,
in same day funds, for deposit in the Letter of Credit Cash Collateral
Account an amount sufficient to cause the aggregate amount on deposit in
such account to equal the amount of such excess.
(XII) REDUCTION OF LETTER OF CREDIT SUBFACILITY. The Letter of
-----------------------------------------
Credit Sublimit shall be permanently reduced from time to time on the date
of each reduction in the Revolving Facility by the amount, if any, by which
the amount of the Letter of Credit Sublimit exceeds the Revolving Facility
after giving effect to such reduction of the Revolving Facility.
(XIII) APPLICATION OF MANDATORY PREPAYMENTS.
------------------------------------
(A) Except as otherwise specifically set forth in clauses
(vi), (vii) and (xi) above, all prepayments under this Section 2.04(c)
shall be applied as follows:
(1) subject to clause (2) below, each prepayment under
this Section 2.04(c) shall be applied first to the prepayment of
-----
the Term A Loans and Term B Loans to the full extent thereof on a
pro rata basis in direct order of maturity (and pro rata among the
Term A Lenders and Term B Lenders, respectively, as applicable)
and second, to prepay outstanding Revolving Loans and permanently
------
reduce the Revolving Commitments (it being understood that the
Revolving Commitments shall be reduced by the full amount of any
such required prepayment whether or not any Revolving Loans are
then outstanding); and
(2) notwithstanding the foregoing clause (1), so long
as (and to the extent that) any Term A Loans are outstanding, the
Borrower
55
<PAGE>
may offer the Term B Lenders the option to, and any Term B Lender
may elect to, waive its ratable share of any prepayment under this
Section 2.04(c). In the event that any Term B Lender elects by
2:00 p.m. (New York City time) on the day prior to the date of
prepayment to waive such right with respect to any such prepayment
under this Section 2.04(c), 50% of that Term B Lender's ratable
share of such prepayment shall be applied to the prepayment of
Term A Loans ratably to the Term A Lenders in direct order of
maturity, and the remaining 50% of such amount shall be retained
by the Borrower. If no Term A Loans are outstanding, such option
to offer and election to waive prepayments shall not be available.
(B) Considering Term A Loans, Term B Loans and Revolving
Loans being paid separately, any prepayment thereof shall be applied
first to Base Rate Loans to the full extent thereof before application
to Eurodollar Rate Loans, in each case in a manner that minimizes the
amount of any payments required to be made by the Borrower pursuant to
9.04(c).
(C) Notwithstanding anything herein or in the Canadian
Credit Agreement to the contrary, the amount of any mandatory
prepayment of the Term B Loans under and as defined in the Canadian
Credit Agreement that would be required to be made pursuant to Section
2.04(c)(i) of the Canadian Credit Agreement except for the provisions
of Section 2.04(c)(xiii)(A)(2) of the Canadian Credit Agreement shall
be applied to prepay the Term B Loans hereunder to the extent such
Term B Loans are outstanding.
(D) INTEREST PAYABLE ON AMOUNTS PREPAID. All prepayments of Eurodollar
-----------------------------------
Rate Loans under this Section 2.04 shall be made together with accrued interest
to the date of such prepayment on the principal amount prepaid.
SECTION 2.05. INTEREST.
--------
The Borrower shall pay interest on the unpaid principal amount of each
Loan from the date of such Loan until such principal is paid in full at the
applicable rate set forth below.
(A) INTEREST ON BASE RATE LOANS. Except to the extent that the
---------------------------
Borrower shall elect to pay interest on all or any part of any Loan made or to
be made to the Borrower under Section 2.01 for any Interest Period pursuant to
subsections (b) and (c) of this Section 2.05, the Borrower shall pay interest on
the unpaid principal amount of each Loan, from the date of such Loan until such
principal amount is paid in full, (i) payable quarterly in arrears on the last
Business Day of each March, June, September and December, commencing March 31,
1999, and (ii) (A) with respect to Revolving Loans and Swing Line Loans, on the
Revolving Commitment Termination Date, (B) with respect to Term A Loans, on the
Term A Termination Date and (C) with respect to Term B Loans, on the Term B
Termination Date, in each case at a fluctuating interest rate per annum equal
(subject to Section 2.05(d)), to the sum of the Base Rate in effect
56
<PAGE>
from time to time plus the Applicable Base Rate Margin for such Type of Loan in
----
effect from time to time.
(B) INTEREST PERIODS FOR EURODOLLAR RATE LOANS. The Borrower may,
------------------------------------------
pursuant to Section 2.05(c), elect to have the interest on the principal amount
of all or any portion of any Loans made or to be made to the Borrower under
Section 2.01, in each case ratably according to the respective outstanding
principal amounts of Loans of the same Type owing to each Lender (each such
principal amount owing to a Lender as to which such election has been made being
a "EURODOLLAR RATE LOAN" owing to such Lender) determined and payable for a
--------------------
specified period (an "INTEREST PERIOD" for such Eurodollar Rate Loan) in
---------------
accordance with Section 2.05(c); provided, however, that the Borrower may not
-------- -------
(i) make any such election with respect to any Swing Line Loans, or (ii) have
more than nine Eurodollar Rate Loans owing to any Lender outstanding at any one
time. Each Interest Period shall be one, two, three, or six months, at the
Borrower's election pursuant to Section 2.05(c); provided, however, that:
-------- -------
(i) the first day of an Interest Period for any Eurodollar Rate
Loan shall be either the last day of any then current Interest Period for
such Loan or, if there shall be no then current Interest Period for such
Loan, any Business Day;
(ii) the Borrower may not select any Interest Period that ends
after any principal repayment installment date unless, after giving effect
to such selection, the aggregate principal amount of Base Rate Loans and of
Eurodollar Rate Loans having Interest Periods that end on or prior to such
principal repayment installment date shall be at least equal to the
aggregate principal amount of Loans due and payable on or prior to such
date;
(iii) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such Interest
Period shall be extended to occur on the next succeeding Business Day;
provided, however, that if such extension would cause the last day of such
-------- -------
Interest Period to occur in the next following month, the last day of such
Interest Period shall occur on the next preceding Business Day;
(iv) whenever the first day of any Interest Period occurs on a
day of the month for which there is no numerically corresponding day in the
calendar month that succeeds such initial calendar month by the number of
months equal to the number of months in such Interest Period, such Interest
Period shall end on the last Business Day of such succeeding calendar
month; and
(v) for any Interest Period of six months, the Borrower shall
pay interest on the three-month anniversary and at maturity.
(C) INTEREST ON EURODOLLAR RATE LOANS. The Borrower may from time to
---------------------------------
time, on the condition that no Default or Event of Default has occurred and is
continuing, and subject to the provisions of Sections 2.05(b) and 2.05(e), elect
to pay interest on all or any portion of any Loans of the same Type during any
Interest Period therefor at a rate per annum equal to the sum of the Eurodollar
Rate for such Interest Period for such Loans plus the
57
<PAGE>
Applicable Eurodollar Rate Margin in effect from time to time, in a Notice of
Borrowing or Notice of Conversion/Continuation, specifying the Type and amount
of the Loans as to which such election is made (which amount shall aggregate at
least $1,000,000 or any integral multiple of $100,000 in excess thereof) and the
first day and duration of such Interest Period, which notice shall be received
by the Administrative Agent before 11:00 a.m. (New York City time) three
Business Days prior to the first day of such Interest Period. If the Borrower
has made such election for Eurodollar Rate Loans for any Interest Period, the
Borrower shall pay interest on the unpaid principal amount of such Eurodollar
Rate Loans during such Interest Period, payable in arrears on the last Business
Day of such Interest Period and, in the case of any Interest Period which is
longer than three months, on each three month anniversary of the first day of
such Interest Period, in each case at a rate equal, subject to Section 2.05(d),
to the sum of the Eurodollar Rate for such Interest Period for such Eurodollar
Rate Loans plus the Applicable Eurodollar Rate Margin for such Type of Loan in
effect from time to time during such Interest Period. On the last day of each
Interest Period for any Eurodollar Rate Loan, the unpaid principal balance
thereof shall, subject to Section 2.05(e), automatically become and bear
interest as a Eurodollar Rate Loan with an Interest Period of one month, except
to the extent that the Borrower has elected in a Notice of
Conversion/Continuation to pay interest on all or any portion of such amount for
a new Interest Period commencing on such day in accordance with this Section
2.05(c) or to convert such amount to a Base Rate Loan. Each notice by the
Borrower under this Section 2.05(c) shall be irrevocable upon receipt by the
Administrative Agent, and the Borrower shall indemnify each Lender against any
loss, cost or expense incurred by such Lender as a result of any failure to
fulfill on or before the date specified by such Notice of Borrowing or Notice of
Conversion/Continuation the applicable conditions set forth in this Section
2.05(c) or Article IV, including, without limitation, any loss, cost or expense
incurred by reason of the liquidation or reemployment of deposits or other funds
acquired by such Lender to fund any such Eurodollar Rate Loan when such
Eurodollar Rate Loan, as a result of such failure, is not made or does not
become effective.
(D) DEFAULT INTEREST. Upon the occurrence and during the continuance
----------------
of an Event of Default, the Borrower shall, at the dates set forth herein for
the payment of interest and upon demand, (i) pay interest on each then
outstanding Base Rate Loan at a rate per annum equal at all times to the rate
otherwise applicable to such Base Rate Loans plus 2.00% per annum, (ii) pay
interest on each then outstanding Eurodollar Rate Loan at a rate per annum equal
at all times to the rate otherwise applicable to such Eurodollar Rate Loan plus
2.00% per annum, and (iii) pay interest on all other amounts owing hereunder not
paid when due at a rate per annum (the "DEFAULT RATE") equal at all times to the
------------
rate otherwise applicable to Term B Loans that are Base Rate Loans plus 2.00%
----
per annum.
(E) SUSPENSION OF EURODOLLAR RATE LOANS.
-----------------------------------
(I) ILLEGALITY. Notwithstanding any other provision of this
----------
Agreement, if the introduction of or any change in or in the interpretation
of any law or regulation shall make it unlawful, or any central bank or
other governmental authority shall assert that it is unlawful, for any
Lender or its Eurodollar Lending Office to perform its obligations
hereunder to make Eurodollar Rate Loans or to continue to fund or maintain
58
<PAGE>
Eurodollar Rate Loans hereunder, then, on notice thereof and demand
therefor by such Lender to the Borrower through the Administrative Agent,
(i) each Eurodollar Rate Loan under each Facility under which such Lender
has any outstanding Loans will automatically, upon such demand, Convert
into a Base Rate Loan and (ii) the obligation of the Appropriate Lenders to
make, or to Convert Loans into, Eurodollar Rate Loans shall be suspended
until the Administrative Agent shall notify the Borrower that such Lender
has determined that the circumstances causing such suspension no longer
exist.
(II) OTHER CIRCUMSTANCES. If, with respect to any Eurodollar Rate
-------------------
Loans of any Type, (A) the Administrative Agent shall determine in good
faith (which determination shall be conclusive) that the Eurodollar Rate
cannot be determined in accordance with the definition thereof, or (B)
Lenders owed or to be owed at least 51% of the then aggregate unpaid
principal amount thereof notify the Administrative Agent that the
Eurodollar Rate for any Interest Period for such Loans will not adequately
reflect the cost to such Lenders of making, funding or maintaining their
Eurodollar Rate Loans for such Interest Period, the Administrative Agent
shall forthwith so notify the Borrower and the Appropriate Lenders,
whereupon (i) each such Eurodollar Rate Loan will automatically, on the
last day of the then existing Interest Period therefor, Convert into a Base
Rate Loan and (ii) the obligation of the Appropriate Lenders to make, or to
Convert Loans into, Eurodollar Rate Loans shall be suspended until the
Administrative Agent shall notify the Borrower that such Lenders have
determined that the circumstances causing such suspension no longer exist.
(III) SUSPENSION ON EVENT OF DEFAULT. Without limiting any other
------------------------------
provision hereof, upon the occurrence and during the continuance of any
Event of Default, (i) each Eurodollar Rate Loan will automatically, on the
last day of the then existing Interest Period therefor, Convert into a Base
Rate Loan and (ii) the obligation of the Lenders to make, or to Convert
Loans into, Eurodollar Rate Loans shall be suspended.
(IV) LENDERS' OBLIGATION TO NOTIFY ADMINISTRATIVE AGENT. If any
--------------------------------------------------
Lender shall give notice to the Administrative Agent under Section
2.05(e)(i) or (ii) and such Lender shall thereafter determine that the
circumstances causing such notice no longer exist, such Lender shall
promptly give written notice thereof to the Administrative Agent, and the
Administrative Agent shall thereafter give notice thereof to the Borrower
and the other Lenders.
59
<PAGE>
SECTION 2.06. FEES.
----
(A) COMMITMENT FEES. The Borrower agrees to pay to the Administrative
---------------
Agent a commitment fee on the average daily Unused Revolving Commitment of each
Revolving Lender, for the account of such Lender, from the Closing Date in the
case of each Revolving Lender that is an Initial Lender and from the effective
date specified in the Assignment and Acceptance pursuant to which it became a
Revolving Lender in the case of each other Revolving Lender, in each case until
the Revolving Commitment Termination Date, at a rate per annum equal to 0.50%,
payable quarterly in arrears on the last Business Day of each March, June,
September and December, commencing March 31, 1999, and on the Revolving
Commitment Termination Date.
(B) LETTER OF CREDIT FEES. The Borrower agrees to pay the Letter of
---------------------
Credit fees set forth in Section 3.05.
(C) OTHER FEES. The Borrower agrees to pay to the Lead Arranger and
----------
the Administrative Agent, for their own respective accounts (i) the fees in the
amounts and at the times set forth in the confidential letter dated January 4,
1999 from the Syndication Agent, the Lead Arranger and the Administrative Agent
to the Borrower and Panolam Canada, and agreed to and accepted by the Borrower
and Panolam Canada, and (ii) such other fees as may from time to time be agreed
between the Borrower and the Administrative Agent, the Syndication Agent or the
Lead Arranger.
(D) ABSOLUTE OBLIGATION. The Borrower's obligation hereunder to pay
-------------------
the fees referred to in this Section 2.06 shall be absolute and unconditional
and shall survive the making and repayment of Loans, the termination of all
Letter of Credit Obligations and the termination of this Agreement. All fees
which are due or become due pursuant to this Section 2.06 are nonrefundable.
SECTION 2.07. INCREASED COSTS, ETC.
--------------------
(A) INCREASED COSTS. If, due to either (i) the introduction of or any
---------------
change in or in the interpretation of any law or regulation or (ii) the
compliance with any guideline or request from any central bank or other
governmental authority, including without limitation, the National Association
of Insurance Commissioners (whether or not having the force of law), there shall
be any increase in the cost to any Lender Party of agreeing to make or of
making, funding or maintaining Eurodollar Rate Loans or of agreeing to Issue or
of Issuing or maintaining Letters of Credit (or of agreeing to purchase or
purchasing participations therein) or of agreeing to pay or of paying any Letter
of Credit Drawings (or of agreeing to purchase or purchasing participations
therein), then the Borrower shall from time to time, upon demand by such Lender
Party (with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender Party additional amounts
sufficient to compensate such Lender Party on an after-tax basis for such
increased cost. A certificate as to the amount of such increased cost, submitted
to the Borrower by such Lender Party, shall be conclusive and binding for all
purposes, absent manifest error.
60
<PAGE>
(B) CAPITAL REQUIREMENTS. If, due to either (i) the
--------------------
introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other governmental authority, including without limitation, the National
Association of Insurance Commissioners (whether or not having the force of law),
there shall be any increase in the amount of capital required or expected to be
maintained by such Lender Party or any corporation controlling such Lender Party
as a result of or based upon the existence of such Lender Party's commitment to
lend or to Issue or purchase participations in Letters of Credit hereunder and
other commitments of such type or the Issuance or maintenance of the Letters of
Credit (or similar contingent obligations), then, upon demand by such Lender
Party (with a copy of such demand to the Administrative Agent), the Borrower
shall pay to the Administrative Agent for the account of such Lender Party, from
time to time as specified by such Lender Party, additional amounts sufficient to
compensate such Lender Party on an after-tax basis in the light of such
circumstances, to the extent that such Lender Party reasonably determines such
increase in capital to be allocable to the existence of such Lender Party's
commitment to lend or to Issue or participate in Letters of Credit hereunder or
to the Issuance or maintenance of or participation in any Letters of Credit. A
certificate as to such amounts submitted to the Borrower by such Lender Party
shall be conclusive and binding for all purposes, absent manifest error.
(C) REPLACEMENT OF LENDER IN RESPECT OF INCREASED COSTS.
---------------------------------------------------
Within 15 days after receipt by the Borrower of written notice and demand from
any Lender Party for payment of additional amounts or increased costs as
provided in Section 2.07(a), Section 2.07(b) or Section 2.09(a), or of written
notice from any Lender under Section 2.05(e)(i) (in each case, an "AFFECTED
--------
LENDER"), Borrower may, at its option, notify the Administrative Agent and such
- ------
Affected Lender of its intention to replace the Affected Lender. So long as no
Default or Event of Default shall have occurred and be continuing, and so long
as such demand for such payment of additional amounts or increased costs has not
been withdrawn, the Borrower, with the consent of the Administrative Agent, may
obtain, at the Borrower's expense, a replacement Lender ("REPLACEMENT LENDER")
------------------
for the Affected Lender, which Replacement Lender must be reasonably
satisfactory to the Administrative Agent. If the Borrower obtains a Replacement
Lender within 120 days following notice of its intention to do so, the Affected
Lender must sell and assign its Loans and Commitments to such Replacement Lender
for an amount equal to the principal balance of all Loans held by the Affected
Lender and all accrued interest and fees with respect thereto through the date
of such sale, provided that the Borrower shall have reimbursed such Affected
--------
Lender for the additional amounts or increased costs that it is entitled to
receive under this Agreement through the date of such sale and assignment and
provided further that if such Affected Lender is an Issuing Bank, cash
- ----------------
collateral or other arrangements satisfactory to such Affected Lender shall have
been provided with respect to each outstanding Letter of Credit issued by such
Issuing Bank.
SECTION 2.08. PAYMENTS AND COMPUTATIONS.
-------------------------
(A) PAYMENTS BY BORROWER. The Borrower shall make each
--------------------
payment hereunder and under any other Loan Document to which it is a party,
irrespective of and without condition or deduction for any counterclaim,
defense, recoupment or setoff, in lawful money of
61
<PAGE>
the United States and in same day funds delivered to the Administrative Agent
not later than 2:00 p.m. (New York City time) on the day when due by deposit of
such funds to the Administrative Agent's Account. Any payment so delivered to
the Administrative Agent after 2:00 p.m. (New York City time) on any Business
Day, or on any day which is not a Business Day, shall be deemed received by the
Administrative Agent on the next succeeding Business Day. The Administrative
Agent will promptly after receipt of each payment cause to be distributed like
funds relating to the payment of principal, interest, commitment fees or letter
of credit fees ratably to each Appropriate Lender for the account of its
Applicable Lending Office, and like funds relating to the payment of any other
amount payable to any Lender or any Issuing Bank (including payments with
respect to Letters of Credit and payments for the account of any Lender under
Section 2.07, Section 2.09 or Section 9.04(c)) to such Lender for the account of
its Applicable Lending Office or to such Issuing Bank, in each case to be
applied in accordance with, and subject to, the terms of this Agreement,
including Section 2.08(e) below. Upon its acceptance of an Assignment and
Acceptance and recording of the information contained therein in the Register
pursuant to Section 9.07(d), from and after the effective date specified in such
Assignment and Acceptance, the Administrative Agent shall make all payments
hereunder and under any other Loan Document in respect of the interest assigned
thereby to the Lender assignee thereunder, and the parties to such Assignment
and Acceptance shall make all appropriate adjustments in such payments for
periods prior to such effective date directly between themselves.
(B) COMPUTATIONS. All calculations, comparisons, measurements
------------
and determinations under this Agreement shall be made in US Dollars and all
computations of interest, fees and commissions shall be made by the
Administrative Agent on the basis of a year of 360 days, in each case for the
actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest, fees or commissions are
payable; provided that if any Loan is repaid on the same day on which it is
--------
made, one day's interest shall be paid on such Loan. Each determination by the
Administrative Agent of an interest rate, fee, commission or discount rate
hereunder shall be conclusive and binding for all purposes, absent manifest
error.
(C) PAYMENTS ASSUMED. Unless the Administrative Agent shall
----------------
have received notice from the Borrower prior to the date on which any payment is
due to the Lenders or any Issuing Bank hereunder that the Borrower will not make
such payment in full, the Administrative Agent may assume that the Borrower has
made such payment in full to the Administrative Agent on such date and the
Administrative Agent may, in reliance upon such assumption, but shall not be
required to, cause to be distributed to each Lender or such Issuing Bank on such
due date an amount equal to the amount then due to such Lender or such Issuing
Bank. If and to the extent that the Borrower shall not have so made such payment
in full to the Administrative Agent, each Lender and Issuing Bank shall repay to
the Administrative Agent forthwith on demand such amount distributed to such
Lender or Issuing Bank together with interest thereon, for each day from the
date such amount is distributed to such Lender or Issuing Bank until the date
such Lender or Issuing Bank repays such amount to the Administrative Agent, at
the Federal Funds Rate.
62
<PAGE>
(D) APPLICATION OF PAYMENTS SPECIFIED BY THE BORROWER. Except
-------------------------------------------------
as otherwise specified herein, so long as no Event of Default has occurred and
is continuing, all payments shall be applied as instructed by the Borrower
(except that, unless the Administrative Agent otherwise consents, outstanding
Swing Line Loans shall be prepaid before prepayment of any Revolving Loans) if
such instructions are received by the Administrative Agent prior to or
contemporaneously with receipt of funds therefor.
(E) APPLICATION OF PAYMENTS NOT OTHERWISE SPECIFIED. If the
-----------------------------------------------
Administrative Agent receives funds for application to the Loans or any Letter
of Credit Obligations or other Obligations of the Borrower under the Loan
Documents under circumstances for which the Loan Documents do not specify the
Loans or the Facility or the Obligations to which, or the manner in which, such
funds are to be applied, the Administrative Agent shall apply such funds in such
manner as it shall determine or as otherwise directed by the Required Lenders.
(F) PAYMENTS ON BUSINESS DAYS. Whenever any payment hereunder
-------------------------
or under any other Loan Document shall be stated to be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of
payment of interest and commitment and other fees; provided, however, if such
-------- -------
extension would cause payment of interest on or principal of any Eurodollar Rate
Loan to be made in the next following month, such payment shall be made on the
next preceding Business Day.
(G) CERTAIN TERMS. The terms "pay", "paid" or "payment" under
-------------
this Agreement shall include prepay, prepaid or prepayment, respectively, under
this Agreement, and the term "due" under this Agreement shall include due by
reason of a mandatory prepayment (including upon an actual or deemed entry of an
order for relief with respect to any Credit Party under the United States
Bankruptcy Code or upon acceleration).
SECTION 2.09. TAXES.
-----
(A) WITHHOLDING TAXES. Except as otherwise provided in this
-----------------
Section 2.09, any and all payments by the Borrower hereunder or under the Notes
(if any) to any Lender Party or the Administrative Agent, shall be made, in
accordance with Section 2.08, free and clear of and without deduction for any
Taxes. Except as otherwise provided in this Section 2.09, if the Borrower shall
be required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any Note to any Lender Party or the Administrative Agent, (i)
the sum payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 2.09) such Lender Party or the Administrative Agent (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(B) OTHER TAXES. In addition, the Borrower shall pay any
-----------
present or future stamp, documentary, excise, property or similar taxes, charges
or levies that arise from any
63
<PAGE>
payment made hereunder or under any other Loan Document or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or any
other Loan Document (hereinafter referred to as "OTHER TAXES").
-----------
(C) INDEMNIFICATION. Except as otherwise provided in this
---------------
Section 2.09, the Borrower shall indemnify each Lender Party and the
Administrative Agent for the full amount of Taxes and Other Taxes, and for the
full amount of Taxes and Other Taxes imposed by any jurisdiction on amounts
payable under this Section 2.09, paid by such Lender Party or the Administrative
Agent (as the case may be) and any liability (including penalties, additions to
tax, interest and expenses) arising therefrom or with respect thereto. This
indemnification shall be made within 30 days from the date such Lender Party or
the Administrative Agent (as the case may be) makes written demand therefor.
(D) EVIDENCE OF PAYMENT. Within 30 days after the date of any
-------------------
payment of Taxes, the Borrower shall furnish to the Administrative Agent, at its
address referred to in Section 8.02, the original receipt of payment thereof or
a certified copy of such receipt. In the case of any payment hereunder or under
the Notes (if any), by the Borrower through an account or branch outside the
United States or on behalf of the Borrower by a payor that is not a United
States Person, if the Borrower determines that no Taxes are payable in respect
thereof, the Borrower shall furnish, or shall cause such payor to furnish, to
the Administrative Agent, at such address, an opinion of counsel acceptable to
the Administrative Agent stating that such payment is exempt from Taxes. For
purposes of this subsection (d) and subsection (e), the terms "UNITED STATES"
-------------
and "UNITED STATES PERSON" shall have the meanings specified in Section 7701 of
--------------------
the Internal Revenue Code.
(E) FOREIGN LENDERS AND ISSUING BANKS. Each Lender, assignee
---------------------------------
of a Lender, participant under a participation and SPV organized under the laws
of a jurisdiction outside the United States shall, on or prior to the date of
its execution and delivery of this Agreement in the case of each Initial Lender,
and on the date of the Assignment and Acceptance pursuant to which it became a
Lender in the case of each other Lender, and on the date the party acquires any
interest in the Loans or Notes of a Lender in the case of any other party
referred to above, and from time to time thereafter upon the reasonable request
in writing by the Borrower or the Administrative Agent (but only so long
thereafter as such Lender or other party remains lawfully able to do so),
provide the Administrative Agent and the Borrower with (a) if such Lender is a
"bank" within the meaning of Section 881(c)(3)(A) of the Code, Internal Revenue
Service form 1001 (or W-8BEN) or 4224 (or W-8ECI), as appropriate, or any
successor form prescribed by the Internal Revenue Service, certifying that such
Lender or other party is exempt from United States withholding tax on payments
under this Agreement or the Notes (if any) or, (b) if such Lender is not a
"bank" within the meaning of Section 881(c)(3)(A) of the Code and intends to
claim exemption from U.S. federal withholding tax under Section 871(h) or 881(c)
of the Code with respect to payments of "portfolio interest", a Form W-8, or any
subsequent versions thereof or successors thereto (and, if such non-U.S. Lender
delivers a Form W-8, a certificate representing that such non-U.S. Lender is not
a bank for purposes of Section 881(c) of the Code, is not a 10% shareholder
(within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is
not a controlled foreign corporation related to the Borrower (within the meaning
of Section 864(d)(4)
64
<PAGE>
of the Code)), properly completed and duly executed by such non-U.S. Lender
claiming complete exemption from, or a reduced rate of, U.S. federal withholding
tax on payments of interest by the Borrower under this Agreement and the other
Loan Documents. If any form or document referred to in this Section 2.09(e)
requires the disclosure of information, other than information necessary to
compute the tax payable and information required on the date hereof by Internal
Revenue Service form 1001 (or W-8BEN) or 4224 (or W-8ECI) or other such
certificate or form that the Lender reasonably considers to be confidential, the
Lender shall give notice thereof to the Borrower and shall not be obligated to
include in such form or document such confidential information.
(F) FAILURE TO PROVIDE FORMS. For any period with respect to
------------------------
which a Lender or the Administrative Agent or other pertinent party has failed
to provide the Borrower with the appropriate form described in Section 2.09(e)
establishing an exemption from withholding tax (other than if such failure is
----- ----
due to a change in law occurring after the date on which a form originally was
required to be provided), such Lender or the Administrative Agent shall not be
entitled to any payments or amounts from the Borrower under Section 2.09(a) or
indemnification under Section 2.09(c) with respect to Taxes imposed by the
United States; provided, however, that should a Lender become subject to Taxes
-------- -------
because of its failure to deliver a form required hereunder, the Borrower shall
take such steps as such Lender or the Administrative Agent shall reasonably
request to assist such Lender or the Administrative Agent to recover such Taxes.
Further, no party shall be entitled to any payments or amounts under Section
2.09(a) or indemnification under Section 2.09(c) except as a result of a change
in law occurring after such party acquired any interest in the Loans or the
Notes. The foregoing sentence shall not apply to the extent of any payments,
amounts or indemnification that the assignor to such party was entitled at the
time of assignment or other transfer.
(G) SURVIVAL. Without prejudice to the survival of any other
--------
agreement of the Borrower hereunder, the agreements and obligations of the
Borrower contained in this Section 2.09 shall survive the payment in full of
principal and interest hereunder and under the Notes (if any).
(H) CHANGE OF LENDING OFFICE. If the Borrower is required to
------------------------
pay any additional amount to a Lender, the Administrative Agent or any taxing
authority for the account of any Lender or the Administrative Agent pursuant to
this Section 2.09, the Borrower shall have the right, upon notice to such Lender
or the Administration Agent, as applicable, to require such Lender or the
Administrative Agent, as applicable, to use reasonable efforts to designate a
different lending office for funding or booking its loan (or any loan
participation) hereunder or to assign its rights and obligations hereunder to
another of its offices, branches or Affiliates, if, in the sole judgment of such
Lender or the Administrative Agent, as applicable, such designation or
assignment (A) would eliminate or reduce amounts payable pursuant to Section
2.09, as the case may be, in the future and (B) would not cause such Lender or
the Administrative Agent, as applicable, to suffer any economic, legal or
regulatory disadvantage. With respect to the foregoing, the Borrower hereby
agrees to pay on demand all reasonable costs and expenses incurred by any Lender
or the Administrative Agent, as applicable, in connection with any such
designation or assignment.
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SECTION 2.10. SHARING OF PAYMENTS, ETC.
------------------------
If any Lender Party shall obtain at any time any payment
(whether voluntary, involuntary, through the exercise of any right of set-off,
or otherwise) (a) on account of Obligations due and payable to such Lender Party
hereunder and under the Notes (if any) at such time in excess of its ratable
share (according to the proportion of (i) the amount of such Obligations due and
payable to such Lender Party at such time to (ii) the aggregate amount of the
Obligations due and payable to all Lender Parties hereunder and under the Notes
(if any) at such time) of payments on account of the Obligations due and payable
to all Lender Parties hereunder and under the Notes (if any) at such time
obtained by all the Lender Parties at such time or (b) on account of Obligations
owing (but not due and payable) to such Lender Party hereunder and under the
Notes (if any) at such time in excess of its ratable share (according to the
proportion of (i) the amount of such Obligations owing to such Lender Party at
such time to (ii) the aggregate amount of the Obligations owing (but not due and
payable) to all Lender Parties hereunder and under the Notes (if any) at such
time) of payments on account of the Obligations owing (but not due and payable)
to all Lender Parties hereunder and under the Notes (if any) at such time
obtained by all the Lender Parties at such time, such Lender Party shall
forthwith purchase from the other Lender Parties such participations in the
Obligations due and payable or owing to them, as the case may be, as shall be
necessary to cause such purchasing Lender Party to share the excess payment
ratably with each of them; provided, however, that if all or any portion of such
-------- -------
excess payment is thereafter recovered from such purchasing Lender Party, such
purchase from each other Lender Party shall be rescinded and such other Lender
Party shall repay to the purchasing Lender Party the purchase price to the
extent of such other Lender Party's ratable share (according to the proportion
of (i) the purchase price paid to such Lender Party to (ii) the aggregate
purchase price paid to all Lender Parties) of such recovery together with an
amount equal to such Lender Party's ratable share (according to the proportion
of (i) the amount of such other Lender Party's required repayment to (ii) the
total amount so recovered from the purchasing Lender Party) of any interest or
other amount paid or payable by the purchasing Lender Party in respect of the
total amount so recovered. The Borrower agrees that any Lender Party so
purchasing a participation from another Lender Party pursuant to this Section
2.10 may, to the fullest extent permitted by law, exercise all its rights of
payment (including the right of set-off) with respect to such participation as
fully as if such Lender Party were the direct creditor of the Borrower in the
amount of such participation.
SECTION 2.11. USE OF PROCEEDS.
---------------
(A) TERM LOANS. The proceeds of the Term Loans shall be
----------
applied by the Borrower to fund the Pioneer Acquisition Consideration payable at
the closing thereof, to refinance all existing indebtedness (except the Domtar
Note and Capital Leases) of Holdings and its Subsidiaries (including Pioneer),
including the repayment in full of all amounts outstanding under the Existing
Credit Agreement, and to pay related fees and expenses of the Transactions.
(B) REVOLVING LOANS; SWING LINE LOANS. The proceeds of
---------------------------------
Revolving Loans and of Swing Line Loans shall be available to the Borrower (and
the Borrower agrees that it shall use such proceeds) to provide working capital
for the Borrower and its Subsidiaries, to fund
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Permitted Acquisitions by the Borrower and its Subsidiaries, to fund the payment
of earn-out amounts pursuant to Section 2(e)(v) of the Pioneer Acquisition
Agreement and, subject to the provisions of this Agreement and the other Loan
Documents, for other general corporate purposes of the Borrower and its
Subsidiaries.
SECTION 2.12. EVIDENCE OF DEBT.
----------------
(A) MAINTENANCE OF ACCOUNTS BY LENDERS. Each Lender shall
----------------------------------
maintain in accordance with its usual practice an account or accounts evidencing
the indebtedness of the Borrower to such Lender resulting from each Loan owing
to such Lender from time to time, including the amounts of principal and
interest payable and paid to such Lender from time to time hereunder.
(B) MAINTENANCE OF ACCOUNTS BY ADMINISTRATIVE AGENT. The
-----------------------------------------------
Register maintained by the Administrative Agent pursuant to Section 9.07(c)
shall include a control account, and a subsidiary account for each Lender, in
which accounts (taken together) shall be recorded (i) the date and amount of
each Borrowing made hereunder, the Type and Interest Type of the Loans
comprising such Borrowing and any Interest Period applicable thereto, (ii) the
terms of each Assignment and Acceptance delivered to and accepted by it, (iii)
the amount of any principal or interest due and payable or to become due and
payable from the Borrower to each Lender hereunder, and (iv) the amount of any
sum received by the Administrative Agent from or on behalf of the Borrower
hereunder and each Lender's share thereof. The entries made in the Register
shall be conclusive and binding for all purposes, absent manifest error.
(C) EXECUTION OF PROMISSORY NOTES BY BORROWER. The Borrower
-----------------------------------------
hereby agrees that if, in the opinion of any Lender, a promissory note or other
evidence of debt is required, appropriate or desirable to reflect or enforce the
indebtedness of the Borrower resulting from the Term Loans, Revolving Loans or
Swing Line Loans made, or to be made, by such Lender, then upon request of such
Lender, the Borrower shall promptly execute and deliver to such Lender, for each
of the Loans made or to be made by such Lender, a promissory note substantially
in the forms of Exhibit VII-A for Revolving Loans, Exhibit VII-B for Term A
------------- -------------
Loans, Exhibit VII-C for Term B Loans and Exhibit VII-D for Swing Line Loans,
------------- -------------
each payable to the order of such Lender in an amount equal to the Term Loans,
Revolving Commitment or Swing Line Commitment (as the case may be) of such
Lender.
ARTICLE III.
AMOUNTS AND TERMS OF LETTERS OF CREDIT
SECTION 3.01. THE LETTER OF CREDIT SUBFACILITY. The Borrower
--------------------------------
may request any Lender, on the terms and conditions herein set forth, to Issue,
and any such Lender may, if in its sole discretion it elects to do so, and the
Letter of Credit Bank shall, if no other Lender elects to do so, Issue Letters
of Credit for the account of the Borrower (the "LETTER OF CREDIT SUBFACILITY")
----------------------------
from time to time on any Business Day during the period after the Closing Date
until 30 days prior to the Revolving Commitment Termination Date; provided that
--------
(i) the aggregate amount for all Letters of Credit outstanding shall not exceed
at any time the lesser of (a) $4,000,000 (the "LETTER OF CREDIT SUBLIMIT") and
-------------------------
(b) the Net Borrowing Availability and
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(ii) the amount of each such Letter of Credit to be Issued shall not exceed the
Unused Revolving Commitments of the Lenders on the Business Day of its Issuance.
No Letter of Credit shall have an expiration date (including all rights of the
Borrower or the beneficiary to require renewal) later than the earlier of (i)
the Revolving Commitment Termination Date and (ii) one year from the date of
Issuance thereof. Within the limits of the Letter of Credit Subfacility, and
subject to the limits referred to above, the Borrower may request the Issuance
of one or more Letters of Credit under this Section 3.01, repay amounts due
resulting from Letter of Credit Drawings thereunder pursuant to Section 3.03,
and request the Issuance of one or more additional Letters of Credit under this
Section 3.01.
SECTION 3.02. ISSUANCE OF LETTERS OF CREDIT.
-----------------------------
(A) NOTICE OF ISSUANCE. Each Letter of Credit shall be Issued
------------------
pursuant to a Notice of Issuance, which must be received by the Administrative
Agent and the Issuing Bank not later than 2:00 p.m. (New York City time) on the
third Business Day prior to the date of the proposed Issuance of such Letter of
Credit (or such shorter period as may be acceptable to the applicable Issuing
Bank). Each such Notice of Issuance shall specify whether such Letter of Credit
is to be a Standby Letter of Credit or a Trade Letter of Credit and shall
further specify therein the requested (i) date of such Issuance (which shall be
a Business Day), (ii) amount of such Letter of Credit, (iii) expiration date of
such Letter of Credit, (iv) name and address of the beneficiary of such Letter
of Credit, and (v) form of such Letter of Credit, and shall be accompanied by
such customary application and agreement for letter of credit of the Issuing
Bank (a "LETTER OF CREDIT AGREEMENT") as the Issuing Bank may specify to the
--------------------------
Borrower for use in connection with such requested Letter of Credit.
(B) CONDITIONS TO ISSUANCE. If (i) the requested form of such
----------------------
Letter of Credit is acceptable to the Administrative Agent and the Issuing Bank
in the reasonable discretion of each, (ii) in the case of any Issuing Bank other
than the Letter of Credit Bank, such Issuing Bank elects in its sole discretion
to Issue the requested Letter of Credit, and (iii) such Issuing Bank has not
received notice from the Administrative Agent or any Revolving Lender that the
Issuance of such Letter of Credit is not authorized because such Issuance would
not comply with the requirements of Section 3.01 or one or more of the
conditions set forth in Section 4.02 has not been satisfied, then such Issuing
Bank will, upon fulfillment of the applicable conditions set forth in Section
4.02 (which fulfillment such Issuing Bank may assume in the absence of actual
knowledge, or notice received from the Borrower, the Administrative Agent or any
Revolving Lender, to the contrary) and subject to the provisions of this Article
III, make such Letter of Credit available to the Borrower at its office referred
to in Section 9.02 or as otherwise agreed upon with the Borrower in connection
with such Issuance. In the event and to the extent that the provisions of any
Letter of Credit Agreement shall conflict with this Agreement, the provisions of
this Agreement shall govern.
(C) REPORTS BY ISSUING BANKS. Each Issuing Bank shall furnish
------------------------
to the Administrative Agent (who shall furnish a copy to each Revolving Lender)
(i) on the fifth Business Day of each month a written report summarizing
Issuance and expiration dates of Letters of Credit Issued by such Issuing Bank
during the preceding month and all Letter of Credit
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Drawings during such month under all Letters of Credit Issued by such Issuing
Bank, and (ii) two Business Days prior to the last Business Day of each March,
June, September and December, a written report setting forth the average daily
Letter of Credit Usage during the preceding calendar quarter of all Letters of
Credit Issued by such Issuing Bank.
SECTION 3.03. DRAWING AND REIMBURSEMENT.
-------------------------
The Borrower agrees to reimburse the Issuing Bank under each
Letter of Credit, within one Business Day after it has notice of any Letter of
Credit Drawing paid by such Issuing Bank thereunder, for the principal amount of
such Letter of Credit Drawing, and shall pay to such Issuing Bank, on demand,
interest on the unreimbursed amount of such Letter of Credit Drawing at a rate
per annum equal to (a) from the date of such Letter of Credit Drawing to the
first Business Day after notice thereof has been given to the Borrower, the rate
applicable to Term B Loans that are Base Rate Loans in effect from time to time,
and (b) from and after such first Business Day, the Default Rate. If the
Borrower shall fail to so reimburse the Issuing Bank within one Business Day
after the Borrower receives notice that any such Letter of Credit Drawing has
been paid, then upon demand by the Issuing Bank, and whether or not a Default
has occurred and is continuing or any conditions set forth in Section 4.02 are
satisfied, each Revolving Lender shall purchase from such Issuing Bank, and such
Issuing Bank shall sell to each Revolving Lender, a participation in (equal to
such Lender's Revolving Pro Rata Share of) such unreimbursed Letter of Credit
Drawing as of the date of such purchase, by making available for the account of
such Issuing Bank, by deposit to the Administrative Agent's Account, in same day
funds, an amount equal to the portion of the unreimbursed amount of such Letter
of Credit Drawing to be funded by such Lender. Each Revolving Lender agrees to
purchase a participation in the amount of its Revolving Pro Rata Share of an
unreimbursed Letter of Credit Drawing on (A) the Business Day on which demand
therefor is made by the Issuing Bank that paid such Letter of Credit Drawing,
provided that notice of such demand is given not later than 2:00 p.m. (New York
- --------
City time) on such Business Day, or (B) the first Business Day next succeeding
such demand if notice of such demand is given after such time. Upon any such
sale by an Issuing Bank to any Lender of a participation in an unreimbursed
Letter of Credit Drawing, such Issuing Bank represents and warrants to such
Lender that such Issuing Bank is the legal and beneficial owner of such interest
being assigned by it, but makes no other representation or warranty and assumes
no responsibility with respect to such Letter of Credit Drawing, the Loan
Documents or any Loan Party.
SECTION 3.04. OBLIGATIONS ABSOLUTE.
--------------------
The Obligations of the Borrower under this Agreement, any
Letter of Credit Agreement and any other agreement or instrument relating to any
Letter of Credit shall be unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement, such Letter of Credit
Agreement and such other agreements and instruments under all circumstances,
including, without limitation, the following circumstances (it being understood
that any such payment by the Borrower is without prejudice to, and does not
constitute a waiver of, any rights the Borrower might have or might acquire as a
result of the payment by any Issuing Bank of any draft or the reimbursement by
the Borrower thereof):
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(a) any lack of validity or enforceability of this Agreement,
any Letter of Credit Agreement, any Letter of Credit or any other
agreement or instrument relating thereto (this Agreement and all of the
other foregoing being collectively referred to herein as the "LETTER OF
---------
CREDIT DOCUMENTS");
----------------
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations of the Borrower in
respect of any Letter of Credit Document or any other amendment or
waiver of or any consent to departure from all or any of the Letter of
Credit Documents;
(c) the existence of any claim, set-off, defense or other
right that the Borrower or any of its Subsidiaries may have at any time
against any beneficiary or any transferee of a Letter of Credit (or any
Persons for whom any such beneficiary or any such transferee may be
acting), any Issuing Bank or any other Person, whether in connection
with the transactions contemplated by the Letter of Credit Documents or
any unrelated transaction;
(d) any statement or any other document presented under a
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;
(e) payment by any Issuing Bank under a Letter of Credit
against presentation of a draft or certificate that does not strictly
comply with the terms of such Letter of Credit;
(f) any exchange, release or non-perfection of any Collateral
or other collateral, or any release or amendment or waiver of or
consent to departure from any guarantee, for all or any of the
Obligations of the Borrower in respect of the Letter of Credit
Documents; or
(g) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing, including, without limitation, any
other circumstance that might otherwise constitute a defense available
to, or a discharge of, the Borrower or a guarantor.
SECTION 3.05. LETTER OF CREDIT FEES.
---------------------
(a) The Borrower shall pay to the Administrative Agent:
(i) for the account of the Issuing Bank that Issues
a Letter of Credit, an issuance fee in an amount equal to 0.25% per
annum on the stated amount of such Letter of Credit, payable quarterly
in arrears after the Issuance thereof on the last Business Day of each
March, June, September and December, and on the Revolving Commitment
Termination Date; and
(ii) for the account of each Revolving Lender
according to its Revolving Pro Rata Share, a letter of credit fee with
respect to all Letters of Credit in an
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amount equal to the Applicable Eurodollar Rate Margin then in effect
for Revolving Loans and calculated on the average daily Letter of
Credit Usage, payable quarterly in arrears on the last Business Day of
each March, June, September and December, commencing March 31, 1999,
and on the Revolving Commitment Termination Date.
For purposes of computing any fees under this Section 3.05(a), the determination
of the maximum amount available to be drawn under a Letter of Credit at any time
shall assume strict compliance with all conditions for drawing. Any fees paid
pursuant to this Section 3.05(a) are nonrefundable.
(b) The Borrower shall pay to each Issuing Bank, for its own
account and on demand, such other commissions, issuance fees, transfer
fees and other fees, charges and expenses in connection with the
Issuance, amendment, transfer, cancellation or administration of each
Letter of Credit as the Borrower and such Issuing Bank shall agree;
provided that in no event shall any Issuing Bank require, after giving
--------
effect to the amounts payable to it pursuant to Section 3.05(a) (in the
case of the Issuance of any Letter of Credit), more than the standard
fees, charges and expenses which it normally charges in connection with
such matters.
SECTION 3.06. USE OF LETTERS OF CREDIT. Any Letters of Credit
------------------------
Issued hereunder shall be used solely (a) to support Obligations of the Borrower
and its Subsidiaries not prohibited hereunder, and (b) for the purposes
described in the definition of "Trade Letter of Credit".
ARTICLE IV.
CONDITIONS OF LENDING
SECTION 4.01. CONDITIONS PRECEDENT TO INITIAL BORROWINGS. The
------------------------------------------
obligation of each Lender to make a Loan on the occasion of the initial
Borrowings on the Closing Date is subject to the following conditions precedent:
(a) the Lead Arranger, the Syndication Agent and the
Administrative Agent shall be satisfied with the final structure of the
Transactions and the terms and provisions of all Loan Documents and Related
Documents;
(b) the Subordinated Debt Documents (including, but not
limited to, all covenants, defaults, subordination and redemption provisions)
and the use of proceeds of the Subordinated Notes shall all be on terms and
conditions, and all such documentation shall be in form and substance,
satisfactory to the Lead Arranger, the Syndication Agent and the Administrative
Agent;
(c) the Pioneer Acquisition Agreement shall be in full force
and effect and shall not have been terminated;
(d) the Pioneer Acquisition shall have been consummated (i)
strictly in accordance with the terms of the Pioneer Acquisition Agreement,
without any waiver or amendment not consented to by the Lenders of any term,
provision or condition set forth therein,
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(ii) in compliance with all applicable laws and (iii) for aggregate proceeds not
exceeding $160,000,000 at closing (excluding fees, expenses and other costs
relating to the Transactions totaling approximately $12,500,000) and not
requiring any additional payments other than payments not exceeding $15,000,000
in the aggregate pursuant to Section 2(e)(v) of the Pioneer Acquisition
Agreement;
(e) the Borrower shall have received gross proceeds of at
least $135,000,000 from the sale of the Subordinated Notes and $5,000,000 in the
form of a capital contribution from the sale of common stock of Holdings to
Genstar Capital and management;
(f) the Administrative Agent shall have received fully
executed originals of pay-off letters reasonably satisfactory to the
Administrative Agent confirming that all Obligations pursuant to the Existing
Credit Documentation will be repaid in full from the proceeds of the term loans
made under the Canadian Credit Agreement and the Term Loans and all Liens upon
any property of any Loan Party or any of their respective Subsidiaries in favor
of the Existing Lenders shall be terminated by the Existing Lenders immediately
upon such payment;
(g) the Lenders shall be satisfied that all Existing Debt,
other than the Domtar Note and the Capital Leases set forth on Schedule
5.01(q)(ii) (the "SURVIVING DEBT"), has been prepaid, redeemed or defeased in
--------------
full or otherwise satisfied and extinguished, that all commitments under any
Existing Debt have been terminated, and that all Liens (other than Permitted
Liens and those created pursuant to the Loan Documents and the Canadian Loan
Documents) have been released;
(h) there shall have occurred since December 31, 1997 no event
or circumstance which has had or could reasonably be expected to have a Material
Adverse Effect;
(i) there shall exist no material action, suit, investigation,
litigation or proceeding affecting any Loan Party or any of their respective
Subsidiaries pending or threatened before any court, governmental agency or
arbitrator that (i) could reasonably be expected to have a Material Adverse
Effect or (ii) purports to affect the legality, validity or enforceability of
the Pioneer Acquisition, this Agreement, any Note, any other Loan Document, any
Related Document or the consummation of the transactions contemplated hereby and
thereby;
(j) the Borrower and Panolam Canada shall have paid all
accrued fees and expenses of the Lead Arranger, the Agents and the Lenders
required to be paid on or before the Closing Date (including the accrued fees
and expenses of counsel to the Syndication Agent and the Administrative Agent
and local counsel to the Syndication Agent and the Administrative Agent);
(k) the Administrative Agent shall have received on or before
the Closing Date the following, each dated such date (unless otherwise
specified), in form and substance satisfactory to the Administrative Agent and
the Required Lenders (unless otherwise specified) and (except for the Notes, if
any) in sufficient copies for each Lender:
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(i) the Notes to the order of each Lender, as
appropriate;
(ii) certified copies of the Certificate or
Articles of Incorporation of each Loan Party, together with a good
standing certificate from the Secretary of State (or other appropriate
authority) of its jurisdiction of incorporation and each other state in
which such Loan Party is qualified as a foreign corporation to do
business (as set forth on Schedule 4.01(k)(ii)) and, to the extent
generally available, a certificate or other evidence of good standing
as to payment of any applicable franchise or similar taxes from the
appropriate taxing authority of each of such jurisdictions, each dated
a recent date prior to the Closing Date;
(iii) bringdown good standing certificates (or the
Canadian equivalent thereof with respect to the Canadian Borrower) for
each Loan Party from the Secretary of State (or other appropriate
authority) of each Loan Party's jurisdiction of incorporation
certifying that such Loan Party is duly incorporated and in good
standing under the laws of its respective jurisdiction of incorporation
on or about the Closing Date;
(iv) copies of the Bylaws of each Loan Party,
certified as of the Closing Date by such Loan Party's corporate
secretary or an assistant secretary;
(v) copies of the resolutions of the Board of
Directors of each Loan Party, in each case (as appropriate) approving
the Pioneer Acquisition, the Transactions, this Agreement, the Notes,
each other Loan Document and each Related Document to which it is or is
to be a party, and authorizing the execution, delivery and performance
of each Loan Document and Related Document to which it is a party,
certified as of the Closing Date by the corporate secretary or an
assistant secretary of such Loan Party as being in full force and
effect without modification or amendment;
(vi) copies of all documents evidencing other
necessary corporate action (if any) in connection with the Pioneer
Acquisition, the Transactions, this Agreement, the Notes, each other
Loan Document and each Related Document;
(vii) copies of all governmental and third party
approvals (if any) necessary or advisable and set forth on Schedule
4.01(k)(vii) in connection with the Pioneer Acquisition, the
Transactions, this Agreement, the Notes, each other Loan Document, each
Related Document and the continuing operations of each of the Loan
Parties, which approvals shall have been obtained and shall be in full
force and effect, and all applicable waiting periods shall have expired
without any action being taken or threatened by any competent authority
that would restrain, prevent or otherwise impose adverse conditions on
any of the Transactions;
(viii) signature and incumbency certificates of the
officers of each Loan Party executing any Loan Document;
(ix) (A) executed originals of each of the Loan
Documents, (B) certified copies of each of the Related Documents, duly
executed by the parties thereto
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and in each case in form and substance satisfactory to the
Administrative Agent and its counsel, together with all agreements,
instruments and other documents delivered in connection therewith, and
(C) execution and delivery of such other credit, security, guarantee
and other related documentation in connection with the Transactions as
the Administrative Agent or the Required Lenders may reasonably
request;
(x) copies of (A) the Agreement Respecting
Intellectual Property among Panolam US, Panolam Canada, the Canadian
Administrative Agent and the Administrative Agent, (B) the Patent
License Agreement between Panolam US, as licensor, and Panolam Canada,
as licensee, dated as of June 7, 1996, (C) the Trade Mark License
Agreement between Panolam US, as licensor, and Panolam Canada, as
licensee, dated as of June 7, 1996, and (D) the Trade Mark License
Agreement between Panolam US, as licensor, and Panolam Canada, as
licensee, dated April 14, 1997, each certified by the Secretary or
Assistant Secretary of the Borrower as of the Closing Date to be true
and complete, together with a certificate from such Secretary or
Assistant Secretary as of the Closing Date that there are no other
material agreements respecting intellectual property entered into
between any Loan Parties (other than in respect of readily available
commercial software);
(xi) a copy of the duly executed Stock Option
Agreement dated as of June 7, 1996 between Group, Genstar Capital
Partners II, L.P. and the other Parent Stockholders (as defined in such
agreement), and all amendments to the Stock Option Agreement, certified
by the Secretary or Assistant Secretary of the Borrower as of the
Closing Date to be true and complete;
(xii) a copy of each of the duly executed Genstar
Agreements, each certified by the Secretary or Assistant Secretary of
the Borrower as of the Closing Date to be true and complete and each in
form and substance reasonably satisfactory to the Administrative Agent
and the Required Lenders;
(xiii) a certificate of the Borrower and each other
Loan Party, signed on behalf of the Borrower and such other Loan Party
by its President or a Vice President and its Secretary or any Assistant
Secretary, dated as of the Closing Date (the statements made in which
certificate shall be true on and as of the Closing Date), certifying as
to (A) the absence of any amendments to the charter of the Borrower or
such other Loan Party since the date of the Secretary of State's
certificate referred to in Section 4.01(k)(ii), (B) a true and correct
copy of the bylaws of the Borrower and such other Loan Party as in
effect on the date of the initial Borrowing, (C) the due incorporation
and good standing of the Borrower and such other Loan Party as
corporations organized under the laws of their respective jurisdictions
of incorporation, and the absence of any proceeding for the dissolution
or liquidation of the Borrower or such other Loan Party, (D) the truth
of the representations and warranties contained in the Loan Documents
as though made on and as of the date of the initial Borrowing and (E)
the absence of any event occurring and continuing, or resulting from
the initial Borrowing, that constitutes a Default;
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(xiv) a security agreement in substantially the form
of Exhibit IX (as amended from time to time in accordance with its
----------
terms, the "SECURITY AGREEMENT"), duly executed by the Borrower and
------------------
each other Credit Party, together with:
(A) certificates representing the Pledged
Shares referred to therein accompanied by undated stock powers
executed in blank and instruments evidencing the Pledged Debt
referred to therein endorsed in blank; and
(B) executed copies of proper financing
statements, in appropriate form for filing under the Code of
all jurisdictions that the Administrative Agent may deem
necessary or desirable in order to perfect and protect the
Liens created by the Security Agreement, covering the
Collateral described in the Security Agreement;
(xv) mortgages, assignment of leases and rents,
deeds of trust, trust deeds, leasehold mortgages and leasehold deeds of
trust in substantially the form of Exhibit XI and covering the
----------
properties listed on Schedule 4.01(k)(xv) (as amended from time to time
in accordance with their terms, the "MORTGAGES"), duly executed by the
---------
appropriate Credit Party, together with:
(A) evidence that counterparts of the
Mortgages have been duly recorded (or executed and delivered
in appropriate form for filing and recording) in all filing or
recording offices that the Administrative Agent may deem
necessary or desirable in order to create a valid first and
subsisting Lien on the property described therein (subject to
Permitted Liens and exceptions set forth in the applicable
Mortgage Policies) in favor of the Administrative Agent and
the Lender Parties for the benefit of the Agents and the
Lender Parties and that all filing and recording taxes and
fees have been paid or provided for;
(B) fully paid American Land Title Association
Lender's Extended Coverage title insurance policies (the
"MORTGAGE POLICIES") or commitments therefor in form and
-----------------
substance, with endorsements and in amount reasonably
acceptable to the Administrative Agent, issued, coinsured and
reinsured by title insurers acceptable to the Administrative
Agent, insuring the Mortgages to be valid first and subsisting
Liens on the property described therein, subject only to
Permitted Liens, and providing for such other affirmative
insurance (including endorsements for future advances under
the Loan Documents and for mechanics' and materialmen's Liens)
and such coinsurance and direct access reinsurance as the
Administrative Agent may reasonably deem necessary or
desirable; and
(C) such consents and agreements of lessors
and other third parties, and such estoppel letters and other
confirmations, as the Administrative Agent may deem necessary
or desirable;
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(xvi) a guaranty in substantially the form of
Exhibit X (as amended from time to time in accordance with its terms,
---------
the "GUARANTY"), duly executed by each of the Guarantors;
--------
(xvii) pro forma Consolidated opening balance
sheets of each of the Borrower and Panolam Canada as of the Closing
Date, giving effect to the Transactions and reflecting the proposed
legal and capital structure of Holdings and its Subsidiaries, which
legal and capital structure shall be satisfactory in all respects to
the Lead Arranger, the Syndication Agent and the Administrative Agent;
(xviii) (A) the audited financial statements of
Holdings and its Subsidiaries on a Consolidated basis and of Pioneer
dated December 28, 1995, December 27, 1996, and December 26, 1997, (B)
the unaudited financial statements of Holdings and its Subsidiaries on
a Consolidated basis and of Pioneer for each quarterly period completed
subsequent to December 31, 1997, and (C) the available unaudited
financial statements of Holdings and its Subsidiaries on a Consolidated
basis and of Pioneer for each monthly period subsequent to the most
recently ended quarterly period;
(xix) the Projections in form and substance
satisfactory to the Syndication Agent and the Administrative Agent in
all respects;
(xx) a certificate of the Chief Financial Officer
of the Borrower, in form and substance satisfactory to the
Administrative Agent and the Lenders, attesting to the Solvency of each
Loan Party after giving effect to the Pioneer Acquisition and the
Transactions;
(xxi) certified copies of the environmental
reports listed on Schedule 4.01(k)(xxi);
(xxii) evidence of insurance naming the
Administrative Agent as insured and loss payee in form and substance
reasonably satisfactory to the Administrative Agent, with such
responsible and reputable insurance companies or associations, and in
such amounts and covering such risks (including but not limited to
general and other liability and business interruption), as is
satisfactory to the Administrative Agent and the Syndication Agent;
(xxiii) certified copies of each employment
agreement and other compensation arrangement with each executive
officer of any Loan Party;
(xxiv) certified copies of all Material Contracts
of each Loan Party;
(xxv) a favorable opinion of Brobeck, Phleger &
Harrison LLP, counsel for the Borrower, in substantially the form of
Exhibit XII hereto and as to such other matters as the Agents or any
-----------
Lender through the Administrative Agent may reasonably request, and
favorable opinions of counsel to the Borrower under the laws of each
jurisdiction in which any material portion of the Collateral is located
with respect to the
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creation and perfection of the security interests in favor of the
Administrative Agent in such Collateral and such other matters governed
by the laws of such jurisdiction as the Agents or any Lender through
the Administrative Agent may reasonably request, in each case in form
and substance reasonably satisfactory to the Syndication Agent and the
Administrative Agent dated as of the Closing Date and setting forth
substantially the matters in the form of opinion annexed hereto as
Exhibit XII;
-----------
(xxvi) copies of (i) such opinions of counsel
delivered to the parties under the Canadian Credit Agreement, (ii) the
opinions of counsel, if any, delivered to the parties under the Pioneer
Acquisition Agreement and (iii) each opinion of counsel to the Borrower
delivered in connection with the Subordinated Debt Documents, together
with a letter from each counsel (other than counsel to Pioneer in
connection with the Pioneer Acquisition Agreement) delivering such an
opinion authorizing the Lenders to rely upon such opinion to the same
extent as though it were addressed to the Lenders;
(xxvii) such other policies of title insurance,
closing certificates, resolutions, solvency certificates and opinions
of counsel, in each case satisfactory in form and substance to the Lead
Arranger, the Syndication Agent and the Administrative Agent, as they
may reasonably deem necessary in connection with the Transactions;
(xxviii) an Intercreditor and Subordination Agreement
in substantially the form of Exhibit XVI (as amended from time to time
-----------
in accordance with its terms, the "INTERCREDITOR AGREEMENT"), duly
-----------------------
executed by the Administrative Agent, the Canadian Administrative Agent
and the Loan Parties; and
(l) The Administrative Agent shall have received the initial
Notice of Borrowing in accordance with Section 2.02(a) and a pro forma Borrowing
Base Certificate as of January 31, 1999 and such other Receivables and Inventory
reports as the Administrative Agent may reasonably request.
(m) Panolam Canada shall have received (or shall
substantially concurrently receive) the proceeds of initial Loans under the
Canadian Credit Agreement of $50,000,000, or the Administrative Agent shall
otherwise be satisfied that the closing under the Canadian Credit Agreement will
happen concurrently with closing under this Agreement.
SECTION 4.02. CONDITIONS PRECEDENT TO EACH BORROWING AND
------------------------------------------
ISSUANCE.
- --------
The obligation of each Appropriate Lender to make a Loan
(other than payment against a Letter of Credit Drawing and other than a
Revolving Loan made by a Revolving Lender pursuant to Section 2.02(f)) on the
occasion of each Borrowing (including the initial Borrowing), and the right of
the Borrower to request a Swing Line Borrowing or the Issuance of a Letter of
Credit, shall be subject to the further conditions precedent that on the date of
such Borrowing or Issuance the following statements shall be true and the
Administrative Agent shall have received for the account of such Lender or such
Issuing Bank a certificate signed by a duly authorized officer of the Borrower,
dated the date of such Borrowing or Issuance, stating that (and each of the
giving of the applicable Notice of Borrowing, Notice of Swing Line Borrowing or
Notice of
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Issuance and the acceptance by the Borrower of the proceeds of such Borrowing or
of such Letter of Credit shall constitute a representation and warranty by the
Borrower that on the date of such Borrowing or Issuance such statements are
true):
(a) the representations and warranties contained in each Loan
Document are true and correct on and as of the date of such Borrowing or
Issuance, before and after giving effect to such Borrowing or Issuance and to
the application of the proceeds therefrom, as though made on and as of such date
other than any such representations or warranties that, by their terms, are
specifically made as of a date other than the date of such Borrowing or Issuance
(which shall be true and correct as of such other date);
(b) no event or condition has occurred and is continuing, or
would result from such Borrowing or Issuance or from the application of the
proceeds therefrom, that constitutes a Default; and
(c) for each Revolving Loan or Swing Line Loan or Issuance of
any Letter of Credit, the Borrowing Base Amount exceeds the Total Utilization of
Revolving Commitments and the specific credit limits set forth in the first
sentence of Sections 2.01(c), 2.01(d) and 3.01 are not exceeded after giving
effect to such Loan or Issuance, respectively.
SECTION 4.03. DETERMINATIONS UNDER SECTION 4.01. For purposes
---------------------------------
of determining compliance with the conditions specified in Section 4.01, each
Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lenders unless an officer
of the Administrative Agent responsible for the Transactions contemplated by the
Loan Documents shall have received written notice from such Lender prior to the
initial Borrowing specifying its objection thereto and such Lender shall not
have made available to the Administrative Agent such Lender's ratable portion of
such Borrowing.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
SECTION 5.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER.
----------------------------------------------
The Borrower represents and warrants as follows:
(A) INCORPORATION, QUALIFICATION, CORPORATE POWER AND
-------------------------------------------------
AUTHORITY. Each Loan Party (i) is a corporation duly organized, validly existing
- ---------
and good standing under the laws of the jurisdiction of its incorporation, (ii)
is duly qualified and in good standing as a foreign corporation in each other
jurisdiction in which it owns or leases property or in which the conduct of its
business requires it to so qualify or be licensed except where the failure to so
qualify or be licensed would not have a Material Adverse Effect and (iii) has
all requisite corporate power and authority to own or lease and operate its
properties and to carry on its business as now conducted and as proposed to be
conducted. All of the outstanding Capital Stock of each Loan Party has been
validly issued, is fully paid and non-assessable and, as of the date hereof, is
owned by the respective parties set forth in Schedule 5.01(b) in the amounts
specified therein free and clear of all Liens.
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(B) CAPITAL STOCK. Set forth on Schedule 5.01(b) hereto is a
-------------
complete and accurate list, as of the date hereof, of all Loan Parties and each
of their respective Subsidiaries, showing as of the date hereof (as to each such
Loan Party and Subsidiary) the jurisdiction of its incorporation, the number of
shares of each class of Capital Stock authorized and outstanding, the percentage
of the outstanding shares of each such class owned (directly or indirectly) by
another Loan Party and the number of shares covered by all outstanding options,
warrants, rights of conversion or purchase and similar rights. All of the
outstanding Capital Stock of each Loan Party has been validly issued, is fully
paid and non-assessable and (except in the case of Holdings) is owned by another
Loan Party free and clear of all Liens, except those created by the Collateral
Documents. Each Loan Party (i) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
(ii) is duly qualified and in good standing as a foreign corporation in each
other jurisdiction in which it owns or leases property or in which the conduct
of its business requires it to so qualify or be licensed except where the
failure to so qualify or be licensed would not have a Material Adverse Effect
and (iii) has all requisite corporate power and authority to own or lease and
operate its properties and to carry on its business as now conducted and as
proposed to be conducted.
(C) AUTHORIZATION; NO CONFLICT OR VIOLATION; COMPLIANCE WITH
--------------------------------------------------------
LAWS. The execution, delivery and performance by each Loan Party of this
- ----
Agreement, the Notes, each other Loan Document and each Related Document to
which it is or is to be a party, and the consummation of the Pioneer Acquisition
and the other Transactions contemplated hereby, are within such Loan Party's
corporate powers, have been duly authorized by all necessary corporate action,
and do not (i) contravene such Loan Party's charter or bylaws, (ii) violate any
law, rule, regulation (including, without limitation, Regulation X of the Board
of Governors of the Federal Reserve System), order, writ, judgment, injunction,
decree, determination or award, (iii) conflict with or result in the breach of,
or constitute a default under, any contract, loan agreement, indenture,
mortgage, deed of trust, lease or other instrument binding on or affecting any
Loan Party, any of its Subsidiaries or any of their properties or (iv) except
for the Liens created by the Collateral Documents and the Canadian Loan
Documents, result in or require the creation or imposition of any Lien upon or
with respect to any of the properties of any Loan Party. No Loan Party or any of
its Subsidiaries is in violation of any such law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award or in breach of any such
contract, loan agreement, indenture, mortgage, deed of trust, lease or other
instrument, the violation or breach of which could have a Material Adverse
Effect.
(D) APPROVALS AND CONSENTS. No authorization or approval or
----------------------
other action by, and no notice to or filing with, any governmental authority or
regulatory body or any other third party is required for (i) the due execution,
delivery, recordation, filing or performance by any Loan Party of this
Agreement, the Notes, any other Loan Document or any Related Document to which
it is or is to be a party, or for the consummation of the Pioneer Acquisition or
the other Transactions contemplated hereby, (ii) the grant by any Loan Party of
the Liens granted by it pursuant to the Collateral Documents and the Canadian
Loan Documents, (iii) the perfection or maintenance of the Liens created by the
Collateral Documents and the Canadian Loan Documents (including the first or
second priority nature thereof, as applicable) or (iv) the exercise by the
Administrative Agent or any Lender of its rights under the Loan Documents or
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<PAGE>
the remedies in respect of the Collateral pursuant to the Collateral Documents,
except for the authorizations, approvals, actions, notices and filings listed on
Schedule 5.01(d), all of which have been duly obtained, taken, given or made and
are in full force and effect. All applicable waiting periods in connection with
the Pioneer Acquisition and the other Transactions contemplated hereby have
expired without any action having been taken by any competent authority
restraining, preventing or imposing materially adverse conditions upon the
Pioneer Acquisition or the rights of the Loan Parties freely to transfer or
otherwise dispose of, or to create any Lien on, any properties now owned or
hereafter acquired by any of them.
(E) ENFORCEABILITY. This Agreement has been, and each of the
--------------
Notes (if any), each other Loan Document and each Related Document when
delivered hereunder will have been, duly executed and delivered by each Loan
Party party thereto. This Agreement is, and each of the Notes (if any), each
other Loan Document and each Related Document when delivered hereunder will be,
the legal, valid and binding obligation of each Loan Party party thereto,
enforceable against such Loan Party in accordance with its terms.
(F) FINANCIAL STATEMENTS.
--------------------
(i) (A) The audited Consolidated balance sheets of
Holdings and its Subsidiaries as at December 31, 1996 and 1997, the
related audited Consolidated statements of operations for the period
from May 16, 1996 to December 31, 1996 and the year ended December 31,
1997, the related audited Consolidated statements of stockholders'
equity for the period from May 16, 1996 to December 31, 1996 and the
year ended December 31, 1997, and the related audited Consolidated
statements of cash flows for the period from May 16, 1996 to December
31, 1996 and the year ended December 31, 1997, accompanied by an
opinion of Coopers & Lybrand, independent public accountants, and (B)
the unaudited Consolidated balance sheets of Holdings and its
Subsidiaries as at September 30, 1998, the related unaudited
Consolidated statements of operations for the nine-month periods ended
September 30, 1997 and 1998, the related unaudited Consolidated
statements of stockholders' equity for the period from January 1, 1998
to September 30, 1998, and the related unaudited Consolidated
statements of cash flows for the nine-month periods ended September 30,
1997 and 1998, duly certified by the Chief Financial Officer of the
Borrower, copies of all of which have been furnished to each Lender,
fairly present, subject, in the case of said balance sheets and
statements in the foregoing clause (B), to year-end audit adjustments,
the Consolidated financial condition of Holdings and its Subsidiaries
as at such dates and the Consolidated results of the operations of
Holdings and its Subsidiaries for the periods ended on such dates, all
in accordance with GAAP applied on a consistent basis, and since
December 31, 1997, there has occurred no event or circumstance which
has had or could reasonably be expected to have a Material Adverse
Effect.
(ii) (A) The audited balance sheets of Pioneer as at
December 28, 1995, December 27, 1996 and December 26, 1997, the related
audited statements of income for the period from July 21, 1995 to
December 28, 1995 and the years ended December 27, 1996 and December
26, 1997, and the related audited statements of cash
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<PAGE>
flows for the period from July 21, 1995 to December 28, 1995 and the
years ended December 27, 1996 and December 26, 1997, accompanied by an
opinion of PricewaterhouseCoopers LLP, independent public accountants,
and (B) the unaudited balance sheets of Pioneer as at September 25,
1998, the related unaudited statements of income for the nine-month
periods ended September 26, 1997 and September 25, 1998, and the
related unaudited statements of cash flows for the nine-month periods
ended September 26, 1997 and September 25, 1998, duly certified by the
Chief Financial Officer of the Borrower, copies of all of which have
been furnished to each Lender, fairly present, subject, in the case of
said balance sheets and statements in the foregoing clause (B), to
year-end audit adjustments, the financial condition of Pioneer as at
such dates and the results of the operations of Pioneer for the periods
ended on such dates, all in accordance with GAAP applied on a
consistent basis, and since December 26, 1997, there has occurred no
event or circumstance which has had or could reasonably be expected to
have a Material Adverse Effect.
(iii) The Consolidated pro forma opening balance sheets of
each of the Borrower and Panolam Canada as of the Closing Date, and the
related Consolidated pro forma statements of income and cash flows of
the Borrower and Panolam Canada as of December 31, 1998 for the Fiscal
Year then ended, certified by the Chief Financial Officer of the
Borrower, copies of which have been furnished to each Lender, fairly
present the Consolidated pro forma financial condition of the Borrower
and its Domestic Subsidiaries and of Panolam Canada as at the Closing
Date and the Consolidated pro forma results of operations of the
Borrower and its Domestic Subsidiaries and of Panolam Canada for the
period ended on December 31, 1998, in each case giving effect to the
Pioneer Acquisition and the other Transactions contemplated hereby, all
in accordance with GAAP.
(iv) The Consolidated forecasted balance sheets, income
statements and cash flows statements of Holdings and its Subsidiaries
delivered to the Lenders pursuant to Section 4.01 or 5.01 were prepared
in good faith on the basis of the assumptions stated therein, which
assumptions were fair in the light of conditions existing at the time
of delivery of such forecasts, and represented, at the time of
delivery, the Borrower's best estimate of its future financial
performance.
(G) DISCLOSURE. Neither the Information Memorandum (by itself)
----------
nor any other information, exhibit or report (taken as a whole) furnished by any
Loan Party to the Lead Arranger, any Agent or any Lender in connection with the
negotiation of the Loan Documents or pursuant to the terms of the Loan Documents
contained any untrue statement of a material fact or omitted to state a material
fact necessary to make the statements made therein not misleading.
(H) LITIGATION. There is no action, suit, investigation,
----------
litigation or proceeding affecting any Loan Party, including any Environmental
Action, pending or (to its knowledge) threatened before any court, governmental
agency or arbitrator that (i) could reasonably be expected to have a Material
Adverse Effect or (ii) purports to affect the legality, validity or
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<PAGE>
enforceability of the Pioneer Acquisition, this Agreement, any Note, any other
Loan Document or any Related Document or the consummation of the transactions
contemplated hereby.
(I) USE OF PROCEEDS.
---------------
(i) No proceeds of any Loan will be used to acquire
any equity security of a class that is registered pursuant to Section
12 of the Exchange Act.
(ii) None of the Loan Parties are engaged in the
business of extending credit for the purpose of purchasing or carrying
Margin Stock, and no proceeds of any Loan will be used to purchase or
carry any Margin Stock or to extend credit to others for the purpose of
purchasing or carrying any Margin Stock.
(iii) Following application of the proceeds of each
Loan, not more than 25 percent of the value of the assets (either of
the Borrower only or of the Borrower and its Subsidiaries on a
Consolidated basis) subject to the provisions of Section 6.02(a) or
Section 6.02(e) or subject to any restriction contained in any
agreement or instrument between any Loan Party and any Lender or any
Affiliate of any Lender relating to Debt and within the scope of
Section 7.01(e) will be Margin Stock.
(J) PENSION PLANS.
-------------
(i) Set forth on Schedule 5.01(j) hereto is a
complete and accurate list of all Plans, Multiemployer Plans and
Welfare Plans with respect to any employees of any Loan Party.
(ii) No ERISA Event has occurred or is reasonably
expected to occur with respect to any Plan of any Loan Party or any of
its ERISA Affiliates that has resulted in or is reasonably likely to
result in liability of any Loan Party in excess, either individually or
in the aggregate with all other ERISA Events which have occurred or are
reasonably expected to occur, of $2,000,000.
(iii) Schedule B (Actuarial Information) to the 1997
annual report (Form 5500 Series) for each Plan of any Loan Party and
each Plan of each ERISA Affiliate that is not a Loan Party and that has
an Insufficiency in excess of $2,000,000, copies of which have been
filed with the Internal Revenue Service and furnished to the Lenders,
is complete and accurate and fairly presents the funding status of such
Plan, and since the date of such Schedule B there has been no material
adverse change in such funding status.
(iv) Neither any Loan Party nor any of its ERISA
Affiliates has incurred or is reasonably expected to incur any
Withdrawal Liability to any Multiemployer Plan which would, either
individually or in the aggregate with other payments of Withdrawal
Liability with respect to all Multiemployer Plans, increase the amounts
contributed or required to be contributed by the Loan Parties to such
Multiemployer Plans by the Loan Parties for the plans years of such
Multiemployer Plans
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immediately preceding the plan year in which such Withdrawal Liability
is incurred by an amount exceeding $1,000,000.
(v) Neither any Loan Party nor any of its ERISA
Affiliates has been notified by the sponsor of a Multiemployer Plan of
any Loan Party or any of its ERISA Affiliates that such Multiemployer
Plan is in reorganization or has been terminated, within the meaning of
Title IV of ERISA, and no such Multiemployer Plan is reasonably
expected to be in reorganization or to be terminated, within the
meaning of Title IV of ERISA where the amount of liability incurred, or
that may reasonably be expected to be incurred, by the Loan Parties
with respect to such event, either individually or in the aggregate
with all other such events, would exceed $2,000,000.
(K) NO ADVERSE CONDITIONS. Neither the business nor the
---------------------
properties of any Loan Party are affected by any fire, explosion, accident,
strike, lockout or other labor dispute, drought, storm, hail, earthquake,
embargo, act of God or of the public enemy or other casualty (whether or not
covered by insurance) that could reasonably be expected to have a Material
Adverse Effect.
(L) COMPLIANCE WITH ENVIRONMENTAL LAWS.
----------------------------------
(i) Except as set forth on Schedule 5.01(l)(i), the
operations and properties of each Loan Party comply in all material
respects with all Environmental Laws, all necessary Environmental
Permits have been obtained and are in effect for the operations and
properties of each Loan Party, each Loan Party is in compliance in all
material respects with all such Environmental Permits, and no
circumstances exist that could (A) form the basis of an Environmental
Action against any Loan Party or any of its respective properties that
could have a Material Adverse Effect or (B) cause any such property to
be subject to any material restrictions on ownership, occupancy, use
or transferability under any Environmental Law.
(ii) Except as set forth on Schedule 5.01(l)(ii), as it may
be updated from time to time (but only to the extent items identified
on any such update could not reasonably be expected to have a Material
Adverse Effect), none of the properties of any Loan Party is listed or
proposed for listing on the National Priorities List under CERCLA or
on the Comprehensive Environmental Response, Compensation and
Liability Information System maintained by the Environmental
Protection Agency or any analogous state list of sites requiring
investigation or cleanup or is adjacent to any such property, and no
underground storage tanks, as such term is defined in 42 U.S.C. ss.
6991, are located on any property of any Loan Party or, to the best of
its knowledge, on any adjoining property.
(iii) Except as set forth on Schedule 5.01(l)(iii), no
Loan Party has transported or arranged for the transportation of any
Hazardous Materials to any location that is listed or proposed for
listing on the National Priorities List under CERCLA or on the
Comprehensive Environmental Response, Compensation and Liability
Information System maintained by the Environmental Protection Agency
or any analogous state list,
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Hazardous Materials have not been generated, used, treated, handled,
stored or disposed of on, or released or transported to or from, any
property of any Loan Party or, to the best of its knowledge, any
adjoining property, except for limited quantities required in
connection with the normal operation and maintenance of such
properties and used or stored at such properties in compliance with
all Environmental Laws and Environmental Permits, and all other wastes
generated at any such properties have been disposed of in compliance
with all Environmental Laws and Environmental Permits, in each case
other than those that would have no Material Adverse Effect.
(M) TAX INFORMATION.
---------------
(i) Each Loan Party has filed, has caused to be filed or
has been included in all Federal and other material tax returns
(Federal, state, local and foreign) required to be filed and has paid
all taxes shown thereon to be due, together with applicable interest
and penalties.
(ii) Set forth on Schedule 5.01(m) hereto is a complete and
accurate list, as of the date hereof, of each taxable year of (A) the
Credit Parties (for which US Federal income tax returns have been
filed) and (B) Panolam Canada (for which Canadian Federal income tax
returns have been filed), in each case for which the expiration of the
applicable statute of limitations for assessment, reassessment or
collection has not occurred by reason of waiver, extension or
otherwise (an "OPEN YEAR").
---------
(iii) The aggregate unpaid amount, as of the date hereof,
of adjustments to the Federal income tax liability of the Credit
Parties proposed by the Internal Revenue Service with respect to Open
Years does not exceed $100,000. The aggregate unpaid amount, as of the
date hereof, of adjustments to the Canadian Federal income tax
liability of Panolam Canada proposed by Revenue Canada with respect to
Open Years does not exceed CDN$150,000. Set forth on Schedule 5.01(m)
hereto in respect of each of the Credit Parties and Panolam Canada are
complete and accurate descriptions, as of the date hereof, of each
such item that separately, for all such Open Years, together with
applicable interest and penalties, exceeds $50,000 in the case of any
of the Credit Parties, or CDN$75,000 in the case of Panolam Canada. No
issues have been raised by the Internal Revenue Service in respect of
Open Years that, in the aggregate, could have a Material Adverse
Effect.
(iv) The aggregate unpaid amount, as of the date hereof, of
adjustments to the state, local and foreign tax liability of the
Credit Parties proposed by all state, local and foreign taxing
authorities (other than amounts arising from adjustments to Federal
income tax returns) does not exceed $50,000. The aggregate unpaid
amount, as of the date hereof, of adjustments to the provincial, local
and foreign tax liability of Panolam Canada proposed by all
provincial, local and foreign taxing authorities (other than amounts
arising from adjustments to Canadian Federal income tax returns) does
not
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exceed CDN$75,000. No issues have been raised by such taxing
authorities that, in the aggregate, could have a Material Adverse
Effect.
(v) The Pioneer Acquisition will not be taxable to Holdings
or any of its Subsidiaries or Affiliates.
(N) NO INVESTMENT COMPANY. Neither any Loan Party nor any of its
---------------------
Subsidiaries is an "investment company", or an "affiliated person" of, or
"promoter" or a "principal underwriter" for, an "investment company", as such
terms are defined in the Investment Company Act of 1940, as amended. Neither the
making of any Loans, nor the issuance of any Letters of Credit, nor the
application of the proceeds or repayment thereof by the Borrower, nor the
consummation of the other transactions contemplated hereby, will violate any
provision of such Act or any rule, regulation or order of the Securities and
Exchange Commission thereunder.
(O) SOLVENCY. Each Loan Party is, individually and together with
--------
its Subsidiaries, Solvent.
(P) ASSETS OF HOLDINGS AND ITS SUBSIDIARIES.
---------------------------------------
(i) As of the Closing Date, Holdings owns no assets other
than the Capital Stock of Group, certain deferred tax assets and other
assets with a fair market value that does not exceed $10,000; Group
owns no assets other than the Capital Stock of PII Second and other
assets with a fair market value that does not exceed $10,000; PII
Second owns no assets other than the Capital Stock of the Borrower and
other assets with a fair market value that does not exceed $10,000;
the Borrower owns no assets other than the Capital Stock of each of
Panolam US, Panolam Canada and Pioneer and other Investments in its
Subsidiaries permitted hereunder, and other assets with a fair market
value that does not exceed $10,000.
(ii) As of the Closing Date, none of Holdings, Group, PII
Second or the Borrower has engaged in any trade or business or
incurred any Debt or any other liabilities (which have not been
completely repaid or discharged), except for the Domtar Note, the
Genstar Agreements and the Obligations under this Agreement, the other
Loan Documents and the Related Documents, and in connection with its
corporate formation and maintenance.
(Q) DEBT OF HOLDINGS AND ITS SUBSIDIARIES.
-------------------------------------
(i) Set forth on Schedule 5.01(q)(i) hereto is a complete
and accurate list of all Existing Debt, showing as of the date hereof
the principal amount outstanding thereunder. There are no outstanding
letters of credit as of the Closing Date in respect of which Holdings
or any of its Subsidiaries has any financial obligations.
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(ii) Set forth on Schedule 5.01(q)(ii) hereto is a complete
and accurate list of all Surviving Debt, showing as of the date hereof
the principal amount outstanding thereunder.
(R) DOMTAR NOTE. As of the Closing Date, the Borrower has caused
-----------
to be delivered to the Administrative Agent a complete and correct copy of the
Domtar Note (including all schedules, exhibits, amendments, supplements,
modifications, assignments and all other documents delivered pursuant thereto or
in connection therewith). All Obligations, including the Obligations to pay
principal of and interest on the Loans and the Letter of Credit Obligations, and
all Liens granted to the Administrative Agent, for the benefit of the
Administrative Agent and the Lenders, or granted to the Administrative Agent and
the Lenders, as applicable, in the Collateral constitute permitted indebtedness
and liens, respectively, under the Domtar Note. Holdings is the sole obligor
under the Domtar Note and no other Loan Party has any liability in respect of
the Domtar Note.
(S) OWNED REAL PROPERTY.
-------------------
(i) Set forth on Schedule 5.01(s) hereto is a complete and
accurate list of all real property owned by any Loan Party, showing as
of the date hereof the street address, municipality, county or other
relevant jurisdiction, province, state and record/registered owner.
Each Loan Party has good, marketable and insurable fee simple title to
such real property, free and clear of all Liens, other than Liens
created or permitted by the Loan Documents.
(ii) Set forth on Schedule 5.01(s) hereto is a complete and
accurate list of all leases of real property under which any Loan
Party is the lessee, showing as of the date hereof the street address,
municipality, county or other relevant jurisdiction, province, state,
lessor, lessee, expiration date and annual rental cost thereof. To the
best knowledge of the Borrower, each such lease is the legal, valid
and binding obligation of the lessor thereof, enforceable in
accordance with its terms.
(T) MATERIAL CONTRACTS. Set forth on Schedule 5.01(t) hereto
------------------
is a complete and accurate list of all Material Contracts of each Loan Party,
showing as of the date hereof the parties, subject matter and term thereof. Each
such Material Contract has been duly authorized, executed and delivered by all
parties thereto, has not been amended or otherwise modified, is in full force
and effect and is binding upon and enforceable against all parties thereto in
accordance with its terms, and there exists no default under any Material
Contract by any party thereto.
(U) PIONEER ACQUISITION AGREEMENT. Each of the representations
-----------------------------
and warranties in the Pioneer Acquisition Agreement is true and correct in all
material respects as of the Closing Date, in each case subject to the
qualifications set forth in the Pioneer Acquisition Agreement and the schedules
and exhibits thereto.
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(V) INVESTMENTS. Set forth on Schedule 5.01(v) hereto is a
-----------
complete and accurate list of all Investments held by any Loan Party, showing as
of the date hereof the amount, obligor or issuer and maturity, if any, thereof.
(W) INTELLECTUAL PROPERTY. Set forth on Schedule 5.01(w) hereto
---------------------
is a complete and accurate list of all patents, patent designs, industrial
designs, trademarks, trade names, service marks and copyrights, and all
applications therefor and licenses thereof, of each Loan Party, showing as of
the date hereof the jurisdiction in which registered, the registration number,
the date of registration and the expiration date.
(X) OTHER AGREEMENTS. Schedule 5.01(x) sets forth a complete and
----------------
accurate list as of the date hereof of (i) all joint venture and partnership
agreements to which any Loan Party is a party, and (ii) all covenants not to
compete restricting any Loan Party to which any Loan Party is a party or by
which any Loan Party is bound.
(Y) YEAR 2000. Any reprogramming required to permit the proper
---------
functioning, in and following the year 2000, of (i) each Loan Party's computer
systems and (ii) equipment containing embedded microchips (including systems and
equipment supplied by others or with which any Loan Party's systems interface)
and the testing of all such systems and equipment, as so reprogrammed, will be
completed by September 30, 1999. The cost to the Loan Parties of such
reprogramming and testing of the reasonably foreseeable consequences of year
2000 to the Loan Parties (including, without limitation, reprogramming errors
and the failure of others' systems or equipment) will not result in a Default or
a Material Adverse Effect. Except for such of the reprogramming referred to in
the preceding sentence as may be necessary, each Loan Party's computer and
management information systems are and, with ordinary course upgrading and
maintenance, will continue for the term of this Agreement to be, sufficient to
permit such Loan Party to conduct its business without Material Adverse Effect.
Each Loan Party represents and warrants that it has a reasonable basis to
believe that no year 2000 problem will cause a Material Adverse Effect.
(Z) EXCLUDED MELAMINE SUBS. As of the date hereof, neither of
----------------------
the Excluded Melamine Subs owns any assets or is engaged in any trade or
business or has incurred any other liabilities which have not been completely
repaid or discharged, except for such liabilities as are required by law in
connection with its corporate formation and existence.
ARTICLE VI.
COVENANTS OF THE BORROWER
SECTION 6.01. AFFIRMATIVE COVENANTS.
---------------------
So long as any Loan or Unreimbursed Letter of Credit Liability
shall remain unpaid, any Letter of Credit shall be outstanding or any Lender
shall have any Commitment hereunder, the Borrower will, unless the Required
Lenders shall otherwise consent in writing:
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(A) COMPLIANCE WITH LAWS, ETC. Comply, and cause Holdings and each of
-------------------------
its Subsidiaries to comply, in all material respects, with all applicable laws,
rules, regulations and orders.
(B) PAYMENT OF TAXES, ETC. Pay and discharge, and cause Holdings and
---------------------
each of its Subsidiaries to pay and discharge, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges or levies
imposed upon it or upon its property and (ii) all lawful claims that, if unpaid,
might by law become a Lien upon its property; provided, however, that neither
Holdings nor any of its Subsidiaries shall be required to pay or discharge any
such tax, assessment, charge. levy or claim that is being contested in good
faith and by proper proceedings and as to which appropriate reserves are being
maintained, unless and until any material Lien resulting therefrom attaches to
its property and becomes enforceable against its other creditors.
(C) COMPLIANCE WITH ENVIRONMENTAL LAWS. Comply, and cause Holdings
----------------------------------
and each of its Subsidiaries and all lessees and other Persons occupying its
properties to comply, in all material respects, with all Environmental Laws and
Environmental Permits applicable to its operations and properties; and obtain
and renew all Environmental Permits necessary for its operations and properties.
(D) MAINTENANCE OF INSURANCE; DAMAGE TO OR DESTRUCTION OF COLLATERAL.
----------------------------------------------------------------
(i) Maintain, and cause the other Loan Parties to maintain, at
their sole cost and expense, the policies of insurance described on
Schedule 6.01(d) as in effect on the Closing Date (or equivalent
replacements thereof), in form and with insurers reasonably acceptable to
the Administrative Agent. If any Loan Party at any time or times hereafter
shall fail to obtain or maintain any of the policies of insurance required
above or to pay all premiums relating thereto, the Administrative Agent may
at any time or times thereafter obtain and maintain such policies of
insurance and pay such premiums and take any other action with respect
thereto which the Administrative Agent reasonably deems advisable. The
Administrative Agent shall have no obligation to obtain insurance for any
Loan Party or pay any premiums therefor. By doing so, the Administrative
Agent shall not be deemed to have waived any Default or Event of Default
arising from any Loan Party's failure to maintain such insurance or pay any
premiums therefor. All sums so disbursed, including reasonable attorneys'
fees, court costs and other reasonable charges related thereto, shall be
payable on demand by the Borrower to the Administrative Agent and shall be
additional Obligations hereunder secured by the Collateral.
(ii) The Administrative Agent reserves the right at any time upon
any change in any Loan Party's risk profile (including any change in the
product mix maintained by any Loan Party or any laws affecting the
potential liability of such Loan Party) to require additional forms and
limits of insurance to, in the Administrative Agent's reasonable opinion,
adequately protect both the Administrative Agent's and the
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Lenders' interests in all or any portion of the Collateral and to ensure
that each Loan Party is protected by insurance in amounts and with coverage
customary for its industry.
(iii) In the event that any Collateral is damaged, destroyed or
lost and any insurance proceeds are payable as a result of such occurrence
and the cost of the repair, restoration or replacement is reasonably
expected to exceed $10,000,000 and the Loans are not required to be prepaid
pursuant to Section 2.04, then: (A) within 30 days after the date of such
damage, destruction or loss, the Borrower shall deliver to the
Administrative Agent, in form and substance reasonably satisfactory to the
Administrative Agent: (1) a written plan for the repair, restoration or
replacement of such Collateral, including the estimated cost of such
repair, restoration or replacement and time of completion, and (2) such
other documents and information relating to such repair, restoration or
replacement as the Administrative Agent or the Required Lenders may
reasonably request; (B) any related insurance proceeds shall be immediately
paid over to and held by the Administrative Agent in a Cash Collateral
Account (over which Administrative Agent shall have sole and exclusive
control and right of withdrawal), shall be used solely to pay the cost of
such repair, restoration or replacement and shall be disbursed in
accordance with such terms, conditions and procedures as the Administrative
Agent may reasonably require, provided that (1) the Administrative Agent
-------- ----
shall have no obligation to disburse any such amounts if an Event of
Default has occurred and is continuing, and (2) if the amount of any such
insurance proceeds received by the Administrative Agent exceeds the cost of
completing the repair, restoration or replacement, the excess may be
applied by Administrative Agent to the Obligations hereunder in such order
and manner as the Administrative Agent may determine or, at the option of
the Administrative Agent and the Required Lenders, may be released to the
Borrower.
(E) PRESERVATION OF CORPORATE EXISTENCE, ETC. Preserve and maintain,
----------------------------------------
and cause Holdings and each of its Subsidiaries to preserve and maintain, its
corporate existence, rights (charter and statutory) and franchises; provided,
--------
however, that a Loan Party may consummate any amalgamation, merger or
- -------
consolidation permitted under Section 6.02(d) and, provided further, none of the
-------- -------
Loan Parties shall be required to preserve any right or franchise if the Board
of Directors of such Loan Party shall determine that the preservation thereof is
no longer desirable in the conduct of its business and that the loss thereof is
not disadvantageous in any material respect to any Loan Party or Lender Party.
(F) VISITATION RIGHTS. At any reasonable time and from time to
-----------------
time, permit the Administrative Agent or any of the Lenders or any agents or
representatives thereof, to examine and make copies of and abstracts from the
records and books of account of, and visit the properties of each Loan Party,
and to discuss the affairs, finances and accounts of each Loan Party with any of
their officers or directors and with their independent certified public
accountants.
(G) PREPARATION OF ENVIRONMENTAL REPORTS. At the request of the
------------------------------------
Administrative Agent and the Required Lenders from time to time, provide to the
Lenders within
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90 days after such request, at the expense of the Borrower, an environmental
site assessment report for all of the Loan Parties' properties described in such
request, prepared by an environmental consulting firm acceptable to the
Administrative Agent and the Required Lenders, indicating the presence or
absence of Hazardous Materials and the estimated cost of any compliance, removal
or remedial action in connection with any Hazardous Materials on such
properties; provided that the Borrower may satisfy the foregoing obligations by
--------
providing the Administrative Agent and the Required Lenders with a copy of an
environmental site assessment report prepared by an independent environmental
consulting firm within three years prior to such request unless a Loan Party
knows or has reason to know that a new condition has occurred or that an
existing condition has materially adversely changed. Without limiting the
generality of the foregoing, if the Administrative Agent or the Required Lenders
determine at any time that a material risk exists that any such report will not
be provided within the time referred to above, the Administrative Agent or the
Required Lenders may retain an environmental consulting firm to prepare such
report at the expense of the Borrower, and the Borrower hereby grants and agrees
to cause Holdings or any Subsidiary which owns any property described in such
request to grant at the time of such request, to the Administrative Agent, the
Lenders, such firm and any agents or representatives thereof an irrevocable non-
exclusive license, subject to the rights of tenants, to enter onto their
respective properties to undertake such an assessment.
(H) APPRAISALS. The Borrower, at its own expense, shall deliver to
----------
the Administrative Agent within 60 days of written request therefor such
appraisals satisfying the requirements of any applicable laws and regulations,
concerning the value of such of the real property of any of the Loan Parties as
the Administrative Agent may request at any time to comply with such laws or
regulations, such appraisals to be conducted by an appraiser, and be in form and
substance, satisfactory to the Administrative Agent.
(I) KEEPING OF BOOKS. Keep, and cause Holdings and each of its
----------------
Subsidiaries to keep, proper books of record and account, in which full and
correct entries shall be made of all their respective financial transactions and
their respective assets and business in accordance with generally accepted
accounting principles in effect from time to time.
(J) MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve, and
------------------------------
cause Holdings and each of its Subsidiaries to maintain and preserve, all of its
properties that are used or useful in the conduct of its business in good
working order and condition, ordinary wear and tear excepted.
(K) COMPLIANCE WITH TERMS OF LEASEHOLDS. (i) Make all payments
-----------------------------------
and otherwise perform all obligations in respect of all Material Leases of real
property, (ii) keep such leases in full force and effect and not allow such
leases to lapse or be terminated or any rights to renew such leases to be
forfeited or canceled, except in connection with the moving or consolidation of
facilities as determined to be in the best interest of the Borrower and its
Subsidiaries by the Board of Directors of the Borrower, (iii) notify the
Administrative Agent of any default by any party with respect to such leases and
(iv) cooperate with the Administrative Agent in all respects to cure any such
default, and in each case, cause Holdings and each of its Subsidiaries to do so.
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(L) PERFORMANCE OF LOAN DOCUMENTS AND RELATED DOCUMENTS. Perform and
---------------------------------------------------
observe all of the terms and provisions of each Loan Document and Related
Document to be performed or observed by it, maintain each such Loan Document and
Related Document in full force and effect, enforce such Loan Document and
Related Document in accordance with its terms, take all such action to such end
as may be from time to time requested by the Administrative Agent and, upon
request of the Administrative Agent, make to each other party to each such Loan
Document and Related Document such demands and requests for information and
reports or for action as the Borrower is entitled to make under such Loan
Document or Related Document, and in each case cause Holdings and each of its
Subsidiaries to do so.
(M) PERFORMANCE OF MATERIAL CONTRACTS. Perform and observe all the
---------------------------------
terms and provisions of each Material Contract to be performed or observed by
it, maintain each such Material Contract in full force and effect, enforce each
such Material Contract in accordance with its terms, in each case, unless the
Borrower's Board of Directors determines otherwise in the best interests of the
Borrower, and take all such action to such end as may be from time to time
requested by the Administrative Agent and, upon request of the Administrative
Agent, make to each other party to each such Material Contract such demands and
requests for information and reports or for action as the Borrower is entitled
to make under such Material Contract, and in each case cause Holdings and each
of its Subsidiaries to do so.
(N) ADDITIONAL LOAN PARTIES; ADDITIONAL COLLATERAL.
----------------------------------------------
(i) Substantially concurrently with the formation or acquisition
of any Subsidiary of any Credit Party, (A) cause such Subsidiary (unless
such Subsidiary is a Foreign Subsidiary) to deliver to the Administrative
Agent a confirmation that it is a "Credit Party" and that it shall comply
with and be bound by this Agreement, the Intercreditor Agreement and the
other Loan Documents, (B) cause such Subsidiary (unless such Subsidiary is
a Foreign Subsidiary) to unconditionally guarantee all Obligations of the
Borrower hereunder and under the Notes (if any) by executing and delivering
to the Administrative Agent an amendment to the Guaranty substantially in
the form of Exhibit XIV, (C) cause such Subsidiary (unless such Subsidiary
------------
is a Foreign Subsidiary) to execute and deliver to the Administrative
Agent, an amendment to the Security Agreement, substantially in the form of
Exhibit XV (whereby such Subsidiary shall grant a Lien on those of its
----------
assets described in the Security Agreement), (D) promptly pledge to the
Administrative Agent or cause to be pledged to the Administrative Agent all
of the outstanding Capital Stock of such Subsidiary (or, if such Subsidiary
is a Foreign Subsidiary, 65% of such Capital Stock) owned by any Credit
Party to secure such Credit Party's Obligations under the Loan Documents,
(E) with respect to any real property in which a Domestic Subsidiary has an
interest, cause such Domestic Subsidiary to execute and deliver such deeds
of trust, trust deeds and mortgages ("ADDITIONAL MORTGAGES") in appropriate
--------------------
form for filing in all filing or recording offices that the Administrative
Agent may deem necessary or desirable to create a valid first and
subsisting Lien on the property described therein in favor of the
Administrative Agent for the benefit of itself and the Lender Parties, (F)
promptly take, and cause such Subsidiary (unless such Subsidiary is a
Foreign Subsidiary) and each other Credit Party to take, all
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action necessary or (in the opinion of the Administrative Agent or the
Required Lenders) desirable to perfect and protect the Liens intended to be
created by the Collateral Documents, as amended pursuant to this Section
6.01(n), (G) promptly take, and cause such Subsidiary (unless such
Subsidiary is a Foreign Subsidiary) and each other Credit Party to take,
all action necessary or (in the opinion of the Administrative Agent or the
Required Lenders) desirable to provide such Mortgage Policies, American
Land Title Association form surveys, appraisals, environmental reports,
engineering, soils and other reports, assignments of leases and rents,
consents and agreements of lessors and other third parties, estoppel
letters and other confirmations, and evidence of insurance with respect to
any real property that becomes the subject of an Additional Mortgage, as
the Administrative Agent may deem necessary or desirable, in each case in
form and substance acceptable to the Administrative Agent, and (H) promptly
deliver to the Administrative Agent such Officers' Certificates and
opinions of counsel, if any, as the Administrative Agent or the Required
Lenders may reasonably require with respect to the foregoing (including
opinions as to enforceability and perfection of security interests).
(ii) Substantially concurrently with the formation or
acquisition of the Excluded Acquisition Sub, (A) promptly pledge to the
Administrative Agent or cause to be pledged to the Administrative Agent all
of the outstanding Capital Stock of the Excluded Acquisition Sub owned by
any Credit Party to secure such Credit Party's Obligations under the Loan
Documents, (B) promptly take, and cause such Excluded Acquisition Sub and
each other Credit Party to take, all action necessary or (in the opinion of
the Administrative Agent or the Required Lenders) desirable to perfect and
protect the Lien intended to be created by the foregoing, and (C) promptly
deliver to the Administrative Agent such opinions of counsel, if any, as
the Administrative Agent or the Required Lenders may reasonably require
with respect to the foregoing (including opinions as to enforceability and
perfection of security interests).
(iii) In addition to the foregoing, upon the acquisition by any
Credit Party on or after the date hereof of any interest in any real
property (A) the applicable Credit Party shall promptly execute and deliver
such Additional Mortgages in appropriate form for filing in all filing or
recording offices that the Administrative Agent may deem necessary or
desirable to create a valid first and subsisting Lien on such real property
in favor of the Administrative Agent for the benefit of itself and the
Lender Parties, (B) the Borrower shall promptly take, and cause each Credit
Party to take, all action necessary or (in the opinion of the
Administrative Agent or the Required Lenders) desirable to perfect and
protect the Liens intended to be created by the Additional Mortgages, (C)
the Borrower shall promptly take, and cause each Credit Party to take, all
action necessary or (in the opinion of the Administrative Agent or the
Required Lenders) desirable to provide such Mortgage Policies, American
Land Title Association form surveys, appraisals, environmental reports,
engineering, soils and other reports, assignments of leases and rents,
consents and agreements of lessors and other third parties, estoppel
letters and other confirmations, and evidence of insurance with respect to
any real property that becomes the subject of an Additional Mortgage, as
the Administrative Agent may deem necessary or desirable, in each case in
form and substance acceptable to the Administrative Agent,
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and (D) promptly deliver to the Administrative Agent such Officers'
Certificates and opinions of counsel, if any, as the Administrative Agent
or the Required Lenders may reasonably require with respect to the
foregoing (including opinions as to enforceability and perfection of
security interests).
(O) YEAR 2000 ASSURANCES. The Borrower and each of its Subsidiaries
--------------------
shall take all action necessary and commit adequate resources to assure that
their respective computer-based and other systems are able to effectively
process data including dates before, on and after January 1, 2000 without
experiencing any year 2000 problem that could cause a Material Adverse Effect.
At the request of the Administrative Agent or any Lender, the Borrower shall use
commercially reasonable efforts to provide or cause to be provided to the
Administrative Agent or such Lender, as the case may be, with assurance and
substantiation (including, but not limited to, the results of internal or
external audit reports prepared in the ordinary course of business) reasonably
acceptable to the Administrative Agent or such Lender, as the case may be, as to
the year 2000 capability of the Borrower and its Subsidiaries and their
respective abilities to conduct their respective businesses and operations
before, on and after January 1, 2000 without experiencing a year 2000 problem
causing a Material Adverse Effect.
(P) CERTAIN POST-CLOSING MATTERS.
----------------------------
(i) Provide to the Administrative Agent within 30 days after the
Closing Date such consents and agreements of the lessor with respect to the
property located at 1111 All Pro Drive, Elkhart, Indiana (the "ELKHART
-------
PROPERTY") as the Administrative Agent may require and a Memorandum of
--------
Lease with respect to the lease relating to the Elkhart Property all in
form and substance satisfactory to the Administrative Agent.
(ii) Within 30 days after the Closing Date, provide to the
Administrative Agent amended or replacement lender's loss payable
endorsements in form and substance satisfactory to the Administrative Agent
and the Canadian Administrative Agent.
SECTION 6.02. NEGATIVE COVENANTS.
------------------
So long as any Loan or Unreimbursed Letter of Credit Liability
shall remain unpaid, any Letter of Credit shall be outstanding or any Lender
shall have any Commitment hereunder, the Borrower will not, at any time, without
the written consent of the Required Lenders or, if required under Section 9.01,
of all of the Lenders (other than any Lender which is, at such time, a
Defaulting Lender):
(A) LIENS, ETC. Create, incur, assume or suffer to exist, or permit
----------
Holdings or any of its Subsidiaries or the Excluded Acquisition Sub or either of
the Excluded Melamine Subs to create, incur, assume or suffer to exist, any Lien
on or with respect to any of its properties of any character (including, without
limitation, accounts) whether now owned or hereafter acquired, or sign or file,
or permit Holdings or any of its Subsidiaries or the Excluded Acquisition Sub or
either of the Excluded Melamine Subs to sign or file, under the Code of any
jurisdiction, a
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financing statement that names Holdings or any of its Subsidiaries as debtor, or
sign, or permit Holdings or any of its Subsidiaries or the Excluded Acquisition
Sub or either of the Excluded Melamine Subs to sign, any security agreement
authorizing any secured party thereunder to file such financing statement, or
assign, or permit Holdings or any of its Subsidiaries or the Excluded
Acquisition Sub or either of the Excluded Melamine Subs to assign, any accounts
or other right to receive income, excluding, however, from the operation of the
--------- -------
foregoing restrictions the following:
(i) Liens created by the Loan Documents and Liens created
by the Canadian Loan Documents;
(ii) Permitted Liens;
(iii) the Liens described on Schedule 6.02(a)(iii);
(iv) purchase money Liens upon or in property
acquired or held by Holdings or any of its Subsidiaries in the ordinary
course of business to secure the purchase price of such property or to
secure Debt incurred solely for the purpose of financing the acquisition,
construction or improvement of any such property to be subject to such
Liens, or Liens existing on any such property at the time of acquisition,
or extensions, renewals or replacements of any of the foregoing for the
same or a lesser amount; provided, however, that no such Lien shall extend
-------- -------
to or cover any property other than the property being acquired,
constructed or improved, and no such extension, renewal or replacement
shall extend to or cover any property not theretofore subject to the Lien
being extended, renewed or replaced; and provided further that the
-------- -------
aggregate principal amount of the Debt secured by Liens permitted by this
clause (iv) and by clause (v) below shall not exceed $10,000,000 at any
time outstanding and that any such Debt shall not otherwise be prohibited
by the terms of the Loan Documents;
(v) Liens arising in connection with Capital Leases of
the Borrower and its Subsidiaries; provided that the aggregate principal
--------
amount of the Debt secured by Liens permitted by clause (iv) above and by
this clause (v) shall not exceed $10,000,000 at any time outstanding; and
provided further that no such Lien shall extend to or cover any Collateral;
-------- -------
(vi) the replacement, extension or renewal of any Lien
permitted by clause (iii) above upon or in the same property theretofore
subject thereto or the replacement, extension or renewal (without increase
in the amount or change in any direct or contingent obligor) of the Debt
secured thereby;
(vii) Liens arising in the ordinary course of business and
securing liabilities (but not Funded Debt) in an outstanding aggregate
amount not in excess of $300,000 at any time; and
(viii) Liens on the property of the Excluded Acquisition Sub
but only to the extent that the Debt secured by such Liens is permitted
under Section 6.02(b)(vi).
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(B) DEBT. Create, incur, assume or suffer to exist, or permit
----
Holdings or any of its Subsidiaries or the Excluded Acquisition Sub or either of
the Excluded Melamine Subs to create, incur, assume or suffer to exist, any Debt
other than:
(i) in the case of the Borrower:
(A) Debt under the Loan Documents;
(B) Debt under the Canadian Credit Agreement
Guaranty;
(C) Subordinated Debt evidenced by the Subordinated
Notes;
(D) Permitted Seller Financing in an aggregate
principal amount at any time outstanding not to exceed
$5,000,000; and
(E) intercompany Debt owed to any Loan Party so long
as such Debt is evidenced by one or more Intercompany Notes that
have been pledged to the Administrative Agent or the Canadian
Administrative Agent pursuant to the Security Agreement or, in
the case of intercompany Debt owed to Panolam Canada or any of
its Subsidiaries, the Canadian Security Agreement; provided that
-------- ----
neither the Borrower nor any of its Subsidiaries shall repay any
interest on or principal of, or pay any other amount in respect
of, such Debt upon or following the occurrence of any Default
that is continuing.
(ii) in the case of any of the Borrower's Domestic
Subsidiaries and Panolam Canada and its Subsidiaries:
(A) intercompany Debt owed to the Borrower
or to a wholly-owned Subsidiary of the Borrower so long as such
Debt is evidenced by one or more Intercompany Notes that have
been pledged to the Administrative Agent or the Canadian
Administrative Agent pursuant to the Security Agreement or the
Canadian Security Agreement; provided that no Loan Party shall
-------- ----
repay any interest on or principal of, or pay any other amount in
respect of, such Debt (except Debt owing to the Borrower, Debt
owing to Panolam Canada by any of its Subsidiaries and debt owing
to a Domestic Subsidiary by another Domestic Subsidiary) upon or
following the occurrence of any Default that is continuing; and
(B) Debt pursuant to the Loan Documents and the
Canadian Credit Agreement Guaranty.
(iii) in the case of Panolam Canada, Debt under the
Canadian Credit Agreement.
(iv) in the case of any Parent, Debt pursuant to the
Loan Documents and the Canadian Credit Agreement Guaranty.
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(v) in the case of any Loan Party:
(A) Debt of the Borrower or any of its Subsidiaries
secured by Liens permitted by Section 6.02(a)(iv) or (v) not to exceed
in the aggregate the amount set forth in such Section;
(B) the Surviving Debt;
(C) indorsement of negotiable instruments for deposit
or collection or similar transactions in the ordinary course of
business;
(D) Debt of the Borrower in respect of Hedge
Agreements and Debt of Panolam Canada in respect of Canadian Hedge
Agreements in an aggregate notional amount for all such Debt under
this clause (D) not to exceed $30,000,000 at any time outstanding;
(E) so long as no Default or Event of Default has occurred
that is continuing as of the date of incurrence or assumption thereof
or would result after giving effect thereto, other Debt not exceeding
$1,000,000 in the aggregate (for the Borrower and its Subsidiaries);
(vi) in the case of the Excluded Acquisition Sub:
(A) Non-Recourse Debt in an aggregate principal amount not
to exceed $60,000,000 at any time outstanding; and
(B) intercompany Debt owed to the Borrower to the extent
constituting Investments permitted under Section 6.02(f)(viii); and
(vii) in the case of any Excluded Foreign Subsidiary,
intercompany Debt to the extent constituting Investments permitted
under Section 6.02(f)(xii).
(C) SYNTHETIC LEASE OBLIGATIONS. Create, incur, assume or suffer to
---------------------------
exist, or permit Holdings or any of its Subsidiaries to create, incur, assume or
suffer to exist, any obligations as lessee for the rental or hire of real or
personal property in connection with any synthetic lease transaction.
(D) MERGERS, ETC. Merge into or consolidate with any Person or permit
------------
any Person to merge into or consolidate with it, or permit Holdings or any of
its Subsidiaries to do so, except that (i) any Domestic Subsidiary of the
Borrower that is Solvent may merge into or consolidate with any other Domestic
Subsidiary of the Borrower that is Solvent provided that the Person formed by
such merger or consolidation shall be a Domestic Subsidiary of the Borrower,
(ii) any of the Borrower's Domestic Subsidiaries that is Solvent may merge into
the Borrower, (iii) any Subsidiary of Panolam Canada that is Solvent may
amalgamate with any other Subsidiary of Panolam Canada that is Solvent, (iv) any
of Panolam Canada's Subsidiaries that is Solvent may amalgamate with Panolam
Canada, and (v) a wholly owned Subsidiary of the
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Borrower or Panolam Canada formed primarily for the purposes of consummating a
Permitted Acquisition may, substantially contemporaneously with the consummation
of such Permitted Acquisition, be merged into or amalgamated with the Person
being acquired in such Permitted Acquisition; provided, however, that in each
-------- -------
case, immediately after giving effect thereto, no event shall occur and be
continuing that constitutes a Default and, in the case of any such merger to
which the Borrower is a party, the Borrower is the surviving corporation.
(E) SALES, ETC. OF ASSETS. Sell, lease, transfer or otherwise dispose
---------------------
of, or permit Holdings or any of its Subsidiaries to sell, lease, transfer or
otherwise dispose of, any assets or grant any option or other right to purchase,
lease or otherwise acquire any Collateral other than Inventory to be sold in the
ordinary course of its business, except (i) sales of Inventory in the ordinary
course of its business and sales of worn out or obsolete assets or trade-ins or
trade-ups on other assets the proceeds of which are substantially concurrently
applied or committed to be applied within 90 days to the purchase of replacement
assets, (ii) in a transaction authorized by Section 6.02(d), (iii) sales of
assets for cash and for fair value in an aggregate amount not to exceed
$5,000,000 in any period of 12 consecutive months and $15,000,000 in the
aggregate since the Closing Date, (iv) the sale of any asset by Holdings or by
any Subsidiary identified on Schedule 6.02(e) subject to the parameters set
forth on such Schedule, so long as, in the case of each of the foregoing clauses
(iii) and (iv), (A) the purchase price paid to Holdings or such Subsidiary for
such asset shall be no less than the fair market value of such asset at the time
of such sale, (B) the purchase price for such asset shall be paid to Holdings or
such Subsidiary solely in cash and (C) the Borrower shall, on the date of such
sale, prepay the Loans pursuant to (and to the extent required by) Section
2.04(c)(ii) in an aggregate principal amount equal to the Net Cash Proceeds
received by Holdings or such Subsidiary from the sale of such asset, (v) so long
as no Default shall occur and be continuing, the grant of any option or other
right to purchase any asset in a transaction which would be permitted under the
provisions of the preceding clause (iii) or (iv), and (vi) intercompany
transfers of assets so long as in the case of any transfer to a Foreign
Subsidiary by a Credit Party, the transferor receives at the time of such
transfer cash consideration equal to the fair market value of the assets so
transferred.
(F) INVESTMENTS IN OTHER PERSONS; ACQUISITIONS. Make or hold, or
------------------------------------------
permit Holdings or any of its Subsidiaries or the Excluded Acquisition Sub or
either of the Excluded Melamine Subs to make or hold, any Investment in any
Person, or make or permit Holdings or any of its Subsidiaries or the Excluded
Acquisition Sub or either of the Excluded Melamine Subs to make, any
Acquisition, except that:
(i) the Borrower and its Domestic Subsidiaries may hold
Investments comprised of notes payable, or (solely as a result of
reorganization proceedings referred to below) Capital Stock or other
securities issued by Receivables Debtors to the Borrower and its Domestic
Subsidiaries pursuant to negotiated agreements or reorganization
proceedings under the United States Bankruptcy Code with respect to the
settlement of such Receivables Debtor's Receivables in the ordinary course
of business;
(ii) each Loan Party may maintain its existing Investments in its
Subsidiaries as of the Closing Date and, subject to Section 6.02(b) and so
long as no
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Default has occurred and is continuing, may make additional Investments in
any Subsidiary that is a Loan Party other than any Excluded Foreign
Subsidiary;
(iii) each Subsidiary of the Borrower may maintain its existing
Investments in the other Subsidiaries of the Borrower as of the Closing
Date and, subject to Section 6.02(b) and so long as no Default has occurred
and is continuing, may make additional Investments in any other wholly-
owned Subsidiary of the Borrower other than any Excluded Foreign
Subsidiary;
(iv) Panolam Canada may maintain its existing Investments in
the Borrower as of the Closing Date and, subject to Section 6.02(b), may
make additional Investments in the Borrower;
(v) unless an Event of Default has occurred and is continuing
and there is a Revolving Loan or Swing Line Loan outstanding, the Borrower,
its Domestic Subsidiaries and Panolam Canada may make investments in Cash
Equivalents;
(vi) so long as no Default shall have occurred and be
continuing, the Borrower and its Subsidiaries may consummate Permitted
Acquisitions (subject to Section 6.02(f)(xii) with respect to any Excluded
Foreign Subsidiary);
(vii) so long as no Default shall have occurred and be
continuing, the Borrower and its Domestic Subsidiaries may make loans and
advances described in clause (f) of the definition of "Exempted Affiliate
Transaction";
(viii) the Borrower may make an Investment of up to $5,000,000
in the Excluded Acquisition Sub;
(ix) the Borrower may maintain its existing Investments in the
Excluded Melamine Subs as of the Closing Date, but may not make any
additional Investments therein;
(x) so long as no Event of Default has occurred and is
continuing, the Excluded Acquisition Sub may consummate the Excluded
Acquisition;
(xi) Panolam Canada and its Subsidiaries may make any
Investment permitted under the Canadian Credit Agreement;
(xii) the Loan Parties may make Investments in Excluded Foreign
Subsidiaries in an aggregate amount for all such Investments made after the
Closing Date, including such Investments pursuant to Section 6.02(f)(vi),
not to exceed $5,000,000; and
(xiii) so long as no Event of Default shall have occurred and be
continuing, the Borrower may make other Investments not exceeding $500,000
in the aggregate at any time outstanding.
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(G) DIVIDENDS, ETC. Declare or pay any dividends, purchase, redeem,
--------------
retire, defease or otherwise acquire for value any Capital Stock of any Loan
Party or any warrants, rights or options to acquire such Capital Stock, now or
hereafter outstanding, or permit Group or any of its Subsidiaries to do so or
permit Group or any of its Subsidiaries to return any capital to any of their
stockholders as such, make any distribution of assets, Capital Stock, warrants,
rights, options, obligations or securities to any of their stockholders as such
or issue or sell any capital stock or any warrants, rights or options to acquire
such Capital Stock, or permit Group or any of its Subsidiaries to purchase,
redeem, retire, defease or otherwise acquire for value any Capital Stock of
Holdings or any of its Subsidiaries or any warrants, rights or options to
acquire such Capital Stock or to issue or sell any Capital Stock or any
warrants, rights or options to acquire such Capital Stock, except that the
Borrower's Subsidiaries may declare and deliver cash dividends to the Borrower,
and so long as no Default shall have occurred and be continuing:
(i) The Borrower and its Subsidiaries may declare and deliver
dividends and distributions payable only in common stock of the Borrower or
such Subsidiary, as applicable;
(ii) the Borrower and Panolam Canada may pay cash dividends to
their respective Parents (and their respective Parents may, in turn, pay
cash dividends to their respective Parents) in amounts necessary to pay
(and only substantially concurrently with payment of) (A) fees payable by
Holdings pursuant to the Genstar Agreements as and when due, and (B) income
taxes attributable to the business of Holdings and its Subsidiaries (but
not attributable to the Excluded Acquisition Sub, except to the extent of
any cash dividend actually received by the Borrower from the Excluded
Acquisition Sub for such purposes) the necessary fees and expenses to
maintain Holdings', Group's and PII Second's corporate existence, the
reasonable costs of their directors' and officers' insurance and their
legal and accounting fees to the extent such fees related to legal and
accounting services provided directly to them by entities that are not
Affiliates of the Borrower; and
(iii) the Borrower and Panolam Canada may pay cash dividends to
their respective Parents (and their respective Parents may, in turn, pay
cash dividends to their respective Parents) in amounts necessary to fund
(A) repurchases of Capital Stock of Holdings from employees or former
employees of Holdings or any of its Subsidiaries upon such employees
ceasing to be employees of Holdings or any Loan Party, up to an aggregate
maximum amount for all such repurchases on or after the date hereof of
$3,000,000 and (B) amounts necessary to repay (and only substantially
concurrently with payment of) the Domtar Note in accordance with Section
6.02(k).
(H) CHANGE IN NATURE OF BUSINESS. (i) Make, or permit Holdings or any
----------------------------
of its Subsidiaries to make, any material change in the nature of its business
as carried on at the date hereof or permit the Excluded Acquisition Sub to
engage in any business materially different from the business of Holdings and
its Subsidiaries; or (ii) permit any Parent to engage in any trade or business,
or own any assets or incur any Debt or Obligations, except the Domtar Note
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owing by Holdings, the obligations under the Genstar Agreements or such other
Debt or Obligations as are otherwise specifically permitted under this
Agreement.
(I) CHARTER AMENDMENTS. Except as could not reasonably be expected to
------------------
adversely affect any Lender Party, amend, or permit Holdings or any of its
Subsidiaries to amend, its certificate of incorporation or bylaws.
(J) ACCOUNTING CHANGES. Make or permit, or permit Holdings or any of
------------------
its Subsidiaries to make or permit, any change in accounting policies or
reporting practices, except as required by generally accepted accounting
principles.
(K) PREPAYMENTS, ETC. OF DEBT. (i) Prepay, redeem, purchase, defease
-----------------
or otherwise satisfy prior to the scheduled maturity thereof in any manner any
Debt other than (A) the prepayment of the Loans in accordance with the terms of
this Agreement, and (B) regularly scheduled or required repayments or
redemptions of Surviving Debt, (ii) make any payment in violation of any
subordination terms of any Debt, (iii) amend, modify or change in any manner any
term or condition of any Surviving Debt or Subordinated Debt, except in any
manner that does not adversely affect any of the Loans, the Obligations, the
Collateral, any Loan Document or any Lender Party, provided that under no
--------
circumstances shall any modification to subordination provisions be permitted,
or (iv) permit Holdings or any of its Subsidiaries to do any of the foregoing
other than (A) to prepay any Debt payable to the Borrower or, subject to Section
6.02(b), Panolam Canada, (B) the payment by the Borrower and its Subsidiaries of
interest on and principal of Debt under Intercompany Notes issued in accordance
with Section 6.02(b), (C) the prepayment by Panolam Canada of loans under the
Canadian Credit Agreement in accordance with the terms thereof, and (D) payment
or prepayment of all or any portion of the Domtar Note (including interest)
provided that the Borrower demonstrates pro forma compliance with the financial
covenants in Section 6.04 (as set forth in an Officers' Certificate setting
forth the calculations thereof and delivered to the Administrative Agent at
least three Business Days in advance of making such payment) and provided that
no Default or Event of Default exists or would result therefrom.
(L) AMENDMENT, ETC. OF RELATED DOCUMENTS. Except as otherwise
------------------------------------
provided in the Intercreditor Agreement with respect to the Canadian Loan
Documents, cancel or terminate any Related Document or consent to or accept any
cancellation or termination thereof, amend, modify or change in any manner any
term or condition of any Related Document or give any consent, waiver or
approval thereunder, waive any default under or any breach of any term or
condition of any Related Document, agree in any manner to any other amendment,
modification or change of any term or condition of any Related Document or take
any other action in connection with any Related Document that would impair the
value of the interest or rights of any Loan Party thereunder or that would
impair the rights or interests of the Administrative Agent or any Lender Party,
or permit Holdings or any of its Subsidiaries to do any of the foregoing.
(M) AMENDMENT, ETC. OF MATERIAL CONTRACTS. Cancel or terminate any
-------------------------------------
Material Contract or consent to or accept any cancellation or termination
thereof, amend or
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otherwise modify any Material Contract or give any consent, waiver or approval
thereunder, waive any default under or breach of any Material Contract, agree in
any manner to any other amendment, modification or change of any term or
condition of any Material Contract or take any other action in connection with
any Material Contract that would impair the value of the interest or rights of
any Loan Party thereunder or that would impair the interest or rights of the
Administrative Agent or any Lender Party, or permit Holdings or any of its
Subsidiaries to do any of the foregoing, in each case except as determined by
the Borrower's management to be in the best interests of the Borrower.
(N) AMENDMENT, ETC. OF DOMTAR NOTE AND GENSTAR AGREEMENTSS. (i)
------------------------------------------------------
Permit Holdings to amend or modify the Domtar Note (or any indenture or
agreement in connection therewith) in any manner that has the effect of: (A)
increasing the interest rate on the Debt thereunder (other than pursuant to its
terms as in effect on the date hereof); (B) changing the dates upon which
payments of principal or interest are due on the Debt thereunder other than to
extend such dates; (C) changing any default or event of default other than to
delete or make less restrictive any default provision therein, or add any
covenant with respect to the Debt thereunder; (D) changing the redemption or
prepayment provisions of the Debt thereunder other than to extend the date
therefor or to reduce the premiums payable in connection therewith; (E) granting
any security or collateral to secure payment of the Debt thereunder; or (F)
changing or amending any other term if such change or amendment would increase
any monetary obligation or materially increase any other obligation of the
obligor or confer additional material rights to the holder of such Debt in a
manner adverse to any Loan Party, the Administrative Agent or any Lender Party.
(ii) Amend or modify, or permit Panolam US or Panolam Canada to amend
or modify, any Genstar Agreement in any manner that has the effect of: (A)
increasing any fees payable thereunder; (B) changing the dates upon which
payments are dufe thereunder (other than extend time for payment); (C) granting
any security or collateral to secure payments thereunder; (D) changing or
amending any subordination provisions thereof; or (E) changing or amending any
other term if such change or amendment of such other term would increase any
monetary obligation or materially increase any other obligation of the obligor
or confer additional material rights to the holder of such Debt in a manner
adverse to any Loan Party, the Administrative Agent or any Lender Party.
(O) PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES. Enter into, or
-------------------------------------------
permit Holdings or any of its Subsidiaries to enter into, any agreement,
instrument or other document which directly or indirectly prohibits or restricts
in any manner, or would have the effect of prohibiting or restricting in any
manner, the ability of any of the Borrower's Subsidiaries to (i) pay dividends
or make any other distributions in respect of its Capital Stock or any other
Equity Interest or participation in its profits owned by the Borrower or any of
its Subsidiaries, or pay or repay any Debt owed to the Borrower or any of its
Subsidiaries, (ii) make loans or advances to the Borrower, or (iii) transfer any
of its properties or assets to the Borrower or any of its Subsidiaries, in each
case except for Permitted Restrictions. Notwithstanding the foregoing, (x)
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
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considered a restriction on the ability of the applicable Subsidiary to transfer
such agreement or assets, as the case may be, and (y) any asset subject to a
Lien which is not prohibited to exist with respect to such asset pursuant to
this Agreement may be subject to restrictions on the transfer or disposition
thereof pursuant to such Lien.
(P) NEGATIVE PLEDGE. Enter into or suffer to exist, or permit
---------------
Holdings or any of its Subsidiaries to enter into or suffer to exist, any
agreement prohibiting or conditioning the creation or assumption of any Lien
upon any of its property or assets other than (i) in favor of the Administrative
Agent and the Lender Parties, (ii) in favor of the Canadian Administrative Agent
and the Canadian Lenders pursuant to the terms of the Canadian Loan Documents,
(iii) pursuant to the Subordinated Note Indenture or (iv) in connection with (A)
any Surviving Debt and any Debt outstanding on the date a Subsidiary first
becomes a Subsidiary or (B) any Debt permitted by Section 6.02(b)(v)(A) hereof,
provided that the prohibition in this clause (B) extends only to the assets
- -------- ----
subject to such Liens.
(Q) PARTNERSHIPS. Become a general partner in any general or limited
------------
partnership, or permit Holdings or any of its Subsidiaries to do so, other than
any Subsidiary of the Borrower the sole assets of which consist of its interest
in such a partnership.
(R) TRANSACTIONS WITH AFFILIATES. Enter into any transaction,
----------------------------
including, without limitation, any purchase, sale, lease or exchange of property
or the rendering of any service, with any Affiliate unless such transaction is
(i) otherwise permitted under this Agreement, (ii) in the ordinary course of the
applicable Loan Party's business and (iii) upon fair and reasonable terms no
less favorable to any Loan Party than it would obtain in a comparable arm's
length transaction with a Person that is not an Affiliate; provided that, (x)
-------- ----
each such transaction involving consideration to either party in excess of
$1,000,000, is disclosed in advance to the Administrative Agent and,
concurrently with such disclosure, the Borrower delivers to the Administrative
Agent an Officer's Certificate addressed and delivered to the Administrative
Agent and the Lenders certifying that such affiliate transaction has been
approved by a majority of the members of the Board of Directors of the Borrower
that are disinterested in such transaction, if any, (y) each such transaction
involving consideration to either party in excess of $5,000,000, shall in
addition require that the Borrower, prior to the consummation thereof, obtain
and provide to the Administrative Agent and the Lenders a written favorable
opinion as to the fairness of such transaction to the Borrower 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, and (z) all such transactions existing as of the date hereof are
described on Schedule 6.02(r). Notwithstanding the foregoing:
(i) nothing contained in this Section 6.02(r) shall be deemed to
prohibit any Exempted Affiliate Transaction except that, notwithstanding
any contrary provision hereof, no payment of fees under any Genstar
Agreement may be made by any Loan Party if a Default has occurred and is
continuing; and
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(ii) Debt payable by Holdings to Domtar Industries Inc. under the
Domtar Note may be set off against Domtar's liabilities to Panolam Canada
under the Asset Purchase Agreement dated February 15, 1996 between Panolam
Canada and Domtar, as amended.
(S) EXCLUDED MELAMINE SUBS. Any contrary provision of this Agreement
----------------------
or any other Loan Document notwithstanding, the Borrower shall not and shall not
permit Holdings or any of its Subsidiaries to (i) sell, contribute or otherwise
transfer any assets to or for the benefit of either of the Excluded Melamine
Subs or (ii) permit either of the Excluded Melamine Subs to have any assets or
liabilities (other than liabilities required by law in connection with the
maintenance of its corporate existence) or to engage in any business activities.
SECTION 6.03. REPORTING REQUIREMENTS.
----------------------
So long as any Loan or Unreimbursed Letter of Credit Liability shall
remain unpaid, any Letter of Credit shall be outstanding or any Lender shall
have any Commitment hereunder, the Borrower will, unless the Required Lenders
shall otherwise consent in writing, furnish to the Administrative Agent and the
Lenders:
(A) DEFAULT NOTICE. As soon as possible and in any event within two
--------------
days after the actual knowledge of the occurrence of each Default continuing on
the date of such statement, a statement of the Chief Financial Officer of the
Borrower setting forth details of such Default and the action that the Borrower
has taken and proposes to take with respect thereto.
(B) MONTHLY FINANCIALS. As soon as available and in any event within
------------------
45 days after the end of each Fiscal Month, financial information regarding the
Borrower and its Subsidiaries, certified by the Chief Financial Officer of the
Borrower (or, if the Borrower does not have a Chief Financial Officer, its
Treasurer or Director of Finance), consisting of Consolidated and consolidating
(i) unaudited balance sheets as of the close of such Fiscal Month and the
related statements of income and cash flow for that portion of the Fiscal Year
ending as of the close of such Fiscal Month and (ii) unaudited statements of
income and cash flows for such Fiscal Month, setting forth in comparative form
the figures for the corresponding period in the prior year for such Fiscal Year,
all prepared in accordance with GAAP (subject to normal year-end adjustments and
except for the Projections). Such financial information shall be accompanied by
a Compliance Certificate, which shall include a certification that such
financial information presents fairly in accordance with GAAP (subject to normal
year-end adjustments) the financial position and results of operations of the
Borrower and its Subsidiaries, on a Consolidated and consolidating basis, in
each case as at the end of such month and for the period then ended.
(C) QUARTERLY FINANCIALS. As soon as available and in any event
--------------------
within 45 days after the end of each of the first three quarters of each Fiscal
Year of the Borrower: (i) Consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries as of the end of such quarter and Consolidated and
consolidating statements of income and cash flows of the Borrower and its
Subsidiaries for the period commencing at the end of the previous Fiscal Year
and ending with the end of such quarter, setting forth in each case in
comparative form the
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corresponding figures for the corresponding period of the preceding Fiscal Year,
all in reasonable detail; (ii) a Quarterly Compliance Certificate; (iii) a
summary of the outstanding balance of all Intercompany Notes as of the last day
of that fiscal quarter; and (iv) an accounts payable report for the Borrower and
each of its Subsidiaries setting out the aging of their respective total
outstanding balances of accounts payable as of the end of such fiscal quarter.
(D) ANNUAL FINANCIALS. As soon as available and in any event within
-----------------
(i) 90 days after the Closing Date, audited financial statements for the
Borrower and its Subsidiaries and for Pioneer, on a Consolidated and
consolidating basis (as applicable, and recognizing that the consolidating
financial statements will not be audited), consisting of balance sheets as at
December 31, 1998 and the related statements of operations, income,
stockholders' equity and cash flows and (ii) 90 days after the end of each
Fiscal Year (commencing with the 1999 Fiscal Year), audited financial statements
for the Borrower and its Subsidiaries on a Consolidated and consolidating basis
(recognizing that the consolidating financial statements will not be audited),
consisting of balance sheets and statements of operations, income, stockholders'
equity and cash flows, setting forth in comparative form in each case the
figures for the previous Fiscal Year, which financial statements referred to in
clauses (i) and (ii) shall be prepared in accordance with GAAP, certified
without qualification, by an independent certified public accounting firm of
national standing or otherwise acceptable to the Administrative Agent. The
financial statements required by clause (ii) above shall be accompanied by (A) a
Quarterly Compliance Certificate, (ii) a letter from such accounting firm to the
effect that, in connection with their audit examination, nothing has come to
their attention during such audit examination to cause them to believe that a
Default or Event of Default has occurred (or specifying those Defaults and
Events of Default that they became aware of), it being understood that such
audit examination extended only to accounting matters and that no special
investigation was made with respect to the existence of Defaults or Events of
Default, provided that such letter can be obtained without any additional cost
to any Loan Party, and (iii) the annual letters to such accountants (to the
extent not subject to attorney-client privilege) in connection with their audit
examination detailing contingent liabilities and material litigation matters.
Requirements to provide audited financial information hereunder with respect to
the Borrower and its Subsidiaries on a Consolidated basis may be satisfied by
providing the same financial information for Holdings and its Subsidiaries on a
Consolidated basis so long as the requisite adjustments for such alternate
presentation are clearly shown therein in a manner satisfactory in form and
substance to the Administrative Agent and the Required Lenders.
(E) ANNUAL OPERATING PLAN. As soon as available and in any event no
---------------------
later than 60 days after the end of each Fiscal Year (except that this Section
6.03(e) shall not be applicable following the consummation of an Initial Public
Equity Offering), an annual operating plan for the Borrower and its
Subsidiaries, approved by the Board of Directors of the Borrower, for the
following year, which will include a statement of all of the material
assumptions on which such plan is based, will include monthly balance sheets and
a monthly budget for the following year and will integrate sales, gross profits,
operating expenses, operating profit, cash flow forecasts and Borrowing
availability forecasts, all prepared on a Consolidated and business unit basis
and in similar detail as that on which operating results are reported (and in
the case of cash flow forecasts, representing management's good faith estimates
of future financial performance
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based on historical performance), and including plans for personnel, Capital
Expenditures and facilities.
(F) ERISA EVENTS. Promptly and in any event within 30 days after any
------------
Loan Party or any of its ERISA Affiliates knows or has reason to know that any
ERISA Event with respect to any Loan Party or any of its ERISA Affiliates has
occurred, a statement of the Chief Financial Officer of the Borrower describing
such ERISA Event and the action, if any, that such Loan Party or such ERISA
Affiliate has taken and proposes to take with respect thereto; provided that no
notice shall be required under this Section 6.03(f) for any ERISA Event unless
such ERISA Event has resulted in or is reasonably likely to result in liability
of any Loan Party in excess, either individually or in the aggregate with all
other ERISA Events which have occurred or are reasonably expected to occur, of
$2,000,000.
(G) PLAN TERMINATIONS. Promptly and in any event within ten Business
-----------------
Days after receipt thereof by any Loan Party or any of its ERISA Affiliates,
copies of each notice from the PBGC stating its intention to terminate any Plan
of any Loan Party or any of its ERISA Affiliates or to have a trustee appointed
to administer any such Plan, provided that, with respect to the Plan of an ERISA
Affiliate that is not a Loan Party, such notice shall not be required if it is
reasonably anticipated that such action will not result in liability of a Loan
Party in excess of $2,000,000.
(H) PLAN ANNUAL REPORTS. Promptly and in any event within 30 days
-------------------
after the filing thereof with the Internal Revenue Service, copies of each
Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with
respect to (i) each Plan of each Loan Party and (ii) each Plan of each ERISA
Affiliate that is not a Loan Party if such Plan has an Insufficiency in excess
of $2,000,000.
(I) MULTIEMPLOYER PLAN NOTICES. Promptly and in any event within ten
--------------------------
Business Days after receipt thereof by any Loan Party or any of its ERISA
Affiliates from the sponsor of a Multiemployer Plan of any Loan Party or any of
its ERISA Affiliates, copies of each notice concerning (i) the imposition of
Withdrawal Liability in excess of $1,000,000 by any such Multiemployer Plan,
(ii) the reorganization or termination, within the meaning of Title IV of ERISA,
of any such Multiemployer Plan or (iii) the amount of liability incurred, or
that may be incurred, by such Loan Party or any of its ERISA Affiliates in
connection with any event described in clause (i) or (ii) if such amount exceeds
$1,000,000; provided that with respect to any notice received by an ERISA
-------- ----
Affiliate that is not a Loan Party it is reasonably anticipated that such action
may result in liability of a Loan Party in excess of $2,000,000.
(J) LITIGATION. Promptly after learning of the commencement thereof,
----------
notice of all actions, suits, investigations, litigation and proceedings before
any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting any Loan Party of the type
described in Section 5.01(h), and promptly after the occurrence thereof, notice
of any adverse change in the status or the financial effect on any Loan Party of
any litigation required to be disclosed under this Section 6.03(j).
(K) SECURITIES REPORTS. Promptly after the sending or filing thereof,
------------------
copies of
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<PAGE>
all (i) proxy statements, financial statements and reports that any Loan Party
sends to its stockholders, and (ii) regular, periodic and special reports, and
all registration statements, that any Loan Party files with the Securities and
Exchange Commission or any governmental authority that may be substituted
therefor, or with any national securities exchange.
(L) CREDITOR REPORTS. Promptly after the furnishing thereof, copies
----------------
of any statement or report furnished to any other holder of the securities of
any Loan Party pursuant to the terms of any indenture, loan or credit or similar
agreement and not otherwise required to be furnished to the Lenders pursuant to
any other clause of this Section 6.03.
(M) AGREEMENT NOTICES. Promptly upon receipt thereof, copies of all
-----------------
default and other material notices, requests and other documents received by any
Loan Party under or pursuant to any Related Document or Material Contract and,
from time to time upon request by the Administrative Agent, such information and
reports regarding the Related Documents and the Material Contracts as the
Administrative Agent may reasonably request.
(N) ENVIRONMENTAL CONDITIONS. Promptly after the occurrence thereof,
------------------------
notice of any condition or occurrence on any property of any Loan Party that
results in a material noncompliance by any Loan Party with any Environmental Law
or Environmental Permit or could (i) form the basis of an Environmental Action
against any Loan Party or such property that could have a Material Adverse
Effect or (ii) cause any such property to be subject to any material
restrictions on ownership, occupancy, use or transferability under any
Environmental Law; provided that notices need be given for any condition set
forth on Schedule 5.01(l)(i), 5.01(l)(ii) or 5.01(l)(iii) only to the extent
that such condition has materially or adversely changed.
(O) COLLATERAL REPORTS. From and after the Closing Date and until the
------------------
last to occur of (i) the Revolving Commitment Termination Date, (ii) the Term A
Termination Date and (iii) the Term B Termination Date, deliver to the
Administrative Agent and/or the Lenders, as required, the various Collateral
Reports (including Borrowing Base Certificates) at the times, to the Persons and
in the manner set forth in Schedule II.
(P) OTHER INFORMATION. Such other information respecting the
-----------------
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Loan Party as the Administrative Agent or any
Lender through the Administrative Agent may from time to time reasonably
request.
SECTION 6.04. FINANCIAL COVENANTS. So long as any Loan or Unreimbursed
-------------------
Letter of Credit Liability shall remain unpaid, any Letter of Credit shall be
outstanding or any Lender shall have any Commitment hereunder, unless the
Required Lenders otherwise consent in writing:
(A) MAXIMUM CONSOLIDATED LEVERAGE RATIO. At all times from and after
-----------------------------------
the Closing Date, the Borrower shall maintain a Consolidated Leverage Ratio for
the Borrower and its Subsidiaries below the levels specified for the periods
indicated, which ratio shall be tested as of the last day of each fiscal quarter
ending during any period indicated below (commencing June 30, 1999):
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<PAGE>
<TABLE>
<CAPTION>
MAXIMUM CONSOLIDATED
PERIOD LEVERAGE RATIO
----------- --------------------
<S> <C>
Closing Date through and including September 30, 1999 5.00:1.0
October 1, 1999 through and including December 31, 1999 4.80:1.0
January 1, 2000 through and including March 31, 2000 4.65:1.0
April 1, 2000 through and including June 30, 2000 4.50:1.0
July 1, 2000 through and including September 30, 2000 4.35:1.0
October 1, 2000 through and including December 31, 2000 4.15:1.0
January 1, 2001 through and including March 31, 2001 4.00:1.0
April 1, 2001 through and including June 30, 2001 3.85:1.0
July 1, 2001 through and including September 30, 2001 3.70:1.0
October 1, 2001 through and including September 30, 2002 3.50:1.0
October 1, 2002 through and including September 30, 2003 3.25:1.0
October 1, 2003 and thereafter 3.00:1.0
</TABLE>
(B) MINIMUM FIXED CHARGE COVERAGE RATIO. At all times from and after
-----------------------------------
the Closing Date, the Borrower shall maintain a ratio of (i) Consolidated EBITDA
of the Borrower and its Subsidiaries for the four fiscal quarter period ending
on the last day of the applicable fiscal quarter to (ii) Consolidated Fixed
Charges for such period, above the levels specified for the periods indicated,
which ratio shall be tested as of the last day of each fiscal quarter ending
during any period indicated below (commencing June 30, 1999):
<TABLE>
<CAPTION>
MINIMUM FIXED CHARGE COVERAGE
PERIOD RATIO
-------------- -----------------------------
<S> <C>
Closing Date through and including December 31, 1999 1.000:1.0
January 1, 2000 through and including March 31, 2000 1.025:1.0
April 1, 2000 through and including June 30, 2000 1.050:1.0
July 1, 2000 through and including September 30, 2000 1.075:1.0
October 1, 2000 through and including December 31, 2001 1.100:1.0
January 1, 2002 and thereafter 1.150:1.0
</TABLE>
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<PAGE>
(C) MINIMUM INTEREST COVERAGE RATIO. At all times from and after the
-------------------------------
Closing Date, the Borrower shall maintain a ratio of (i) Consolidated EBITDA of
the Borrower and its Subsidiaries for the four fiscal quarter period ending on
the last day of the applicable fiscal quarter to (ii) Consolidated Interest
Expense, above the levels specified for the periods indicated, which ratio shall
be tested as of the last day of each fiscal quarter ending during any period
indicated below (commencing June 30, 1999):
<TABLE>
<CAPTION>
MINIMUM INTEREST
PERIOD COVERAGE RATIO
------------- ------------------
<S> <C>
Closing Date through and including September 30, 1999 1.90:1.0
October 1, 1999 through and including March 31, 2000 2.00:1.0
April 1, 2000 through and including June 30, 2000 2.10:1.0
July 1, 2000 through and including September 30, 2000 2.20:1.0
October 1, 2000 through and including March 31, 2001 2.25:1.0
April 1, 2001 through and including June 30, 2001 2.35:1.0
July 1, 2001 through and including September 30, 2001 2.45:1.0
October 1, 2001 through and including September 30, 2002 2.50:1.0
October 1, 2002 through and including September 30, 2003 2.75:1.0
October 1, 2003 and thereafter 3.00:1.0
</TABLE>
(D) CAPITAL EXPENDITURES. The Borrower and its Subsidiaries shall not
--------------------
make any Capital Expenditures that would cause the aggregate amount of all
Capital Expenditures made by the Borrower and its Subsidiaries (including, with
respect to Pioneer (and each other Loan Party), any Capital Expenditures made on
or after January 1, 1999 but excluding any Capital Expenditures consisting of
purchases or trade-ins of replacement assets pursuant to Section 6.02(e)(i) to
the extent of the proceeds received on the asset sold or traded) in any Fiscal
Year set forth below to exceed the amount set forth below for such period (the
"BASE AMOUNT") plus up to 50% of the unused Base Amount of Capital Expenditures,
----------- ----
if any, from the prior Fiscal Year:
BASE AMOUNT OF
FISCAL YEAR MAXIMUM CAPITAL EXPENDITURES
----------- ----------------------------
1999 $23,000,000
2000 16,000,000
2001 and thereafter 12,000,000
(e) Minimum Consolidated EBITDA. At all times from and after June 30,
---------------------------
1999, the Borrower and its Domestic Subsidiaries shall not permit Consolidated
EBITDA for any period of four consecutive fiscal quarters ending on or after
June 30, 1999 to be less than $20,000,000.
ARTICLE VII.
EVENTS OF DEFAULT
SECTION 7.01. EVENTS OF DEFAULT. If any of the following events
-----------------
("EVENTS OF DEFAULT") shall occur and be continuing:
-------------------
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<PAGE>
(a) (i) the Borrower shall fail to pay any principal of any Loan when
the same becomes due and payable, or (ii) the Borrower shall fail to pay
any interest on any Loan within three Business Days after the same becomes
due and payable, or (iii) any Credit Party shall fail to make any other
payment under any Loan Document within three Business Days after the same
becomes due and payable; or
(b) any representation or warranty made by any Loan Party (or any of
its officers) under or in connection with any Loan Document shall prove to
have been materially incorrect in any respect when made; or
(c) the Borrower shall fail to perform or observe any term, covenant
or agreement contained in Section 6.01(e), (f), or (o), 6.02, 6.03 (other
than 6.03(h)) or 6.04; or
(d) any Loan Party shall fail to perform any other term, covenant or
agreement contained in any Loan Document on its part to be performed or
observed if such failure shall remain unremedied for 15 days after written
notice thereof shall have been given to the Borrower by the Administrative
Agent or any Lender Party; or
(e) any Loan Party shall fail to pay any principal of, premium or
interest on or any other amount payable in respect of any Debt of such Loan
Party that is outstanding in a principal amount of at least $2,000,000 in
the aggregate (but excluding the Domtar Note and Debt outstanding
hereunder) when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and such
failure shall continue after the applicable grace period, if any, specified
in the agreement or instrument relating to such Debt; or any other event
shall occur or condition shall exist under any agreement or instrument
relating to any such Debt and shall continue after the applicable grace
period, if any, specified in such agreement or instrument, if the effect of
such event or condition is to accelerate, or to permit the acceleration of,
the maturity of such Debt or otherwise to cause, or to permit the holder
thereof to cause, such Debt to mature; or any such Debt shall be declared
to be due and payable or required to be prepaid or redeemed (other than by
a regularly scheduled required prepayment or redemption), purchased or
defeased, or an offer to prepay, redeem, purchase or defease such Debt
shall be required to be made, in each case prior to the stated maturity
thereof; or
(f) any Event of Default (as such term is defined in the Canadian
Credit Agreement) shall occur and be continuing (and has not been waived)
under the Canadian Credit Agreement; or
(g) any Loan Party shall generally not pay its debts as such debts
become due, or shall otherwise become insolvent, or shall admit in writing
its inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any proceeding shall be
instituted by or against any Loan Party seeking to adjudicate it a bankrupt
or insolvent, or seeking liquidation, winding up, dissolution, suspension
of general operations, reorganization, arrangement, adjustment, protection,
relief, or
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<PAGE>
composition of or stay of enforcement against it or its debts
under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, interim receiver, receiver and manager, trustee,
or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against it (but
not instituted by it) that is being diligently contested by it in good
faith, either such proceeding shall remain undismissed or unstayed for a
period of 30 days or any of the actions sought in such proceeding
(including, without limitation, the entry of an order for relief against,
or the appointment of a receiver, interim receiver, receiver and manager,
trustee, custodian or other similar official for, it or any substantial
part of its property) shall occur; or any Loan Party shall take any
corporate action to authorize any of the actions set forth above in this
subsection (g); or
(h) any judgment or order for the payment of money in excess of
$2,000,000 shall be rendered against any Loan Party and either (i)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order or (ii) there shall be any period of 10 consecutive days
during which a stay of enforcement of such judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect; or
(i) any final non-monetary and non-appealable judgment or order shall
be rendered against any Loan Party that could reasonably be expected to
have a Material Adverse Effect; or
(j) any provision of any Loan Document after delivery thereof
pursuant to Section 4.01 shall for any reason cease to be valid and binding
on or enforceable against any Loan Party party to it, or any such Loan
Party shall so state in writing; or
(k) any Collateral Document after delivery thereof pursuant to
Section 4.01 shall for any reason (other than pursuant to the terms
thereof) cease to create a valid and perfected first priority Lien on the
Collateral, purported to be covered thereby or otherwise become materially
impaired; or
(l) any ERISA Event shall have occurred with respect to a Plan of any
Loan Party or any of its ERISA Affiliates and the liability of the Loan
Parties with respect to such ERISA Event exceeds or could reasonably be
expected to exceed, either individually or in the aggregate with the
liability of the Loan Parties for all other ERISA Events which have
occurred or are reasonably expected to occur, $2,000,000; or
(m) any Loan Party or any of its ERISA Affiliates shall have been
notified by the sponsor of a Multiemployer Plan of any Loan Party or any of
its ERISA Affiliates that it has incurred Withdrawal Liability to such
Multiemployer Plan which would, either individually or in the aggregate
with other payments of Withdrawal Liability by the Loan Parties with
respect to all Multiemployer Plans, increase the amounts contributed by the
Loan Parties to such Multiemployer Plans for the plan years of such
Multiemployer Plans immediately preceding the plan year in which such
Withdrawal Liability is incurred by an amount exceeding $1,000,000; or
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<PAGE>
(n) any Loan Party or any of its ERISA Affiliates shall have been
notified by the sponsor of a Multiemployer Plan of any Loan Party or any of
its ERISA Affiliates that such Multiemployer Plan is in reorganization or
is being terminated, within the meaning of Title IV of ERISA, and as a
result of such reorganization or termination the aggregate annual
contributions of the Loan Parties to all Multiemployer Plans that are then
in reorganization or being terminated have been or will be increased over
the amounts contributed by the Loan Parties to such Multiemployer Plans for
the plan years of such Multiemployer Plans immediately preceding the plan
year in which such reorganization or termination occurs by an amount
exceeding $1,000,000; or
(o) a Change of Control shall have occurred; or
(p) any Guarantor shall fail to comply with the provisions of Section 7(b)
of the Guaranty;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Required Lenders, by notice to the Borrower,
declare the obligation of each Appropriate Lender to make Loans and of any
Issuing Bank to issue Letters of Credit to be terminated, whereupon the same
shall forthwith terminate, and (ii) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the Loans,
all interest thereon and all other amounts payable under this Agreement and the
other Loan Documents to be forthwith due and payable, whereupon the Loans, all
such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower; provided, however, that in
-------- -------
the event of an actual or deemed entry of an order for relief with respect to
any Loan Party under the United States Bankruptcy Code, (x) the obligation of
each Lender to make Loans and of each Issuing Bank to issue Letters of Credit
shall automatically be terminated and (y) the Loans, all such interest and all
such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower.
SECTION 7.02. ACTIONS IN RESPECT OF THE LETTERS OF CREDIT UPON
------------------------------------------------
DEFAULT. If any Event of Default shall have occurred and be continuing, the
- -------
Administrative Agent shall at the request, or may with the consent of the
Required Lenders, irrespective of whether it is taking any of the actions
described in Section 7.01 or otherwise, make demand upon the Borrower to, and
forthwith upon such demand the Borrower will, pay to the Administrative Agent
for the benefit of the Lender Parties in same day funds at the Administrative
Agent's office designated in such demand, for deposit in the Letter of Credit
Cash Collateral Account an amount equal to the total Letter of Credit Usage then
outstanding (and the Borrower hereby grants to the Administrative Agent, for the
ratable benefit of the Administrative Agent and each Lender Party, a continuing
security interest in all amounts at any time on deposit in the Letter of Credit
Cash Collateral Account to secure all Letter of Credit Obligations from time to
time outstanding). If at any time the Administrative Agent determines that any
funds held in the Letter of Credit Cash Collateral Account are subject to any
right or claim of any Person other than the Administrative Agent and the Lender
Parties or that the total amount of such funds is less than the total Letter of
Credit
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<PAGE>
Usage, the Borrower will, forthwith upon demand by the Administrative Agent, pay
to the Administrative Agent, as additional funds to be deposited and held in the
Letter of Credit Cash Collateral Account, an amount equal to the excess of (a)
such Letter of Credit Usage over (b) the total amount of funds, if any, then
held in the Letter of Credit Cash Collateral Account that the Administrative
Agent determines to be free and clear of any such right and claim.
ARTICLE VIII.
THE ADMINISTRATIVE AGENT
SECTION 8.01. AUTHORIZATION AND ACTION. Each Lender Party hereby
------------------------
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers and discretion under this Agreement and
the other Loan Documents as are delegated to the Administrative Agent by the
terms hereof and thereof, together with such powers and discretion as are
reasonably incidental thereto, including, without limitation, to execute and
enter into on behalf of the Lender Parties the Intercreditor Agreement and the
Collateral Documents (and each Lender Party hereby agrees to be bound by the
terms of such Intercreditor Agreement and Collateral Documents). As to any
matters not expressly provided for by the Loan Documents (including, without
limitation, enforcement or collection of the Notes, if any), the Administrative
Agent shall not be required to exercise any discretion or take any action, but
shall be required to act or to refrain from acting (and shall be fully protected
in so acting or refraining from acting) upon the instructions of the Required
Lenders or such other number of Lender Parties as may be expressly required by
any Loan Document, and such instructions shall be binding upon all Lender
Parties and all holders of Notes, if any; provided, however, that the
-------- -------
Administrative Agent shall not be required to take any action that exposes the
Administrative Agent to personal liability or that is contrary to this Agreement
or applicable law. The Administrative Agent agrees to give to each Lender prompt
notice of each notice given to it by the Borrower pursuant to the terms of this
Agreement.
SECTION 8.02. ADMINISTRATIVE AGENT'S RELIANCE, ETC. Neither the
------------------------------------
Administrative Agent nor any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with the Loan Documents, except for its or their own gross
negligence or willful misconduct. Without limitation of the generality of the
foregoing, the Administrative Agent: (i) may treat the payee of any Note as the
holder thereof until the Administrative Agent receives and accepts an Assignment
and Acceptance entered into by the Lender that is the payee of such Note, as
assignor, and an Eligible Assignee, as assignee, as provided in Section 9.07;
(ii) may consult with legal counsel (including counsel for any Loan Party),
independent public accountants and other experts selected by it and shall not be
liable for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such counsel, accountants or experts; (iii) makes
no warranty or representation to any Lender Party and shall not be responsible
to any Lender Party for any statements, warranties or representations made in or
in connection with the Loan Documents; (iv) shall not have any duty to ascertain
or to inquire as to the performance or observance of any of the terms, covenants
or conditions of any Loan Document on the part of any Loan Party or to inspect
the property (including the books and records) of any Loan Party; (v) shall not
be responsible to any Lender for the due execution, legality, validity,
enforceability,
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<PAGE>
genuineness, sufficiency or value of any Loan Document or any other instrument
or document furnished pursuant hereto; (vi) shall incur no liability under or in
respect of any Loan Document by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telegram, telecopy, cable or telex)
believed by it to be genuine and signed or sent by the proper party or parties;
and (vii) shall incur no liability as a result of any determination whether the
transactions contemplated by the Loan Documents constitute a "highly leveraged
transaction" within the meaning of the interpretations issued by the Comptroller
of the Currency, the Federal Deposit Insurance Corporation and the Board of
Governors of the Federal Reserve System.
SECTION 8.03. AGENTS AND AFFILIATES. With respect to its Commitments
---------------------
and the Loans made by it, any Letters of Credit Issued by it and any Notes
issued to it, each Agent shall have the same rights and powers under the Loan
Documents as any other Lender Party and may exercise the same as though it were
not an Agent; and the terms "Lender" or "Lenders" and "Lender Party" or "Lender
Parties" shall, unless otherwise expressly indicated, include each Agent in its
individual capacity. Each Agent and its affiliates may accept deposits from,
lend money to, act as trustee under indentures of, accept investment banking
engagements from and generally engage in any kind of business with, any Loan
Party, any of its Subsidiaries and any Person who may do business with or own
securities of any Loan Party or any such Subsidiary, all as if such Agent were
not an Agent and without any duty to account therefor to the Lender Parties.
SECTION 8.04. LENDER CREDIT DECISION. Each Lender acknowledges that it
----------------------
has, independently and without reliance upon any Agent or any other Lender and
based on the financial statements referred to in Section 4.01 and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon any Agent or
any other Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.
SECTION 8.05. INDEMNIFICATION. Each Lender severally agrees to
---------------
indemnify the Agents and the Lead Arranger (to the extent not promptly
reimbursed by the Borrower) from and against such Lender's ratable share of any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever that may be imposed on, incurred by, or asserted against such Agents
or the Lead Arranger or any of them in any way relating to or arising out of the
Loan Documents or any action taken or omitted by the Agents or the Lead Arranger
or any of them under the Loan Documents; provided, however, that no Lender shall
-------- -------
be liable to any such Person for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from such Person's gross negligence or willful
misconduct. Without limitation of the foregoing, each Lender agrees to reimburse
the applicable Agent or Lead Arranger, as the case may be, promptly upon demand
for its ratable share of any costs and expenses payable by the Borrower under
Section 9.04, to the extent that such Agent or the Lead Arranger, as the case
may be, is not promptly reimbursed for such costs and expenses by the Borrower.
For purposes of this Section 8.05, the Lenders' respective ratable shares of any
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<PAGE>
amount shall be determined, at any time, according to the sum of (a) the
aggregate principal amount of the Loans (other than unreimbursed Letter of
Credit Drawings) outstanding at such time and owing to the respective Lenders,
(b) their respective Revolving Pro Rata Shares of the aggregate Letter of Credit
Obligations outstanding at such time, plus (c) their respective Unused Revolving
----
Commitments at such time. In the event that any defaulted Loan shall be owing by
any Defaulting Lender at any time, such Lender's Commitment with respect to the
Facility under which such defaulted Loan was required to have been made shall be
considered to be unused for purposes of this Section 8.05 to the extent of the
amount of such defaulted Loan. The failure of any Lender to reimburse the
Administrative Agent promptly upon demand for its ratable share of any amount
required to be paid by the Lenders to the Agent or the Lead Arranger, as the
case may be, as provided herein shall not relieve any other Lender of its
obligation hereunder to reimburse any Agent or the Lead Arranger, as the case
may be, for its ratable share of such amount, but no Lender shall be responsible
for the failure of any other Lender to reimburse the Administrative Agent, the
Lead Arranger or the Syndication Agent, as the case may be, for such other
Lender's ratable share of such amount.
SECTION 8.06. SUCCESSOR ADMINISTRATIVE AGENTS. The Administrative
-------------------------------
Agent may resign at any time by giving written notice thereof to the Lender
Parties and the Borrower and may be removed at any time with or without cause by
the Required Lenders. Upon any such resignation or removal, the Required Lenders
shall have the right to appoint a successor Administrative Agent. If no
successor Administrative Agent shall have been so appointed by the Required
Lenders, and shall have accepted such appointment, within 30 days after the
retiring Administrative Agent's giving of notice of resignation or the Required
Lenders' removal of the retiring Administrative Agent, then the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, which shall be a commercial bank having a combined capital
and surplus of at least $250,000,000. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative Agent and upon the
execution and filing or recording of such financing statements, or amendments
thereto, and such amendments or supplements to the Mortgages, and such other
instruments or notices, as may be necessary or desirable, or as the Required
Lenders may request, in order to continue the perfection of the Liens granted or
purported to be granted by the Collateral Documents, such successor
Administrative Agent shall succeed to and become vested with all the rights,
powers, discretion, privileges and duties of the retiring Administrative Agent,
and the retiring Administrative Agent shall be discharged from its duties and
obligations under the Loan Documents. After any retiring Administrative Agent's
resignation or removal hereunder as Administrative Agent, the provisions of this
Article VIII shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent under this Agreement. The fees
payable by the Borrower to a successor Administrative Agent shall be the same as
those payable to its predecessor unless otherwise agreed upon between the
Borrower and such successor.
SECTION 8.07. DOCUMENTATION AGENT. Notwithstanding anything herein to
-------------------
the contrary, the Documentation Agent has no rights or obligations in such
capacity under any of the Loan Documents.
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SECTION 8.08. MINISTERIAL ACTS. The duties of the Administrative Agent
----------------
and the Syndication Agent shall be ministerial and administrative in nature, and
the Administrative Agent and the Syndication Agent shall not have, by reason of
this Agreement or any of the other Loan Documents, a fiduciary relationship with
any Lender Party (or any participant, Affiliate, Approved Fund or SPV of any
Lender Party).
ARTICLE IX.
MISCELLANEOUS
SECTION 9.01. AMENDMENTS, ETC.; RELEASE OF COLLATERAL. (a) Except as
---------------------------------------
otherwise provided in the Intercreditor Agreement, no amendment or waiver of any
provision of this Agreement, any Notes or any other Loan Document, nor consent
to any departure by the Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed by the Required Lenders (and, in
the case of any such amendment, the Borrower), and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that notwithstanding the foregoing or any
-------- -------
contrary provision of the Intercreditor Agreement, (i) no amendment, waiver or
consent shall, unless in writing and signed by all the Lenders (other than any
Lender which is, at such time, a Defaulting Lender), do any of the following at
any time: (A) change the percentage of the Commitments or of the aggregate
unpaid principal amount of any Loans or Notes, or the number of Lenders, that
shall be required for the Lenders or any of them to take any action hereunder or
under the Intercreditor Agreement, or change the definition of Required Lenders
or Supermajority Lenders, or (B) amend this Section 9.01, or (C) release all or
substantially all of the Collateral or (D) release any Guarantor from its
obligations under the Guaranty, (ii) no amendment, waiver or consent shall,
unless in writing and signed by the Required Lenders and each Lender that has an
outstanding Loan or Commitment under the Facility affected by such amendment,
waiver or consent, (A) increase the Commitments of such Lender or subject such
Lender to any additional obligations, (B) reduce the principal of, or interest
on, any Loans made or Notes held by such Lender or any fees or other amounts
payable hereunder to such Lender or (C) postpone any date fixed for any payment
of principal of, or interest on, any Loans made or Notes held by such Lender or
any fees or other amounts payable hereunder to such Lender, (iii) no amendment,
waiver or consent shall, unless in writing and signed by the Supermajority
Lenders, increase the advance rate percentages set forth in the definition of
the Borrowing Base Amount or make less restrictive the definition of Eligible
Receivables or Eligible Inventory, and (iv) no amendment, waiver or consent
shall, unless in writing and signed by the Supermajority Lenders and each Lender
that has an outstanding Loan or Commitment under the Facility affected by such
amendment, waiver or consent, change the order of application of any prepayment
set forth in Section 2.04 in any manner that materially affects such Lender (it
being expressly understood that other provisions of Section 2.04, including
those providing for and requiring prepayments, may be waived or amended by the
Supermajority Lenders); provided further that no amendment, waiver or consent
-------- -------
shall, unless in writing and signed by the Swing Line Lender or each Issuing
Bank, as the case may be, in addition to the Lenders required above to take such
action, affect the rights or obligations of the Swing Line Lenders or of the
Issuing Banks, as the case may be, under this Agreement; and provided further
-------- -------
that no amendment, waiver or consent shall, unless in writing and signed by the
Administrative Agent in addition to the Lenders required above to
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<PAGE>
take such action, affect the rights or duties of the Administrative Agent under
this Agreement or any Note.
(b) So long as no Default under Section 7.01(a) or 7.01(g) and no
Event of Default has occurred and is continuing: upon the request of the
Borrower, and without the consent of the Lenders or the Required Lenders, the
Administrative Agent is authorized to (i) release from the Lien of any
Collateral Document any item or items of Collateral comprising less than all or
substantially all of the Collateral at the time of such release (and, if such
Collateral consists of all of the Borrower's or any of its Subsidiaries'
interest in any Guarantor, to simultaneously release such Guarantor from its
obligations under the Guaranty and the Collateral Documents) and (ii) execute
any documents or instruments reasonably requested by the Borrower (as determined
by the Administrative Agent) in connection therewith, but in each case only if
(x) such release is requested in conjunction with the consummation of any sale
or other disposition of such Collateral by the Borrower or any of its
Subsidiaries (or the creation of any Lien) that is not prohibited by this
Agreement, and (y) the Borrower has delivered to the Administrative Agent an
Officer's Certificate certifying that no Default under Section 7.01(a) or
7.01(g) or Event of Default has occurred and is continuing and that such sale or
other disposition (or such creation of a Lien) is not prohibited by this
Agreement.
SECTION 9.02. NOTICES, ETC. Except as otherwise expressly provided
------------
herein, all notices and other communications provided for hereunder shall be in
writing (including telegraphic, telecopy, telex or cable communication) and
mailed, telegraphed, telecopied, telexed, cabled or delivered as follows:
<TABLE>
<CAPTION>
<S> <C>
If to the Borrower: Panolam Industries International, Inc.
20 Progress Drive
Shelton, CT 06484
Attention: President
Telecopier: (203) 225-0051
If to any Initial Lender: At its address for notices specified on
its signature page hereto, or if not so
specified, at its Domestic Lending Office
specified opposite its name on Schedule
I hereto
If to any other Lender: At its address for notices specified in the
Assignment and Acceptance pursuant to which
it became a Lender, or if an address for
notices is not specified, at its Domestic
Lending Office specified in such Assignment
and Acceptance
If to the Administrative Agent: Credit Suisse First Boston
11 Madison Avenue
New York, NY 10010
</TABLE>
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<PAGE>
Attention: Syndications Agency
Telecopier: (212) 325-8304
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other parties (or, in the case of any Lender, as
designated in a notice to the Borrower and the Administrative Agent). All such
notices and communications shall, when mailed, telegraphed, telecopied, telexed
or cabled, be effective when deposited in the mails, delivered to the telegraph
company, transmitted by telecopier, confirmed by telex answerback or delivered
to the cable company, respectively, except that notices and communications to
the Administrative Agent pursuant to Article II, III, IV or VIII shall not be
effective until received by the Administrative Agent.
SECTION 9.03. NO WAIVER, REMEDIES. No failure on the part of any
-------------------
Lender Party or the Administrative Agent to exercise, and no delay in
exercising, any right hereunder, under any Note or under any other Loan Document
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the exercise of
any other right. The remedies herein provided are cumulative and not exclusive
of any remedies provided by law.
SECTION 9.04. COSTS AND EXPENSES.
------------------
(a) The Borrower agrees to pay on demand (i) all reasonable costs and
expenses of the Administrative Agent, the Lead Arranger and the Syndication
Agent in connection with the preparation, execution, delivery,
administration, modification and amendment of the Loan Documents
(including, without limitation, (A) all due diligence, transportation,
computer, duplication, appraisal, audit, insurance, consultant, search,
filing and recording fees and expenses and (B) the reasonable fees and
expenses of counsel for the Administrative Agent, the Lead Arranger and the
Syndication Agent with respect thereto, with respect to advising the
Administrative Agent, the Lead Arranger and the Syndication Agent as to
their respective rights and responsibilities, or the perfection, protection
or preservation of rights or interests, under the Loan Documents, with
respect to negotiations with any Loan Party or with other creditors of any
Loan Party or any of its Subsidiaries arising out of any Default or any
events or circumstances that may give rise to a Default and with respect to
presenting claims in or otherwise participating in or monitoring any
bankruptcy, insolvency or other similar proceeding involving creditors'
rights generally and any proceeding ancillary thereto) and (ii) all costs
and expenses of the Administrative Agent, the Lead Arranger, the
Syndication Agent, each Lender and each Issuing Bank in connection with the
enforcement of the Loan Documents, whether in any action, suit or
litigation, any bankruptcy, insolvency or other similar proceeding
affecting creditors' rights generally or otherwise (including, without
limitation, the reasonable fees and expenses of counsel for the
Administrative Agent, the Lead Arranger, the Syndication Agent and each
Lender with respect thereto).
(b) The Borrower agrees to indemnify and hold harmless the
Administrative Agent, the Lead Arranger, the Syndication Agent, each
Lender, each Issuing Bank and
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each of their Affiliates and their officers, directors, employees, agents,
trustees, investment advisors and other advisors (each, an "INDEMNIFIED
-----------
PARTY") from and against any and all claims, damages, losses, liabilities
-----
and expenses (including, without limitation, reasonable fees and expenses
of counsel) that may be incurred by or asserted or awarded against any
Indemnified Party, in each case arising out of or in connection with or by
reason of, or in connection with the preparation for a defense of, any
investigation, litigation or proceeding arising out of, related to or in
connection with (i) this Agreement or any other Loan Document, the actual
or proposed use of the proceeds of any Loan or of any Letter of Credit
issued hereunder or any of the transactions contemplated hereby or by the
other Loan Documents, or (ii) any acquisition or proposed acquisition
(including, without limitation, the Pioneer Acquisition and any of the
other transactions contemplated hereby) by any Loan Party or any of their
respective Affiliates of all or any portion of the stock or substantially
all the assets of Holdings or any of its Subsidiaries or (iii) the actual
or alleged presence of Hazardous Materials on any property of any Loan
Party or any of its Subsidiaries or any Environmental Action relating in
any way to any Loan Party or any of its Subsidiaries, in each case whether
or not such investigation, litigation or proceeding is brought by any Loan
Party, its directors, shareholders or creditors or an Indemnified Party or
any Indemnified Party is otherwise a party thereto and whether or not the
transactions contemplated hereby are consummated, except to the extent such
claim, damage, loss, liability or expense is found in a final,
nonappealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party's gross negligence or willful
misconduct. The Borrower also agrees not to assert any claim against any
Agent, the Lead Arranger, any Lender Party, any of their respective
affiliates, or any of their respective directors, officers, employees,
attorneys and agents, on any theory of liability, for special, indirect,
consequential or punitive damages arising out of or otherwise relating to
any of the transactions contemplated herein or in any other Loan Document
or the actual or proposed use of the proceeds of the Loans or the Letters
of Credit.
(c) If any payment of principal of, or Conversion of, any Eurodollar
Rate Loan is made by the Borrower to or for the account of a Lender other
than on the last day of the Interest Period for such Loan, as a result of a
payment or conversion pursuant to Section 2.05, acceleration of the
maturity of any Loans pursuant to Section 7.01 or for any other reason, or
by an Eligible Assignee to a Lender other than on the last day of the
Interest Period for such Loan upon an assignment of rights and obligations
under this Agreement pursuant to Section 9.07 as a result of a demand by
the Borrower pursuant to Section 2.07(c), the Borrower shall, upon demand
by such Lender (with a copy of such demand to the Administrative Agent),
pay to the Administrative Agent for the account of such Lender any amounts
required to compensate such Lender for any additional losses, costs or
expenses that it may reasonably incur as a result of such payment,
including, without limitation, any loss, cost or expense incurred by reason
of the liquidation or reemployment of deposits or other funds acquired by
any Lender to fund or maintain such Loan.
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(d) If any Credit Party fails to pay when due any costs, expenses or
other amounts payable by it under any Loan Document, including, without
limitation, fees and expenses of counsel and indemnities, such amount may
be paid on behalf of such Credit Party by the Administrative Agent or any
Lender, in its sole discretion and the Borrower shall reimburse the
Administrative Agent or such Lender on demand for any amounts so paid with
interest thereon at the Default Rate from the date of such payment until so
reimbursed.
SECTION 9.05. RIGHT OF SET-OFF. Upon (a) the occurrence and during the
----------------
continuance of any Event of Default and (b) the making of the request or the
granting of the consent specified by Section 7.01 above to authorize the
Administrative Agent to declare any Loans due and payable pursuant to the
provisions of Section 7.01, each Lender Party and each of its Affiliates are
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and otherwise apply any and all deposits (general
or special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by such Lender Party or such Affiliate to or for
the credit or the account of the Borrower against any and all of the Obligations
of the Borrower now or hereafter existing under this Agreement and any Note or
Notes held by such Lender, irrespective of whether such Lender shall have made
any demand under this Agreement or such Note or Notes and although such
obligations may be unmatured. Each Lender Party agrees promptly to notify the
Borrower after any such set-off and application; provided, however, that the
-------- -------
failure to give such notice shall not affect the validity of such set-off and
application. The rights of each Lender Party and its Affiliates under this
Section are in addition to other rights and remedies (including, without
limitation, other rights of set-off) that such Lender Party and its Affiliates
may have.
SECTION 9.06. BINDING EFFECT. This Agreement shall become effective
--------------
when it shall have been executed by the Borrower and the Administrative Agent
and when the Administrative Agent shall have been notified by each Lender that
such Lender has executed it and thereafter shall be binding upon and inure to
the benefit of the Borrower, each Agent and each Lender Party and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of the Lenders.
SECTION 9.07. ASSIGNMENTS AND PARTICIPATIONS
------------------------------
(a) Each Lender may assign to one or more banks or other entities all
or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of its Commitment or Commitments, the
Loans owing to it and any Note or Notes held by it); provided, however,
-------- -------
that (i) each such assignment shall be of a uniform, and not a varying,
percentage of all rights and obligations under and in respect of (A) all of
the Facilities, (B) the Revolving Facility and the Term A Facility, or (C)
the Term B Facility, (ii) except in the case of an assignment to a Person
that, immediately prior to such assignment, was a Lender or Affiliate or
Approved Fund of a Lender or an assignment of all of a Lender's rights and
obligations under this Agreement or in respect of any Facility, the amount
of the Commitments and/or Loans of the assigning Lender
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<PAGE>
being assigned pursuant to each such assignment (determined as of the date
of the Assignment and Acceptance with respect to such assignment) shall in
no event be less than $1,000,000, and shall be in integral multiples of
$100,000 in excess thereof, (iii) each such assignment shall be to an
Eligible Assignee or to an Affiliate or Approved Fund of the assignor, (iv)
except for any assignments by the Administrative Agent and any assignments
to another Lender or an Affiliate, SPV or Approved Fund of the assigning
Lender or of any other Lender, each assignment shall require the written
consent of (A) the Administrative Agent and (B) unless a Default or Event
of Default has occurred and is continuing, the Borrower, such consent in
each case not to be unreasonably withheld or delayed, and (v) the parties
to each such assignment shall execute and deliver to the Administrative
Agent, for its acceptance and recording in the Register, an Assignment and
Acceptance, together with any Note or Notes subject to such assignment and
a processing and recordation fee of $3,500; provided, however, that no such
-------- -------
fee shall be payable in the case of an assignment to an Affiliate, SPV or
Approved Fund of the assigning Lender; and provided further that, in the
-------- -------
case of contemporaneous assignments by a Lender to more than one fund
managed by the same investment advisor (which funds are not then Lenders
hereunder), only a single such $3,500 fee shall be payable for all such
contemporaneous assignments. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in such Assignment
and Acceptance, (x) the assignee thereunder shall be a party hereto and, to
the extent that rights and obligations hereunder have been assigned to it
pursuant to such Assignment and Acceptance, have (in addition to any such
rights and obligations theretofore held by it) the rights and obligations
of a Lender hereunder and (y) the Lender assignor thereunder shall, to the
extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the
Lender assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to
any statements, warranties or representations made in or in connection with
this Agreement or any other Loan Document or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of, or the
perfection or priority of any Lien or security interest created or
purported to be created under or in connection with, this Agreement or any
other Loan Document or any other instrument or document furnished pursuant
hereto or thereto; (ii) such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to the financial
condition of the Borrower or any other Loan Party or the performance or
observance by any Loan Party of any of its obligations under any Loan
Document or any other instrument or document furnished pursuant thereto;
(iii) such assignee confirms that it has received a copy of this Agreement,
together with copies of the financial statements referred to in Section
4.01 and such other documents and information as it has deemed appropriate
to make its own
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<PAGE>
credit analysis and decision to enter into such Assignment and Acceptance;
(iv) such assignee will, independently and without reliance upon any Agent,
such assigning Lender or any other Lender Party and based on such documents
and information as it shall deem appropriate at the time, continue to make
its own credit decisions in taking or not taking action under this
Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi)
such assignee appoints and authorizes the Administrative Agent to take such
action as agent on its behalf and to exercise such powers and discretion
under the Loan Documents as are delegated to the Administrative Agent by
the terms hereof, together with such powers and discretion as are
reasonably incidental thereto; and (vii) such assignee agrees that it will
perform in accordance with their terms all of the obligations which by the
terms of this Agreement are required to be performed by it as a Lender or
Issuing Bank, as the case may be, and shall be bound by the terms of the
Intercreditor Agreement.
(c) The Administrative Agent shall maintain at its address referred
to in Section 9.02 a copy of each Assignment and Acceptance delivered to
and accepted by it and a register for the recordation of the names and
addresses of the Lenders and the Commitment under each Facility of, and
principal amount of the Loans owing under each Facility to, each Lender
from time to time (the "REGISTER"). The entries in the Register shall be
--------
conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Administrative Agent and the Lender Parties may treat each
Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement. The Register shall be available for inspection
by the Borrower or any Lender Party at any reasonable time and from time to
time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee, together with any Note or Notes subject
to such assignment, the Administrative Agent shall, if such Assignment and
Acceptance has been completed and is in substantially the form of Exhibit I
---------
hereto, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the Borrower. Within five (5) Business Days after its receipt of
notice of such assignment and a request for new Notes in favor of such
assignee, the Borrower, at its own expense, shall execute and deliver to
the Administrative Agent in exchange for the surrendered Note or Notes a
new Note to the order of such Eligible Assignee in an amount equal to the
Loans and/or Commitments, as applicable, assumed by it under a Facility
pursuant to such Assignment and Acceptance and, if the assigning Lender has
retained any Loans and/or Commitments hereunder under such Facility, a new
Note to the order of the assigning Lender in an amount equal to such Loans
and/or Commitments, as applicable, retained by it hereunder. Such new Note
or Notes shall be in an aggregate principal amount equal to the aggregate
principal amount of such surrendered Note or Notes, shall be dated the
effective date of such Assignment and Acceptance and shall otherwise be in
substantially the form of Exhibits VII-A, VII-B, VII-C and VII-D, as
---------------------------- ------
applicable.
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(e) Each Lender may sell participations in or to all or a portion of
its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitments, the Loans owing to it and
any Note or Notes held by it); provided, however, that (i) such Lender's
-------- -------
obligations under this Agreement (including, without limitation, its
Commitments) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such
obligations, (iii) such Lender shall remain the holder of any such Note for
all purposes of this Agreement, (iv) the Borrower, the Administrative Agent
and the other Lender Parties shall continue to deal solely and directly
with such Lender in connection with such Lender's rights and obligations
under this Agreement and (v) no participant under any such participation
shall have any right to approve any amendment or waiver of any provision of
any Loan Document, or any consent to any departure by any Loan Party
therefrom, except to the extent that such amendment, waiver or consent
would reduce the principal of, or interest on, any Loans or any fees or
other amounts payable hereunder, in each case to the extent subject to such
participation, postpone any date fixed for any payment of principal of, or
interest on, any Loans or any fees or other amounts payable hereunder, in
each case to the extent subject to such participation, or release all or
substantially all of the Collateral; provided further that participants
-------- -------
shall have the same rights and benefits as Lenders under Section 2.07 but
only to the extent that the Lender from which such participation is
acquired would have had such rights and benefits.
(f) Any Lender may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this
Section 9.07, disclose to the assignee or participant or proposed assignee
or participant, any information relating to any Loan Party furnished to
such Lender by or on behalf of any Loan Party; provided, however, that,
-------- -------
prior to any such disclosure, the assignee or participant or proposed
assignee or participant shall agree to preserve the confidentiality of any
Confidential Information received by it from such Lender.
(g) Notwithstanding any other provision set forth in this Agreement,
any Lender may at any time create a security interest in all or any portion
of its rights under this Agreement (including, without limitation, the
Loans owing to it and any Note or Notes held by it) in favor of any Federal
Reserve Bank in accordance with Regulation A of the Board of Governors of
the Federal Reserve System.
(h) Notwithstanding anything to the contrary contained herein, any
Lender (a "GRANTING LENDER") may grant to a special purpose funding vehicle
---------------
(an "SPV"), identified as such in writing from time to time by the Granting
---
Lender to the Administrative Agent and the Borrower, the option to provide
to the Borrower all or any part of any Loan that such Granting Lender would
otherwise be obligated to make to the Borrower pursuant to this Agreement;
provided that (i) nothing herein shall constitute a commitment by any SPV
-------- ----
to make any Loan, and (ii) if an SPV 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.
The making of a Loan by an SPV hereunder shall utilize the Commitment
availability of the Granting Lender to
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the same extent, and as if, such Loan were made by such Granting Lender.
Each party hereto hereby agrees that no SPV 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 SPV, it will not institute against, or
join any other person in instituting against, such SPV 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 9.07(h),
any SPV may (i) with notice to, but without the prior written consent of,
the Borrower and the Administrative Agent and without paying any processing
fee therefor, assign all or a portion of its interests in any Loans to the
Granting Lender or to any financial institutions (consented to by the
Borrower and the Administrative Agent) providing liquidity and/or credit
support to or for the account of such SPV 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 SPV. To the extent that an SPV assumes a Commitment
and/or makes a Loan on behalf of a Granting Lender, such SPV shall be
deemed a "Lender" for all purposes hereunder and under the other Loan
Documents and shall be entitled to the same rights and benefits as such
Granting Lender hereunder. This Section 9.07(h) may not be amended without
the written consent of the SPV.
SECTION 9.08. GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL, ETC.
------------------------------------------------------
(a) This Agreement and the Notes (if any) shall be governed by, and
construed in accordance with, the laws of the State of New York.
(b) THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR
ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK
STATE COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN NEW
YORK CITY, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS TO WHICH IT IS OR IS TO BE A PARTY, OR FOR RECOGNITION OR
ENFORCEMENT OF ANY JUDGMENT, AND THE BORROWER HEREBY IRREVOCABLY AND
UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION ANY
OTHER ON OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH NEW YORK
STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. THE
BORROWER 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
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MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT SHALL AFFECT ANY RIGHT
THAT ANY PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH IT
IS OR IS TO BE A PARTY IN THE COURTS OF ANY JURISDICTION.
(c) THE BORROWER IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS TO WHICH IT IS OR IS TO BE A PARTY IN ANY NEW YORK STATE OR
FEDERAL COURT. THE BORROWER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
SECTION 9.09. EXECUTION IN COUNTERPARTS. This Agreement may be
-------------------------
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
SECTION 9.10. NO LIABILITY OF THE ISSUING BANKS. The Borrower assumes
---------------------------------
all risks of the acts or omissions of any beneficiary or transferee of any
Letter of Credit with respect to its use of such Letter of Credit. Neither any
Issuing Bank nor any of its officers or directors shall be liable or responsible
for: (a) the use that may be made of any Letter of Credit or any acts or
omissions of any beneficiary or transferee in connection therewith; (b) the
validity, sufficiency or genuineness of documents, or of any endorsement
thereon, even if such documents should prove to be in any or all respects
invalid, insufficient, fraudulent or forged; (c) payment by such Issuing Bank
against presentation of documents that do not comply with the terms of a Letter
of Credit, including failure of any documents to bear any reference or adequate
reference to the Letter of Credit; or (d) any other circumstances whatsoever in
making or failing to make payment under any Letter of Credit, except that the
------
Borrower and each Lender shall have a claim against such Issuing Bank, and such
Issuing Bank shall be liable to the Borrower and each Lender, to the extent of
any direct, but not consequential, damages suffered by the Borrower or such
Lender that the Borrower or such Lender proves were caused by (i) such Issuing
Bank's willful misconduct or gross negligence in determining whether documents
presented under any Letter of Credit comply with the terms of the Letter of
Credit or (ii) such Issuing Bank's willful failure to make lawful payment under
a Letter of Credit after the presentation to it of a draft and certificates
strictly complying with the terms and conditions of the Letter of Credit. In
furtherance and not in limitation of the foregoing, such Issuing Bank may accept
documents that
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appear on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the contrary.
SECTION 9.11. CONFIDENTIALITY. Neither any Agent nor any Lender Party
---------------
shall disclose any Confidential Information to any Person without the consent of
the Borrower, other than (a) to such Agent's or such Lender Party's Affiliates
or Approved Funds and their officers, directors, employees, agents and advisors
and to actual or prospective Eligible Assignees and participants, and then only
on a confidential basis, (b) as required by any law, rule or regulation or
judicial process, (c) as requested or required by any state, federal or foreign
authority or examiner regulating the activities of such Lender Party or (d) in
connection with customary filings with the National Association of Insurance
Commissioners.
SECTION 9.12. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
--------------------
ADMINISTRATIVE AGENT, EACH OTHER AGENT, THE ISSUING BANKS AND THE LENDERS HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO ANY OF THE LOAN DOCUMENTS, THE LOANS, ANY LETTER OF CREDIT OR THE
ACTIONS OF ANY AGENT OR ANY LENDER PARTY IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE OR ENFORCEMENT THEREOF.
125
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
PANOLAM INDUSTRIES INTERNATIONAL, INC.,
as Borrower
By:______________________________________
Robert J. Muller
President and Chief Executive Officer
By: _____________________________________
Sara M. Foster
Director of Finance and Secretary
S-1
<PAGE>
DLJ CAPITAL FUNDING, INC.,
as an Initial Lender and as Syndication
Agent
By: /S/ [ILLEGIBLE SIGNATURE]
---------------------------------------
Title: _________________________________
S-2
<PAGE>
CREDIT SUISSE FIRST BOSTON,
as an Initial Lender and as
Administrative Agent
By: /s/ Judith E. Smith
---------------------------------
Title: __________________________
By: /s/ Kristin Lepri
---------------------------------
Title:___________________________
S-3
<PAGE>
ROYAL BANK OF CANADA,
as an Initial Lender and as Documentation
Agent
By: /s/ Colleen Roux
----------------------------------------
Title:____________________________________
ADDRESS FOR NOTICES:
Royal Bank of Canada
Grand Cayman (North America No.1) Branch
c/o New York Branch
One Liberty Plaza
New York, New York 10006-1404
Attention: Sharon Peters
Telephone No.: (212) 428-6369
Facsimile No.: (212) 428-2372
WITH A COPY TO:
Royal Bank of Canada
One Liberty Plaza, 4th Floor
New York, New York 10006-1404
Attention: Colleen Roux
Telephone No.: (212) 428-1614
Facsimile No.: (212) 428-2319
S-4
<PAGE>
Initial Lenders
---------------
ABN AMRO BANK N.V., as an Initial Lender
By: /s/ Dianne D. Barclay
-------------------------------------
Title: _______________________________
By: /s/ Matthew Harvay
-------------------------------------
Title: _______________________________
ADDRESSES FOR NOTICES:
ABN AMRO Bank N.V.
208 South LaSalle Street, Suite 1500
Chicago, IL 60604-1003
Attn: Joe Coriaci, Credit Administration
WITH A COPY TO:
ABN AMRO Bank N.V.
101 California Street, Suite 4550
San Francisco, CA 94111-5812
Attn: Dianne D. Barkley
S-5
<PAGE>
COMERICA BANK, as an Initial Lender
By: /s/ Kimberly S. Kirsten
-----------------------------------
Title: _____________________________
S-6
<PAGE>
KEY CORPORATE CAPITAL INC., as an
Initial Lender
By: /s/ [ILLEGIBLE SIGNATURE]
--------------------------------
Title: __________________________
S-7
<PAGE>
U.S. BANK NATIONAL ASSOCIATION, as an
Initial Lender
By: /s/ Scott J. Bell
-----------------------------------
Title: _____________________________
ADDRESS FOR NOTICES:
National Corporate Banking Division
U.S. Bank National Association
555 S.W. Oak Street, Suite 400
Portland, Oregon 97204
Relationship Manager: Aaron J. Gordon
Title: Vice President
Tel: (503) 275-6738
Fax: (503) 275-5428
S-8
<PAGE>
EXHIBIT I
FORM OF ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement, dated as February 18, 1999
(as amended, amended and restated, supplemented or otherwise modified from time
to time, the "Credit Agreement," the terms defined therein being used herein as
----------------
therein defined), among PANOLAM INDUSTRIES INTERNATIONAL, INC., a Delaware
corporation (the "Borrower"), the financial institutions and other entities
--------
party thereto as 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.
The "Assignor" and the "Assignee" referred to on Schedule 1 hereto
agree as follows :
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, an interest in and to
the Assignor's rights and obligations under the Credit Agreement as of the date
hereof equal to the percentage interest specified on Schedule 1 hereto of all
outstanding rights and obligations under the Credit Agreement Facility or
Facilities specified on Schedule 1 hereto. After giving effect to such sale and
assignment, the Assignee's Commitments and the amount of the Loans owing to the
Assignee will be as set forth on Schedule 1 hereto.
2. The Assignor (i) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim; (ii) makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with the Loan Documents
or the execution, legality, validity, enforceability, genuineness, sufficiency
or value of, or the perfection or priority of any lien or security interest
created or purported to be created under or in connection with, the Loan
Documents or any other instrument or document furnished pursuant thereto; and
(iii) makes no representation or warranty and assumes no responsibility with
respect to the financial condition of any Loan Party or the performance or
observance by any Loan Party of any of its obligations under any Loan Document
or any other instrument or document furnished pursuant thereto; and (iv)
attaches the Note or Notes (if any) held by the Assignor and, to the extent that
the Assignee has separately requested a Note or Notes payable to its order,
requests on behalf of the Assignee that the Administrative Agent exchange such
Note or Notes for a new Note or Notes payable to the order of the Assignee in an
amount equal to the Commitments and/or Loans assumed by the Assignee pursuant
hereto or new Notes payable to the order of the Assignee in an amount equal to
the Commitments and/or Loans assumed by the Assignee pursuant hereto and to the
order of the Assignor in an amount equal to the Commitments and/or Loans
retained by the Assignor under the Credit Agreement, respectively, as specified
on Schedule 1 hereto.
3. The Assignee (i) confirms that it has received a copy of the
Credit Agreement, together with copies of the financial statements referred to
in Section 5.01(f) thereof
I-1
<PAGE>
and such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into this Assignment and
Acceptance; (ii) agrees that it will, independently and without reliance upon
the Administrative Agent, the Assignor or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Credit
Agreement; (iii) confirms that it is an Eligible Assignee; (iv) appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers and discretion under the Credit Agreement and the
other Loan Documents (including, without limitation, under the Intercreditor
Agreement and the Collateral Documents) as are delegated to the Administrative
Agent by the terms thereof, together with such powers and discretion as are
reasonably incidental thereto, and without limiting the foregoing, the Assignee
expressly agrees to be bound by the terms of the Intercreditor Agreement and the
Collateral Documents; (v) agrees that it will perform in accordance with their
terms all of the obligations that by the terms of the Credit Agreement are
required to be performed by it as a Lender and, if applicable, as an Issuing
Bank; and (vi) attaches any U.S. Internal Revenue Service forms required under
Section 2.09 of the Credit Agreement.
4. Following the execution of this Assignment and Acceptance, it will
be delivered to the Administrative Agent for acceptance and recording by the
Administrative Agent. The effective date for this Assignment and Acceptance (the
"Effective Date") shall be the date of acceptance hereof by the Administrative
--------------
Agent, unless otherwise specified on Schedule 1 hereto.
5. Upon such acceptance and recording by the Administrative Agent and
payment of the purchase price separately agreed between the Assignor and the
Assignee, as of the Effective Date, (i) the Assignee shall be a party to the
Credit Agreement and, to the extent provided in this Assignment and Acceptance,
have (in addition to any such rights and obligations theretofore held by it) the
rights and obligations of a Lender and, if applicable, an Issuing Bank
thereunder, and (ii) the Assignor shall, to the extent provided in this
Assignment and Acceptance, relinquish its rights and be released from its
obligations under the Credit Agreement.
6. Upon such acceptance and recording by the Administrative Agent and
payment of the purchase price separately agreed between the Assignor and the
Assignee, from and after the Effective Date, the Administrative Agent shall make
all payments under the Credit Agreement and the Notes in respect of the interest
assigned hereby (including, without limitation, all payments of principal,
interest and commitment fees with respect thereto) to the Assignee. The Assignor
and Assignee shall make all appropriate adjustments in payments under the Credit
Agreement and the Notes for periods prior to the Effective Date directly between
themselves.
7. This Assignment and Acceptance shall be governed by, and construed
in accordance with, the laws of the State of New York.
8. This Assignment and Acceptance may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of Schedule 1 to this Assignment
1-2
<PAGE>
and Acceptance by telecopier shall be effective as delivery of a manually
executed counterpart of this Assignment and Acceptance.
I-3
<PAGE>
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this
Assignment and Acceptance to be executed by their officers thereunto duly
authorized as of the date specified thereon.
[NAME OF ASSIGNOR], as Assignor
By________________________________
Title:
Dated:____________________________
[NAME OF ASSIGNEE], as Assignee
By________________________________
Title:
Dated:____________________________
Domestic Lending Office:
Eurodollar Lending Office:
I-4
<PAGE>
Accepted and Approved this________
day of_____________, _____________
CREDIT SUISSE FIRST BOSTON,
as Administrative Agent
By________________________________
Title:
[Approved this_____day
of_______________, _______________
PANOLAM INDUSTRIES INTERNATIONAL, INC.
By________________________________
Title:]
I-5
<PAGE>
SCHEDULE 1
to
ASSIGNMENT AND ACCEPTANCE
1. BORROWER: Panolam Industries International,
---------
Inc., a Delaware corporation
2. NAME AND DALE OF CREDIT AGREEMENT: Credit Agreement dated as of
---------------------------------
February 18, 1999, and entered into
among the Borrower, the financial
institutions and other entities
party thereto as 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.
3. ASSIGNMENT DATE: _____________________
---------------
4. AMOUNTS (AS OF ASSIGNMENT DATE):
-------------------------------
<TABLE>
<CAPTION>
Revolving Facility Term A Facility Term B Facility
------------------ --------------- ---------------
<S> <C> <C> <C>
(including outstanding
Swing Line and Letter of
Credit Participations)
a. Total Commitments of All $________ $_________ $_________
Lenders
b. Amount of Assignor's $________ $_________ $_________
Commitment as of Assignment
Date
c. Amount of Assignor's $________ $_________ $_________
Share of Loans and
Participations Outstanding
as of Assignment Date
d. Percentage Interest (of ____% ____% ____%
Total Commitments (or
outstanding Loans. if there
are no outstanding
Commitments) of All
Lenders) Assigned to
Assignee
e. Assignee's Total $________ $_________ $_________
Commitment
f. Amount of Outstanding $________ $_________ $_________
Loans and Participations
Assigned to Assignee
Term B Facility
</TABLE>
I-6
<PAGE>
g. Assignor's Retained ____% ____% ____%
Commitment Percentage
(or, if there are no
outstanding Commitments
under such Facility, the
percentage of outstanding
Loans of such Type
retained by Assignor)
h. Assignor's Retained $________ $_________ $_________
Commitment
i. Amount of Outstanding $________ $_________ $_________
Loans and Participations
Retained by Assignor
5. Effective Date: (if other than date of ___________________
--------------
acceptance by Administrative Agent)
I-7
<PAGE>
EXHIBIT II
FORM OF NOTICE OF BORROWING
[Date]
Credit Suite First Boston, as Administrative Agent
for the Lenders party
to the Credit Agreement
referred to below
11 Madison Avenue
New York, New York 10010
Attn. Syndications Agency
PANOLAM INDUSTRIES INTERNATIONAL, INC.
Ladies and Gentlemen:
The undersigned, PANOLAM INDUSTRIES INTERNATIONAL INC., refers to the
Credit Agreement, dated as of February 18, 1999 (as amended, supplemented,
amended and restated or otherwise modified from time to time, the "Credit
------
Agreement," the terms defined therein being used herein as therein defined),
- ---------
among the undersigned, the financial institutions and other entities party
thereto as 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, and hereby gives you notice,
irrevocably, pursuant to Section 2.02 of the Credit Agreement, that the
undersigned hereby requests [Term A Loans] [Term B Loans][Revolving Loans] under
the Credit Agreement, and in that connection sets forth below the information
relating to such Borrowing (the "Proposed Borrowing"):
------------------
(i) The Business Day of the Proposed Borrowing is __________, ___.
(ii) The Type of Loans comprising the Proposed Borrowing is [Term A
Loans][Term B Loans) [Revolving Loans].
(iii) The aggregate amount of the Proposed Borrowing is $_________.
(iv) The Interest Type of Loans comprising the Proposed Borrowing is
[Base Rate Loans][Eurodollar Rate Loans].
[(v) The initial Interest Period for each Eurodollar Rate Loan made
as part of the Proposed Borrowing is [one][two][three][six] month[s].]
II-1
<PAGE>
The undersigned hereby certifies that the following statements are
true on the date hereof and will be true on the date of the Proposed Borrowing:
(A) the representations and warranties contained in each Loan
Document are correct, before and after giving effect to the Proposed
Borrowing and to the application of the proceeds therefrom, as though made
on and as of such date other than any such representations or warranties
that, by their terms, are specifically made as of a date other than the
date of the Proposed Borrowing (which are true and correct as of such other
date);
(B) no event has occurred and is continuing, or would result
from such Proposed Borrowing or from the application of the proceeds
therefrom, that constitutes or would constitute a Default or an Event of
Default; and
(C) after giving effect to the Proposed Borrowing, the Borrowing
Base Amount and the Revolving Commitments then in effect each exceed the
Total Utilization of Revolving Commitments.
Very truly yours,
PANOLAM INDUSTRIES
INTERNATIONAL, INC.
By:________________________________
Title:
II-2
<PAGE>
EXHIBIT III
FORM OF NOTICE OF CONVERSION/CONTINUATION
[Date]
Credit Suisse First Boston, as Administrative Agent
for the Lenders party
to the Credit Agreement
referred to below
11 Madison Avenue
New York, New York 10010
Attn: Syndications Agency
PANOLAM INDUSTRIES INTERNATIONAL, INC.
Ladies and Gentlemen:
The undersigned, PANOLAM INDUSTRIES INTERNATIONAL INC., refers to the
Credit Agreement, dated as of February 18, l999 (as amended, supplemented,
amended and restated or otherwise modified from time to time, the "Credit
------
Agreement," the terms defined therein being used herein as therein defined),
- ---------
among the undersigned, the financial institutions and other entities party
thereto as 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, and hereby gives you notice,
irrevocably, pursuant to Section 2.05(c) of the Credit Agreement that the
undersigned hereby requests [a Conversion under the Credit Agreement (the
"Proposed Conversion") of $_______ in principal amount of presently outstanding
-------------------
[Term A][Term B][Revolving] Loans that are [Base Rate][Eurodollar Rate] Loans
[with an initial Interest Period ending ______ ___, ______ ] to [Base
Rate][Eurodollar Rate] Loans on, ] [a Continuation under the Credit Agreement
(the "Proposed Continuation") as Eurodollar Rate Loans of $________ in principal
---------------------
amount of presently outstanding [Term A][Term B][Revolving] Loans that are
Eurodollar Rate Loans with an Interest Period ending ________ __ _____ The
Interest Period for such Eurodollar Rate Loans is requested to be a
[one][two][three][six]month period ending on _________ __, ____].
III-1
<PAGE>
The undersigned hereby certifies that the following statements are
true on the date hereof and will be true on the date of the Proposed
[Conversion][Continuation]:
(A) the representations and warranties contained in each Loan
Document are correct, before and after giving effect to the Proposed
[Conversion] [Continuation], as though made on and as of such date other
than any such representations or warranties that, by their terms, are
specifically made as of a date other than the date of the Proposed
[Conversion] [Continuation] (which are true and correct as of such other
date); and
(B) no event has occurred and is continuing, or would result
from such Proposed [Continuation](Conversion] that constitutes or would
constitute a Default or an Event of Default.
Very truly yours,
PANOLAM INDUSTRY
INTERNATIONAL, INC.
By:________________________________
Title:
III-2
<PAGE>
EXHIBIT IV
FORM OF NOTICE OF ISSUANCE
[Date]
Credit Suisse First Boston, as Administrative Agent
for the Lenders party
to the Credit Agreement
referred to below
11 Madison Avenue
New York, New York 10010
Attn: Syndications Agency
[Name and address of
Issuing Bank
Attention: ______________]
PANOLAM INDUSTRIES INTERNATIONAL, INC.
Ladies and Gentlemen:
The undersigned, PANOLAM INDUSTRIES INTERNATIONAL INC., refers to the
Credit Agreement, dated as of February 18, 1999 (as amended, supplemented,
amended and restated or otherwise modified from time to time, the "Credit
------
Agreement," the terms defined therein being used herein as therein defined),
- ---------
among the undersigned, the financial institutions and other entities party
thereto as 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, and hereby gives you notice, pursuant
to Section 3.02 of the Credit Agreement that the undersigned hereby requests the
issuance of a Letter of Credit under the Credit Agreement, and in that
connection sets forth below the information relating to such issuance (the
"Proposed Issuance"):
-----------------
(i) The requested Business Day of the Proposed Issuance is _____
__, ____.
(ii) The requested available amount of such Letter of Credit is
$_____ __, ____.
(iii) The requested expiration date of such Letter of Credit is
_____ __, ____.
IV-1
<PAGE>
(iv) The name and address of the beneficiary of such requested Letter
of Credit is as follows:
_____________________________
_____________________________
_____________________________
(v) The requested form of such Letter of Credit and a copy of the
Letter of Credit Agreement are attached hereto as Schedule 1.
The undersigned hereby certifies that the following statements are
true on the date hereof and will be true on the date of the Proposed Issuance:
(A) the representations and warranties contained in each Loan
Document are correct on and as of the date of the Proposed Issuance, before
and after giving effect to the Proposed Issuance requested hereby, as
though made on and as of such date, other than any such representations and
warranties that, by their terms, are specifically made as of a date other
than the date of the Proposed Issuance (which are true and correct as of
such other date);
(B) no event has occurred and is continuing, or would result
from the Proposed Issuance requested hereby, that constitutes or would
constitute a Default or an Event of Default; and
(C) after giving effect to the Proposed Issuance, (i) the
aggregate amount for all Letters of Credit outstanding under the Credit
Agreement does not exceed the lesser of (a) $4,000,000 and (b) the Net
Borrowing Availability, and (ii) the amount of such Letter of Credit does
not exceed the Unused Revolving Commitments of the Lenders on the Business
Day of the Proposed Issuance.
Very truly yours,
PANOLAM INDUSTRIES
INTERNATIONAL, INC.
By:________________________________
Title:
IV-2
<PAGE>
EXHIBIT V
FORM OF NOTICE OF SWING LINE BORROWING
[Date]
Credit Suisse First Boston, as Administrative Agent
for the Lenders party
to the Credit Agreement
referred to below
11 Madison Avenue
New York, New York 10010
Attn: Syndications Agency
PANOLAM INDUSTRIES INTERNATIONAL, INC.
Ladies and Gentlemen:
The undersigned, Panolam Industries International, Inc., refers to the
Credit Agreement, dated as of February 18, l999 (as amended, supplemented,
amended and restated or otherwise modified from time to time, the "Credit
------
Agreement," the terms defined therein being used herein as therein defined),
- ---------
among the undersigned, the financial institutions and other entities party
thereto as 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, ROYAL BANK OF CANADA, for itself as an
Initial Lender and as documentation agent, and hereby gives you notice
irrevocably, pursuant to Section 2.02(c) of the Credit Agreement that the
undersigned hereby requests a Swing Line Borrowing under the Credit Agreement,
and in that connection sets forth below the information relating to such
Borrowing (the "Proposed Swing Line Borrowing"):
-----------------------------
(i) The Business Day of the Proposed Swing Line Borrowing is ________
___, ____.
(ii) The amount of the Proposed Swing Line Borrowing is $____________.
V-1
<PAGE>
The undersigned hereby certifies that the following statements are
true on the date hereof and will be true on the date of the Proposed Swing Line
Borrowing:
(A) the representations and warranties contained in each Loan
Document are correct, before and after giving effect to the Proposed Swing
Line Borrowing and to the application of the proceeds therefrom, as though
made on and as of such date other than any such representations or
warranties that, by their terms, are specifically made as of a date other
than the date of the Proposed Swing Line Borrowing (which are true and
correct as of such other date);
(B) no event has occurred and is continuing, or would result
from such Proposed Swing Line Borrowing or from the application of the
proceeds therefrom, that constitutes or would constitute a Default or an
Event of Default; and
(C) after giving effect to the Proposed Swing Line Borrowing,
the aggregate principal amount of all outstanding Swing Line Loans will not
exceed the remainder of (x) the Borrowing Base Amount then in effect minus
-----
(y) the sum of (A) the aggregate amount of the Letter of Credit Obligations
then outstanding, and (B) the aggregate principal amount of the Revolving
Loans then outstanding.
Very truly yours,
PANOLAM INDUSTRIES
INTERNATIONAL, INC.
By:________________________________
Title:
V-2
<PAGE>
EXHIBIT VI
FORM OF BORROWING BASE
CERTIFICATE
In connection with the Credit Agreement by and among PANOLAM
INDUSTRIES INTERNATIONAL, INC. (the "Borrower"), the financial institutions and
--------
other entities party thereto as 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,
supplemented amended and restated or otherwise modified from time to time, the
"Credit Agreement"), dated as of February 18, 1999, I, [NAME OF OFFICER], in my
----------------
capacity as [Chief Financial Officer] [Treasurer] [Director of Finance] of the
Borrower, hereby certify that I am the duly elected and acting [Chief Financial
Officer] [Treasurer][Director of Finance] of the Borrower and that.
1. All information and each calculation set forth in the
attached Schedule 1 is, and all supporting documentation and reports attached
hereto as Schedule 2 are, to the best of my knowledge, true, correct and
complete in all material respects as of the date hereof.
2. All information and each calculation set forth in the
attached Borrowing Base Certificate is based on the most recent financial
statements of the Borrower delivered pursuant to Section 6.03(b), (c) or (d) of
the Credit Agreement (except that, in the event that this Borrowing Base
Certificate is delivered more than 40 days after the end of the most recently
ended fiscal quarter of the Borrower, such Schedule 1 sets forth the Borrower's
Eligible Receivables and Eligible Inventory as of the last day of the most
recently ended fiscal month of the Borrower), and a balance sheet of the
Borrower and its Subsidiaries as of the last day of such fiscal month, which has
been prepared in accordance with GAAP (subject to year end audit adjustments) is
attached hereto as Schedule 3.
3. During the most recent fiscal quarter of the Borrower,
[more than $1,000,000] [$1,000,000 or less] of the Collateral at any one time
was being warehoused and/or processed at locations not owned or leased by any of
the Credit Parties.
Unless otherwise defined herein, all terms used herein shall
have the meanings ascribed to them in the Credit Agreement.
Executed this ____ day PANOLAM INDUSTRIES INTERNATIONAL,
of ____________,_______ INC
By: ________________________________
VI-1
<PAGE>
EXHIBIT VII-A
FORM OF REVOLVING NOTE
$[______________] Dated: ____________
FOR VALUE RECEIVED, the undersigned, PANOLAM INDUSTRIES INTERNATIONAL,
INC., a Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the
--------
order of [NAME OF LENDER] (the "Lender") for the account of its Applicable
------
Lending Office (as defined in the Credit Agreement referred to below) the
aggregate principal amount of the Revolving Loans (as defined below) owing to
the Lender by the Borrower pursuant to the Credit Agreement (as defined below)
on the Revolving Commitment Termination Date (as defined in the Credit
Agreement).
The Borrower promises to pay interest on the unpaid principal amount
of each Revolving Loan from the date of such Revolving Loan until such principal
amount is paid in full, at such interest rates, and at such times, as are
specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America in same day funds to the Lender in accordance with the
provisions of Section 2.08 of the Credit Agreement. Each Revolving Loan owing to
the Lender by the Borrower and the maturity thereof, and all payments made on
account of principal thereof, shall be recorded by the Lender and, prior to any
transfer hereof, endorsed on the grid attached hereto, which is part of this
Revolving Note; provided, however, that any failure to make such endorsement on
-------- -------
such grid shall in no way alter, impair or limit the Borrower's obligations
hereunder.
This Revolving Note is one of the Revolving Notes referred to in, and
is entitled to the benefits of, the Credit Agreement dated as of February 18,
1999 (as the same may be amended, amended and restated, supplemented or
otherwise modified from time to time, the "Credit Agreement") among the
----------------
Borrower, the financial institutions and other entities party thereto as
Lenders, DLJ Capital Funding, Inc., for itself as an Initial Lender and as
Syndication Agent, Credit Suite 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. The Credit Agreement, among other things, (i)
provides for the making of loans (the "Revolving Loans") by the Lender to the
---------------
Borrower from time to time in an aggregate principal amount not to exceed at any
time outstanding the U.S. dollar amount first above mentioned, the indebtedness
of the Borrower resulting from each such Revolving Loan being evidenced by this
Revolving Note, and (ii) contains provisions for acceleration of the maturity
hereof upon the happening of certain stated events and also for prepayments on
account of principal hereof prior to the maturity hereof upon the terms and
conditions therein specified.
The Borrower and any endorser of this Revolving Note hereby waive
presentment, demand, protest and notice of any kind. No failure to exercise, and
no delay in exercising, any rights hereunder on the part of the holder hereof
shall operate as a waiver of such rights.
VII-A-1
<PAGE>
THIS REVOLVING NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
PANOLAM INDUSTRIES
INTERNATIONAL, INC.
By:____________________________
Title:
VII-A-2
<PAGE>
REVOLVING LOANS AND PAYMENTS OF PRINCIPAL
================================================================================
Date Amount of Revolving Amount of Principal Unpaid Principal Notation
Loan Paid or Prepaid Balance Made By
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VII-A-3
<PAGE>
EXHIBIT VII-B
FORM OF TERM A NOTE
$[__________] Dated: ___________
FOR VALUE RECEIVED, the undersigned, PANOLAM INDUSTRIES INTERNATIONAL,
INC., a Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the
--------
order of [NAME OF LENDER] (the "Lender") for the account of its Applicable
------
Lending Office (as defined in the Credit Agreement referred to below) the
principal amount of the Term A Loan (as defined below) owing to the Lender by
the Borrower pursuant to the Credit Agreement (as defined below) in consecutive
quarterly installments according to the amortization schedule set forth in
Section 2.03(a) of the Credit Agreement until such principal amount has been
paid in full with the last such installment owing under the Credit Agreement to
be paid on the Term A Termination Date (as defined in the Credit Agreement).
The Borrower promises to pay interest on the unpaid principal amount
of the Term A Loan from the date of the Term A Loan until such principal amount
is paid in full, at such interest rates, and at such times, as are specified in
the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America in same day funds to the Lender in accordance with the
provisions of Section 2.08 of the Credit Agreement.
This Term A Note is one of the Term A Notes referred to in, and is
entitled to the benefits of, the Credit Agreement dated as of February 18, 1999
(as the same may be amended, amended and restated, supplemented or otherwise
modified from time to time, the "Credit Agreement") among the Borrower, the
----------------
financial institutions and other entities party thereto as 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 as
Documentation Agent. The Cat Agreement, among other things, (i) provides for a
single Term A Loan by the Lender to the Borrower on the Closing Date (as defined
in the Credit Agreement) in principal amount equal to the U.S. dollar amount
first above mentioned, the indebtedness of the Borrower resulting from such Term
A Loan being evidenced by this Term A Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and a)so for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified.
The Borrower and any endorser of this Term A Note hereby waive
presentment, demand, protest and notice of any kind. No failure to exercise, and
no delay in exercising, any rights hereunder on the part of the holder hereof
shall operate as a waiver of such rights.
VII-B-1
<PAGE>
THIS TERM A NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
PANOLAM INDUSTRIES
INTERNATIONAL, INC.
By:____________________________________
Title:
VII-B-2
<PAGE>
EXHIBIT VII-C
FORM OF TERM B NOTE
$[___________] Dated:______________
FOR VALUE RECEIVED, the undersigned, PANOLAM INDUSTRIES INTERNATIONAL,
INC., a Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the
--------
order of [NAME OF LENDER] (the "Lender") for the account of its Applicable
------
Lending Office (as defined in the Credit Agreement referred to below) the
principal amount of the Term B Loan (as defined below) owing to the Lender by
the Borrower pursuant to the Credit Agreement (as defined below) in consecutive
quarterly installments according to the amortization schedule set forth in
Section 2.03(b) of the Credit Agreement until such principal amount has been
paid in full with the last such installment owing under the Credit Agreement to
be paid on the Term B Termination Date (as defined in the Credit Agreement).
The Borrower promises to pay interest on the unpaid principal amount
of the Term B Loan from the date of the Term B Loan until such principal amount
is paid in full, at such interest rates, and at such times, as are specified in
the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America in same day funds to the Lender in accordance with the
provisions of Section 2.08 of the Credit Agreement.
This Term B Note is one of the Term B Notes referred to in, and is
entitled to the benefits of, the Credit Agreement dated as of February 18, 1999
(as the same may be amended, amended and restated, supplemented or otherwise
modified from time to time, the "Credit Agreement") among the Borrower, the
----------------
financial institutions and other entities party thereto as 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, The Credit Agreement, among other things, (i) provides for
a single Term 8 Loan by the Lender to the Barrier on the Closing Date (as
defined in such Credit Agreement) in principal amount equal to the U.S. dollar
amount first above mentioned, the indebtedness of the Borrower resulting from
such Term B Loan being evidenced by this Term B Note, and (ii) contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events and also for prepayments on account of principal hereof prior to
the maturity hereof upon the terms and conditions therein specified.
The Borrower and any endorser of this Term B Note hereby waive
presentment, demand, protest and notice of any kind. No failure to exercise, and
no delay in exercising, any rights hereunder on the part of the holder hereof
shall operate as a waiver of such rights.
VII-C-1
<PAGE>
THIS TERM B NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
PANOLAM INDUSTRIES
INTERNATIONAL, INC,
By:____________________________
Title:
VII-C-2
<PAGE>
EXHIBIT VII-D
FORM OF SWING LINE NOTE
$[___________] Dated:____________
FOR VALUE RECEIVED, the undersigned, PANOLAM INDUSTRIES INTERNATIONAL,
INC., a Delaware corporation (the "BOrrower"), HEREBY PROMISES TO PAY to the
--------
order of [NAME OF LENDER] (the "Lender") for the account of its Applicable
------
Lending Office {as defined in the Credit Agreement referred to below) the
aggregate principal amount of the Swing Line Loans (as defined below) owing to
the Lender by the Borrower pursuant to the Credit Agreement (as defined below)
on the Revolving Commitment Termination Date (as defined in the Credit
Agreement).
The Borrower promises to pay interest on the unpaid principal amount
of each Swing Line Loan from the date of such Swing Line Loan until such
principal amount is paid in full, at such interest rates, and at such times, as
are specified in the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America in same day funds to the Lender in accordance with the
provisions of Section 2.08 of the Credit Agreement. Each Swing Line Loan owing
to the Lender by the Borrower and the maturity thereof, and all payments made on
account of principal thereof, shall be recorded by the Lender and, prior to any
transfer hereof, endorsed on the grid attached hereto, which is part of this
Swing Line Note; provided, however, that any failure to make such endorsement on
-------- -------
such grid shall in no way alter, impair or limit the Borrower's obligations
hereunder.
This Swing Line Note is one of the Swing Line Notes referred to in,
and is entitled to the benefits of, the Credit Agreement dated as of February
18, 1999 (as the same may be amended, supplemented, amended and restated or
otherwise modified from time to time, the "Credit Agreement") among the
----------------
Borrower, the financial institutions and other entities party thereto as
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. The Credit Agreement, among other things, (i)
provides for the making of Swing Line Loans by the Lender to the Borrower from
time to time in an aggregate principal amount not to exceed at any time
outstanding the U.S. dollar amount first above mentioned, the indebtedness of
the Borrower resulting from each such Swing Line Loan being evidenced by this
Swing Line Note, and (ii) contains provisions for acceleration of the maturity
hereof upon the happening of certain stated events and also for prepayments on
account of principal hereof prior to the maturity hereof upon the terms and
conditions therein specified.
The Borrower and any endorser of this Swing Line Note hereby waive
presentment, demand, protest and notice of any kind. No failure to exercise. and
no delay in exercising, any rights hereunder on the part of the holder hereof
shall operate as a waiver of such rights.
VII-D-1
<PAGE>
THIS SWING LINE NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
PANOLAM INDUSTRIES
INTERNATIONAL, INC.
By:________________________
Title:
VII-D-2
<PAGE>
SWING LINE LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
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Date Amount of Swing Amount of Principal Unpaid Principal Notation
Line Loan Paid or Prepaid Balance Made By
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<S> <C> <C> <C> <C>
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</TABLE>
VII-D-3
<PAGE>
EXHIBIT VIII
FORM OF COMPLIANCE CERTIFICATE /
QUARTERLY COMPLIANCE CERTIFICATE
[Date]
Credit Suisse First Boston, as Administrative Agent
for the Leaders party
to the Credit Agreement
referred to below
11 Madison Avenue
New York, New York 10010
Attn: Syndications Agency
RE: COMPLIANCE CERTIFICATE
This certificate is given fin accordance with Section
6.03[(b)][(c)][(d)] of the Credit Agreement] [pursuant to a Permitted
Acquisition under the Credit Agreement], dated as of February 18, 1999 (as
amended, amended and restated, supplemented or otherwise modified from time to
time, the "Credit Agreement," the terms defined therein being used herein as
----------------
therein defined), among PANOLAM INDUSTRIES INTERNATIONAL, INC., a Delaware
corporation (the "Borrower"), the financial institutions and other entities
--------
party thereto as 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 Leader and as Documentation Agent. The undersigned hereby
certifies that:
(a) I am the [Chief Executive Officer] [Treasurer] [Director of Finance]
of the Borrower,
(b) I have reviewed the financial statements attached hereto as Schedule 1
and delivered with this Certificate [in accordance with Section
6.03[(b)][(c)][(d)] of the Credit Agreement] [in connection with a
Permitted Acquisition], and such financial statements truthfully,
accurately, and completely resent the financial condition of the
Borrower and its Subsidiaries in all material respects as of the dates
of such financial statements;
(c) All financial information provided has been prepared in accordance
with GAAP, and such information presents fairly, in accordance with
GAAP, (subject to normal year-end adjustments) the financial position
and results of operations of the Borrower and its Subsidiaries, on a
Consolidated and consolidating basis, in each case as at the end of
the relevant period and for the period then ended;
VIII-I
<PAGE>
(d) I have reviewed the terms of the Credit Agreement and have made, or
have caused to be made under my supervision, a review in reasonable
detail of the transactions and financial condition of the Borrower and
its Subsidiaries during the accounting period covered by the financial
statements delivered herewith, and such review [has not disclosed and
I do not otherwise know of the existence, during or at the end of such
accounting period or as of the date hereof, of any condition or event
that constitutes a Default or an Event of Default] [has disclosed or I
otherwise know of the existence, during or at the end of such
accounting period or as of the date hereof, of one or more conditions
or events that constitute Default(s) or Event(s) of Default and I have
attached hereto as Schedule 2 a detailed description of the nature and
period of existence thereof and the action the Borrower has taken
and/or proposes to take with respect thereto]; and
[(e) [Except as disclosed in paragraph (d) above and on Schedule 2 attached
hereto,) the Borrower is in compliance with the financial covenants
contained in Section 6.04 of the Credit Agreement, as detailed and
computed on Schedule [2][3] attached hereto, and such calculations are
true, correct and complete in all respects.]
The foregoing certifications and the Schedules delivered with this
Certificate in support hereof are made and delivered this day of
PANOLAM INDUSTRIES
INTERNATIONAL, INC.
By:________________________________
Title:
VIII-2
<PAGE>
SCHEDULE 1
----------
Financial Statements
--------------------
See attached.
VIII-3
<PAGE>
[SCHEDULE 2]
[Defaults / Events of Default]
------------------------------
[Nature of Default/ Period of Action Taken or
Event of Default Existence Proposed to Be Taken)
- ---------------- --------- ---------------------
VIII-4
<PAGE>
SCHEDULE [2][3]
[TO BE INCLUDED WITH
QUARTERLY COMPLIANCE CERTIFICATE]
Compliance with Financial Covenants
-----------------------------------
- --------------------------------------------------------
Quarterly Compliance Calculations for Fiscal
Quarter Ended:___________ (the "Compliance Period")'
- --------------------------------------------------------
A. Maximum Consolidated Leverage Ratio. Consolidated Leverage Ratio of the
-----------------------------------
Borrower and its Subsidiaries as of the last day of the Compliance Period:
1. Consolidated Total Debt (as of the last day of the
Compliance Period) $__________
2. Calculation of Consolidated EBITDA as defined
in the Credit Agreement (far the period ending on
the last day of the Compliance Period) $__________
a. Consolidated Net Income $__________
b. Minus the following, without duplication, and to the
-----
extent otherwise included or not otherwise deductible
(as applicable) in determining Consolidated Net
Income in accordance with GAAP: $__________
(i) Income tax credits $__________
(ii) Interest income $__________
(iii) Gain from extraordinary items $__________
(iv) Aggregate net gain during such period arising
from the sale, exchange or other disposition of
capital assets (including any fixed assets, all
inventory sold in conjunction with the
disposition of fixed assets and all
securities) $__________
(v) Other non-cash gains which have been added in
determining Consolidated Net Income $__________
(vi) Fees paid under any Genstar Agreement $__________
____________________
* For periods of less than four consecutive quarters, annualization factor used
in calculations:_______.
VIII-5
<PAGE>
c. Plus the following, without duplication, and to the
----
extent deducted or not otherwise included (as
applicable) in determining Consolidated Net Income
in accordance with GAAP:
(i) Provision for income taxes $__________
(ii) Consolidated Interest Expense $__________
(iii) Loss from extraordinary items $__________
(iv) Non-cash charges (including
depreciation and amortization) $__________
(v) Amortized debt discount $__________
(vi) Aggregate net loss arising from the sale,
exchange or other disposition of capital
assets (including any fixed assets, all
inventory sold in conjunction with the
disposition of fixed assets and all
securities) $__________
(vii) For the periods indicated on Schedule 1.0l(a)
to the Credit Agreement, the amounts indicated
on such Schedule 1.01(a) relating to historical
restructuring charges $__________
(viii) Applicable Restructuring Costs $__________
(ix) Business interruption insurance proceeds
actually received $__________
3. Consolidated EBITDA $__________
(sum of items in A.2)
4. Actual Consolidated Leverage Ratio __________
(A.1 divided by A.3)
5. Maximum Consolidated Leverage Ratio
under Section 6.04(a) of the Credit Agreement __________
B. Minimum Fixed Charge Coverage Ratio. Fixed Charge Coverage Ratio on a
-----------------------------------
consolidated basis of Borrower and its Subsidiaries for the period ending
on the last day of the Compliance Period:
1. Consolidated EBITDA $__________
(from A.3)
2. Consolidated Fixed Charges (as of the last day of the $__________
Compliance Period)
3. Actual Fixed Charge Coverage Ratio __________
(B.1 divided by B.2)
VIII-6
<PAGE>
4. Minimum Fixed Charge Coverage Ratio under Section
6.04(b) of the Credit Agreement __________
C. Minimum Interest Coverage Ratio. Interest Coverage Ratio on a consolidated
-------------------------------
basis of the Borrower and its Subsidiaries for the period ending on the
last day of the Compliance Period:
1. Consolidated EBITDA $__________
(from A.3)
2. Consolidated Interest Expense (as of the last day of $__________
the Compliance Period)
3. Actual Interest Coverage Ratio
(C.1 divided by C.2) __________
4 Minimum Interest Coverage Ratio
under Section 6.04(c) of the Credit Agreement __________
D. Capital Expenditures. Capital Expenditures of the Borrower and it
--------------------
Subsidiaries on a consolidated basis for the Fiscal Year ended _______ (the
"Fiscal Year"):
1. Calculation of Maximum Capital Expenditures
a. Base Amount of Maximum Capital Expenditures
from Section 6.04(d) of the Credit Agreement $__________
b Plus 50% of the unused Base Amount of Capital
Expenditures from the prior Fiscal Year $__________
2. Maximum Capital Expenditures (D.1.a+ D.l.b) $__________
3. Actual Capital Expenditures during the Fiscal Year $__________
VIII-7
<PAGE>
EXHIBIT X
FORM OF GUARANTY
This GUARANTY dated as of February 18, 1999 (as amended, amended and
restated, supplemented or otherwise modified from time to time, this "Guaranty")
--------
is made by PANOLAM INDUSTRIES HOLDINGS, INC., a Delaware corporation
("Holdings"), PANOLAM GROUP, INC., a Delaware corporation ("Group"), and PII
-------- -----
SECOND, INC., a Delaware corporation ("PII Second" and together with Holdings
----------
and Group, the "Parent Guatantors"), and PANOLAM INDUSTRIES, INC., a Delaware
-----------------
corporation ("Panolam US"), and PIONEER PLASTICS CORPORATION, a Delaware
----------
corporation ("Pioneer" and together with Panolam US, the "Subsidiary
------- ----------
Guarantors"), in favor of the financial institutions from time to time party to
- ----------
the Credit Agreement referred to below as the Agents and Lender Parties (such
Agents and Lender Parties are each referred to individually herein as a
"Guaranteed Party "and are collectively referred to herein as the "Guaranteed
---------------- ----------
Parties"). Each of the Parent Guarantors and the Subsidies Guarantors, together
- -------
with any future direct or indirect parent or subsidiary of the Borrower (as
hereinafter defined) that agrees to be bound by the terms hereof, is referred to
as a "Guarantor" and such entities collectively are referred to as the
---------
"Guarantors."
----------
PRELIMINARY STATEMENT
PANOLAM INDUSTRIES INTERNATIONAL, INC., a Delaware corporation (the
"Borrower"), has entered into a Credit Agreement dated as of February 18, 1999
--------
with the financial institutions from time to time party thereto as 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 (in such capacity, together with any successor appointed
pursuant to Article VIII of such Credit Agreement, the "Administrative Agent"),
--------------------
and ROYAL BANK OF CANADA, for itself as an Initial Lender and as Documentation
Agent (said agreement. as it may hereafter be amended, amended and restated,
supplemented or otherwise modified from time to time, being the "Credit
------
Agreement," the terms defined therein and not otherwise defined herein being
- ---------
used herein as therein defined). Each Parent Guarantor owns, as of the date
hereof, directly or indirectly, 100% of the capital stock of the Borrower. Each
Subsidiary Guarantor is a wholly owned Subsidiary of the Borrower. Each
Guarantor wi1l derive substantial direct and indirect benefit from the
transactions contemplated by the Credit Agreement. It is a condition precedent
to the making of Loans and the issuance of Letters of Credit by the Agents and
Lender Parties under the Credit Agreement that each Guarantor shall have
executed and delivered this Guaranty.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Lenders to make the Loans and the Issuing Banks to issue Letters of
Credit under the Credit Agreement from time to time, each Guarantor hereby
agrees as follows:
X-1
<PAGE>
Section 1. Guaranty; Limitation of Liability.
---------------------------------
(a) Each Guarantor hereby unconditionally and irrevocably guarantees,
on a joint and several basis, the punctual payment when due, whether at stated
maturity, by acceleration or otherwise, of all Obligations of the Borrower now
or hereafter existing under the Loan Documents, whether for principal
(including, without limitation, reimbursement of, and providing cash collateral
for, amounts drawn or available to be drawn under Letters of Credit), interest,
fees, expenses or otherwise (such Obligations being the "Guaranteed Obligations"
----------------------
and agrees to pay any and all expenses (including counsel fees and expenses)
incurred by the Administrative Agent or any other Guaranteed Party in enforcing
any rights under this Guaranty. Without limiting the generality of the
foregoing, each Guarantor's liability shall extend to all) amounts that
constitute part of the Guaranteed Obligations and would be owed by the Borrower
to the Administrative Agent or any other Guaranteed Party under the Loan
Documents but for the fact that they are unenforceable or not allowable due to
the existence of a bankruptcy, reorganization or similar proceeding.
(b) Any provision of this Guaranty to the contrary notwithstanding,
the liability of each Subsidiary Guarantor under this Guaranty shall be limited
to such maximum aggregate amount as would not render such Subsidies Guarantor's
obligations hereunder subject to avoidance as a fraudulent transfer or
conveyance under Section 548 of Title 11 of the United States Code or any
applicable provisions of any state or foreign law having similar effect.
Section 2. Guaranty Absolute.
-----------------
Each Guarantor guarantees that the Guaranteed Obligations will be paid
strictly in accordance with the terms of the Loan Documents, regardless of any
law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of the Administrative Agent or any
other Guaranteed Party with respect thereto, The Obligations of each Guarantor
under this Guaranty are independent of the Guaranteed Obligations or any other
Obligations of any other Credit Party under the Loan Documents, and a separate
action or actions may be brought and prosecuted against each Guarantor to
enforce this Guaranty, irrespective. of whether any action is brought against
the Borrower or any other Credit Party or whether the Borrower or any other
Credit Party is joined in any such action or actions. The liability of each
Guarantor under this Guaranty is joint and several and shall be irrevocable,
absolute and unconditional irrespective of, and each Guarantor hereby
irrevocably waives any defenses it may now or hereafter have in any way relating
to, any or all of the following:
(a) any lack of validity or enforceability of any Loan Document or
any agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or many
other term of, all or any of the Guaranteed Obligations or any other
Obligations of any other Credit Party under the Loan Documents, or any
other amendment or waiver of or any consent to departure from any Loan
Document, including, without limitation, any
X-2
<PAGE>
increase in the Guaranteed Obligations resulting from the extension of
additional credit to the Borrower or any of its Subsidiaries or otherwise;
(c) any taking, exchange, release or non-perfection of any
Collateral, or any taking, release or amendment or waiver of or consent to
departure from any other guaranty, for all or any of the Guaranteed
Obligations;
(d) any manner of application of collateral, or proceeds thereof, to
all or any of the Guaranteed Obligations, or any manner of sale or other
disposition of any collateral for all or any of the Guaranteed Obligations
or any other Obligations of any other Credit Party under the Loan Documents
or any other assets of the Borrower or any of its Subsidiaries;
(e) any change, restructuring or termination of the corporate
structure or existence of the Borrower or any of its Subsidiaries;
(f) any failure of any Guaranteed Party to disclose to the Borrower
or any Guarantor any information relating to the financial condition,
operations, properties or prospects of any other Credit Party now or in the
future known to any Guaranteed Party (each Guarantor hereby waiving any
duty on the part of the Guaranteed Parties to disclose such information);
or
(g) any other circumstance including, without limitation, any statute
of limitations) or any existence of or reliance on any representation by
the Administrative Agent or any other Guaranteed Party that might otherwise
constitute a defense available to, or a discharge of, the Borrower, any
Guarantor or any other guarantor or surety.
This Guaranty shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by any Guaranteed Party or any other Person upon
the insolvency, bankruptcy or reorganization of the Borrower or any other Credit
Party or otherwise, all as though such payment had not been made,
Section 3. Waivers and Acknowledgements.
----------------------------
(a) Each Guarantor hereby waives promptness, diligence, notice of
acceptance and any other notice with respect to any of the Guaranteed
Obligations and this Guaranty and any requirements that the Administrative Agent
or any other Guaranteed Party protect, secure, perfect or insure any Lien or any
property subject thereto or exhaust any right or take any action against the
Borrower or any other Person or any collateral.
(b) Each Guarantor hereby waives any right to revoke this Guaranty
and acknowledges that this Guaranty is continuing in nature and applies to all
Guaranteed Obligations, whether existing now or in the future.
X-3
<PAGE>
Term B Termination Date shall have occurred and (iv) all Letters of Credit and
Bank Hedge Agreements shall have expired or been terminated, the Administrative
Agent and the other Guaranteed Parties will, at such Guarantor's request and
expense, execute and deliver to such Guarantor appropriate documents, without
recourse and without representation or warranty, necessary to evidence the
transfer by subrogation to such Guarantor of an interest in the Guaranteed
Obligations resulting from such payment by such Guarantor.
(b) Each Guarantor hereby agrees that any indebtedness of the
Borrower now or hereafter owing to such Guarantor (the " Subordinated Debt") is
-----------------
hereby subordinated to all of the Guaranteed Obligations and all other amounts
payable under this Guaranty and to all amounts payable in respect of the
Subordinated Notes (the "Subordinated Note Obligations"), whether heretofore,
-----------------------------
now or hereafter created, and that without the prior consent of the
Administrative Agent, the Subordinated Debt shall not be paid in whole or in
part until the Guaranteed Obligations and all other amounts payable under this
Guaranty and all Subordinated Note Obligations have been paid in full, all
Letters of Credit and Bank Hedge Agreements shall have expired or been
terminated, and the Credit Agreement has been terminated and is of no further
force or effect, except that payments of principal and interest on the
Subordinated Debt shall be permitted so long as no Default shall have occurred
and be continuing, Each Guarantor agrees that it will not accept any payment of
or on account of any Subordinated Debt at any time in contravention of the
foregoing. At the request of the Administrative Agent, following the occurrence
and during the continuance of an Event of Default, each Guarantor hereby agrees
to direct the Borrower to pay to the Administrative Agent, for the account of
the Administrative Agent and the other Guaranteed Parties, all or an part of the
Subordinated Debt and any amount so paid to the Administrative Agent shall be
applied to payment of the Guaranteed Obligations and all other amounts payable
under this Guaranty, Each payment on the Subordinated Debt received in violation
of any of the provisions hereof shall be deemed to have been received in trust
for the Administrative Agent and shall be paid over to the Administrative Agent
immediately on account of the Guaranteed Obligations, but without otherwise
affecting in any manner any Guarantor's liability under any of the provisions of
this Guaranty. Each Guarantor agrees to file all claims against the Borrower in
any bankruptcy or other proceeding in which the filing of claims is required by
law in respect of any Subordinated Debt, and the Administrative Agent shall be
entitled to all of such Guarantor's rights thereunder. If for any reason any
Guarantor fails to file such claim at least 30 days prior to the last date on
which such claim should be filed, the Administrative Agent, as such Guarantor's
attorney-in-fact, is hereby authorized to do so in such Guarantor's name or, in
the Administrative Agent's discretion, to assign such claim to and cause proof
of claim to be filed in the name of the Administrative Agent or its nominee. In
all such cases, whether in reorganization, bankruptcy or otherwise, the Person
or Persons authorized to pay such claim shall pay to the Administrative Agent,
for the account of the Administrative Agent and the other Guaranteed Parties,
the full amount payable on the claim in the proceeding, and, to the full extent
necessary for that purpose, each Guarantor hereby assigns to the Administrative
Agent, for the account of the Administrative Agent and the other Guaranteed
Parties, all of such Guarantor's rights to any payments or distributions to
which such Guarantor otherwise would be entitled. If the amount so paid is
greater than such Guarantor's liability hereunder, the Administrative Agent will
pay the excess amount to the party entitled
X-5
<PAGE>
thereto. In addition, each Guarantor hereby appoints the Administrative Agent as
its attorney-in-fact to exercise all of such Guarantor's voting rights in
connection with any bankruptcy proceeding or any plan for the reorganization of
the Borrower.
(c) In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
----- --
distribution is made by any Guarantor (a "Funding Guarantor") under this
-----------------
Guaranty, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount based on the Adjusted Net Assets (as
--- ----
hereinafter defined) of each Guarantor (including the Funding Guarantor) for all
payments, damages and expenses incurred by that Funding Guarantor in discharging
the Guaranteed Obligations or any other Guarantor's Obligations with respect to
this Guaranty. "Adjusted Net Assets" of any Guarantor at any date means the
-------------------
lesser of (a) the amount by which the fair value of the property of such
Guarantor exceeds the total amount of liabilities (including, without
limitation, contingent liabilities, but excluding liabilities of such Guarantor
under this Guaranty) of such Guarantor at such date, and (b) the amount by which
the present fair salable value of the assets of such Guarantor at such date
exceeds the amount that will be required to pay the probable liability of such
Guarantor on its debts (after giving effect to all contingent liabilities, but
excluding liabilities of such Guarantor under this Guaranty) as they become
absolute and matured.
Section 5. Payments Free and Clear of Taxes Etc.
------------------------------------
(a) Except as otherwise provided in this Section 5, any and all
payments made by any Guarantor hereunder shall be made, in accordance with
Section 2,09 of the Credit Agreement, free and clear of and without deduction
for any Taxes. Except as otherwise provided in this Section 5, if any Guarantor
shall be required by law to deduct any Taxes from or in respect of any sum
payable hereunder to the Administrative Agent or any other Guaranteed Party, (i)
the sum payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section) the Administrative Agent or such other Guaranteed Party (as
the case may be) receives an amount equal to the sum it would have received had
no such deductions been made, (ii) such Guarantor shall make such deductions and
(iii) such Guarantor shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(b) In addition, each Guarantor agrees to pay any present or future
Other Taxes.
(c) Except as otherwise provided in this Section 5, each Guarantor
will indemnify the Administrative Agent and each other Guaranteed Party for the
full amount of Taxes and Other Taxes, and for the full amount of Taxes imposed
by any jurisdiction on amounts payable under this Section 5 paid by the
Administrative Agent or such other Guaranteed Party (as the case may be) and any
liability (including penalties, additions to tax, interest and expenses) arising
therefrom or with respect thereto. This indemnification shall be made within 30
days
X-6
<PAGE>
from the date the Administrative Agent or such other Guaranteed Party (as the
case may be) makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes by or on
behalf of any Guarantor, such Guarantor will furnish to the Administrative
Agent, at its address referred to in the Credit Agreement, the original receipt
of payment thereof or a certified copy of such receipt. In the case of any
payment hereunder by or on behalf of any Guarantor through an account or branch
outside the United States or an behalf of any Guarantor by a payor that is not a
United States person, if such Guarantor determines that no Taxes are payable in
respect thereof, such Guarantor shall furnish, or shall cause such payor to
furnish, to the Administrative Agent, at such address, an opinion of counsel
acceptable to the Administrative Agent stating that such payment is exempt from
Taxes, For purposes of this Section 5(d) and Section 5(e), the terms "United
------
States" and "United States Person" shall have the meanings specified in Section
- ------ --------------------
7701 of the Internal Revenue Code.
(e) Upon the reasonable request in writing of any Guarantor, each
Guaranteed Party organized under the laws of a jurisdiction outside the United
States shall, on or prior to the date of its execution and delivery of the
Credit Agreement in the case of each Initial Lender, and on the date of the
Assignment and Acceptance pursuant to which it became a Guaranteed Party in the
case of each other Guaranteed Party, and from time to time thereafter upon the
reasonable request in writing by any Guarantor or the Administrative Agent (but
only so long thereafter as such Guaranteed Party remains lawfully able to do
so), provide the Administrative Agent and such Guarantor with Internal Revenue
Service form 1001 (or W-8BEN) or 4224 (or W-8ECI), as appropriate, or any
successor form prescribed by the Internal Revenue Service, certifying that such
Guaranteed Party is exempt from United States withholding tax on payments under
the Credit Agreement, the Notes (if any) and this Guaranty. If any form or
document referred to in this Section 5(a) requires the disclosure of
information, other than information necessary to compute the tax payable and
information required on the date hereof by Internal Revenue Service form 1001
(or W-8BEN) or 4224 (or W-8ECI), that the Guaranteed Party reasonably considers
to be confidential, the Guaranteed Party shall give notice therefore to such
Guarantor and shall not be obligated to include in such form or document such
confidential information.
(f) For any period with respect to which a Guaranteed Party has
failed to provide such Guarantor with the appropriate form described in Section
5(e) establishing an exemption from withholding tax (other than if such failure
is due to a change in law occurring after the date on which a form originally
was required to be provided), such Guaranteed Party shall not be entitled to
any payments or amounts from such Guarantor under Section 5(a) or
indemnification under Section 5(c) with respect to Taxes imposed by the United
States; provided, however, that should a Guaranteed Party become subject to
-----------------
Taxes because of its failure to deliver a four. required hereunder, such
Guarantor shall take such steps as such Guaranteed Party shall reasonably
request to assist such Guaranteed Party to recover such Taxes. Further, no
party shall be entitled to any payments or amounts under Section 5(a) or
indemnification under Section S(c) except as a result of a change in law
occurring after such party acquired any interest in the Loans or the Notes. The
foregoing sentence shall not apply to the extent of any payments, amounts or
X-7
<PAGE>
indemnification that the assignor to such party was entitled at the time of
assignment or other transfer.
(g) Without prejudice to the survival of any other agreement of any
Guarantor hereunder or under any other Loan Document, the agreements and
obligations of each Guarantor contained in this Section 5 shall survive the
payment in full of the Guaranteed Obligations and all other amounts payable
under this Guaranty.
(h) If a Guarantor is required to pay any additional amount to a
Guaranteed Party or any taxing authority for the account of any Guaranteed Party
pursuant to this Section 5, such Guarantor shall have the right, upon reasonable
notice to the Guaranteed Party, to require such Guaranteed Party to use
reasonable efforts to designate a different lending office for funding or
booking its loan (or any loan participation) under the Credit Agreement or to
assign its rights and obligations hereunder to another of its offices, branches
or Affiliates, if, in the sole judgment of such Guaranteed Party, such
designation or assignment (A) would eliminate or reduce amounts payable pursuant
to Section 5, as the case may be, in the future and (B) would not cause such
Guaranteed Party to suffer any economic, legal or regulatory disadvantage. With
respect to the foregoing, each Guarantor hereby agrees to pay on demand all
reasonable costs and expenses incurred by any Guaranteed Party in connection
with any such designation or assignment.
Section 6. Representations and Warranties.
------------------------------
Each Guarantor hereby represents and warrants as follows:
(a) Such Guarantor (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which it owns or leases property or in
which the conduct of its business requires it to so qualify or be licensed
except where the failure to so qualify or be licensed would not have a Material
Adverse Effect and (iii) has all requisite corporate power and authority to own
or lease and operate its properties and to carry on its business as now
conducted and as proposed to be conducted.
(b) The execution, delivery and performance by such Guarantor of this
Guaranty and each other Loan Document to which it is or is to be a party, and
the consummation of the transactions contemplated hereby and thereby, are within
such Guarantor's corporate powers, have been duly authorized by all necessary
corporate action, and do not (i) contravene such Guarantor's charter or by-laws,
(ii) violate any law, rule, regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System), order,
writ, Judgment, injunction, decree, determination or award, (iii) conflict with
or result in the breach of, or constitute a default under, any contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument binding
on or affecting such Guarantor, any of its Subsidiaries or any of their
properties or (iv) except for the Liens created by the Collateral Documents,
result in or requite the creation or imposition of any Lien upon or with respect
to any of the properties of such Guarantor or any of its Subsidiaries.
X-8
<PAGE>
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other third
party is required for (i) the due execution, delivery, recordation, filing or
performance by such Guarantor of this Guaranty or any other Loan Document to
which it is or is to be a party, or for the consummation of the transactions
contemplated hereby and thereby, (ii) the grant by any Credit Party of the Liens
granted by it pursuant to the Collateral Documents, (iii) the perfection or
maintenance of the Liens created by the Collateral Documents (including the
first priority nature thereof) or (iv) the exercise by the Administrative Agent
or any other Agent or Lender Party of its rights under the Loan Documents or the
remedies in respect of the Collateral pursuant to the Collateral Documents.
(d) This Guaranty has been, and each of the other Loan Documents to
which such Guarantor is a party have been, duly executed and delivered by such
Guarantor and constitute the legal, valid and binding obligation of such
Guarantor, enforceable against such Guarantor in accordance with their
respective terms.
(e) There are no conditions precedent to the effectiveness of this
Guaranty that have not been satisfied or waived.
(f) Such Guarantor has, independently and without reliance upon the
Administrative Agent or any other Guaranteed Party and based on such documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Guaranty, and such Guarantor has established
adequate means of obtaining from any other Credit Parties on a continuing basis
information pertaining to, and is now and on a continuing basis will be
completely familiar with, the financial condition, operations, properties and
prospects of such other Credit Parties.
Section 7. Covenants.
---------
(a) So long as any part of the Guaranteed Obligations shall remain
unpaid or any Lender shall have any Commitment, each Guarantor agrees that if,
under the terms of the Credit Agreement, the Borrower is required to cause such
Guarantor or any of such Guarantor's Subsidiaries to take, or to refrain from
taking, any action, or to comply with any requirements, obligations, limitations
or restrictions contained therein, in each case whether individually or together
with any other Credit Parties, such Guarantor shall, and shall cause each of its
Subsidiaries to, take or refrain from taking (as the case may be) any such
action and comply with all such requirements, obligations, limitations and
restrictions.
(b) Upon issuance of any Equity Interests by Holdings (other than (i)
the issuance of stock options issued to management and other employees of
Holdings and its Subsidiaries in the ordinary course of business and the
issuance of Capital Stock of Holdings upon the exercise of such options, (ii)
Equity Interests issued as Acquisition Consideration to the extent permitted
under the Credit Agreement or (iii) Equity Interests used to repay the Domtar
X-9
<PAGE>
Note), Holdings shall contribute the Net Cash Proceeds of such issuance to the
Borrower as a Capital Contribution substantially concurrently with the issuance
of such Equity Interests.
Section 8. Amendments Etc.
--------------
(a) No amendment or waiver of any provision of this Guaranty and no
consent to any departure by any Guarantor therefrom shall in any event be
effective unless the same shall be in writing and signed by the Administrative
Agent (with the consent or at the direction of the Required Lenders except as
otherwise provided in this Section 8 and except as otherwise provided in the
Credit Agreement or the Intercreditor Agreement), in the case of any such
amendment by each Guarantor (except as set forth in Section 8(b), and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no amendment, waiver
-------- -------
or consent shall, unless in writing and signed by all of the Lenders (or by the
Administrative Agent with the consent or at the direction of all of the
Lenders), (i) further reduce or limit the liability of any Guarantor hereunder,
(ii) postpone any date fixed fir payment hereunder or xiii) change the number or
percentage of Lenders required to take any action hereunder.
(b) Upon the execution and delivery to the Administrative Agent by
any Person of an Amendment to Guaranty in substantially the form of Exhibit XIV
to the Credit Agreement (each, an "Amendment To Guaranty"), which Amendment to
---------------------
Guaranty need not be executed by any other Guarantor, and the acceptance thereof
by the Administrative Agent, such Person shall be and become a Guarantor
hereunder, and each reference in this Guaranty to a "Guarantor" shall include
such Person and each reference in any other Loan Document to a `Guarantor,"
"Credit Party" or a "Loan Party" shall include such Person.
Section 9. Notices, Etc.
------------
All notices and other communications provided for hereunder shall be
in writing (including telegraphic, telecopy or telex communication) and mailed,
telegraphed, telecopied, telexed or delivered to it, if to any Guarantor,
addressed to it at its address set forth on the applicable signature page hereto
or set forth in the Amendment to Guaranty pursuant to which such Guarantor
became a Guarantor, if to the Administrative Agent or any Guaranteed Party, at
its address specified in the Credit Agreement, or as to any party at such other
address as shall be designated by such party in a written notice to each other
party. All such notices and other communications shall, when, mailed,
telegraphed, telecopied or telexed, be effective when deposited in the mails,
delivered to the telegraph company, transmitted by telecopier or confirmed by
telex answerback, respectively.
Section 10. No Waiver: Remedies.
-------------------
No failure on the part of the Administrative Agent or any other
Guaranteed Party to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver therefore shall any single or partial exercise of any
right hereunder preclude any other or further exercise
X-10
<PAGE>
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
Section 11. Right of Set-off.
----------------
Upon (a) the occurrence and during the continuance of any Event of
Default and (b) the making of the request or the granting of the consent
specified by Section 7.01 of the Credit Agreement to authorize the
Administrative Agent to declare the Loans due and payable pursuant to the
provisions of such Section 7.01, each Guaranteed Party and each of its
respective Affiliates is hereby authorized, by each Guarantor, at any time and
from time to time, to the fullest extent permitted by law, to set off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Guaranteed
Party or such Affiliate to for the credit or the account of such Guarantor
against any and all of the Obligations of such Guarantor now or hereafter
existing under this Guaranty, whether or not such Guaranteed Party shall have
made any demand under this Guaranty and although such Obligations may be
unmatured. Each Guaranteed Party agrees promptly to notify the applicable
Guarantor after any such set-off and application; provided, however, that the
-------- -------
failure to give such notice shall not affect the validity of such set-off and
application. The rights of each Guaranteed Party and its respective Affiliates
under this Section are in addition to other rights and remedies (including,
without limitation, other rights of set-off) that such Guaranteed Party and its
respective Affiliates may have.
Section 12. Indemnification.
----------------
Without limiting any other Obligations of any Guarantor or remedies of
the Guaranteed Parties under this Guaranty, each Guarantor shall, to the fullest
extent permitted by law, indemnify, defend and save and hold harmless each
Guaranteed Party from and against, and shall pay on demand, any and all losses,
liabilities, damages, costs, expenses and charges (including the fees and
disbursements of such Guaranteed Party's legal counsel) suffered or incurred by
such Guaranteed Party as a result of any failure of any Guaranteed Obligations
to be the legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their terms; provided, however, that no
-------- -------
Guarantor shall be liable to a Guaranteed Party for losses directly caused by
such Guaranteed Party's willful misconduct or gross negligence.
Section 13. Continuing Guaranty: Assignments under the Credit
-------------------------------------------------
Agreement.
- ---------
This Guaranty is a continuing guaranty and shall (a) remain in full
force and effect until the later of the payment in full in cash of the
Guaranteed Obligations and all other amounts payable under this Guaranty and the
last to occur of (i) the Revolving Commitment Termination Date, (ii) the Term A
Termination Date, (iii) the Term B Termination Date and (iv) the expiration or
termination of all Letters of Credit and Bank Hedge Agreements, (b) be binding
upon each Guarantor, its successors and assigns and (c) inure to the benefit of
and be enforceable by the Administrative Agent and the other Guaranteed Parties
and their successors, transferees
X-11
<PAGE>
and assigns. Without limiting the generality of the foregoing clause (c), any
Guaranteed Party may assign or otherwise transfer all or any portion of its
rights and obligations under the Credit Agreement(including, without )imitation,
all or any portion of its Commitments, the Loans owing to it and any Note or
Notes held by it) to any ether Person, and such other Person shall thereupon
become vested with all the benefits in respect thereof granted to such
Guaranteed Party herein or otherwise, in each case as and to the extent provided
in Section 9.07 of the Credit Agreement.
Section 14. Governing Law; Jurisdiction; Waiver of Jury Trial, Etc.
------------------------------------------------------
(a) THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
(b) EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR
ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY NEW YORK STATE
COURT OR FEDERAL COURT OF THE UNITED STATES OF AMERICA SITTING IN NEW YORK CITY,
A%) ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS TO WHICH
IT IS OR IS TO BE A PARTY, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT,
AND EACH GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS
IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY
SUCH NEW YORK STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL
COURT, EACH GUARANTOR AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS
GUARANTY SHALL AFFECT ANY RIGHT THAT ANY PARTY MAY OTHERWISE HAVE TO BRING ANY
ACTION OR PROCEEDING RELATING TO THIS GUARANTY OR ANY OF THE OTHER LOAN
DOCUMENTS TO WHICH IT IS OR IS TO BE A PARTY IN THE COURTS OF ANY JURISDICTION.
(c) EACH GUARANTOR IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT IT MAY LEGALLY AND EFFECTIVELY DO SO, ANY OBJECTION THAT IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS
TO WHICH IT IS OR IS TO BE A PARTY IN ANY NEW YORK STATE OR FEDERAL COURT. EACH
GUARANTOR HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE
X-12
<PAGE>
DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING
IN ANY SUCH COURT.
(d) EACH GUARANTOR AND EACH GUARANTEED PARTY HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER
BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE
LOAN DOCUMENTS, THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF THE
ADMINISTRATIVE AGENT OR ANY OTHER GUARANTEED PARTY IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT THEREOF.
(Remainder of page intentionally blank. Signature pages follow.)
X-13
<PAGE>
IN WITNESS WHEREOF, each Guarantor has caused this Guaranty to be duly
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
PANOLAM INDUSTRIES HOLDINGS, INC.,
a Delaware corporation
By:_________________________________
Title:
Address for Notice:
20 Progress Drive
Shelton, Connecticut 06484
Telecopier: (203) 225-0051
Telephone: (203) 925-1556
Attention: Robert J. Muller
PANOLAM GROUP, INC.,
a Delaware corporation
By:_________________________________
Title:
Address for Notice:
20 Progress Drive
Shelton, Connecticut 06484
Telecopier: (203) 225-0051
Telephone: (203) 925-1556
Attention: Robert J. Muller
X-14
<PAGE>
PII SECOND, INC.,
a Delaware corporation
By:_________________________________
Title:
Address for Notice:
20 Progress Drive
Shelton, Connecticut 06484
Telecopier: (203) 225-0051
Telephone: (203) 925-1556
Attention: Robert J. Muller
PANOLAM INDUSTRIES, INC.,
a Delaware corporation
By:_________________________________
Title:
Address for Notice:
20 Progress Drive
Shelton, Connecticut 06484
Telecopier: (203) 225-0051
Telephone: (203) 925-1556
Attention: Robert J. Muller
X-15
<PAGE>
PIONEER PLASTIC CORPORATION,
a Delaware corporation
By:_________________________________
Name:
Title:
Address for Notice:
20 Progress Drive
Shelton, Connecticut 06484
Telecopier: (203) 225-0051
Telephone: (203) 925-1556
Attention: Robert J. Muller
X-16
<PAGE>
EXHIBIT XI
FORM OF DEED OF TRUST (MORTGAGE) /
LEASEHOLD DEED OF TRUST (MORTGAGE)
(Subject to such changes as may be satisfactory to the Administrative
Agent for mortgage forms, leasehold forms and local law issues)
Recording at the Request of and
when Recorded Mail Original to:
Latham & Watkins
633 West 5th Street, Suite 4000
Los Angeles, California 90071
Attention: Nadia Shabaik
DEED OF TRUST AND ASSIGNMENT OF RENTS,
LEASES AND LEASEHOLD INTERESTS
THIS DEED OF TRUST AND ASSIGNMENT OF RENTS, LEASES AND LEASEHOLD
INTERESTS (hereafter, as amended, modified, replaced, consolidated and extended,
the "Deed Of Trust") is made and entered into as of February 18, 1999 by and
-------------
among [PANOLAM INDUSTRIES, INC.] [PIONEER PLASTICS CORPORATION J, a Delaware
corporation ("Grantor"), [________], as trustee ("Trustee"), and CREDIT SUISSE
------- -------
FIRST BOSTON, as Administrative Agent ("Beneficiary").
-----------
Recitals
--------
A. Panolam Industries [International, inc.] [Ltd.] (the "Borrower")
--------
and Beneficiary are parties to that certain Credit Agreement, dated as of
February 18, 1999, among Borrower, Beneficiary, DLJ Capital Funding, Inc., as
Syndication Agent, Royal Bank of Canada, as Documentation Agent, and the other
financial institutions named therein as lenders (as the same may be amended,
restated, supplemented or otherwise Modified from time to time, the "Credit
------
Agreement"), under which Borrower will borrow Loans and will be afforded certain
- ---------
other financial accommodations. Unless otherwise defined herein, all capitalized
terms are used in this Deed of Trust as they are defined in the Credit
Agreement.
B. Pursuant to that certain Guaranty (as it may be amended,
supplemented or otherwise modified from time to time, the "Guaranty") of even
--------
date herewith, the Grantor has guaranteed all obligations of the Borrower under
the Credit Agreement.
XI-1
<PAGE>
C. It is a condition precedent: to the making of Loans and issuance of
Letters of Credit by the Lender Parties under the Credit Agreement that the
obligations of Grantor under the Guaranty be secured by liens and security
interests covering certain property of Grantor, In connection therewith,
Beneficiary has required that, and Grantor has agreed to, execute and deliver
this Deed of Trust.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and in order to secure all of the obligations of
Grantor under the Guaranty and the other Loan Documents (collectively with the
obligations set forth herein, the "Obligations"), Grantor. Trustee and
-----------
Beneficiary agree as follows:
ARTICLE I - CONVEYANCE IN TRUST
1.01 Conveyance in Trust. Grantor does hereby convey to Trustee in
-------------------
trust, with power of sale, all of Grantor's right, title and interest in and to
all of the following property (collectively, the "Trust Property") subject only
--------------
to Permitted Liens under the Credit Agreement:
(a) the real property described in Exhibit "A" attached hereto and
by this reference incorporated herein, including, with out limitation, all air
rights with respect thereto (the "Land");
----
(b) any and all buildings and all other improvements now on, or
hereafter constructed on, the Land, and all fixtures now or hereafter affixed
to, placed upon or used in connection with the Trust Property;
(c) any and all lands, fixtures, structures, improvements, tenements
and hereditaments of whatever kind or description and wherever situated, now
owned by, or at any time hereafter acquired by or for, Grantor and contiguous or
appurtenant to the Land, and all other things of whatsoever kind and in any way
or at any time belonging or appurtenant to, or used in connection with, any of
the other Trust Property;
(d) any and all leases and leasehold rights now held or hereafter
acquired by Grantor for use in connection with or belonging or appertaining to
any of Grantor's real property now or hereafter subject to the lien of this Deed
of Trust;
(e) any and all additions, betterments and improvements hereafter
acquired or constructed upon or in connection with any other property, real or
personal, now or at any time hereafter subject to the lien of this Deed of
Trust; and
(f) any and all rights, powers, franchises, privileges, immunities,
permits and licenses now or hereafter owned or possessed by Grantor that now or
at any time hereafter may be necessary far, or appurtenant to, the use,
operation, management, maintenance, renewal, alteration or improvement of any of
the other Trust Property.
XI-2
<PAGE>
This Deed of Trust is given for the purpose of securing in such order
of priority as Beneficiary may elect, the indebtedness and obligations described
in Section 1.03 hereof.
------------
1.02 Status of Title. Grantor has good right to mortgage and convey
---------------
the Trust Property to Trustee and Beneficiary and will warrant and defend the
sane to Trustee, Beneficiary and their respective successors and assigns against
the lawful claims and demands of all persons except with respect to Permitted
Encumbrances. Grantor agrees to protect, preserve and defend Trustee's and
Beneficiary's interests in the Trust Property and tide thereto; to appear and
defend this Deed of Trust in any action or proceeding affecting or purporting to
affect the Trust Property, the lien or security interest of this Deed of Trust
thereon, or any of the rights of Trustee or Beneficiary hereunder, and to pay
all costs and expenses incurred by Trustee or Beneficiary in or in connection
with any such action or proceeding, including reasonable attorneys' fees, at
trial and on appeal, whether or not any such action or proceeding progresses to
judgment and whether or not brought by or against Trustee or Beneficiary,
Beneficiary shall be reimbursed for any such costs and expenses in accordance
with the provisions of this Deed of Trust and the other Loan Documents. Trustee
or Beneficiary, after notice to Grantor, may, but shall not be under any
obligation to, appear or intervene in any such action or proceeding and retain
counsel therein and defend the same or otherwise take such action therein as it
be advised and may settle or compromise the same and, in that behalf and for any
of such purposes, may expend and advance such sums of money as it reasonably may
deem necessary, and shall be reimbursed therefor in accordance with the
provisions of this Deed of Trust and the other Loan Documents.
1.03 Obligations Secured. This Deed of Trust is made in trust,
-------------------
however, for the purpose of securing all of the Obligations. Grantor shall pay
and perform the Obligations at the times and places and in the manner specified
in the Loan Documents. This Deed of Trust shall secure unpaid balances of all
loans and other such extensions of credit made after this Deed of Trust is
recorded pursuant to the Loan Documents. All future advances will have the same
priority as the original advance. Any agreement thereafter made by Grantor and
Beneficiary pursuant to this Deed of Trust shall be superior to the rights of
the holder of any intervening lien or encumbrance to the extent allowed by law.
1.04 After-Acquired Property. if Grantor hereafter acquires (a) any
-----------------------
property that is of the kind or nature described in Section 1.0. hereof and is
-----------
or is intended to become a part thereof, or (b) an interest in any of the Trust
Property greater than the interest now held, then such property or interest
shall, immediately upon such acquisition, become subject to the lien of this
Deed of Trust as fully and complete) and with the same effect as though now
owned by Grantor and specifically described herein, without need for the
delivery and/or recording of a supplement to this Deed of Trust or any other
instrument: but nevertheless Grantor shall from time to time, if requested by
Trustee or Beneficiary, execute and deliver any and all such further assurances,
conveyances and assignments thereof as Trustee or Beneficiary may reasonably
require for the purpose of expressly and specifically subjecting to the lien of
this Deed of Trust any and all such property or interest.
XI-3
<PAGE>
ARTICLE II - COVENANTS CONCERNING THE TRUST PROPERTY
2.01 Taxes and Governmental Impositions.
----------------------------------
(a) Payment. Grantor will pay, or cause to be paid, promptly, when
-------
and as due, and, upon written request from Trustee or Beneficiary, will promptly
exhibit to Beneficiary receipts for the payment of, a)1 taxes, assessments,
charges, fees, fines and impositions of every nature whatsoever charged,
imposed, levied or assessed or to be charged, imposed, levied or assessed upon
or against the Trust Property or any part thereof, or upon the interest of
Trustee or Beneficiary in the Trust Property, as well as all income taxes,
assessments and other governmental charges lawfully levied and imposed by the
United States or any state, county, municipality or other taxing authority in
respect of the Trust Property or any part thereof or any charge that, if unpaid,
would or could become a lien or charge upon the Trust Property, or any part
thereof (collectively, the "Impositions").
-----------
(b) Contests. Grantor shall have the right before any delinquency
--------
occurs to contest or object to the amount or validity of any such Imposition by
appropriate legal proceedings, but such right shall not be deemed or construed
in any way as relieving, modifying or extending Grantor's covenant to pay any
such Imposition at the time and in the manner provided in Section 2.01(a)
---------------
hereof, unless Grantor has given prior written notice to Beneficiary of
Grantor's intent so to contest or object to an Imposition, and unless: (i) the
legal proceedings shall operate conclusively to prevent the sale of the Trust
Property, or any part thereof, to satisfy such Impositions prior to final
determination of such proceedings; or (ii) Grantor shall furnish a good and
sufficient bond or surety in the amount of the Impositions that are being
contested plus any interest and penalty that may be imposed thereon and that
could become a lien against the Trust Property and in a manner to stay or
prevent the sale, or other security reasonably satisfactory to Beneficiary; or
(iii) Grantor shall have provided a good and sufficient undertaking as may be
required or permitted by law to accomplish a stay of such proceedings; or (iv)
Grantor shall have paid such Impositions under protest and is suing to recover
any refunds thereof. Subject to the foregoing, and if Beneficiary shall so
request, within sixty days after the date when an Imposition is due and payable,
Grantor shall deliver to Beneficiary evidence reasonably acceptable to
Beneficiary showing the payment of such Imposition.
(c) Payment by Beneficiary. Beneficiary shall have the right, after
----------------------
demand to Grantor, to pay any Imposition after the date such Imposition shall
have become due, unless Grantor shall be contesting such Imposition pursuant to
Section 2.01(b) hereof, and to add to the Obligations the amount so paid,
- ---------------
together with interest thereon from the date of such payment at the Default Rate
of interest applicable under the Credit Agreement, and nothing herein contained
shall affect such right and such remedy, Any sums paid by Beneficiary in
discharge of any Impositions shall be (i) a future advance hereunder and a lien
on the Trust Property secured hereby prior to any right or title to, interest
in, or claim upon the Trust Property subordinate to the lien of this Deed of
Trust, and (ii) payable on demand.
XI-4
<PAGE>
(d) No Credit. Grantor shall not claim, demand or be entitled to
---------
receive any credit or credits towards the satisfaction of this Deed of Trust or
on any interest payable thereon for any taxes assessed against the Trust
Property or any part thereof, and shall not claim any deduction from the taxable
value of the Trust Property by reason of this Deed of Trust.
2.02 Mechanic's and Other Liens. Grantor will not suffer any
--------------------------
mechanic's, laborer's, materialmen's, statutory or other lien or any security
interest or encumbrance to be created or to remain outstanding (other than
Permitted Encumbrances).
2.03 Utilities. Grantor will pay, or cause to be paid, when due any
---------
charges for utilities, whether public or private, with respect to the Trust
Property or any part thereof.
2.04 Insurance.
---------
(a) Maintenance. Grantor will obtain and maintain insurance with
-----------
respect to the Trust Property in accordance with the provisions of the Credit
Agreement and the other Loan Documents. From and after the entry of judgment of
foreclosure, all rights and powers of Beneficiary to settle or participate in
the settlement of losses under policies of insurance or to hold and disburse or
otherwise control use of insurance proceeds shall continue in Beneficiary as
judgment creditor or mortgagee until confirmation of sale.
(b) Proceeds. If the Trust Property is materially damaged or
--------
destroyed, Grantor shall give prompt notice thereof to Benefice and all
insurance proceeds shall be delivered or applied in accordance with the
provisions of the Credit Agreement and the other Loan Documents.
2.05 Condemnation. If all or any part of the Trust Property shall be
------------
damaged, diminished in value or taken through condemnation proceedings, or if a
consent settlement is entered, or a transfer is made under threat of such
proceedings, either temporarily or permanently, then any and all compensation,
awards and other payments or relief therefor to which Grantor is entitled shall
be applied in accordance with the provisions of the Credit Agreement and the
other Loan Documents.
2.06 Care of the Trust Property.
--------------------------
(a) Preservation and Maintenance. Grantor will preserve and maintain
----------------------------
the Trust Property in good condition and repair, will not commit or suffer any
waste thereof, and will keep the same in a clean, orderly and attractive
condition, making or causing to be made from time to time all needful or proper
replacements, repairs and renewals. Grantor will not abandon or leave the Trust
Property unprotected, unguarded, vacant or deserted. Grantor will not do or
suffer to be done anything that will materially increase the risk of fire or
other hazard to the Trust Property or any part thereof or take or omit to take
any action that will cause an increase in Beneficiary's fire insurance premiums.
XI-5
<PAGE>
(b) Notice of Damage. If the Trust Property or any part thereof is
----------------
materially damaged by fire or any other cause, Grantor will give prompt written
notice thereof to Beneficiary.
(c) Right to Inspect. Beneficiary or its representative is hereby
----------------
authorized, with reasonable advance notice to Grantor, to enter upon and inspect
the Trust Property at any time during normal business hours.
(d) Repair and Replacement. If all or any part of the Trust Property
----------------------
shall be damaged by fire or other casualty or condemnation, Grantor will
promptly restore the Trust Property to the equivalent of its condition
immediately before the occurrence of such casualty or condemnation.
ARTICLE III - ASSIGNMENT OF RENTS AND LEASES
3.01 Assignment of Rents and Leases. As additional consideration for
------------------------------
the Obligations, Grantor hereby absolutely assigns and transfers to Beneficiary
the following:
(a) all leases or subleases (if any) written or oral, now in
existence or hereafter arising and all agreements far the use and occupancy of
all or any portion of the Trust Property (the "Leases");
------
(b) any and all guaranties of the obligations of the tenants (the
"Tenants") under any of such Leases; and
-------
(c) the immediate and continuing right to collect and receive all of
the rents, income, receipts, revenues, issues and profits no due or that may
become due or to which Grantor may now or shall hereafter (whether during any
applicable period of redemption or otherwise) become entitled or may demand or
claim, arising or issuing from or out of the Leases, or from or out of the Trust
Property or any part thereof (collectively, the "Rents").
-----
3.02 Grantor's Limited License. Provided that no Event of Default
-------------------------
exists, Grantor shall have the right under a license granted hereby and
Beneficiary hereby grants to Grantor a license to collect, but not more than one
month in advance, all of the Rents arising from or out of the Leases or any
renewals or extensions thereof, or from or out of the Trust Property or any part
thereof, but only as trustee for the benefit of Beneficiary. Grantor shall apply
the Rents so collected first to payment of any and all amounts due and payable
under the Loan Documents. Thereafter, so long as no Event of Default exists and
no event has occurred that with notice, or lapse or time or both would
constitute an Event of Default, Grantor may use the Rents in any manner not
inconsistent with the Loan Documents. The license granted hereby shall be
revoked automatically upon the occurrence of an Event of Default.
3.03 Limitation. The acceptance by Beneficiary of the assignment
----------
provided in this Article III, together with all of the rights, powers,
privileges and authority created in this
XI-6
<PAGE>
Article III or elsewhere in this Deed of Trust. shall not, prior to entry upon
- -----------
and taking possession of the Trust Property by Beneficiary be deemed or
construed to constitute Beneficiary a "mortgagee in possession" nor thereafter
or at any time or in any event obligate Beneficiary to appear in or defend any
action or proceeding relating to the Leases, the Rents or the Trust Property or
to take any action hereunder or to expend any money or incur any expenses or
perform or discharge any obligation or responsibility for any security deposits
or other deposits delivered to Grantor by any Tenant and not assigned and
delivered to Beneficial, nor shall Beneficiary be liable in any way for any
injury or damage to person or property sustained by any person or persons, firm
or corporation in or about the Trust Property.
ARTICLE IV - DEFAULT AND REMEDIES
4.01 Events of Default. Each of the following shall constitute an
-----------------
Event of Default ("Event of Default"):
----------------
(a) Loan Documents. The occurrence of any Event of Default under, and
--------------
as defined in, any of the Loan Documents, including without limitation, the
Credit Agreement, which are incorporated herein by this reference.
(b) Other Defaults. The failure of Grantor to perform in any material
--------------
respect any covenant or agreement hereunder if such failure (i) would not, with
the giving of notice or the lapse of time or both, constitute an Event of
Default under Section 4.01(a) hereof and (ii) is not cured within 30 days after
---------------
such failure occurs.
4.02 Performance of Defaulted Acts. From and after the occurrence of
-----------------------------
an Event of Default, Beneficiary may, but need not, make any payment or perform
any act herein required of Grantor in any form and manner deemed expedient,
including, without limitation, making full or partial payments of principal or
interest on prior encumbrances, if any, and purchasing, discharging,
compromising or settling any tax lien or other prior lien or title or claim
thereof, or redeeming from any tax sale or forfeiture affecting the Trust
Property or contesting any tax or assessment. All moneys paid for any of the
purposes herein authorized and all expenses paid or incurred in connection
therewith, including reasonable attorneys' fees, shall be included among the
Obligations and shall be due and payable upon demand and with interest hereon
from the date of such payment or expense at the Default Rate. Inaction of
Beneficiary shall never be considered as a waiver of any right accruing to it
hereunder on account of any default on the part of Grantor. Beneficiary, making
any payment hereby authorized relating to taxes or assessments, may do so
according to any bill, statement or estimate procured from the appropriate
public office without inquiry into the accuracy of such bill, statement or
estimate or into the validity of any tax, assessment, sale, forfeiture, tax lien
or title or claim thereof.
4.03 Foreclosure. When the Obligations shall become due whether by
-----------
acceleration or otherwise, Trustee shall have the right to foreclosure, in
either case in accordance with applicable law. If this Deed of Trust is
foreclosed by judicial procedure, Beneficiary will be entitled to a judgment
which will provide that if the foreclosure sale proceeds are insufficient to
XI-7
<PAGE>
satisfy the judgment, execution may issue for any amount by which the unpaid
balance of the obligations secured by this Deed of Trust exceeds the net sale
proceeds payable to Beneficiary, In the event of any foreclosure sale or
trustee's sale, to the extent permitted by applicable law, there shall be
allowed and included as part of the foreclosed indebtedness all expenditures and
expenses that may be paid or incurred by or on behalf of Beneficiary and/or
Trustee, as applicable, for court costs, fees of masters in chancery, reasonable
attorneys' fees (including charges for inside counsel), appraiser's fees,
outlays for documentary and expert evidence, stenographers' charges, publication
costs and costs (which may be estimated as to items to be expended after entry
of the decree of procuring all such abstracts of title, title searches and
examinations, title insurance policies, Torrens certificates, and similar data
and assurances with respect to title as Beneficiary or Trustee, as applicable,
may deem to be reasonably necessary either to prosecute such suit or to evidence
to the holder at any foreclosure or trustee's sale the true conditions of the
title to or the value of the Trust Property. All expenditures and expenses of
the nature Mentioned in this Section 4.03 shall become additional Obligations
------------
and shall be immediately due and payable, with interest thereon at the Default
Rate applicable under the Credit Agreement from and after an Event of Default
from and after the date when paid or incurred by Beneficiary or Trustee, as
applicable, in connection with (a) any proceeding, including probate and
bankruptcy proceeding.;, to which Beneficiary or Trustee, as applicable, shall
be a party, either as plaintiff, claimant i r defendant, by reason of this Deed
of Trust or any of the Obligations; or (b) preparations for the commencement of
any suit for the foreclosure hereof after accrual of such right to foreclose
whether or not actually commenced; or (c) preparations for the defense of any
threatened suit or proceedings that might affect the Trust Property, whether or
not actually commenced.
4.04 Trustee's Sale.
--------------
(a) Should Beneficiary elect to sell the Trust Property which is real
property pursuant to the power of sale granted hereby, upon such election,
Beneficiary or Trustee shall give such notice of an Event of Default and
election to sell as may then be required by low. Thereafter, upon the expiration
of such time end the giving and filing of such notice of sale as may then be
required by law, Trustee, at the time and place specified by the notice of sale,
shall sell such Trust Property or any portion thereof specified by Beneficiary,
at public auction to the highest bidder for cash in lawful money of the United
States, subject, however, to the provisions of Section 4.05 hereof. Trustee may,
------------
and upon request of Beneficiary shall, from time to time postpone the sale by
public announcement thereof at the time and place notified therefor. If the
Trust Property consists of several lots or parcels, Beneficiary may elect to
sell the Trust Property either as a whole or in separate lots or parcels, If
Beneficiary elects to sell in separate lots or parcels, Beneficiary may
designate the order in which such lets or parcels shall be offered for sale or
sold. Any person, including Grantor, Trustee or Beneficiary, may purchase at the
sale. To the extent permitted by law, upon any sale, Beneficiary shall execute
end deliver to the purchaser or purchasers a deed or deeds conveying the
property so sold, but without any covenant or warranty whatsoever, express or
implied, whereupon such purchaser or purchasers shall be let into immediate
possession.
XI-8
<PAGE>
(b) In the event of a sale or other disposition of the Trust
Property, or any part thereof, and the execution of a deed or other conveyance
pursuant thereto, the recitals therein of any facts, such as an Event of
Default, the giving of notice of such Event of Default and notice of sale,
demand that such sale should be made, postponement of sale, terms of sale, sale,
purchase, payments of purchase money, and any other fact affecting the
regularity or validity of such sale or disposition shall be conclusive proof of
the truth of such facts; and any such deed or conveyance shall be conclusive
against all persons as to such facts recited therein.
4.05 Foreclosure Purchase. upon any sale of the Trust Property,
--------------------
whether made under a power of sale herein granted or pursuant to judicial
proceedings, if the obligee under the Obligations is a purchaser at such sale,
it shall be entitled to use and apply all or any portion of the amounts then
secured hereby for or in settlement or payment of a!1 or any portion of the
purchase price of the property purchased, and in such case, this Deed of Trust
and documents evidencing expenditures secured hereby shall be presented to the
person conducting the sale in order that the amount of said indebtedness so used
or applied may be credited thereon as having been paid.
4.06 Application of Proceeds of Foreclosure or Trustee's Sale. The
--------------------------------------------------------
proceeds of any foreclosure sale of the Trust Property shall be distributed and
applied in the following order or priority: first, on account of all costs and
expenses incident to the foreclosure proceedings, including all such items as
are mentioned in Sections 4.03 and 4.04 hereof; second, all other items that
------------- ----
under the terms hereof constitute Obligations in accordance with the Credit
Agreement or the other Loan Documents; and third, any excess to Grantor, its
successors and assigns, as their rights may appear.
4.07 Possession. Upon the occurrence of an Event of Default,
----------
Beneficiary shall, at its option, have the right, acting through its agents or
attorneys, to enter upon and take possession of the Trust Property, expel and
remove any persons, goods, or chattels, occupying or upon the same, and to
collect or receive all the rents, issues and profits thereof, and to manage and
control the same, and to lease the same c.' any part thereof from time to time,
and, after deducting all reasonable attorney's fees, and all reasonable expenses
incurred in the protection, care, maintenance, management and operatic i of the
Trust Property, apply the remaining net income upon the Obligations or upon any
deficiency decree entered in any foreclosure proceedings.
4.08 Appointment of Receiver. Upon the occurrence of an Event of
-----------------------
Default, Beneficiary shall have the right to be placed in possession of the
Trust Property or at its request to have a receiver appointed, and such
receiver, or Beneficiary, if and when placed in possession, shall have, in
addition to any other powers provided in this Deed of Trust, all rights, powers,
immunities, and duties as provided by applicable law.
4.09 Rights Cumulative. No remedy or right of Beneficiary or Trustee
-----------------
shall be exclusive of, but each such remedy or right shall be in addition to,
every other remedy or right new or hereafter existing at law or in equity. No
delay in the exercise or omission to exercise of
XI-9
<PAGE>
any remedy or right accruing on any default shall impair any such remedy or
right or be construed to be a waiver of any such default or an acquiescence
therein, nor shall it affect any subsequent default of the same or a different
nature. Every such remedy or right may be exercised concurrently or
independently, and when and as often as may be deemed expedient by Beneficiary
or Trustee, as applicable. Grantor agrees that without affecting the liability
of any person for payment of the Obligations or affecting the lien of this Deed
of Trust upon the Trust Property or any part thereof Beneficiary may at any time
and from time to time, on request of Grantor, without notice to any person
liable for payment of any Obligations, extend the time or agree to alter the
terms of payment of such indebtedness. Acceptance by Beneficiary of any payment
in an amount less than the amount then due on the Obligations shall be deemed an
acceptance en account only, and the failure to pay the entire amount then due
shall continue to be an Event of Default. At any time thereafter and until the
entire amount then due on the debt has been paid, Beneficiary shall be entitled
to exercise all rights conferred upon it in this Deed of True upon the
occurrence of an Event of Default.
4.10 Protective Advances. All advances, disbursements and expenditures
-------------------
made or incurred by Beneficiary or Trustee before and during a foreclosure, and
before and after judgment of foreclosure, and at any time prior to judicial or
nonjudicial sale, and, where applicable, after sale, and during the pendency of
any related proceedings, for the following purposes, in addition to those
otherwise authorized by this Deed of Trust or by applicable law (collectively
"Protective Advances"), shall have the benefit of all provisions of applicable
-------------------
law and, to the extent permitted thereby, those provisions referred to below:
(a) all advances by Trustee or Beneficiary in accordance with the
terms of this Deed of Trust to: (i) preserve, maintain, repair, restore or
rebuild the improvements upon the Trust Property; (ii) preserve the lien of this
Deed of Trust or the priority hereof; or (iii) enforce this Deed of Trust;
(b) payments by Trustee or Beneficiary of: (i) principal, interest or
other obligations in accordance with the terms of any senior mortgage or other
prior lien or encumbrance on the Trust Property; (ii) real estate taxes and
assessments, general and special and other taxes and assessments of any kind or
nature whatsoever that are assessed or imposed upon the Trust Property or any
part thereof; (iii) other obligations authorized by this Deed of Trust; or (iv)
with court approval, any other amounts in connection with other liens,
encumbrances or interests reasonably necessary to preserve the status of title
to the Trust Property;
(c) advances by Beneficiary in settlement or compromise of any claims
asserted by claimants under senior mortgages or any other prior liens;
(d) reasonable attorneys' fees and ether costs incurred: (i) in
connection with the judicial or nonjudicial foreclosure of this Deed of Trust;
(ii) in connection with any action, suit or proceeding brought by or against
Beneficiary for the enforcement of this Deed of Trust or arising from the
interest of Beneficiary hereunder; o- (iii) in preparation for or in connection
with
XI-10
<PAGE>
the commencement, prosecution or defense of any other action related to this
Deed of Trust or the Trust Property;
(e) Trustee's and Beneficiary's fees and costs, including reasonable
attorneys' fees, arising between the entry of judgment of foreclosure and the
confirmation hearing;
(f) expenses deductible from proceeds of sale;
(g) expenses incurred and expenditures made by Beneficiary for any
one or more of the following: (i) premiums for casualty and liability insurance
paid by Beneficiary whether or not Beneficiary or a receiver is in possession,
if reasonably required, in reasonable amounts, and all renewals thereof; (ii)
repair or restoration of damage or destruction in excess of available insurance
proceeds or condemnation awards; (iii) payments deemed by Beneficiary to be
required for the benefit of the Trust Property or required to be made by the
owner of the Trust Property under any grant or declaration of easement, easement
agreement, agreement with any adjoining land owners or instruments creating
covenants or restrictions for the benefit of or affecting the Trust Property;
and (iv) shared or common expense assessments payable to any association or
corporation in which the owner of the Trust Property is a member in any way
affecting the Trust Property.
All Protective Advances shall be additional Obligations secured by
this Deed of Trust, and shall become immediately due and payable upon demand and
with interest thereon from the date of the advance until paid at the Default
Rate. This Deed of Trust shall be a lien for all Protective Advances as to
subsequent purchasers and judgment creditors from the time this Deed of Trust is
recorded.
All Protective Advances shall, except to the extent, if any, that any
of the same is clearly contrary to or inconsistent with the applicable
provisions of law, apply to and be included in:
(a) any determination of the amount of indebtedness secured by this
Deed of Trust at any time;
(b) the indebtedness found due and owing to Beneficiary in the
judgment of foreclosure and any subsequent supplemental judgments, orders,
adjudications or finding by the court of any additional indebtedness becoming
due after such entry of judgment, it being agreed that in any foreclosure
judgment, the court may reserve jurisdiction for such purpose;
(c) if right of redemption has not been waived by this Deed of Trust,
computation of amounts required to redeem;
(d) determination of amounts deductible from sale proceeds;
XI-11
<PAGE>
(e) application of income in the hands of any receiver or mortgagee
in possession; and
(f) computation of any deficiency judgment pursuant to applicable
law.
4.11 Environmental Matters.
---------------------
(a) Compliance. Grantor shall comply in all material respects with
all local, state, and federal environmental laws, ordinances, rules,
regulations, and requirements (collectively, "Environmental Laws"). If Grantor
------------------
fails to so comply, after notice to Grantor and a reasonable opportunity to
comply, and if such failure by Grantor would constitute an Event of Default,
Beneficiary may (without limiting any other rights and remedies of Beneficiary)
protect its secured interest by causing the Trust Property to so comply at
Grantor's expense. Any amounts expended by Beneficiary to cause the Trust
Property to comply with Environmental Laws shall be paid by Grantor to
Beneficiary on demand, with interest on all such amounts expended from the date
of the expenditure until paid at the Default Rate.
(b) Hazardous Substances.
--------------------
(i) "Hazardous Substances" shall mean: (A) those substances included
--------------------
within the definitions of hazardous substances, hazardous materials, toxic
substances, or solid waste in CERCLA, RCRA, the Hazardous Materials
Transportation Act (49 U.S.C. Sections 1801 et seg.), or any other federal,
-- ---
state, or local laws, and in the regulations promulgated pursuant to said laws;
(B) those substances listed in the United States Department of Transportation
Table (49 C.F.R. 172.101 and amendments) or by the Environmental Protection
Agency (or any successor agency) as hazardous substances (40 C.F.R. Part 302 and
amendments); (C) such other substances, materials, and wastes that are or that
become regulated under Environmental Laws; and (D) any material, waste, or
substance that is (1) petroleum, (2) friable asbestos, (3) polychlorinated
biphenyls, (4) designated as a hazardous substance pursuant to Section 311 of
the Clean Water Act (33 U.S.C. Sections 1251 et seq.) or listed pursuant to
-- ---
Section 307 of the Clean Water Act (33 U.S.C. 1317); (5) flammable explosives;
or (6) radioactive materials.
(ii) Grantor shall promptly remove and clean up, or otherwise deal
with, any Hazardous Substances if any Environmental Laws so require except to
the extent that the failure to remove, clean up or otherwise deal with such
Hazardous Substances would not reasonably be expected to have a material adverse
effect upon the Trust Property. If Grantor fails to so comply after notice and a
reasonable opportunity to comply, Beneficiary may either declare this Deed of
Trust to be in default or protect its security interest by causing such
Hazardous Substances to be remediated to levels that are minimally acceptable to
all applicable regulators or agencies having jurisdiction over the Trust
Property at Grantor's expense.
(iii) Grantor shall keep the Trust Property free of (A) any Hazardous
Substances, if any Environmental Laws so require except to the extent that the
existence of such
XI-12
<PAGE>
Hazardous Substances, would not reasonably be expected to have a material
adverse effect upon the Trust Property, and (B) any lien imposed pursuant to
any Environmental Laws.
(iv) Grantor shall notify Beneficiary immediately of Grantor's
discovery of (A) the presence or release of any Hazardous Substance
("Contamination") on the Trust Property or any property so situated as to pose a
-------------
material risk that such Hazardous Substance may spread onto the Trust Property
("Adjacent Property") and/or (B) any past or present material violation of any
-----------------
Environmental Law on the Trust Property or any Adjacent Property.
(v) Grantor unconditionally assigns, transfers, and sets over to
Beneficiary all of Grantor's claims and rights to the payment of damages that
may arise from (A) any Contamination on the Trust Property caused by the spread
of such Contamination from any Adjacent Property and/or (B) the violation of any
Environmental Law on any Adjacent Property (the "Assigned Environmental
----------------------
Rights"). Until the occurrence of an Event of Default, Grantor shall (without
- ------
limiting any other rights and remedies of Beneficiary) have the right to receive
such payments. If an Event of Default has occurred and is continuing,
Beneficiary shall have the right to elect either of the following options (which
election Beneficiary may change from time to time):
1. Beneficiary may proceed against the owner of such
Adjacent Property (or the receiver, trustee, custodian, or other
party) in Grantor's name or in Beneficiary's name as agent for
Grantor. Grantor agrees to cooperate with Beneficiary in such
action and shall execute any and all documents required in
furtherance of such action; or
2. At Beneficiary's option, Grantor may proceed in
Grantor's and Beneficiary's behalf in which event Beneficiary may
participate in any such proceedings and Grantor from time to time
shall deliver to Beneficiary all instruments that Beneficiary
requests or may require to permit such participation (provided
that if the original of any such instrument need not be delivered
to Beneficiary in order to permit such participation, Grantor may
deliver to Beneficiary a copy of the same).
However, Beneficiary shall not initiate such a proceeding, nor
involve itself in such an already existing proceeding, unless Grantor shall have
failed to proceed on Grantor's and Beneficiary's behalf promptly upon receiving
notice from Beneficiary to do so, Grantor shall, at its expense, diligently
prosecute any such proceedings, deliver to Beneficiary copies of all papers
served in connection with any such proceedings, and consult and cooperate with
Beneficiary and its respective attorneys and agents in carrying on the prosecute
on of any such proceedings, Grantor shall not settle any such proceeding without
Beneficiary's consent, which consent shall not be unreasonably withheld, This
assignment constitutes a present, irrevocable, and unconditional assignment of
the foregoing claims, rights, and remedies, and shall continue in effect until
the Obligations have been satisfied in full. Any amounts that Beneficiary
receives as damages arising out of any Contamination of the Trust Property or
the violation of any
XI-13
<PAGE>
Environmental) Law on any Adjacent. Property shall be applied first to
Beneficial's costs and expenses incurred in connection with the exercise of the
Assigned Environmental Rights.
(c) Asbestos. Grantor shall not install nor permit to be installed on
--------
or in the Trust Property friable asbestos or any substance containing asbestos
and deemed hazardous by federal or state regulations respecting such material,
and with respect to any such material currently present on or in the Trust
Property shall promptly either (A) remove any material that such regulations
deem hazardous and require to be removed or (B) otherwise comply with such
federal and state regulations, at Grantor's expense. If Grantor shall fail to so
remove or otherwise comply, Beneficiary may, after notice to Grantor and a
reasonable opportunity to comply, do whatever is necessary to eliminate such
substances from the Trust Property to the extent required by applicable law or
otherwise comply with the applicable law, regulation, or order and the costs
thereof, together with interest thereon from the date of such payment at the
Default Rate, shall be added to the Obligations secured by this Deed of Trust.
Grantor shall give Beneficiary and its agent;, and employees access to the Trust
Property to remove, remediate, encapsulate or otherwise treat such asbestos or
substances. Grantor shall defend, indemnify and save Beneficiary harmless from
all costs and expenses (including consequential damages) asserted or proven
against Beneficiary by any party, as a result of the presence of such
substances, and any required removal or compliance with regulations. The
foregoing indemnification shall survive repayment of the Obligations.
(d) Environmental Inspections. Beneficiary may, at any time after the
-------------------------
occurrence of an Event of Default, enter the Trust Property to ascertain its
environmental condition and in so doing may sample building materials, take soil
samples, test borings and otherwise inspect the Trust Property. The costs and
expenses paid or incurred by Beneficiary in connection with such inspections and
activities shall be reimbursed by Grantor and shall constitute additional
Obligations secured by this Deed of Trust.
4.12 Multiple Collateral.
-------------------
(a) No recovery of any judgment by Beneficiary and no levy of an
execution under any judgment upon the Trust Property or upon any property of
Grantor encumbered by any other Loan Document shall affect in any manner or to
any extent the lien of this Deed of Trust upon the Trust Property or any part
thereof, or any liens, rights, powers and remedies of Beneficiary shall continue
unimpaired.
(b) Grantor agrees that it shall not at any time insist upon, plead,
seek or in any manner whatever claim or take any benefit or advantage of a
judgment, declaration or a determination that:
(i) the Trust Property or any other property of Grantor
encumbered by a Loan Document represents, on an individual basis, an
allocable portion of the then outstanding aggregate principal amount of the
Obligations;
XI-14
<PAGE>
(ii) a surplus results from an action taken by Beneficiary
against the Trust Property or any other property of Grantor encumbered by a
Loan Document to recover the Obligations or any portion there of, unless
the Obligations have been satisfied and paid in full;
(iii) The lien of this Deed of Trust or of any other Loan
Document has been released, unless the Obligation have been satisfied and
paid in full;
(iv) a deficiency judgment with respect to any action taken by
Trustee or Beneficiary against the Trust Property or any other property of
Grantor encumbered by a Loan Document extinguishes all or any portion of
the remaining Obligations, or precludes Trustee or Beneficiary from
proceeding against the Trust Property or to satisfy such remaining
Obligations; or
(v) Beneficiary's commencement, prosecution, or taking to
judgment of any action (including, without limitation, Beneficiary's
acceptance of a deed in lieu of foreclosure) or Beneficiary's application
for or use of any remedy (including, without ! imitation, the appointment
of a receiver for the Trust Property or any other property of Grantor
encumbered by a Loan Document) against the Trust Property or any other
property of Grantor encumbered by a Loan Document precludes or bars
Beneficiary (under a "single action" rule, "security first" rule or similar
------------- --------------
rule) from commencing, prosecuting or taking to judgment any other action
or applying for or using any remedy against the Trust Property or any other
property of Grantor encumbered by a Loan Document.
(c) Beneficiary may, at its option, in such order, and utilizing such
combinations of remedies with respect to the Trust Property and the other
property of Grantor encumbered by a Loan Document as Beneficiary shall so elect,
pursue its remedies against (i) the Trust Property, individually, or any other
property of Gator encumbered by a Loan Document, individually, (ii) the Trust
Property and any combination of the other property of Grantor encumbered by a
Loan Document, (iii) the trust Property and all of the other property of Grantor
encumbered by a Loan Document or (iv) alt or any combination of the other
property of Grantor encumbered by a Loan Document, in separate proceedings or in
one proceeding in any order which Beneficiary deems appropriate.
ARTICLE V - GENERAL PROVISIONS
5.01 Release. Beneficiary shall cause the release of the lien hereof
-------
in accordance with the terms of the Loan Documents. Beneficiary shall have no
obligation to record any release or other instrument. All reconveyance fees and
costs shall be paid by Grantor.
5.02 Grantor. This Deed of Trust and all provisions here of, shall
-------
extend to and be binding upon Grantor and all persons claiming under or through
Grantor and shall inure to the benefit of the Beneficiary's successors and
assign: and any successor and assigns of any party
XI-15
<PAGE>
holding any interest in any of the Obligations, as applicable. Whenever in this
Deed of, Trust there is reference made to any of the parties hereto, such
reference shall be deemed to include, wherever applicable, a reference to the
heirs, executors and administrators or successors and assigns (as the case may
be) of Grantor and Beneficiary. Grantor's successors and assigns shall include,
without limitation, a receiver, trustee or debtor-in-possession of or for
Grantor.
5.03 Waiver of Rights. To the extent permitted by applicable law,
----------------
Grantor waives and will not avail itself of any appraisement, valuation, stay,
moratorium, extension or exemption laws now existing or hereafter enacted and
waives any right to have the property comprising the Trust Property marshaled
upon any foreclosure and agrees that upon a foreclosure the Trust Property may
be sold as an entirety.
5.04 Additional Documents. Grantor agrees that upon request of
--------------------
Beneficiary it will from time to time execute, acknowledge and deliver all such
additional instruments and further assurances of title and will do or cause to
be done all such further acts and things as may be reasonably necessary fully to
effectuate the intent of this Deed of Trust.
5.05 Notices. All notices and other communications under this Deed of
-------
Trust shall be in writing, except as otherwise provided in this Deed of Trust. A
notice, if in writing, shall be considered as properly given if given in
accordance with the provisions of the Credit Agreement.
5.06 Governing Law. This Deed of Trust, the debts and obligations
-------------
secured hereunder, and all other obligations and agreements of the parties
hereunder, shall be governed by and construed in accordance with the laws of the
State of New York, subject only to those laws of the State of [_] that of
necessity must apply to methods of foreclosure directly affecting interests in
the Trust Property.
5.07 Time of Essence. Time is of the essence of this Deed of Trust and
---------------
of every part hereof of which time is an element.
5.08 Severability. If any one or more of the provisions contained
------------
herein shall for any reason be held to be invalid, illegal or uneaforceable in
any respect, such illegality or unenforceability shall, at the option of
Beneficiary, not affect any other provision hereof, but this Deed of Trust shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein.
5.09 Attorney's Fees. In the event suit or action is instituted in
---------------
connection with or to enforce any of the terms of this Deed of Trust or the
Credit Agreement, the prevailing party shall be entitled to recover its
reasonable attorneys' fees (including charges for inside counsel) in bankruptcy
proceedings, at trial, on any appeal, and on any petition for review, in
addition to all other sums provided herein or by law.
XI-16
<PAGE>
5.10 Future Advances. Beneficiary and the other Lender Parties may
---------------
make advances pursuant to and subject to the terms of the Credit Agreement, and
the parties hereby acknowledge and intend that all such advances, including
future advances whenever hereafter made, shall be a lien from the time this Deed
of Trust is recorded.
5.1l Incorporation of Credit Agreement. The terms of the Credit
---------------------------------
Agreement are incorporated by reference herein as though set forth in full
detail, In the event of any conflict between the terms and provisions of this
Deed of Trust and the Credit Agreement, the terms and provisions of the Credit
Agreement shall control.
[Signature page follows.]
XI-17
<PAGE>
IN WITNESS WHEREOF, Grantor has duly executed and delivered this Deed
of Trust as of the day and year first above written.
[PANOLAM INDUSTRIES, INC.]
[PIONEER PLASTICS CORPORATION], a
Delaware corporation
By:____________________
Name:__________________
Title:_________________
XI-18
<PAGE>
STATE OF __________)
) SS.
COCKY OF___________)
BEFORE ME, a Notary Public, in and for said county and state, personally
appeared above-named [PANOLAM INDUSTRIES, INC.] [PIONEER PLASTICS CORPORATION],
a Delaware corporation, by _______________, its ______________ who acknowledge
that he/she did sign the foregoing instrument and that the same is his/her free
act and deed and the free act and deed of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal at
___________ this ____ day of ____________, 1999.
Notary Public
XI-19
<PAGE>
EXHIBIT A
[Legal Description]
[to be provided by Grantor]
XI-20
<PAGE>
EXHIBIT XII
FORM OF OPINION OF BORROWER'S COUNSEL
XII
<PAGE>
PROVIDED WITH CLOSING SETS
<PAGE>
EXHIBIT XIII-A
FORM OF
INTERCOMPANY SUBORDINATED DEMAND PROMISSORY NOTE
Note Number:____ Dated: February 18, 1999
FOR VALUE RECEIVED, each Loan Party which is a party to this subordinated
promissory note (the "Promissory Note") promises to pay to the order of such
---------------
other Loan Party as makes loans to such Loan Party (each Loan Party which
borrows money pursuant to this Promissory Note is referred to herein as a
"Payor" and each Loan Party which makes loans pursuant to this Promissory Note
-----
is referred to herein as a "Payee"), on demand, in lawful money of the United
-----
States of America, in immediately available funds and at the appropriate office
of the Payee, the aggregate unpaid principal amount of all loans and advances
heretofore and hereafter made by such. Payee to such Payor and any other Debt
now or hereafter owing by such Payor to such Payee as shown either on Schedule A
attached hereto (and any continuation thereof) or in the books and records of
such Payee, Capitalized terms used herein but not otherwise defined herein shall
have the meanings ascribed such terms in the Credit Agreement, dated as of
February 18, 1999 (as amended, restated, supplemented or otherwise modified from
time to time, the "Credit Agreement"), among Panolam Industries International,
----------------
Inc., as Borrower (the "US Borrower"), each financial institution from time to
-----------
time party thereto (together with its successors and permitted assigns pursuant
to Section 9.07 of the Credit Agreement, a "Lender Party"), DLJ Capital Funding,
------------
Inc., as initial Lender and as syndication agent, Credit Suisse First Boston, as
en initial Lender and as administrative agent (in such capacity, together with
any successor administrative agent appointed pursuant to Section 8.06 of the
Credit Agreement, the "Administrative Agent"), and Royal Bank of Canada, as an
--------------------
initial lender and as documentation agent, Notwithstanding any contrary
provision of this Promissory Note, this Promissory Note shall not evidence any
Designated Intercompany Indebtedness (as hereinafter defined) or any Specified
Intercompany Debt (as hereinafter defined). For purposes hereof, (i) the term
"Designated Intercompany Indebtedness" means (A) indebtedness in respect of any
------------------------------------
loan made directly or indirectly by Panolam Industries Ltd, (the "Canadian
--------
Borrower") or any of its Subsidiaries to the US Borrower or any of its Domestic
- --------
Subsidiaries, and (B) indebtedness in respect of any loan made directly or
indirectly by the US Borrower or any of its Domestic Subsidiaries to any of
their respective Domestic Subsidiaries or the US Borrower with the proceeds of a
loan made by the Canadian Borrower or any of its Subsidiaries to the US Borrower
or any of its Domestic Subsidiaries, and (ii) the term "Specified Intercompany
----------------------
Debt" means the debt evidenced by that certain promissory note of even date
- ----
herewith executed by the Canadian Borrower in favor of the US Borrower in the
principal amount of $10,594,374.90.
The unpaid principal amount hereof from time to time outstanding shall bear
interest at a rate equal to the rate as may be agreed upon from time to time by
the relevant Payor and Payee or, at the Administrative Agent's option after the
occurrence and during the continuance of an Event of Default, at the Default
Rate, Interest shall be due and payable on the
XIII-A-1
<PAGE>
last day of each month commencing after the date hereof or at such other times
as may be agreed upon from time to time by the relevant Payor and Payee. Upon
demand for payment of any principal amount hereof, accrued but unpaid interest
on such principal amount shall also be due and payable. Interest shall be paid
in lawful money of the United States of America and in immediately available
funds. Interest shall be computed for the actual number of days elapsed on the
basis of a year consisting of 365 or 366 days, as the case may be,
Interest payable hereunder may be subject to applicable withholding taxes or
other deductions required by law, and the Payee shall not be entitled to
indemnification in respect of any such withholding or deduction.
The Payor may repay all or any part of the principal amount hereof prior to
maturity without notice or penalty.
Each Payor and any endorser of this Promissory Note hereby waives presentment,
demand, protest and notice of any kind. No failure to exercise, and no delay in
exercising, any rights hereunder on the part of the holder hereof shall operate
as a waiver of such rights.
This Promissory Note has been pledged by each Payee (i) to the
Administrative Agent, for the benefit of the Administrative Agent and the Lender
Parties, as security for such Payee's Obligations, if any, under the Credit
Agreement, the Guaranty and the other Loan Documents to which such Payee is a
party, and (ii) to the Canadian Administrative Agent, for the benefit of the
Canadian Administrative Agent and the Lender Parties under and as defined in the
Canadian Credit Agreement (the "Canadian Lenders"), as security for such Payee's
----------------
Obligations, if any, under the Canadian Credit Agreement, the Canadian Credit
Agreement Guarantee and the other Canadian Loan Documents to which such Payee is
a party, in each case pursuant to the terms of the Security Agreement, Each
Payor acknowledges and agrees that the Acting Administrative Agent under the
Security Agreement may exercise all the rights of the Payees under this
Promissory Note and will no; be subject to any abatement, reduction, recoupment,
defense, setoff or counterclaim available to such Payor.
Each Payee agrees that any and all claims of such Payee against the US
Borrower, or against any of its properties, shall be subordinate and subject in
right of payment to the prior performance and payment, in full and in
immediately available funds, of all Obligations of the US Borrower under the
Loan Documents (the "US Obligations"), all Obligations of the US Borrower under
--------------
the Canadian Loan Documents (the "Canadian Obligations") and all Obligations of
--------------------
the US Borrower under the Subordinated Notes (the "Subordinated Note
-----------------
Obligations" and, together with the US Obligations and the Canadian Obligations,
- -----------
the "Senior Obligations") and termination of the Commitments under and as
------------------
defined in the US Credit Agreement and the Canadian Credit Agreement; provided,
--------
that the US Borrower (and each other Payor) may make payments to the applicable
Payees at any times or times when no Default has occurred and is continuing.
If all or any part of the assets of any Payor, or the proceeds thereof, are
subject to any distribution, division or application to the creditors of any
Payor, whether partial or complete, voluntary or involuntary, and whether by
reason of liquidation, bankruptcy,
XIII-A-2
<PAGE>
arrangement, receivership, assignment for the benefit of creditors or any other
action or proceeding, or if the business of any Payor is dissolved or if (except
as expressly permitted by the Credit Agreement) substantially all of the assets
of any Payor are sold, then, and in any such event, any payment or distribution
of any kind or character, either in cash, securities or other investment
property or any other property whatsoever, which shall be payable or deliverable
upon or with respect to any Debt of such Payor to any Payee ("Payor
-----
Indebtedness") shall be paid or delivered directly to the Acting Administrative
- ------------
Agent under the Security Agreement for application to the US Obligations and the
Canadian Obligations in accordance with the terms of the Intercreditor
Agreement, until the later of the date on which such Obligations shall have
first been fully performed and paid in immediately available funds and the
Commitments under and as defined in the US Credit Agreement and the Canadian
Credit Agreement shall have been terminated. Each Payee irrevocably authorizes
and empowers the Acting Administrative Agent under the Security Agreement to
demand, sue for, collect and receive every such payment or distribution and give
acquittance therefor and to make and present for and on behalf of such Payee
such proofs of claim and take such other action, in the Acting Administrative
Agent's own name or in the name of such Payee or otherwise, as the Acting
Administrative Agent may deem necessary or advisable for the enforcement of this
Promissory Note. The Acting Administrative Agent under the Security Agreement
may vote such proofs of claim in any such proceeding, receive and collect any
and all dividends or other payments or disbursements made on Payor Indebtedness
in whatever form the same may be paid or issued and apply the same on account of
the US Obligations and the Canadian Obligations in accordance with the terms of
the Intercreditor Agreement. Each Payee agrees that until the US Obligations and
the Canadian Obligations in accordance with the terms of the Intercreditor
Agreement have been performed and paid in full in immediately available funds
and the Commitments under and as defined in the US Credit Agreement and the
Canadian Credit Agreement have been terminated, such Payee will not (i) assign
or transfer to any Person (other than as provided in the Security Agreement and
in the Intercreditor Agreement) any claim such Payee has or may have against any
Payor, (ii) discount or extend the time for payment of any Payor Indebtedness,
or (iii) otherwise amend, modify, supplement or waive any prevision of this
Promissory Note.
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS PROMISSORY NOTE AND
ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS PROMISSORY NOTE, WHETHER
SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE
INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS OTHER THAN THOSE
CONTAINED IN NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401) AND DECISIONS OF
THE STATE OF NEW YORK.
From time to time after the date hereof, additional Subsidiaries of the
Loan Parties may become parties hereto by executing a counterpart signature page
to this Promissory Note (such additional Subsidiaries, each, an "Additional
----------
Payor"). Upon delivery of such counterpart signature page to the Payees, notice
- -----
of which is hereby waived by the other Payors, each Additional Payor shall be a
Payor and shall be as fully a party hereto as if such Additional Payor were an
original signatory hereof. Each Payor expressly agrees that its obligations
arising hereunder shall not be affected or diminished by the addition or release
of any other Payor hereunder, This Promissory Note shall be fully effective as
to any Payor that is or becomes a
XIII-A-3
<PAGE>
IN WITNESS WHEREOF, each Payor has caused this Subordinated Demand
Promissory Note to be executed and delivered by its proper and duly authorized
officer as of the date set forth above.
PANOLAM INDUSTRIES INTERNATIONAL, INC.
By:__________________________________
Name:
Title:
PANOLAM INDUSTRIES LTD.
By:__________________________________
Name:
Title:
PANOLAM INDUSTRIES HOLDINGS, INC.
By:__________________________________
Name:
Title:
PANOLAM GROUP, INC.
By:__________________________________
Name:
Title:
PII SECOND, INC.
By:__________________________________
Name:
Title:
XIII-A-4
<PAGE>
PANOLAM INDUSTRIES, INC.
By:__________________________________
Name:
Title:
PIONEER PLASTIC CORPORATION
By:__________________________________
Name:
Title:
XIII-A-5
<PAGE>
SCHEDULE A
----------
TRANSACTIONS
ON
INTERCOMPANY SUBORDINATED DEMAND PROMISSORY NOTE
================================================================================
Outstanding
Amount of Principal
Amount of Principal Balance from
Advance Paid Payor to Payee Notation
Date Name of Payor Name of Payee This Date This Date This Date Made By
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
XIII-A-6
<PAGE>
ENDORSEMENT
FOR VALUE RECEIVED, each of the undersigned does hereby sell, assign and
transfer to ____________________________________ all of its right, title and
interest in and to the Intercompany Subordinated Demand Promissory Note dated
February 18, 1999 (the "Promissory Note", made by Panolam Industries Holdings,
---------------
Inc, ("Holdings"), and each other Subsidiary of Holdings or any other Person
--------
that becomes a party thereto, and payable to the undersigned. This endorsement
is intended to be attached to the Promissory Note and, when so attached, shall
constitute an endorsement thereof.
The initial undersigned shall be the Loan Parties party to the Credit
Agreement on the date hereof. From time to time after the date hereof,
additional Subsidiaries of the Loan Parties may become parties to the Promissory
Note (each, an "Additional Payee") and a signatory to this endorsement by
----------------
executing a counterpart signature page to the Promissory Note and to this
endorsement. Upon delivery of such counterpart signature pages to the Payors,
notice of which is hereby waived by the other Payees, each Additional Payee
shall be a Payee and shall be as fully a Payee under the Promissory Note and a
signatory to this endorsement as if such Additional Payee were an original Payee
under the Promissory Note and an original signatory hereof. Each Payee expressly
agrees that its obligations arising under the Promissory Note and hereunder
shall not be affected or diminished by the addition or release of any other
Payee under the Promissory Note or hereunder. This endorsement shall be fully
effective as to any Payee that is or becomes a signatory hereto regardless of
whether any other Person becomes or fails to become or ceases to be a Payee to
the Promissory Note or hereunder,
Dated: ________________
PANOLAM INDUSTRIES INTERNATIONAL,
INC
By:__________________________
Name:
Title:
XIII-A-7
<PAGE>
PANOLAM INDUSTRIES LTD.
By:_____________________________
Name:
Title:
PANOLAM INDUSTRIES HOLDINGS, INC.
By:_____________________________
Name:
Title:
PANOLAM GROUP, INC.
By:_____________________________
Name:
Title:
PII SECOND, INC.
By:_____________________________
Name:
Title:
PANOLAM INDUSTRIES, INC.
By:_____________________________
Name:
Title:
PIONEER PLASTIC CORPORATION
By:_____________________________
Name:
Title:
XIII-A-8
<PAGE>
EXHIBIT XIII-B
FORM OF
INTERCOMPANY PROMISSORY NOTE
$10,594,374.90 Dated: February 18, 1999
FOR VALUE RECEIVED, Panolam Industries Ltd. (the "Payor") promises
-----
to pay to the order of Panolam Industries International, Inc. (the "Payee") on
-----
demand, in lawful money of the United States of America, in immediately
available funds and at the appropriate office of the Payee, the principal amount
of Ten Million Five Hundred Ninety Four Thousand Three Hundred Seventy Four
Dollars and Ninety Cents ($l0,594,374.90). Capitalized terms used in this
intercompany promissory note (this "Promissory Note") but not otherwise defined
---------------
herein shall have the meanings ascribed to such terms in the Credit Agreement,
dated as of February 18, 1999 (as amended, restated, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among Panolam Industries
----------------
International, Inc., as Borrower, each financial institution from time to time
party thereto, 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 (in such capacity, together with any successor
administrative agent appointed pursuant to Section 8.06 of the Credit Agreement,
the "Administrative Agent"), and Royal Bank of Canada, for itself as an initial
--------------------
Lender and as documentation agent.
The unpaid principal amount hereof shall mature on the earliest of
(i) demand, (ii) February 18, 2009 or (iii) such earlier date as the Payee's
$135,000,000 11 1/2% Senior Subordinated Notes due 2009 shall mature pursuant to
the terms of the Subordinated Note Indenture relating thereto. The Payor may
repay all or any part of the principal amount hereof prior to maturity without
notice or penalty.
This Promissory Note shall bear interest at a rate of 11 1/2% per
annum on the unpaid principal amount from the date hereof through maturity.
Interest shall be due and payable semiannually in cash in arrears en each
February 15 and August 15, commencing August 15, l999. Upon demand for payment
of any principal amount hereof and at maturity, accrued but unpaid interest an
such principal amount shall also be due and payable, Interest shall be paid in
lawful money of the United States of America and in immediately available funds.
Interest shall be computed on the basis of a 360-day year consisting of twelve
30-day months.
Interest payable hereunder may be subject to applicable
withholding taxes or other deductions required by law, and the Payee shall not
be entitled to indemnification in respect of any such withholding or deduction.
The Payor hereby waives presentment, demand, protest and notice
of any kind. No failure to exercise, and no delay in exercising, any rights
hereunder on the part of the holder hereof shall operate as a waiver of such
rights.
XIII-B-I
<PAGE>
This Promissory Note has been pledged by the Payee (i) to the
Administrative Agent, for the benefit of the Administrative Agent and the Lender
Parties, as security for the Payee's Obligations under the Credit Agreement and
the other Loan Documents to which it is a party, and (ii) to the Canadian
Administrative Agent, for the benefit of the Canadian Administrative Agent and
the Lender Parties under and as defined in the Canadian Credit Agreement (the
"Canadian Lenders"), as security for the Payee's obligations under the Canadian
----------------
Credit Agreement, the Canadian Credit Agreement Guarantee and the other Canadian
Loan Documents to which the Payee is a party, in each case pursuant to the terms
of the Security Agreement. The Payor acknowledges and agrees that, to the extent
permitted under the Security Agreement, the Acting Administrative Agent under
the Security Agreement may exercise all the rights of the Payee under this
Promissory Note and will not be subject to any abatement, reduction, recoupment,
defense, setoff or counterclaim available to the Payor.
If all or any part of the assets of the Payor, or the proceeds
thereof, are subject to any distribution, division or application to the
creditors of the Payor, whether partial or complete, voluntary or involuntary,
and whether by reason of liquidation, bankruptcy, arrangement, receivership,
assignment for the benefit of creditors or any other action or proceeding, or if
the business of the Payor is dissolved or if substantially all of the assets of
the Payor are sold, then, and in any such event, any payment or distribution of
any kind or character, either in cash, securities or other investment property
or any other property whatsoever, which shall be payable or deliverable upon or
with respect to any Debt of the Payor to the Payee hereunder (the "Payor
-----
Indebtedness") shall be paid or delivered directly to the Acting Administrative
- ------------
Agent under the Security Agreement for application to the US Obligations and the
Canadian Obligations (each as defined in the Security Agreement) in accordance
with the terms of the Intercreditor Agreement, until the later of the date on
which such Obligations shall have first been fully performed and paid in
immediately available funds and the Commitments under and as defined in the
Credit Agreement and the Canadian Credit Agreement shall have been terminated.
The Payee irrevocably authorizes and empowers the Acting Administrative Agent
under the Security Agreement, and subject to the terms thereof, to demand, sue
for, collect and receive every such payment or distribution and give acquittance
therefor and to make and present for and on behalf of the Payee such proofs of
claim and take such other action, in the Acting Administrative Agent's own name
or in the name of the Payee or otherwise, as the Acting Administrative Agent may
deem necessary or advisable for the enforcement of this Promissory Note. The
Acting Administrative Agent under the Security Agreement may vote such proofs of
claim in any such proceeding, receive and collect any and all dividends or other
payments or disbursements made on Payor Indebtedness in whatever form the same
may be paid or issued and apply the same on account of the US Obligations and
the Canadian Obligations in accordance with the terms of the Intercreditor
Agreement. The Payee agrees that until the US Obligations and the Canadian
Obligations in accordance with the terms of the Intercreditor Agreement have
been performed and paid in full in immediately available funds and the
Commitments under and as defined in each of the US Credit Agreement and the
Canadian Credit Agreement have been terminated, the Payee will not (i) assign or
transfer to any Person (other than as provided in the Security Agreement and in
the Intercreditor Agreement) any claim the Payee has or may have against the
Payor, (ii) discount or extend the time for payment of any Payor Indebtedness,
or (iii) otherwise amend, modify, supplement or waive any provision of this
Promissory Note.
XIII-B-2
<PAGE>
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS PROMISSORY
NOTE AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION WITH THIS PROMISSORY NOTE,
WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE GOVERNED BY
THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS PROVISIONS OTHER THAN
THOSE CONTAINED IN NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401) AND
DECISIONS OF THE STATE OF NEW YORK.
[Signature Page Follows]
XIII-B-3
<PAGE>
IN WITNESS WHEREOF, the Payor has caused this Promissory Note to be
executed and delivered by its proper and duly authorized officer as of the date
set forth above.
PANOLAM INDUSTRIES LTD.
By:____________________
Robert J. Weltman
Assistant Vice President
XIII-B-4
<PAGE>
ENDORSEMENT
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and
transfer to
_________________________________________
all of its right, title and interest in and to the Intercompany Promissory Note
dated February 18, 1999 (the "Promissory Note"), made by Panolam Industries Ltd.
---------------
("Payor"), and payable to the undersigned. This endorsement is intended to be
-----
attached to the Promissory Note and, when so attached, shall constitute an
endorsement thereof.
Dated:______________
PANOLAM INDUSTRIES INTERNATIONAL, INC.
By:__________________________
Name:
Title:
XIII-B-5
<PAGE>
EXHIBIT XIV
FORM OF AMENDMENT TO GUARANTY
This Amendment to Guaranty (this "Amendment"), dated as of
---------
[_______], [_____], relates to the Guaranty dated as of February 18, 1999, as
amended, amended and restated, modified and supplemented to date (as so amended,
amended and restated, supplemented or modified, the "Guaranty"), among PANOLAM
--------
INDUSTRIES HOLDINGS, INC., a Delaware corporation, 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"), in favor of Credit Suisse
----------
First Boston, as Administrative Agent (in such capacity, together with any
successor appointed pursuant to Article VIII of the Credit Agreement referred to
below, the "Administrative Agent"), and the other Guaranteed Parties (as defined
--------------------
in the Guaranty).
In compliance with Section 6.01(n) of the Credit Agreement dated as
of February 18, 1999 (as amended, amended and restated, supplemented or
otherwise modified from time to time, the "Credit Agreement") among the
----------------
Borrower, the Administrative Agent and the other financial institutions party
thereto as agents and lenders, and in conjunction with the execution of the
Amendment to Security Agreement dated of even date herewith, [NAME OF
SUBSIDIARY], a [________] corporation (the "Additional Guarantor"), hereby
--------------------
agrees as follows (capitalized terms used but not otherwise defined herein shall
have the meanings assigned to such terms in the Credit Agreement):
1. Amendment. The Guaranty is hereby amended to add as a
---------
Guarantor thereunder the Additional Guarantor.
2. Representations and Warranties. The Additional
------------------------------
Guarantor represents and warrants to the Administrative Agent and the ether
Guaranteed Parties that each of the representations and warranties of a
Guarantor contained in the Guaranty is hereby made by the Additional Guarantor
and is true and correct as to the Additional Guarantor as of the date hereof.
3. Additional Guarantor as Guarantor. The Additional Guarantor (a)
---------------------------------
assumes all of the obligations and liabilities of a Guarantor under the
Guaranty, (b) makes all of the waivers and acknowledgments of a Guarantor under
the Guaranty, (c) agrees to be bound by the Guaranty as if the Additional
Guarantor were an original party to the Guaranty, and (d) shall be a Guarantor,
a Credit Party and a Loan Party for all purposes under the Loan Documents.
4. Effectiveness. This Amendment shall become effective as of
-------------
the date hereof upon the execution hereof by the Additional Guarantor and
delivery hereof to, and acceptance hereof by, the Administrative Agent.
5. Governing Law. This Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York.
XIV-1
<PAGE>
[ADDITIONAL GUARANTOR]
By:_________________________
Title:
Notice Address:
_____________________________
_____________________________
Telecopier:________
Telephone:_________
Attention:___________________
ACCEPTED:
CREDIT SUISSE FIRST BOSTON,
as Administrative Agent
By:________________________
Title:
XIV-2
<PAGE>
EXHIBIT XV
FORM OF AMENDMENT TO SECURITY AGREEMENT
This Amendment to Security Agreement (the "Amendment"), dated as of
---------
_________, _____, relates to the Security Agreement dated as of February 18,
1999 as amended, amended and restated, modified and supplemented to date (as so
amended, amended and restated, supplemented and modified, the "Agreement")
---------
executed by PANOLAM INDUSTRIES INTERNATIONAL, INC a Delaware corporation with
an office at 20 Progress Drive, Shelton, Connecticut 06484 (the "Borrower"),
--------
PANOLAM INDUSTRIES HOLDINGS, INC., a Delaware corporation with an office at 20
Progress Drive, Shelton Connecticut 06484 ("Holdings"), PANOLAM GROUP, INC a
--------
Delaware corporation with an office at 20 Progress Drive, Shelton, Connecticut
06484 ("Group"), PII SECOND, INC., a Delaware corporation with an office at 20
-----
Progress Drive, Shelton, Connecticut 06484 ("PII Second"), PANOLAM INDUSTRIES,
----------
INC., a Delaware corporation with an office at 20 Progress Drive, Shelton,
Connecticut 06484 ("Panolam US"), PIONEER PLASTICS CORPORATION, a Delaware
----------
corporation with an office at 20 Progress Drive, Shelton, Connecticut 06484
("Pioneer"), and any future direct or indirect parent or subsidiary, if any, of
-------
the Borrower that would become a party to the Agreement as an additional
Grantor (as defined below), in favor of and for the benefit of CREDIT SUISSE
FIRST BOSTON, as administrative agent (in such capacity, together with any
successor in such capacity, the "Administrative Agent") for the Lender Parties
--------------------
(as defined in the Credit Agreement) that were or may thereafter become party
to the Credit Agreement (as hereinafter defined). Holdings, Group and PII
Second are each referred to herein as a "Parent Grantor" and collectively as
--------------
the "Parent Grantors." Panolam US and Pioneer are each referred to herein as a
---------------
"Subsidiary Grantor" and collectively as the "Subsidiary Grantors." The
------------------ -------------------
Borrower, the Parent Grantors, the Subsidiary Grantors and any other Person
agreeing to be bound hereby as a Grantor are each individually referred to
herein as a "Grantor" and collectively as the "Grantors."
------- --------
In compliance with Section 6.0l(n) of the Credit Agreement dated as
of February 18, 1999 (as amended, amended and restated, supplemented or
otherwise modified from time to time, the "Credit Agreement," the terms defined
----------------
therein and not otherwise defined herein being used herein as therein defined)
among the Borrower, the Administrative Agent, DLJ Capital Funding, Inc., as
syndication agent, Royal Bank of Canada, as documentation agent, and the
financial institutions and other entities party thereto as Lenders, and in
conjunction with the execution of the Amendment to Guaranty dated of even date
herewith, [NAME OF SUBSIDIARY] (the "Additional Grantor") and the Administrative
------------------
Agent hereby agree as follows:
1. Amendment. The Agreement is hereby amended to add as a party
---------
and, more specifically, as a Grantor thereunder, the Additional Grantor.
2. Representations and Warranties. The Additional Grantor
------------------------------
represents and warrants to the Administrative Agent and the other Secured
Parties that each of the representations and warranties of a Subsidiary Grantor
contained in the Agreement is hereby
XV-1
<PAGE>
made by the Additional Grantor and is true and correct as to the Additional
Grantor. All capital stock owned or otherwise held by the Additional Grantor in
each Subsidiary, if any, of the Additional Grantor is set forth on the
supplement to Schedule I to the Agreement attached hereto.
3. Grant of Security Interest. As security for the payment of the
--------------------------
Secured Obligations, the Additional Grantor hereby assigns to the Administrative
Agent for the ratable benefit of the Administrative Agent and the other Secured
Parties, and grants to the Administrative Agent for the ratable benefit of the
Administrative Agent and the other Secured Parties a continuing and first
priority security interest in, all of such Additional Grantor's right, title and
interest in and to the Collateral (as defined in the Agreement), whether now or
hereafter existing or owned by such Additional Grantor or in which such
Additional Grantor now owns or hereafter acquires an interest and wherever the
same may be located.
4. Schedule Supplements. The Additional Grantor has attached
--------------------
hereto supplements to Schedules I through VI to the Agreement, and the
Additional Grantor hereby certifies that such supplements have been prepared by
the Additional Grantor in substantially the form of the Schedules to the
Agreement and are accurate and complete as of the date first above written.
5. Assumption of Rights, Obligations and Liabilities. The
-------------------------------------------------
Additional Grantor assumes all of the rights, obligations and liabilities of a
Grantor under the Agreement and agrees to be bound thereby as if the Additional
Grantor were an original party to the Agreement.
6. Effectiveness. This Amendment shall become effective on the
-------------
date hereof upon the execution hereof by the Additional Grantor and the
Administrative Agent and delivery hereof to the Administrative Agent.
7. Governing Law. This Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the State of New York.
[ADDITIONAL GRANTOR]
By:__________________________
Title:
Notice Address:
_____________________________
_____________________________
Telecopier:________
Telephone:_________
Attention:___________________
XV-2
<PAGE>
ACCEPTED:
CREDIT SUISSE FIRST BOSTON,
as Administrative Agent
By:_________________________
Title:
XV-3
<PAGE>
STATE OF____________)
)
COUNTY OF___________)
On _____________, before me, _____________, a Notary Public in and for said
state, personally appeared _____________, personally known to me (or proved to
me on the basis of satisfactory evidence) to be the person whose name is
subscribed to the within instrument and acknowledged to me that he executed the
same in his authorized capacity, and that by his signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
________________________________________
Notary Public in and for said State
XV-4
<PAGE>
EXHIBIT XVI
FORM OF
INTERCREDITOR AND SUBORDINATION AGREEMENT
INTERCREDITOR AND SUBORDINATION AGREEMENT, dated as of February 18, 1999,
is entered into by and among PANOLAM INDUSTRIES INTERNATIONAL, INC., a Delaware
corporation (together with its successors and assigns, the "Us Borrower"),
-----------
PANOLAM INDUSTRIES LTD., a corporation organized pursuant to the Business
Corporations Act (Ontario) (together with its successors and assigns, the
" Canadian Borrower " and, together with the US Borrower, the "Borrowers"), each
----------------- ---------
of the other Credit Parties (under and as defined in the US Credit Agreement (as
hereinafter defined)) from time to time party to the US Loan Documents (as
hereinafter defined) (such other Credit Parties, together with the US Borrower,
the "Us Loan Parties"), each of the other Loan Parties (under and as defined in
---------------
the Canadian Credit Agreement (as hereinafter defined)) from time to time party
to the Canadian Loan Documents (as hereinafter defined) (such other Loan
Parties, together with the Canadian Borrower, the "Canadian Loan Parties"; the
---------------------
US Loan Parties and the Canadian Loan Parties are collectively referred to
herein as the "Loan Parties"), CREDIT SUISSE FIRST BOSTON, as administrative
------------
agent (together with its successors and assigns in such capacity, the "Us
--
Administrative Agent") for the Lender Parties (under and as defined in the US
- --------------------
Credit Agreement, such Lender Parties being referred to herein as the "Us
--
Lenders") party to the US Credit Agreement, and CREDIT SUISSE FIRST BOSTON
- -------
CANADA, as administrative agent (together with its successors and assigns in
such capacity, the "Canadian Administrative Agent" and, together with the US
-----------------------------
Administrative Agent, the "Administrative Agents") for the Lender Parties (under
---------------------
and as defined in the Canadian Credit Agreement, such Lender Parties being
referred to herein as the "Canadian Lenders") party to the Canadian Credit
----------------
Agreement.
RECITALS
WHEREAS, pursuant to the US Guaranty (as hereinafter defined), the US Loan
Parties (other than the US Borrower) have guaranteed, on a senior basis, the
payment and performance of the obligations of the US Borrower under the US
Credit Agreement and the other US Loan Documents to which the US Borrower is a
party;
WHEREAS, pursuant to the US Security Agreement (as hereinafter defined) and
the US Mortgages (as hereinafter defined), the US Loan Parties have agreed to
grant (i) in favor of the US Administrative Agent (A) first priority Liens in
substantially all of their assets, properties and revenues (other than any
Designated Intercompany Indebtedness and the Panolam Canada Stock (each as
hereinafter defined)), and (B) second priority Hens in the Designated
Intercompany Indebtedness of the US Borrower and the US Borrower's Domestic
Subsidiaries and in 65% of the Panolam Canada Stock, in each case to secure the
obligations of such US Loan Parties under the US Loan Documents, and (ii) in
favor of the Canadian Administrative Agent (A) first priority Liens in the
Designated Intercompany Indebtedness and the Panolam Canada Stock and (B) second
priority Liens on all such other assets, properties and revenues, in each case
to secure the obligations of the Canadian Loan Parties under the Canadian Loan
Documents;
XVI-1
<PAGE>
WHEREAS, the parties hereto have agreed that the payment and performance of
the US Obligations shall not be secured by a security interest or any other
Lien in favor of the US Administrative Agent or otherwise in any of the
Canadian Assets (as hereinafter defined);
WHEREAS, pursuant to the Canadian Guaranty (as hereinafter defined), the US
Loan Parties have guaranteed, on a subordinated basis, the payment and
performance of the obligations of the Canadian Borrower under the Canadian
Credit Agreement and the other Canadian Loan Documents to which the Canadian
Borrower is a party, which subordinated guarantees shall be subordinated to the
prior payment in full of the obligations of such US Loan Parties under the US
Loan Documents;
WHEREAS, pursuant to the Canadian Security Agreement (as hereinafter
defined) and the Canadian Mortgages (as hereinafter defined), the Canadian Loan
Parties have agreed to grant in favor of the Canadian Administrative Agent first
priority Liens in the Canadian Assets to secure the obligations of such Loan
Parties under the Canadian Loan Documents; and
WHEREAS, it is a condition precedent to the making of US Loans (as
hereinafter defined) under the US Credit Agreement and the making of Canadian
Loans (as hereinafter defined) under the Canadian Credit Agreement that the
parties hereto shall have entered into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions.
-----------
(a) Unless otherwise defined or specified herein, terms defined in the US
Credit Agreement and used herein shall have the meanings given to them in the US
Credit Agreement.
(b) The following terms shall have the following meanings:
"Agreement" means this Intercreditor and Subordination Agreement, as the same
---------
may be amended, amended and restated, supplemented or otherwise modified from
time to time.
"Canadian Assets" means any and all property of the Canadian Borrower and its
---------------
Subsidiaries from time to time (including, without limitation, any Designated
Intercompany Indebtedness owing to the Canadian Borrower or any of its
Subsidiaries).
"Canadian Bank Hedge Agreement" means a Bank Hedge Agreement as
------------------------------
defined in the Canadian Credit Agreement.
"Canadian Collateral" means the Canadian Assets, the Panolam Canada Stock and
-------------------
the Designated Intercompany Indebtedness; provided, however, that the Panolam
Canada Stock and the Designated Intercompany Indebtedness described under clause
(ii) of the definition thereof
XVI-2
<PAGE>
shall constitute Canadian Collateral only so long as any Canadian Obligations
remain outstanding or any commitment of any Canadian Lender under the Canadian
Loan Documents exists.
"Canadian Credit Agreement" means the Credit Agreement, dated as of February
-------------------------
18, 1999, among the Canadian Borrower, the other Loan Parties (as defined
therein), the Canadian Administrative Agent and the Lenders party thereto from
time to time, as the same may be amended, amended and restated, supplemented or
otherwise modified from time to time, including, without limitation, amendments,
modifications, supplements and restatements thereof giving effect to increases,
renewals, extensions, refundings, deferrals, restructurings, replacements or
refinancings of, or additions to, the arrangements provided in such Credit
Agreement (whether provided by the original Canadian Administrative Agent and
Canadian Lenders under such Credit Agreement or a successor or different
Canadian Administrative Agent or other Canadian Lenders).
"Canadian Guaranty" means the Canadian Credit Agreement Guaranty, as defined
-----------------
in the US Credit Agreement.
"Canadian Insolvency Proceeding" means any bankruptcy, insolvency or
------------------------------
enforcement proceeding by or against the Canadian Borrower or any of its
Subsidiaries or with respect to the Canadian Collateral, including without
limitation (i) an assignment for the benefit of creditors, the filing of a
petition, the making of a proposal, or the filing of a notice of intention to
make a proposal, (ii) any proceeding under the Companies' Creditors Arrangement
Act (Canada) or the Winding-up and Restructuring Act (Canada) or the United
States Bankruptcy Code, (iii) any private, court or public proceeding wherein
Canadian Assets shall be attached, seized, levied upon or subjected to
execution, garnishment, distress or any other similar process, or came within
the possession of any receiver, trustee, custodian, liquidator, administrator,
sequestrator, sheriff, bailiff or assignee for the benefit of creditors, (iv)
any proceeding involving the liquidation, winding-up, dissolution or suspension
of the operations of the Canadian Borrower or any of its Subsidiaries, (v) any
proceeding seeking the appointment of a trustee, interim receiver, receiver,
receiver and manager, liquidator, administrator, custodian, sequestrator, agent
or other similar official for the Canadian Borrower or any of its Subsidiaries,
or for all or a substantial part of the Canadian Assets, or (vi) the enforcement
of security over all or a substantial part of the Canadian Assets.
"Canadian Lenders" has the meaning set forth in the introduction to this
----------------
Agreement.
"Canadian Loan Documents" means the Canadian Credit Agreement, the Canadian
-----------------------
Guaranty and the other Loan Documents as defined in the Canadian Credit
Agreement.
"Canadian Loans" means the loans made, and the issuance of or participation in
--------------
Swing Line Loans (as defined in the Canadian Credit Agreement) and letters of
credit, by the Canadian Lenders pursuant to the Canadian Credit Agreement.
XVI-3
<PAGE>
"Canadian Mortgages" means the Mortgages and Additional Mortgages (each as
------------------
defined in the Canadian Credit Agreement) of the Canadian Borrower and its
Subsidiaries on properties located in Canada.
"Canadian Notes" means the promissory notes (if any) of the Canadian Borrower
--------------
outstanding from time to time pursuant to the Canadian Credit Agreement.
"Canadian Obligations" means the unpaid principal of and interest on the
--------------------
Canadian Loans and the Canadian Notes (if any) and all other obligations and
liabilities of the Canadian Loan Parties to the Canadian Administrative Agent
and the Canadian Lenders (including, without limitation, interest accruing at
the then applicable rate provided in the Canadian Credit Agreement after the
maturity of the Canadian Loans and interest accruing at the then applicable rate
provided in the Canadian Credit Agreement after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to any Loan Party, whether or not a claim for post-filing
or post-petition interest is allowed in such proceeding), whether direct or
indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, the
Canadian Credit Agreement, the Canadian Notes (if any), this Agreement, the
Canadian Guaranty, any other Canadian Loan Document or any other document made,
delivered or given in connection therewith, in each case whether on account of
principal, interest, reimbursement obligations, fees, indemnities, costs,
expenses or otherwise (including, without limitation, all fees and disbursements
of counsel to the Canadian Administrative Agent or to Canadian Lenders that are
required to be paid by any Canadian Loan Party pursuant to the terms of the
Canadian Credit Agreement, the Canadian Guaranty or any other Canadian Loan
Document).
"Canadian Security Agreement" means the Security Agreement executed by the
---------------------------
Canadian Borrower pursuant to Section 4.01(k)(xiv) of the Canadian Credit
Agreement, as the same may be amended, amended and restated, supplemented or
otherwise modified from time to be.
"Canadian Security Documents" means the Security Agreement, the US Security
---------------------------
Agreement, the Canadian Mortgages, the US Mortgages and all documents and
instruments, now existing or hereafter arising, which create or purport to
create a security interest in property (whether real, personal or otherwise) to
secure payment or performance of the Canadian Obligations, including, without
limitation, the Collateral Documents (as defined in the Canadian Credit
Agreement).
"Credit Agreements" means the US Credit Agreement and the Canadian Credit
-----------------
Agreement.
"Designated Intercompany Indebtedness" means (i) indebtedness in respect of
any loan made directly or indirectly by the Canadian Borrower or any of its
Subsidiaries to the US Borrower or any of its Domestic Subsidiaries, and (ii)
indebtedness in respect of any loan made directly or indirectly by the US
Borrower or any of its Domestic Subsidiaries to any of their respective Domestic
Subsidiaries or the US Borrower with the proceeds of a loan made by the
XVI-4
<PAGE>
Canadian Borrower or any of its Subsidiaries to the US Borrower or any of its
Domestic Subsidiaries.
"Insolvency Event" means the occurrence of an Event of Default under Section
----------------
7.01(g) of the US Credit Agreement or Section 7.01(g) of the Canadian Credit
Agreement.
"Panolam Canada Stock" means the capital stock of the Canadian Borrower from
--------------------
time to time outstanding.
"Security Documents" means the US Security Documents and the Canadian Security
------------------
Documents.
"US Bank Hedge Agreement" means a Bank Hedge Agreement as defined in the US
-----------------------
Credit Agreement.
"US Collateral" means any and all property from time to time subject to
-------------
security interests to secure payment or performance of the US Obligations.
"US Credit Agreement" means the Credit Agreement, dated as of February 18,
-------------------
1999, among the US Borrower, the US Administrative Agent, the US Syndication
Agent and the Lenders party thereto from time to time, as such Credit Agreement
may be amended, modified or supplemented from time to time, including, without
limitation, amendments, modifications, supplements and restatements thereof
giving effect to increases, renewals, extensions, refundings, deferrals,
restructurings, replacements or refinancings of, or additions to, the
arrangements provided in such Credit Agreement (whether provided by the original
US Administrative Agent, US Syndication Agent and US Lenders under such Credit
Agreement or a successor or different US Administrative Agent, US Syndication
Agent or other US Lenders).
"US Guaranty" means the Guaranty as defined in the US Credit Agreement.
-----------
"US Insolvency Proceeding" means any bankruptcy, insolvency or enforcement
------------------------
proceeding by or against the US Borrower or any of its Domestic Subsidiaries or
with respect to the US Collateral, including without limitation (i) an
assignment for the benefit of creditors, the filing of a petition, the making of
a proposal, or the filing of a notice of intention to make a proposal, (ii) any
proceeding under the Companies' Creditors Arrangement Act (Canada), the Winding-
up and Restructuring Act (Canada) or the United States Bankruptcy Code, (iii)
any private, court or public proceeding wherein US Collateral shall be attached,
seized, levied upon or subjected to execution, garnishment, distress or any
other similar process, or come within the possession of any receiver, trustee,
custodian, liquidator, administrator, sequestrator, sheriff, bailiff or assignee
for the benefit of creditors, (iv) any proceeding involving the liquidation,
winding-up, dissolution or suspension of the operations of the US Borrower or
any of its Domestic Subsidiaries, (v) any proceeding seeking the appointment of
a trustee, interim receiver, receiver, receiver and manager, liquidator,
administrator, custodian, sequestrator, agent or other similar official for the
US Borrower or any of its Domestic Subsidiaries, or for all or a substantial
part of the US Collateral, or (vi) the enforcement of security over all or a
substantial part of the US Collateral.
XVI-5
<PAGE>
"US Lenders" has the meaning set forth in the introduction to this Agreement.
----------
"US Loan Documents" means the US Credit Agreement, the US Guaranty and the
-----------------
other Loan Documents as defined in the US Credit Agreement.
"US Loans" means the loans made, and the issuance of or participation in Swing
--------
Line Loans (as defined in the US Credit Agreement) and letters of credit, by the
US Lenders to the US Borrower pursuant to the US Credit Agreement.
"US Mortgages" means (i) the Mortgages and Additional Mortgages, each as
------------
defined in the US Credit Agreement, on properties of the US Borrower and its
Domestic Subsidiaries located in the United States and (ii) the Mortgages and
Additional Mortgages, each as defined in the Canadian Credit Agreement, on
properties of the US Borrower and its Domestic Subsidiaries located in the
United States.
"US Notes" means the promissory notes (if any) of the US Borrower outstanding
--------
from time to time under the US Credit Agreement.
"US Obligations" means the unpaid principal of and interest on the US Loans
--------------
and the US Notes (if any) and all other obligations and liabilities of the US
Loan Parties (as defined in the US Credit Agreement) to the US Administrative
Agent, the US Syndication Agent and the US Lenders (including, without
limitation, interest accruing at the then applicable rate provided in the US
Credit Agreement after the maturity of the US Loans and interest accruing at the
then applicable rate provided in the US Credit Agreement after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization or
like proceeding, relating to any Loan Party, whether or not a claim for post-
filing or post-petition interest is allowed in such proceeding), whether direct
or indirect, absolute or contingent, due or to become due, or now existing or
hereafter incurred, which may arise under, out of, or in connection with, the US
Credit Agreement, the US Notes (if any), this Agreement, the US Guaranty, the
other US Loan Documents or any other document made, delivered or given in
connection therewith, in each case whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel to the US
Administrative Agent, to the US Syndication Agent or to the US Lenders that are
required to be paid by any US Loan Party pursuant to the terms of the US Credit
Agreement, the US Guaranty or any other US Loan Document).
"US Security Agreement" means the Security Agreement as defined in the US
---------------------
Credit Agreement.
"US Security Documents" means the US Security Agreement, the US Mortgages and
---------------------
all other documents and instruments, now existing or hereafter arising, which
create or purport to create a security interest in property (whether real,
personal or otherwise) to secure payment or performance of the US Obligations,
including, without limitation, the Collateral Documents (as defined in the US
Credit Agreement).
XVI-6
<PAGE>
"US Syndication Agent" means DLJ Capital Funding, Inc., as syndication agent
--------------------
under the US Credit Agreement, and its successors and assigns in such capacity.
(c) The words "hereof," "herein" and "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement, and section and paragraph references
are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
(e) The expressions "prior payment in full," "payment in full," "paid in
full" and any other similar terms or phrases when used herein with respect to
the US Obligations or the Canadian Obligations shall mean the payment in full,
in immediately available funds, of all of the US Obligations or the Canadian
Obligations, as applicable.
(f) As used herein, the term "security interest" shall mean any security
interest, charge, mortgage, pledge, hypothecation, lien or other encumbrance.
2. Subordination.
-------------
(a) Each Loan Party, the US Administrative Agent, on behalf of itself and
the US Lenders, and the Canadian Administrative Agent, on behalf of itself and
the Canadian Lenders, agree that:
(1) subject to Section 2(a)(3) below, no holder of Canadian Obligations
shall have any claim to all or any part of the US Collateral on a parity with or
prior to the claim of the US Obligations, and the Canadian Obligations shall be
secured by the US Collateral only on a basis subordinated to the claims of the
holders of US Obligations as set forth herein;
(2) no part of the US Obligations and no holder thereof shall have any
claim to all or any part of the Canadian Assets (it being understood that,
subject to Section 2(a)(3) below, this clause (2) shall not in any manner limit
or restrict any rights arising pursuant to or as a result of the US
Administrative Agent's Lien on 65% of the Panolam Canada Stock or on any
Designated Intercompany Indebtedness (described in clause (ii) of the definition
thereof) constituting US Collateral);
(3) no holder of US Obligations shall have any claim to all or any part
of any Designated Intercompany Indebtedness or the Panolam Canada Stock on a
parity with or prior to the claim of the Canadian Obligations and the US
Obligations shall be secured by the Designated Intercompany Indebtedness and the
Panolam Canada Stock only on a basis subordinated to the claims of the holders
of Canadian Obligations as set forth herein;
(4) unless and until the US Obligations have been paid in full, all
Letters of Credit issued under the US Credit Agreement have expired or been
terminated and the Commitments under the US Credit Agreement have been
terminated, without the express prior written consent of the US Administrative
Agent, neither the Canadian Administrative Agent nor
XVI-7
<PAGE>
any Canadian Lender (in such capacity) will, except to the extent necessary in
connection with the exercise of rights and remedies in respect of the Panolam
Canada Stock or any Designated Intercompany Indebtedness, take, demand or
receive from any US Loan Party, and no US Loan Party will make, give or permit,
directly or indirectly, by set-off, redemption, purchase or in any other manner,
any payment of the whole or any part of the Canadian Obligations, including,
without !imitation, under the Canadian Guaranty or any other guaranty (including
any Guaranty as defined in the Canadian Credit Agreement) or letter of credit or
similar credit support facility to support payment of the Canadian Obligations
(for the avoidance of doubt, the foregoing shall not prohibit transactions
permitted under Sections 6.02(b), (e), (f), (g) and (r) of each of the Credit
Agreements); and
(5) unless and until the Canadian Obligations have been paid in full,
ail Letters of Credit issued under the Canadian Credit Agreement have expired or
been terminated and the Commitments (as defined in the Canadian Credit
Agreement) under the Canadian Credit Agreement have been terminated, without the
express prior written consent of the Canadian Administrative Agent, neither the
US Administrative Agent nor any US Lender (in such capacity) will take, demand
or receive from the Canadian Borrower or any of its Subsidiaries, and neither
the Canadian Borrower nor any of its Subsidiaries will make, give or permit,
directly or indirectly, by set-off, redemption, purchase or in any other manner,
any payment of the whole or any part of the US Obligations (for the avoidance of
doubt, the foregoing shall not prohibit transactions permitted under Sections
6.02(b), (e), (f), (g) and (r) of each of the Credit Agreements).
(b) If any payment or distribution, whether consisting of money,
property, securities or otherwise, is collected or received by the Canadian
Administrative Agent or any Canadian Lender in respect of the Canadian
Obligations, except (1) payments in respect of Canadian Collateral and (2) other
payments not prohibited at the time of payment by the terms of Section 2(a)(4)
above, the Canadian Administrative Agent or such Canadian Lender forthwith shall
deliver the same to the US Administrative Agent for the account of the US
Lenders, in the form received, duly indorsed to the US Administrative Agent, if
required, to be applied to the payment or prepayment of the US Obligations until
the US Obligations are paid in full. Until so delivered, such payment or
distribution shall be held in trust by the Canadian Administrative Agent or such
Canadian Lender, as applicable, as the property and for the benefit of the US
Lenders, segregated from other funds and property held by the Canadian
Administrative Agent or such Canadian Lender, as applicable.
(c) If any payment or distribution, whether consisting of money,
property, securities or otherwise, is collected or received by the US
Administrative Agent or any US Lender in respect of the US Obligations, except
(1) payments in respect of US Collateral (other than Canadian Collateral which
constitutes US Collateral) and (2) other payments not prohibited at the time of
payment by the terms of Section 2(a)(5) above, the US Administrative Agent or
such US Lender forthwith shall deliver the same to the Canadian Administrative
Agent for the account of the Canadian Lenders, in the form received, duly
indorsed to the Canadian Administrative Agent, if required, to be applied to the
payment or prepayment of the Canadian Obligations until the Canadian Obligations
are paid in full. Until so delivered, such payment or distribution shall be held
in trust by the US Administrative Agent or such US Lender, as applicable, as the
property
XVI-8
<PAGE>
and for the benefit of the Canadian Lenders, segregated from other funds and
property held by the US Administrative Agent or such US Lender, as applicable.
3. Rights in US Collateral and Canadian Collateral. Notwithstanding
-----------------------------------------------
anything to the contrary contained in the US Credit Agreement, any US Security
Document, any other US Loan Document, the Canadian Credit Agreement, any
Canadian Security Document or any other Canadian Loan Document and irrespective
of:
(a) the time, order or method of attachment or perfection of the security
interests created by any US Security Document or any Canadian Security Document,
(b) the time or order of filing or recording of financing statements,
fixture filings or other documents filed or recorded to perfect security
interests in any US Collateral or Canadian Collateral,
(c) anything contained in any filing or agreement to which the US
Administrative Agent, the Canadian Administrative Agent, any US Lender or any
Canadian Lender now or hereafter may be a party, and
(d) the rules for determining priority under the Uniform Commercial Code
as in effect in any jurisdiction, the Personal Property Security Act of any
jurisdiction or any other law governing the relative priorities of secured
creditors,
(i) any security interest in any US Collateral securing the US Obligations
(other than Canadian Collateral which constitutes US Collateral) has and shall
have priority, to the extent of any unpaid US Obligations, over any security
interest in such US Collateral securing the Canadian Obligations, (ii) any
security interest in the Designated Intercompany Indebtedness and the Panolam
Canada Stock securing the Canadian Obligations has and shall have priority, to
the extent of any unpaid Canadian Obligations, over any security interest in the
Designated Intercompany Indebtedness and the Panolam Canada Stock securing the
US Obligations, and (iii) the payment and performance of the US Obligations
shall not be secured pursuant to the Security Documents or otherwise by a
security interest in favor of the US Administrative Agent, the US Lenders or
otherwise in any of the Canadian Assets.
4. Exercise of Rights in US Collateral and Application of Proceeds with
--------------------------------------------------------------------
Respect to the US Collateral.
----------------------------
(a) So long as the US Obligations have not been paid in full, any Letter
of Credit issued under the US Credit Agreement has not expired or been
terminated or the Commitments and other obligations of the US Lenders under the
US Loan Documents have not teen terminated, whether or not any event or
proceeding described in the definition of "Insolvency Event" has been commenced
by or against any Loan Party,
(1) neither the Canadian Administrative Agent nor any Canadian
Lender (in such capacity) will (A) exercise or seek to exercise any rights or
remedies with respect to any US Collateral except the Panolam Canada Stock and
any Designated Intercompany Indebtedness constituting US Collateral and except
for ministerial acts necessary to preserve claims or
XVI-9
<PAGE>
(B) institute any action or proceeding with respect to such rights or remedies,
including without limitation, any action of foreclosure with respect to any US
Collateral except the Panolam Canada Stock and any Designated Intercompany
Indebtedness constituting US Collateral or (C) contest, protest or object to any
foreclosure proceeding or action with respect to any US Collateral except the
Panolam Canada Stock and any Designated Intercompany Indebtedness constituting
US Collateral brought by the US Administrative Agent or any US Lender or any
other exercise by the US Administrative Agent or any US Lender of any rights and
remedies under any US Loan Documents or applicable law; and
(2) the US Administrative Agent and the US Lenders shall have the
exclusive right to enforce rights and exercise remedies with respect to the US
Collateral except the Panolam Canada Stock and any Designated Intercompany
Indebtedness constituting US Collateral.
(b) In exercising rights and remedies with respect to the US Collateral
except the Panolam Canada Stock and any Designated Intercompany Indebtedness
constituting US Collateral, the US Administrative Agent and the US Lenders may
enforce the provisions of the US Security Documents relating to the US
Collateral except the Panolam Canada Stock and any Designated Intercompany
Indebtedness constituting US Collateral and exercise remedies thereunder and
under any other US Loan Documents, all in such order and in such manner as they
may determine in the exercise of their sole business judgment. Such rights of
exercise and enforcement shall include, without limitation, the rights to sell
or otherwise dispose of US Collateral except the Panolam Canada Stock and any
Designated Intercompany Indebtedness constituting US Collateral, to incur
expenses in connection with such sale or disposition and to exercise all the
rights and remedies of a secured lender under the Uniform Commercial Code, the
Personal Property Security Act of any jurisdiction or other like law of any
applicable jurisdiction.
(c) Subject to Section 4(f), when all US Obligations have been paid in
full, any Letter of Credit issued under the US Credit Agreement has not expired
or been terminated and all Commitments and other obligations of the US Lenders
under the US Loan Documents have been terminated, the Canadian Administrative
Agent and the Canadian Lenders shall have the right to enforce the provisions of
the US Security Documents relating to US Collateral and exercise remedies
thereunder.
(d) Subject to Section 4(f), any money, property or securities realized
upon the sale, disposition or other realization by the US Administrative Agent
upon all or any part of the US Collateral, shall be applied by the US
Administrative Agent in the following order:
(1) First, to the payment in full of all costs and expenses
-----
(including, without limitation, attorneys' fees and disbursements) paid or
incurred by the US Administrative Agent or the US Lenders in connection with
such realization on the US Collateral or the protection of their rights and
interests therein;
(2) Second, to the payment or prepayment in full of all US
------
Obligations (including any obligation to provide cash collateral) in such order
as the US Administrative Agent may elect in its sole discretion;
XVI-10
<PAGE>
(3) Third, to the payment or prepayment in full of all Canadian
-----
Obligations (including any obligation to provide cash collateral) which are
secured by such US Collateral; and
(4) Fourth, to pay to the US Borrower, or its representative or as a
------
court of competent jurisdiction may direct, any surplus then remaining.
(e) Subject to Section 4(f), the US Administrative Agent's and the US
Lenders' rights with respect to the US Collateral include the right, subject to
the provisions of Section 11, to release any or all of the US Collateral from
the Lien of any US Security Document in connection with the sale of such US
Collateral, notwithstanding that the net proceeds of any such sale may not be
used to pay or permanently prepay any US Obligations or Canadian Obligations. If
the US Administrative Agent or the US Lenders shall determine, in connection
with any sale of US Collateral, that the release of the Lien of any Security
Document on such US Collateral in connection with such sale is necessary or
advisable, the Canadian Administrative Agent and the Canadian Lenders shall
execute such release documents and instruments and shall take such further
actions as the US Administrative Agent shall reasonably request, all at the US
Borrower's expense. The Canadian Administrative Agent, on behalf of itself and
each Canadian Lender, hereby irrevocably constitutes and appoints the US
Administrative Agent and any officer of the US Administrative Agent as its true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of the Canadian Administrative Agent and each Canadian Lender
and in the name of the Canadian Administrative Agent and each Canadian Lender or
in the US Administrative Agent's own name, from time to time in the US
Administrative Agent's discretion, for the purpose of carrying out the terms of
this paragraph, to take any and all appropriate action and to execute any and
all documents and instruments which may be necessary or desirable to accomplish
the purposes of this paragraph, including, without limitation, any termination
statements, financing change statements, financing statements, endorsements,
assignments or other instruments of transfer or release. The Canadian
Administrative Agent, on behalf of itself and each Canadian Lender, hereby
ratifies, without liability, all that said attorneys shall lawfully do or cause
to be done pursuant to the power of attorney granted in this paragraph.
(f) Notwithstanding any other provision of this Section 4, Sections 4(c),
(d) and (e) shall not apply to the Panolam Canada Stock or any Designated
Intercompany Indebtedness constituting US Collateral, which shall instead be
subject to Section 5.
5. Exercise of Rights and Application of Proceeds with Respect to the
------------------------------------------------------------------
Canadian Collateral.
-------------------
(a) So long as the Canadian Obligations have not been paid in full, any
Letter of Credit issued under the Canadian Credit Agreement has not expired or
been terminated or the Commitments and other obligations of the Canadian Lenders
under the Canadian Loan Documents have not been terminated, whether or not any
event or proceeding described in the definition of "Insolvency Event" has been
commenced by or against any Loan Party,
(1) neither the US Administrative Agent nor any US Lender (in such
capacity) will (A) exercise or seek to exercise any rights or exercise any
remedies with respect to any
XVI-11
<PAGE>
Canadian Collateral except for ministerial acts necessary to preserve claims or
(B) institute any action or proceeding with respect to such rights or remedies,
including without limitation, any action of foreclosure with respect to any
Canadian Collateral or (C) contest, protest or object to any foreclosure
proceeding or action with respect to any Canadian Collateral brought by the
Canadian Administrative Agent, the Canadian Lenders or any receiver, receiver-
manager, manager or other person exercising similar power appointed by or at the
request of the Canadian Administrative Agent or the Canadian Lenders
("Receiver") or any other exercise by the Canadian Administrative Agent or the
--------
Canadian Lenders or any Receiver of any rights and remedies under any Canadian
Loan Documents or applicable law; and
(2) the Canadian Administrative Agent, the Canadian Lenders and any
Receiver shall have the exclusive right to enforce rights and exercise remedies
with respect to the Canadian Collateral.
(b) In exercising rights and remedies with respect to the Canadian
Collateral, the Canadian Administrative Agent, the Canadian Lenders and any
Receiver may enforce the provisions of the Canadian Security Documents relating
to Canadian Collateral and exercise remedies thereunder and under any other
Canadian Loan Documents, all in such order and in such manner as they may
determine in the exercise of their sole business judgment. Such rights of
exercise and enforcement shall include, without limitation, the rights to sell
or otherwise dispose of Canadian Collateral, to incur expenses in connection
with such sale or disposition and to exercise all the rights and remedies of a
secured lender under the Uniform Commercial Code, the Personal Property Security
Act of any jurisdiction or other like law of any applicable jurisdiction.
(c) When all Canadian Obligations have been paid in full, each Letter of
Credit issued under the Canadian Credit Agreement has expired or been terminated
and the Commitments and other obligations of the Canadian Lenders under the
Canadian Loan Documents have been terminated, the US Administrative Agent and
the US Lenders shall have the right to enforce the provisions of the US Security
Documents to the extent of any Liens on assets then or previously constituting
Canadian Collateral (other than Canadian Assets) and exercise remedies
thereunder.
(d) Any money, property or securities realized upon the sale, disposition
or other realization by the Canadian Administrative Agent upon all or any part
of the Canadian Collateral shall be applied by the Canadian Administrative Agent
in the following order:
(1) First, to the payment in full of all costs and expenses
-----
(including, without limitation, attorneys' fees and disbursements) paid or
incurred by the Canadian Administrative Agent or the Canadian Lenders in
connection with such realization on the Canadian Collateral or the protection of
their rights and interests therein;
(2) Second, to the payment or prepayment in full of all Canadian
------
Obligations (including any obligation to provide cash collateral) in such order
as the Canadian Administrative Agent may elect in its sole discretion;
XVI-12
<PAGE>
(3) Third, to the payment or prepayment in full of all US Obligations
-----
(including any obligation to provide cash collateral) which are secured by such
Canadian Collateral; and
(4) Fourth, to pay to the Canadian Borrower, or its representative or
------
as a court of competent jurisdiction may direct, any surplus then remaining;
provided, however, that, notwithstanding anything to the contrary in this
- -------- -------
paragraph, any money, property or securities realized upon the sale, disposition
or other realization by the Canadian Administrative Agent upon all or any part
of the Canadian Assets, shall be applied by the Canadian Administrative Agent in
the order set forth in clauses (1), (2) and (4) above without regard to the
provisions of clause (3) thereof.
(e) The Canadian Administrative Agent's and the Canadian Lenders' rights
with respect to the Canadian Collateral include the right, subject to the
provisions of Section 11, to release any or all of the Canadian Collateral from
the Lien of any Canadian Security Document in connection with the sale of such
Canadian Collateral, notwithstanding that the net proceeds of any such sale may
not be used to pay or permanently prepay any Canadian Obligations or US
Obligations. If the Canadian Administrative Agent or the Canadian Lenders shall
determine, in connection with any sale of Canadian Collateral, that the release
of the Lien of any US Security Document on such Canadian Collateral in
connection with such sale is necessary or advisable, the US Administrative Agent
and the US Lenders shall execute such release documents and instruments and
shall take such further actions as the Canadian Administrative Agent shall
reasonably request, all at the Canadian Borrower's expense. The US
Administrative Agent, on behalf of itself and each US Lender, hereby irrevocably
constitutes and appoints the Canadian Administrative Agent and any officer of
the Canadian Administrative Agent and any Receiver as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of the US Administrative Agent and each US Lender and in the name of the
US Administrative Agent and each US Lender or in the Canadian Administrative
Agent's own name, from time to time in the Canadian Administrative Agent's
discretion, for the purpose of carrying out the terms of this paragraph, to take
any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this paragraph, including, without limitation, any termination statements,
financing change statements, financing statements, endorsements, assignments or
other instruments of transfer or release. The US Administrative Agent, on behalf
of itself and each US Lender, hereby ratifies, without liability, all that said
attorneys shall lawfully do or cause to be done pursuant to the power of
attorney granted in this paragraph.
6. Consents of Canadian Administrative Agent and Canadian Lenders.
--------------------------------------------------------------
(a) The Canadian Administrative Agent, on behalf of itself and each
Canadian Lender, consents and agrees that, without the necessity of any
reservation of rights against the Canadian Administrative Agent or any Canadian
Lender, and without notice to or further assent by the Canadian Administrative
Agent or any Canadian Lender (subject, however, to Section 11):
XVI-13
<PAGE>
(1) any demand for payment of any US Obligation made by the US
Administrative Agent or any US Lender may be rescinded in whole or in part by
the US Administrative Agent or any such US Lender, and any US Obligation may be
continued, and the US Obligations, or the liability of any Loan Party or any
guarantor or any other party upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, or any
obligation or liability of any Loan Party or any other party under the US Credit
Agreement or any other agreement, may, from time to time, in whole or in part,
be renewed, extended, modified, accelerated, compromised, waived, surrendered,
or released by the US Administrative Agent or any US Lender; and
(2) the US Credit Agreement, the US Notes (if any) and any other US
Loan Document may be amended, modified, supplemented or terminated, in whole or
in part, as the US Administrative Agent or any US Lender may deem advisable from
time to time, and any collateral security (other than any Canadian Collateral)
at any time held by the US Administrative Agent or any US Lender for the payment
of any of the US Obligations may be sold, exchanged, waived, surrendered or
released, in each case all without notice to or further assent by the Canadian
Administrative Agent or by any Canadian Lender, which will remain bound under
this Agreement, and all without impairing, abridging, releasing or affecting the
subordination provided for herein.
(b) The Canadian Administrative Agent, an behalf of each Canadian Lender,
waives any and all notice of the creation, renewal, extension or accrual of any
of the US Obligations and notice of or proof of reliance by the US Lenders upon
this Agreement. The US Obligations, and any of them, shall be deemed
conclusively to have been created, contracted or incurred in reliance upon this
Agreement, and all dealings between the US Borrower and the US Lenders shall be
deemed to have been consummated in reliance upon this Agreement. The Canadian
Administrative Agent, on behalf of each Canadian Lender, acknowledges and agrees
that the US Lenders have relied upon the subordination provided for herein in
entering into the US Credit Agreement and in making funds and letters of credit
available to the US Borrower thereunder and in entering into any US Bank Hedge
Agreement. The Canadian Administrative Agent, on behalf of itself and each
Canadian Lender, waives notice of or proof of reliance on this Agreement and
protest, demand for payment and notice of default.
7. Consents of US Administrative Agent and US Lenders.
--------------------------------------------------
(a) The US Administrative Agent, on behalf of each US Lender, consents and
agrees that, without the necessity of any reservation of rights against the US
Administrative Agent or any US Lender, and without notice to or further assent
by the US Administrative Agent or any US Lender (subject, however, to Section
11):
(1) any demand for payment of any Canadian Obligation made by the
Canadian Administrative Agent or any Canadian Lender may be rescinded in whole
or in part by the Canadian Administrative Agent or any such Canadian Lender, and
any Canadian Obligation may be continued, and the Canadian Obligations, or the
liability of any Loan Party or any guarantor or any other party upon or for any
part thereof, or any collateral security or guarantee therefor or right of
offset with respect thereto, or any obligation or liability of any Loan Party or
XVI-14
<PAGE>
any other party under the Canadian Credit Agreement or any other agreement, may,
from time to time, in whole or in part, be renewed, extended, modified,
accelerated, compromised, waived, surrendered, or released by the Canadian
Administrative Agent or any Canadian Lender; and
(2) the Canadian Credit Agreement, the Canadian Notes (if any) and
any other Canadian Loan Document may be amended, modified, supplemented or
terminated, in whole or in part, as the Canadian Administrative Agent or any
Canadian Lender may deem advisable from time to time, and any collateral
security (other than any US Collateral but excluding from US Collateral for the
purposes of this clause (2), Panolam Canada Stock and any Designated
Intercompany Indebtedness constituting US Collateral) at any time held by the
Canadian Administrative Agent or any Canadian Lender for the payment of any of
the Canadian Obligations may be sold, exchanged, waived, surrendered or
released, in each case all without notice to or further assent by the US
Administrative Agent or by any US Lender, which will remain bound under this
Agreement, and all without impairing, abridging, releasing or affecting the
subordination provided for herein.
(b) The US Administrative Agent, on behalf of each US Lender, waives
any and all notice of the creation, renewal, extension or accrual of any of the
Canadian Obligations and notice of or proof of reliance by the Canadian Lenders
upon this Agreement. The Canadian Obligations, and any of them, shall be deemed
conclusively to have been created, contracted or incurred in reliance upon this
Agreement, and all dealings between the Canadian Borrower and the Canadian
Lenders shall be deemed to have been consummated in reliance upon this
Agreement. The US Administrative Agent, on behalf of each US Lender,
acknowledges and agrees that the Canadian Lenders have relied upon the
subordination provided for herein in entering into the Canadian Credit Agreement
and in making funds and letters of credit available to the Canadian Borrower
thereunder and in entering into any Canadian Bank Hedge Agreement. The US
Administrative Agent, an behalf of itself and each US Lender waives, notice of
or proof of reliance on this Agreement and protest, demand for payment and
notice of default.
8. Negative Covenants of the Canadian Administrative Agent on behalf of
--------------------------------------------------------------------
the Canadian Lenders.
--------------------
So long as any of the US Obligations shall remain outstanding, neither
the Canadian Administrative Agent nor any Canadian Lender shall, without the
prior written consent of the US Administrative Agent.
(a) permit any of the Canadian Loan Documents to be amended, amended and
restated, modified or otherwise supplemented except as provided in Section 11;
or
(b) commence, or join with any creditors other than the US Lenders in
commencing, any US Insolvency Proceeding with respect to the US Borrower or any
of its Domestic Subsidiaries or any other proceeding referred to in the
definition of "Insolvency Event" with respect to the US Borrower or any of its
Domestic Subsidiaries.
XVI-15
<PAGE>
9. Negative Covenants of the US Administrative Agent on behalf of the US
---------------------------------------------------------------------
Lenders.
-------
So long as any of the Canadian Obligations shall remain outstanding,
neither the US Administrative Agent nor any US Lender shall, without the prior
written consent of the Canadian Administrative Agent:
(a) permit any of the US Loan Documents to be amended, amended and
restated, modified or otherwise supplemented except as provided in Section 11;
or
(b) commence, or join with any creditors other than the Canadian Lenders
in commencing, any Canadian Insolvency Proceeding with respect to the Canadian
Borrower or any of its Subsidiaries or any other proceeding referred to in the
definition of "Insolvency Event" with respect to the Canadian Borrower or any of
its Subsidiaries.
10. US and Canadian Obligations Unconditional.
-----------------------------------------
All rights and interests and all agreements and obligations of the
parties hereunder shall remain in full force and effect irrespective of:
(a) any lack of validity or enforceability of any US Security Document,
any other US Loan Document or any Canadian Security Document or any other
Canadian Loan Document;
(b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the US Obligations or the Canadian Obligations, or any
amendment or waiver or other modification, whether by course of conduct or
otherwise, of the terms of the US Credit Agreement, any US Security Document,
any other US Loan Documents or the Canadian Credit Agreement, any Canadian
Security Documents or any other Canadian Loan Documents;
(c) any exchange, release or nonperfection of any security interest in any
US Collateral or Canadian Collateral, or any release, amendment, waiver or other
modification, whether in writing or by course of conduct or otherwise, of all or
any of the US Obligations or the Canadian Obligations or any guarantee for any
thereof; or
(d) any other circumstances which otherwise might constitute a defense
available to, or a discharge of, any Loan Party in respect of the US Obligations
or the Canadian Obligations, or of any Canadian Lender, the Canadian Borrower,
any US Lender or the US Borrower in respect of this Agreement.
11. Voting.
------
(a) Notwithstanding any contrary provision of the US Credit Agreement
or any other US Loan Document or the Canadian Credit Agreement or any other
Canadian Loan Document (but subject to Section 1l(b) hereof):
(i) (A) any amendment or waiver of any provision of, and any consent
to departure from the provisions of, any US Loan Document that would, but
for the
XVI-16
<PAGE>
provisions of this Section 11, require the approval of the Required Lenders
under and as defined in the US Credit Agreement, and (B) any amendment or
waiver of any provision of any Canadian Loan Document that would, but for
the provisions of this Section 11, require the approval of the Required
Lenders under and as defined in the Canadian Credit Agreement may be made
(and may only be made) with the approval of, and shall be effective if the
same shall be in writing and signed by, US Lenders and Canadian Lenders
owed or holding greater than 50% of the sum of (x) the aggregate principal
amount of US Loans outstanding under the US Credit Agreement and Canadian
Loans outstanding under the Canadian Credit Agreement at such time, (y) the
aggregate Letter of Credit Usage (as defined in each such Credit Agreement)
under the US Credit Agreement and the Canadian Credit Agreement at such
time, and (z) the aggregate Unused Revolving Commitments (as defined in
each such Credit Agreement) under the US Credit Agreement and the Canadian
Credit Agreement at such time the "Combined Required Lenders");
-------------------------
(ii) any amendment or waiver of any provision of, and any consent to
departure from the provisions of, any US Loan Document or any Canadian Loan
Document that would, pursuant to the terms of the US Credit Agreement or
the Canadian Credit Agreement, respectively, require the approval of all
Lenders or the Supermajority Lenders under such Credit Agreement or of any
specific Lender, Agent or Issuing Bank under such Credit Agreement, shall
require the approval of all such Lenders, the Supermajority Lenders or each
such Lender, Agent or Issuing Bank, as the case may be, in addition to the
Combined Required Lenders;
(iii) any amendment or waiver of any provision of, and any consent to
departure from the provisions of, Section 9.01{a) of either Credit
Agreement or this Section 11 shall require the approval of each
Administrative Agent, each US Lender and each Canadian Lender;
(iv) any amendment or waiver of any provision of, and any consent to
departure from the provisions of, this Agreement (or any definition in any
US Loan Document or Canadian Loan Document that would have a substantive
effect on any provision of this Agreement) shall require the approval of
the Canadian Administrative Agent and the Required Lenders under and as
defined in the Canadian Credit Agreement and the US Administrative Agent
and the Required Lenders under and as defined in the US Credit Agreement
(or, in each case, such greater percentage of Lenders or such additional
Lenders as may be required under the foregoing provisions of this Section
11(a));
(v) notwithstanding any contrary provision hereof, any amendment or
waiver of any provision of, and any consent to departure from the
provisions of any US Loan Document that would have the effect of releasing
any US Collateral (except as expressly provided in the US Loan Documents)
shall require the approval of the Required Lenders under and as defined in
the US Credit Agreement in addition to the Combined Required Lenders
(except that (A) a release of all or substantially all US Collateral shall
require the approval of all US Lenders as set forth in Section 9.01 of the
US Credit Agreement, and
XVI-17
<PAGE>
(B) the provisions of Section 6.02(e)(iii) of the US Credit Agreement may
be amended or waived to permit the sale of assets with a fair value in
excess of $5,000,000 in any period of 12 consecutive months (but not to
exceed $15,000,000 since the Closing Date) with the approval only of the
Combined Required Lenders); and
(vi) notwithstanding any contrary provision hereof, any amendment or
waiver of any provision of, and any consent to departure from the
provisions of any Canadian Loan Document that would have the effect of
releasing any Canadian Collateral (except as expressly provided in the
Canadian Loan Documents) shall require the approval of the Required Lenders
under and as defined in the Canadian Credit Agreement in addition to the
Combined Required Lenders (except that a release of all or substantially
all Canadian Collateral shall require the approval of all Canadian Lenders
as set forth in Section 9.01 of the Canadian Credit Agreement, and (B) the
provisions of Section 6.02(e)(iii) of the Canadian Credit Agreement may be
amended or waived to permit the sale of assets with a fair value in excess
of $5,000,000 in any period of 12 consecutive months (but not to exceed
$15,000,000 since the Closing Date) with the approval only of the Combined
Required Lenders).
(b) Notwithstanding any contrary provision hereof (including Section
11(a)) or of any US Loan Document or Canadian Loan Document, (i) at any lime
when an Event of Default under and as defined in the US Loan Documents has
occurred and is continuing and has not been waived pursuant to Section 11(a),
the Required Lenders (as defined in the US Credit Agreement) shall have the sole
authority to direct the US Administrative Agent (including in its capacity as
Acting Administrative Agent under and as defined in the US Security Agreement)
with respect to any actions under Section 7.01 or 7.02 of the US Credit
Agreement and any actions under the Security Documents relating to the US
Collateral (other than the Panolam Canada Stock and Designated Intercompany
Indebtedness constituting US Collateral), (ii) at any time when an Event of
Default under and as defined in the Canadian Loan Documents has occurred and is
continuing and has not been waived pursuant to Section 11(a), the Required
Lenders (as defined in the Canadian Credit Agreement) shall have the sole
authority to direct the Canadian Administrative Agent and the Acting
Administrative Agent under the US Security Agreement with respect to any actions
under Section 7.01 or 7.02 of the Canadian Credit Agreement and with respect to
any actions relating to the Canadian Collateral.
12. No Representation by Parties.
----------------------------
Neither the Canadian Administrative Agent nor the US Administrative
Agent has made or hereby or otherwise makes to any other party hereto or to any
US Lender or Canadian Lender, any representations or warranties, express, or
implied, nor does any such party assume any liability to any other party or to
any US Lender or Canadian Lender with respect to: (a) the financial or other
condition of obligors under any instruments of guarantee with respect to the US
Obligations or the Canadian Obligations, (b) the enforceability, validity, value
or collectibility of the US Obligations or the Canadian Obligations, any
collateral therefor, or any guarantee or security which may have been or may be
granted in connection with any of the US Obligations or the Canadian Obligations
or (c) any Loan Party's title or right to transfer any collateral or security.
XVI-18
<PAGE>
13. Insolvency Proceedings.
----------------------
The provisions of this Agreement shall continue in full force and
effect notwithstanding the occurrence of any event contemplated under the
definition of "Insolvency Event."
14. Further Assurances.
------------------
The parties hereto, at their own expense (except as otherwise
expressly provided herein or in either Credit Agreement) and at any time and
from time to time, upon the written request of the US Administrative Agent or
the Canadian Administrative Agent will promptly and duly execute and deliver
such further instruments and documents and take such further actions as the US
Administrative Agent or the Canadian Administrative Agent reasonably may request
for the purposes of obtaining or preserving the full benefits of this Agreement
and of the rights and powers herein granted.
15. Miscellaneous.
-------------
(a) The US Administrative Agent hereby appoints the Canadian
Administrative Agent as the agent of the US Administrative Agent for purposes of
holding (and perfecting any security interest in) any collateral in which the US
Administrative Agent has any interest and which is in the possession of the
Canadian Administrative Agent. The Canadian Administrative Agent hereby appoints
the US Administrative Agent as the agent of the Canadian Administrative Agent
for purposes of holding (and perfecting any security interest in) any collateral
in which the Canadian Administrative Agent has any interest and which is in the
possession of the US Administrative Agent.
(b) Notwithstanding any contrary provision hereof, the Canadian
Administrative Agent shall, to the extent that the Canadian Administrative Agent
reasonably determines necessary in connection with the exercise of any remedies
in respect of any Canadian Collateral, be entitled to exercise its rights under
(A) the Agreement Respecting Intellectual Property among the US Borrower, the
Canadian Borrower, the Canadian Administrative Agent and the US Administrative
Agent, (B) the Patent License Agreement between the US Borrower, as licensor,
and the Canadian Borrower, as licensee, dated as of June 7, 1996, (C) the Trade
Mark License Agreement between the US Borrower, as licensor, and the Canadian
Borrower, as licensee, dated as of June 7, 1996, and (D) the Trade Mark License
Agreement between the US Borrower, as licensor, and the Canadian Borrower, as
licensee, dated April 14, 1997, and the Canadian Administrative Agent shall have
the right to use, without charge, any intellectual property of any US Loan Party
not covered by the Agreement Respecting Intellectual Property as of the date
hereof in connection with the exercise of any remedies in respect of any
Canadian Collateral.
(c) The US Administrative Agent agrees (i) to notify the Canadian
Administrative Agent of the occurrence of any Event of Default under the US
Credit Agreement of which the US Administrative Agent has actual knowledge (but
the US Administrative Agent shall have no liability whatsoever for failing to so
notify the Canadian Administrative Agent),
XVI-19
<PAGE>
and (ii) upon the request of the Canadian Administrative Agent, to provide to
the Canadian Administrative Agent at the US Borrower's expense, such information
regarding the US Collateral as may be reasonably requested by the Canadian
Administrative Agent to the extent such information is readily available to the
US Administrative Agent.
(d) The Canadian Administrative Agent agrees (i) to notify the US
Administrative Agent of the occurrence of any Event of Default under the
Canadian Credit Agreement of which the Canadian Administrative Agent has actual
knowledge (but the Canadian Administrative Agent shall have no liability
whatsoever for failing to so notify the US Administrative Agent), and (ii) upon
the request of the US Administrative Agent, to provide to the US Administrative
Agent at the Canadian Borrower's expense, such information regarding the
Canadian Collateral as may be reasonably requested by the US Administrative
Agent to the extent such information is readily available to the Canadian
Administrative Agent.
16. Provisions Define Relative Rights.
---------------------------------
This Agreement is intended solely for the purpose of defining the
relative rights of the US Administrative Agent and the US Lenders on the one
hand and the Canadian Administrative Agent and the Canadian Lenders on the
other, and no other Person shall have any right, benefit or other interest under
this Agreement and nothing in this Agreement shall relieve any Loan Party from
its obligations under any US Loan Document or Canadian Loan Document.
17. Powers Coupled With An Interest.
-------------------------------
All powers, authorizations and agencies contained in this Agreement
are coupled with an interest and are irrevocable until the later of the date on
which (i) the US Obligations are paid in full, all Letters of Credit issued
under the US Credit Agreement have expired or been terminated and all
Commitments and other obligations of the US Lenders under the US Loan Documents
are terminated, and (ii) the Canadian Obligations are paid in full, all Liters
of Credit issued under the Canadian Credit Agreement have expired or been
terminated and the Commitments and other obligations of the Canadian Lenders
under the Canadian Loan Documents are terminated.
18. Authority of the Administrative Agents.
--------------------------------------
The Loan Parties, the Canadian Administrative Agent, on behalf of
itself and the Canadian Lenders, and the US Administrative Agent, on behalf of
itself and the US Lenders, acknowledge that the rights and responsibilities of
each Administrative Agent under this Agreement with aspect to any action taken
by such Administrative Agent or the exercise or nonexercise by such
Administrative Agent of any option, request, judgment or other right or remedy
provided for herein or resulting or arising out of this Agreement shall, as
between the US Administrative Agent and the US Lenders, be governed by the US
Credit Agreement and by such other agreements with respect thereto as may exist
from time to time among them, and as between the Canadian Administrative Agent
and the Canadian Lenders, be governed by the Canadian Credit Agreement and by
such other agreements with respect thereto as may exist from time to time among
them.
XVI-20
<PAGE>
19. Notices.
-------
All notices, requests and demands to or upon any party hereto to be
effective shall be given or made in accordance with the requirements of Section
9.02 of the US Credit Agreement or Section 9.02 of the Canadian Credit
Agreement, as applicable. Any party may change its addresses and transmission
numbers for notices by notice in the manner provided in such Sections.
20. Counterparts.
------------
This Agreement may be executed by one or more of the parties on any
number of separate counterparts, and all of said counterparts taken together
shall be deemed to constitute one and the same instrument.
21. Severability.
------------
Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
22. No Waiver: Remedies Cumulative.
------------------------------
(a) No failure to exercise, nor any delay in exercising, on the part of
the US Administrative Agent, the Canadian Administrative Agent, any US Lender or
any Canadian Lender, any right, power or privilege hereunder shall operate as a
waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.
(b) The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
23. Section Headings.
----------------
The section headings used in this Agreement are for convenience of
reference only and are not to affect the construction hereof or be taken into
consideration in the interpretation hereof.
24. Successors and Assigns.
----------------------
(a) This Agreement shall be binding upon the successors and assigns of the
parties hereto and each future holder of the US Obligations or Canadian
Obligations and shall inure to the benefit of the US Administrative Agent, the
US Lenders, the Canadian Administrative Agent and the Canadian Lenders and their
respective successors and assigns.
XVI-21
<PAGE>
(b) Upon a successor US Administrative Agent becoming the US
Administrative Agent under the US Credit Agreement, such successor US
Administrative Agent automatically shall become the US Administrative Agent
hereunder with all the rights and powers of the US Administrative Agent
hereunder without the need for any further action on the part of any party
hereto.
(c) Upon a successor Canadian Administrative Agent becoming the Canadian
Administrative Agent under the Canadian Credit Agreement, such successor
Canadian Administrative Agent automatically shall become the Canadian
Administrative Agent hereunder with all the rights and powers of the Canadian
Administrative Agent hereunder without the need for any further action on the
part of any party hereto.
25. Governing Law.
-------------
This Agreement shall be governed by, and construed and interpreted in
accordance with, the law of the State of New York.
[Signature pages follow]
XVI-22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Intercreditor and
Subordination Agreement to be duly executed and delivered as of the day and year
first above written.
PANOLAM INDUSTRIES INTERNATIONAL,
INC., as US Borrower
By:___________________________
Name:
Title:
PANOLAM INDUSTRIES LTD., as
Canadian Borrower
By:___________________________
Name:
Title:
PANOLAM INDUSTRIES HOLDINGS, INC.,
as a Loan Party
By:___________________________
Name:
Title:
PANOLAM GROUP, INC., as a Loan
Party
By:___________________________
Name:
Title:
PII SECOND, INC., as a Loan Party
By:___________________________
Name:
Title:
XVI-23
<PAGE>
PANOLAM INDUSTRIES, INC., as a
Loan Party
By:___________________________
Name:
Title:
PIONEER PLASTIC CORPORATION, as a
Loan Party
By:___________________________
Name:
Title:
CREDIT SUISSE FIRST BOSTON, as US
Administrative Agent
By:___________________________
Name:
Title:
By:___________________________
Name:
Title:
CREDIT SUISSE FIRST BOSTON CANADA,
as Canadian Administrative Agent
By:___________________________
Name:
Title:
By:___________________________
Name:
Title:
XVI-24
<PAGE>
EXHIBIT 10.3
AMENDED AND RESTATED MANAGEMENT ADVISORY AND
CONSULTING SERVICES AGREEMENT
MEMORANDUM OF AGREEMENT made as of the 7th day of June, 1996, amended
and restated as of January 24, 1999.
A M O N G:
PANOLAM INDUSTRIES, INC.,
a corporation incorporated under
the law of the State of Delaware
(hereinafter referred to as "U.S. Opco")
OF THE FIRST PART,
- and -
PANOLAM INDUSTRIES LTD.,
a corporation incorporated under
the laws of the Province of Ontario
(hereinafter referred to as "Can Opco")
OF THE SECOND PART,
(together with U.S. Opco, the "Companies")
- and -
GENSTAR CAPITAL, L.L.C.,
a limited liability company
organized under the laws of the
State of Delaware
(hereinafter referred to as "Genstar")
OF THE THIRD PART.
WHEREAS the Companies desire to avail themselves of the business
experience and operating expertise of Genstar in arranging financing, strategic
planning, negotiating and procuring contracts, tax planning, investor relations,
cost controls, compensation structure, government relations and other areas of
corporate management;
AND WHEREAS the Companies have requested of Genstar and Genstar has
agreed to provide the Companies on an ongoing basis, subject to the terms and
conditions
<PAGE>
specified herein, with management consulting and advisory services related to
the business and affairs of the Company;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
respective covenants and agreements contained herein, the payments provided for
herein and for other good and valuable consideration, the sufficiency and
receipt of all of which are hereby acknowledged, the parties hereto agree as
follows:
1. RETENTION OF GENSTAR. Each of the Companies hereby retains Genstar as
--------------------
management and corporate consultant and Genstar accepts such retention on the
terms and conditions set forth herein.
2. SERVICES.
--------
(a) Genstar shall advise the Companies concerning such corporate matters as
relate to strategic planning, proposed financial transactions, procurement of
contracts, tax planning, investor relations, cost controls, compensation
structure, government relations and other management matters related to the
Companies' business and affairs, and as to such other matters as the Companies
may reasonably request.
(b) Genstar shall perform all such services as an independent contractor to
the Companies and neither Genstar nor its affiliates nor any of their respective
directors, officers, agents or employees shall be liable for any advice offered
or action taken by it or them in connection with this agreement. Genstar shall
not by virtue of this agreement be considered an employee, agent or
representative of the Companies and will not have by virtue of this agreement
any authority to act for or bind the Companies without the Companies' prior
written consent.
3. COMPENSATION.
------------
(a) In consideration of the services provided by Genstar hereunder, the
Companies shall pay to Genstar a management consulting fee of U.S. $600,000 per
annum (the "Consulting Fee"), escalating by 3% per annum on June 7 of each year,
commencing on June 7, 1997. After February 18, 2002, the Consulting Fee shall
increase to U.S. $1,391,000 per annum, escalating by 3% per annum on June 7 of
each year, commencing on June 7, 2002. The Consulting Fee is payable in arrears
in equal quarterly installments during the term hereof commencing on the date
hereof subject to withholding as required by applicable law.
(b) The Companies shall reimburse Genstar for all reasonable out-of-pocket
costs and expenses incurred by Genstar in connection with the provision of
services hereunder promptly upon receipt of a statement of such costs and
expenses from Genstar.
(c) Any amount not paid when due under the terms and provisions of this
agreement shall bear interest at the rate of 10% per annum until paid full, both
before and after demand, default or judgment.
4. FURTHER OBLIGATION OF THE COMPANIES. The Companies shall in good faith
-----------------------------------
consider all advice and recommendations of Genstar relating to the subject
matter of this agreement.
2
<PAGE>
Notwithstanding the foregoing, the Companies shall not have any obligation
whatsoever to follow or implement any such advice or recommendation of Genstar.
5. TERM AND TERMINATION. This agreement shall commence on the date hereof and
--------------------
shall continue through the period ending on the tenth anniversary of the date of
the amendment and restatement hereof, provided, however, that this agreement
shall terminate on the last day of the first calendar quarter in which Genstar
Capital Partners II, L.P. together with its affiliates no longer holds, either
directly or indirectly through entities controlled by them, at least 10% of the
common stock, par value $0.01 per share, of either Can Opco or U.S. Opco at such
time outstanding. In the event this agreement terminates pursuant to this
Section 5, the Consulting Fee shall be prorated through and paid on the date of
termination.
6. AMENDMENTS, ETC. No amendment of any provision of this agreement shall be
----------------
effective unless the same shall be in writing and signed by the parties hereto.
7. NO WAIVERS. Except as otherwise provided in this agreement, any failure of
----------
any of the parties to comply with any obligation herein may be waived by the
party entitled to the benefit thereof only by a written instrument signed by the
party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or conditions shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
8. 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 deliver 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 8).
9. ASSIGNMENT. Neither of the parties hereto shall have the right to assign
----------
this agreement or the rights or obligations hereunder without the consent of the
other parties.
10. HEADINGS The headings contained in this agreement are for reference
--------
purposes only and shall not affect in any way the meaning or interpretation of
this agreement.
11. SEVERABILITY. Any provision of this agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
12. ENTIRE AGREEMENT. This agreement constitutes the entire agreement between
----------------
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understanding, whether written or oral, between the parties
hereto with respect to the subject matter hereof.
13. GOVERNING LAW. This agreement shall be governed by, and construed in
-------------
accordance with, the laws of the State of New York.
3
<PAGE>
14. COUNTERPARTS. This agreement may be executed in 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.
IN WITNESS WHEREOF the parties hereto have duly executed this
agreement as of the date first above written.
PANOLAM INDUSTRIES, INC.
By:_________________________________
Name: Robert Muller
Title
20 Progress Drive
Shelton, CT 06484
Attention: President
Telephone: (203) 925-1556
Telecopy: (203) 225-0550
PANOLAM INDUSTRIES LTD.
By:_________________________________
Name: Robert Muller
Title
c/o Panolam Industries, Inc.
20 Progress Drive
Shelton, CT 06484
Attention: President
Telephone: (203) 925-1556
Telecopy: (203) 225-0550
4
<PAGE>
GENSTAR CAPITAL, L.L.C.
By:_________________________________
Name: J.P. Conte
Title
By:_________________________________
Name: Richard Hoskins
Title
Metro Tower, Suite 1170
950 Tower Lane
Foster City, California 94404-2121
Attention: Richard D. Paterson
Telephone: (415) 286-2350
Telecopy: (415) 286-2383
5
<PAGE>
EXECUTION COPY
EXHIBIT 10.4
STOCKHOLDERS' AGREEMENT
among
PANOLAM INDUSTRIES HOLDINGS, INC.
GENSTAR CAPITAL PARTNERS II, L.P.
CCFL SUBORDINATED DEBT FUND AND
COMPANY, LIMITED PARTNERSHIP
DOMTAR INDUSTRIES INC.
and
CLAUDE P. ARCAND
Dated as of June 7, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C>
SECTION 1.01. Certain Defined Terms................................ 2
ARTICLE II
TRANSFER RESTRICTIONS
SECTION 2.01. General Restriction.................................. 12
SECTION 2.02. Legends.............................................. 12
SECTION 2.03. Certain Restrictions on Transfer..................... 13
SECTION 2.04. Right to Participate in Certain Sales................ 13
SECTION 2.05. Right to Compel Participation in Certain Sales....... 16
SECTION 2.06. Management Stockholder Put and Company Call Options
upon Termination of Employment..................... 18
SECTION 2.07. Certain Persons to Execute Agreement................. 21
SECTION 2.08. Certain Information.................................. 22
SECTION 2.09. Improper Sale or Encumbrance......................... 22
ARTICLE III
REGISTRATION RIGHTS
SECTION 3.01. Incidental Registration.............................. 22
SECTION 3.02. Registration Upon Request............................ 24
SECTION 3.03. Registration Procedures.............................. 25
SECTION 3.04. Indemnification...................................... 28
SECTION 3.05. Contribution......................................... 30
SECTION 3.06. Nominees of Beneficial Owners........................ 32
ARTICLE IV
CALL AND PUT OPTIONS
SECTION 4.01. Grant of Options..................................... 32
SECTION 4.02. Exercise of Options.................................. 33
</TABLE>
<PAGE>
ARTICLE V
ADDITIONAL AGREEMENTS
<TABLE>
<S> <C>
SECTION 5.01. Rights Upon Issuance of Additional Shares.................. 36
SECTION 5.02. Recapitalizations, Exchanges, Etc., Affecting Common Stock. 38
SECTION 5.03. Covenant to Vote........................................... 38
SECTION 5.04. Conduct of Business........................................ 38
SECTION 5.05. Option Plan................................................ 39
SECTION 5.06. Stop Order................................................. 39
SECTION 5.07. Board Representation; Attendance at Board Meetings......... 39
SECTION 5.08. Certain Material Changes................................... 39
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Termination................................................ 40
SECTION 6.02. Representations............................................ 41
SECTION 6.03. Expenses................................................... 41
SECTION 6.04. Notices.................................................... 41
SECTION 6.05. Headings................................................... 41
SECTION 6.06. Severability............................................... 41
SECTION 6.07. Entire Agreement........................................... 42
SECTION 6.08. Assignment................................................. 42
SECTION 6.09. No Third Party Beneficiaries............................... 42
SECTION 6.10. Amendment; Waiver.......................................... 42
SECTION 6.11. Governing Law.............................................. 42
SECTION 6.12. Counterparts............................................... 43
SECTION 6.13. Remedies................................................... 43
</TABLE>
ii
<PAGE>
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of June ___, 1996 (as hereafter
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., a
limited partnership organized and existing under the laws of the State of
Delaware ("GCP II"); 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 U.S."); and CLAUDE P.
ARCAND:
W I T N E S S E T H:
--------------------
WHEREAS, the Company is authorized by its certificate of incorporation
to issue 300,000 shares of capital stock, consisting of 150,000 shares of class
A common stock, par value $.01 per share (the "Class A Common Stock"), and
150,000 shares of non-voting class B common stock, par value $.01 per share
(together with the Class A Common Stock, the "COMMON STOCK");
WHEREAS, pursuant to the subscription agreement, dated as of the date
hereof, between the Company and GCP II, the Company issued 88,640 shares of
Class A Common Stock to GCP II;
WHEREAS, in connection with the credit agreement, dated as of the date
hereof (the "SUBORDINATED CREDIT AGREEMENT"), between Panolam Industries Ltd.
(formerly known as 1166293 Ontario Inc.), a corporation organized and existing
under the laws of the Province of Ontario ("PANOLAM CANADA") and an indirect
wholly owned subsidiary of the Company, and CCFL, the Company issued 11,000
shares of Class A Common Stock to CCFL;
WHEREAS, in connection with the asset purchase agreement, dated
February 15, 1996, between Domtar U.S. and Panolam Industries, Inc. (formerly
known as PAN Acquisition, Inc.), a corporation organized and existing under the
laws of the State of Delaware ("PANOLAM U.S.") and an indirect wholly owned
subsidiary of the Company, as amended by letter agreements dated March 14, 1996,
March 21, 1996, March 28, 1996 and April 4, 1996 and by an amending agreement,
dated as of April 9, 1996. among Domtar U.S., Domtar Inc., a corporation
organized under the federal laws of Canada, Panolam Canada and Panolam U.S., an
as further amended by an amending agreement, dated as of the date hereof,
between Domtar U.S. and Panolam U.S., and the delivery of a note (the "NOTE")
made by the Company as payment in part of the purchase price thereunder, and
pursuant to the warrant agreement, dated as of the date hereof (the "WARRANT
AGREEMENT"), between the Company and Domtar U.S., the Company issued warrants
(the "WARRANTS") to purchase up to 5,000 shares of Class A Common Stock to
Domtar U.S.;
<PAGE>
2
WHEREAS, pursuant to the stock purchase agreement, dated as of the
date hereof, between the Company and Mr. Arcand, the Company issued 360 shares
of Class A Common Stock to Mr. Arcand;
WHEREAS, the Company has reserved for issuance and intends to issue
shares of Class A Common Stock to certain members of management of the Company
and its subsidiaries and a limited number of other persons pursuant to a private
placement offering memorandum (the "OFFERING MEMORANDUM");
WHEREAS, in connection with the Employee Plans (as defined below), the
Company will from time to time reserve for issuance to Employees (as defined
below) shares of Clara A Common Stock; and
WHEREAS, the parties hereto desire to enter into this Agreement in
order to set forth their agreement concerning the transfer of Shares (as defined
below) and such other matters 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:
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:
"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.
"AFFILIATED GROUP" shall mean, with respect to any person, such person
and each affiliate and associate of such person and each other person with whom
such person is acting "as a partnership, limited partnership, syndicate, or
other group for the purpose of acquiring, holding, or disposing of" Shares
(within the meaning of Section 13(d)(3) of the Exchange Act, regardless of
whether the Company shall at any time be subject to the requirements of the
Exchange Act).
<PAGE>
3
"AGREEMENT" or "THIS AGREEMENT" shall have the meaning specified in
the preamble to this Agreement.
"ASSOCIATE" shall mean. with respect to any person. (i) any
corporation or organization (other than the Company or a majority-owned
subsidiary of the Company) of which such person is an officer or partner or is,
directly or indirectly, the beneficial owner of 10% or more of any class of
equity securities, (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity, and (iii) any relative or spouse of such
person, or any relative of such spouse, who has the same home as such person or
who is a director or officer of the Company or any of its parents or
subsidiaries.
"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, Montreal, Quebec or Toronto, Ontario.
"CALL VALUE PER SHARE" shall mean the greater of (i) (A) EBIT
multiplied by 6.0, minus (1) the total amount of all debt, and the par value of
all preferred stock, if any, of the Company and its subsidiaries on a
consolidated basis outstanding at the end of the then most recently ended 12-
month period for which audited financial statements are available or are being
prepared, plus (2) cash and Cash Equivalents shown on the balance sheet of the
Company and its subsidiaries on a consolidated basis on such date, divided by
(B) the number of shares of Common Stock outstanding on such date (provided,
however, that when determining the Call Value per Share of the Warrants or any
Shares issued upon exercise of the Warrants, the number of Fully Diluted
Shares on such date shall be used), and (ii) zero; provided, however, that the
Call Value per Share of any Share 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 Share.
"CASH EQUIVALENTS" shall mean (i) marketable direct obligations issued
or unconditionally guaranteed by the United States government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof, (ii)
marketable direct obligations issued by any state of the United States or any
political subdivision of any such state or any public instrumentality thereof
maturing within one year from the date of acquisition thereof and, at the time
of acquisition, having the highest rating obtainable from either Standard &
Poor's, Moody's or Duff & Phelps Credit Rating Co. or (iii) commercial paper
maturing not more
<PAGE>
4
than one year from the date of issuance thereof and, at the time of acquisition,
having the highest rating obtainable from either Standard & Poor's or Moody's.
"CCFL" shall have the meaning specified in the preamble to this
Agreement.
"CLASS A COMMON STOCK" shall have the meaning specified in the
recitals to this Agreement.
"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.
"DEMAND RIGHT HOLDER" shall mean any holder or holders of Registrable
Securities holding a majority of the then outstanding Registrable Securities.
"DISABILITY" shall have the meaning specified therefor in the long-
term disability plan of the Company or any relevant subsidiary.
"DOMTAR U.S." shall have the meaning specified in the preamble to this
Agreement.
"EBIT" shall mean, with respect to the Company and its subsidiaries on
a consolidated basis, net income after income taxes for the then most recently
ended 12-mouth period for which audited financial statements are available or
are being prepared, plus (i) interest expense, (ii) income taxes and (iii)
extraordinary losses, minus extraordinary gains.
<PAGE>
5
"EMPLOYEE PLAN" shall mean any equity incentive plan, agreement,
bonus, award, stock purchase plan, stock option plan or other stock arrangement
with respect to any Employees.
"EMPLOYEES" shall mean employees, directors and consultants of the
Company or any of its subsidiaries.
"EMPLOYMENT AGREEMENT" shall mean the employment agreement, dated as
of the date hereof, between Panolam Canada and Claude P. Arcand.
"ENCUMBRANCE" shall mean any security interest, pledge, mortgage, lien
(including, without limitation, environmental and tax liens), charge,
encumbrance, adverse claim, preferential arrangement or restriction of any kind,
including, without limitation, any restriction on the use, voting, transfer
(other than restrictions under applicable securities laws or the certificate of
incorporation of the Company), receipt of income or other exercise of any
attributes of ownership.
"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 of
the Warrant Agreement.
"FAIR MARKET VALUE" shall mean, with respect to any Shares as of any
date of determination, (i) if such Shares are not registered under the Exchange
Act, the fair value of such Shares (or the Common Stock into or for which such
Shares 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 are registered under the Exchange
Act, the average of the daily Market Prices of such Shares (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 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 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.
<PAGE>
6
"FULLY DILUTED SHARES" shall mean the aggregate of (i) the number of
shares of Common Stock issued and outstanding (other than shares of Common Stock
held in the treasury of the Company or held by any affiliate of the Company that
is controlled by the Company) and (ii) the number of shares of Common Stock
issuable upon (A) the exercise of any then exercisable outstanding options,
warrants or similar instruments (other than such instruments held by the Company
or any affiliate of the Company that is controlled by the Company), and (B) the
exercise of any then exercisable conversion or exchange rights with respect to
any other outstanding Shares (other than such Shares held by the Company or any
affiliate of the Company that is controlled by the Company).
"GCLLC" shall mean Genstar Capital LLC, a limited liability company
organized and existing under the laws of the State of Delaware.
"GCP II" shall have the meaning specified in the preamble to this
Agreement.
"INDEPENDENT FINANCIAL EXPERT" shall mean, in the case of a dispute
under Section 4.02 the basis of which is the Fair Market Value of Shares, a
nationally recognized investment banking firm, and in the case of a dispute
under Section 4.02 the basis of which is the Call Value per Share or the Put
Value per Share (or any component thereof), a nationally recognized accounting
firm, that in either case 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 or accounting services 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, opinions or services to
the Company or any of its affiliates except as an Independent Financial Expert.
"MAJORITY-OWNED SUBSIDIARY" shall mean a subsidiary more than 50% of
whose outstanding securities representing the right, other than as affected by
events of default, to vote for the election of directors, is owned by the
subsidiary's parent and/or one or more of the parent's other majority-owned
subsidiaries.
"MANAGEMENT STOCKHOLDERS" shall mean Claude P. Arcand, together with
any Employees who hereafter acquire Shares, including pursuant to any Employee
Plan or the Offering Memorandum.
"MARKET PRICE" shall mean, with respect to any Shares registered under
the Exchange Act for any specified trading day, (i) in the case of Shares 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
<PAGE>
7
the case of Shares 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 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 as determined as if such Shares were
not registered under the Exchange Act.
"MARKETABLE SECURITIES" shall mean securities that are (i)(A)
securities of or other interests in any person that are traded on a national
securities exchange, reported on by the National Association of Securities
Dealers Automated Quotation System or otherwise actively traded over-the-counter
or (B) debt securities of an issuer that has debt or equity securities that are
so traded or so reported on and in which a nationally recognized securities firm
has agreed to make a market, and (ii) not subject to restrictions on transfer as
a result of any applicable contractual provisions or the provisions of the
Securities Act or, if subject to such restrictions under the Securities Act, are
also subject to registration or other liquidity rights reasonably acceptable to
the Other Stockholders (as defined in and for purposes of Section 2.05) holding
a majority of the Shares of Common Stock held by all such Other Stockholders.
"MOODY'S" shall mean Moody's Investors Service, Inc.
"NOTE" shall have the meaning specified in the recitals to this
Agreement.
"OFFERING MEMORANDUM" shall have the meaning specified in the recitals
to this Agreement.
"PANOLAM CANADA" shall have the meaning specified in the recitals to
this Agreement.
"PANOLAM INTERNATIONAL" shall mean Panolam Industries International,
Inc., a corporation organized under the laws of the State of Delaware and a
direct wholly owned subsidiary of the Company.
<PAGE>
8
"PANOLAM U.S." shall have the meaning specified in the recitals to
this Agreement.
"PARENT" shall mean, with respect to any person, any affiliate
controlling such person directly or indirectly through one or more
intermediaries.
"PERMITTED TRANSFEREE" shall mean (i) in the case of any Stockholder
which is not a natural person and which is a signatory to this Agreement on the
date hereof, any affiliate of such Stockholder; (ii) in the case of any
Stockholder who is a natural person and who is a signatory to this Agreement on
the date hereof, a natural person who is the issue or spouse of such Stockholder
and to whom Shares are transferred from such Stockholder (A) by will or the laws
of descent and distribution or (B) by gift without consideration of any kind;
(iii) in the case of Mr. Arcand (A) any corporation all the capital stock of
which is owned, beneficially and of record, by Mr. Arcand and/or any natural
person who is the issue or spouse of Mr. Arcand or (B) any trust all the
beneficiaries of which are Mr. Arcand and/or any natural person who is the
issue or spouse of Mr. Arcand; (iv) in the case of GCP II, (A) any employee or
member of GCLLC, (B) any general or limited partner of GCP II or (C) up to any
10 persons in one or more transactions involving the sale of up to an aggregate
of 10% of the Fully Diluted Shares; (v) the Company; (vi) GCP II; (vii) any
charitable foundation all the trustees of which are Stockholders or otherwise
Permitted Transferees; or (viii) any person with respect to which a resolution
approved by the Requisite Holders has been adopted stating that the Requisite
Holders have no objection if a Sale of Shares is made to such person.
"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.
"PROSPECTIVE TRANSFEREE" shall have the meaning specified in Section
2.07.
"PUBLIC COMPANY" shall mean the Company if, as of any date of
determination, the Company has securities registered pursuant to Section 12 of
the Exchange Act or has been subject to the reporting requirements of Section 13
or Section 15(d) of the Exchange Act for a period of at least 90 days
immediately preceding any such date of determination.
"PUBLIC OFFERING" shall mean a firm commitment underwritten public
offering of equity securities of the Company pursuant to an effective
registration statement under the Securities Act.
<PAGE>
9
"PUT VALUE PER SHARE" shall mean the greater of (i) (A) EBIT
multiplied by 5.0, minus (1) the total amount of all debt, and the par value of
all preferred stock, if any, of the Company and its Subsidiaries on a
consolidated basis outstanding at the end of the then most recently ended 12-
month period for which audited financial statements are available or are being
prepared, plus (2) cash and Cash Equivalents shown on the balance sheet of the
Company and its subsidiaries on a consolidated basis on such date, divided by
(B) the number of shares of Common Stock outstanding on such date (provided,
however, that when determining the Put Value per Share of the Warrants or any
Shares issued upon exercise of the Warrants, the number of Fully Diluted Shares
on such date shall be used), and (ii) zero; provided, however, that the Put
Value per Share of any Share 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 Share.
"REGISTRABLE SECURITIES" shall mean all shares of Common Stock held by
the signatories to this Agreement on the date hereof and their Permitted
Transferees, the Underlying Shares and all shares of Common Stock held by
Management Stockholders. As to any particular Registrable Securities that have
been issued, such securities shall cease to be Registrable Securities when (i) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of under such registration statement, (ii) such securities shall have
been distributed to the public pursuant to Rule 144, (iii) such secures shall
have been otherwise transferred or disposed of, and new certificates therefor
not bearing a legend to the effect set forth in the first paragraph of the form
of legend required by Section 2.02(a) restricting further transfer shall have
been delivered by the Company, and subsequent transfer or disposition of such
securities shall not require their registration or qualification under the
Securities Act or any similar state law then in force or (iv) such securities
shall have ceased to be outstanding.
"REGISTRATION EXPENSES" shall mean all out-of-pocket expenses incident
to the Company's performance of or compliance with Article III, including,
without limitation, all registration and filing fees (including filing fees with
respect to the National Association of Securities Dealers, Inc.), all fees and
expenses of complying with state securities or "blue sky" laws (including
reasonable fees and disbursements of underwriters' counsel in connection with
any "blue sky" memorandum or survey), all word processing, duplicating and
printing expenses, all listing fees, all registrars' and transfer agents' fees,
the fees and disbursements of counsel for the Company and of its independent
public accountants, including the expenses of any special audits and/or "cold
comfort" letters required by or incident to such performance and compliance, the
reasonable fees and disbursements of one outside counsel retained by the holders
of Registrable Securities being registered (which counsel shall be satisfactory
to the holders of a majority of the shares of Registrable Securities being
registered), and all out-of-pocket expenses of underwriters typically paid by
issuers of securities, but excluding underwriting discounts and commissions and
applicable
<PAGE>
10
transfer taxes, if any, which shall be borne by the sellers of the Registrable
Securities being registered in all cases.
"REQUISITE HOLDERS" shall mean, as of any date of determination, the
holders of not less than two-thirds of the shares of Common Stock then
outstanding.
"RESTRICTED SHARES" shall mean all Shares other than (i) shares of
Common Stock that have been registered under a registration statement pursuant
to the Securities Act, (ii) shares of Common Stock with respect to which a Sale
has been made in reliance on and in accordance with Rule 144, (iii) shares of
Common Stock with respect to which the holder thereof shall have delivered to
the Company either (A) an opinion, in form and substance satisfactory to the
Company, of counsel, who shall be satisfactory to the Company, or (B) a "no
action" letter from the staff of the Commission, to the effect that subsequent
transfers of such Shares may be effected without registration under the
Securities Act.
"RETIREMENT" shall mean, with respect to any Management Stockholder,
that (i) such Management Stockholder has reached retirement age and has retired
as an Employee in accordance with the established practices and policies of the
Company or its subsidiaries regarding the retirement of Employees or (ii) such
Management Stockholder has accepted an offer to retire as an Employee;
"RULE 144" shall mean Rule 144 (or any successor provision) under the
Securities Act.
"RULE 144 TRANSACTION" shall mean any Sale of Shares made in reliance
upon Rule 144 (as in effect on the date hereof) which complies with paragraphs
(d), (e), (f) and (g), or paragraph (k), thereof (as in effect on the date
hereof).
"SALE" (including the terms "SELL", "SOLD" and similar derivatives
thereof) shall mean any sale, assignment, transfer, grant, distribution (whether
by a partnership to its partners or otherwise) or other disposition of any
Shares or of a participation therein, whether voluntarily or by operation of law
and whether or not for value.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
"SENIOR CREDIT AGREEMENT" shall mean the credit agreement, dated as of
the date hereof, among Panolam Canada and Panolam U.S. as borrowers, the
Company, Panolam International, The Melamine Group, Inc., a corporation
organized under the laws of the State of Oregon and an indirect wholly owned
subsidiary of the Company, and Melamine Decorative Laminates, Inc., a
corporation organized under the laws of the State of Oregon and an indirect
wholly owned subsidiary of the Company, as guarantors, The Bank of Nova
<PAGE>
11
Scotia, as agent for the lenders thereunder, and the other financial
institutions party thereto, as lenders, as thereafter amended, supplemented or
otherwise modified.
"SHARES" shall mean any shares of Common Stock and any other
securities of any type whatsoever convertible into or exchangeable for shares of
Common Stock and any rights, options, warrants or similar instruments to
purchase shares of Common Stock or any such other securities, including, without
limitation, the Warrants.
"STANDARD & POOR'S" shall mean Standard & Poor's Ratings Group. a
division of McGraw-Hill Companies, Inc.
"STOCKHOLDER" shall mean each person (other than the Company) who
shall be a party to this Agreement, whether in connection with the execution and
delivery hereof as of the date hereof, pursuant to Section 2.07 or otherwise
(including without limitation, any Management Stockholder), so long as such
person shall beneficially own any Shares (whether or not any such person owns
any Shares on the date hereof).
"SUBORDINATED CREDIT 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.
"TERMINATION DATE" shall mean, with respect to any Management
Stockholder, the date on which such Management Stockholder ceases to be an
Employee.
"THIRD PARTY" shall mean, with respect to any Stockholder, any other
person, including, without limitation, any person which is a Permitted
Transferee (other than the Company or any affiliate of the Company or such
Stockholder).
"UNDERLYING SHARES" shall mean the shares of Class A Common Stock
issuable upon the exercise of the Warrants.
"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 value of any Shares for which a
determination of the Fair Market Value thereof 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. In the event that a
valuation of any Shares held by CCFL shall be required pursuant to this
Agreement after the termination of the Subordinated Credit Agreement, and the
Company shall have made any
<PAGE>
12
Capital Expenditures (as defined in the Subordinated Credit Agreement) or
incurred any additional Indebtedness (as defined in the Subordinated Credit
Agreement) which would not otherwise have been permitted under the Subordinated
Credit Agreement, the Independent Financial Expert or the Board, as the case may
be, shall consider the effect, if any, of such Capital Expenditures or
additional Indebtedness on the fair value of such Shares.
"WARRANT AGREEMENT" shall have the meaning specified in the recitals
to this Agreement.
"WARRANTS" shall have the meaning specified in the preamble to this
Agreement.
ARTICLE II
TRANSFER RESTRICTIONS
SECTION 2.01. General Restriction. No Stockholder shall, directly or
indirectly, make any Sale of, or create, incur or assume any Encumbrance with
respect to, any Shares now or hereafter held or beneficially owned thereby,
except in compliance with, and as required by, the Securities Act and this
Agreement.
SECTION 2.02. Legends. (a) The Company shall affix to each certificate
evidencing Shares issued to any Stockholder a legend in substantially the
following form:
"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 REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE
SECURITIES LAWS.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCKHOLDERS' AGREEMENT, DATED
AS OF JUNE ___ 1996, AS
<PAGE>
13
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."
(b) In the event that any Shares shall cease to be Restricted Shares,
the Company shall, upon the written request of the holder thereof, issue to such
holder a new certificate evidencing such Shares without the first paragraph of
the legend required by Section 2.02(a) affixed thereto. In the event that any
Shares shall cease to be subject to the restrictions on transfer set forth in
this Agreement, the Company shall, upon the written request of the holder
thereof, issue to such holder a new certificate evidencing such Shares without
the second paragraph of the legend required by Section 2.02(a) affixed thereto.
SECTION 2.03. Certain Restrictions on Transfer. No Stockholder shall,
directly or indirectly, make any Sale of, or create, incur or assume any
Encumbrance with respect to, any Shares held by such Stockholder other than (i)
any Sale to a Permitted Transferee, (ii) any Sale that is made in compliance
with the procedures, and subject to the limitations, set forth in Section 2.04,
2.05, 2.06, 3.01 or 3.02, (iii) any Sale pursuant to a Public Offering, (iv) any
Sale pursuant to a Rule 144 Transaction so long as immediately prior to, and
immediately after the consummation of, such Rule 144 Transaction the Company is
a Public Company, (v) any Sale by CCFL or Domtar U.S. pursuant to Article IV or
(vi) any Encumbrance incurred by any Management Stockholder under the terms of
any Employee Plan with respect to Shares held by such Management Stockholder.
Notwithstanding the foregoing, except as otherwise expressly provided in this
Agreement, all Sales permitted by the foregoing clauses (i) through (vi) shall
be subject to, and shall not be made other than in compliance with, the
provisions of Sections 2.01, 2.02, 2.07 and 2.09.
SECTION 2.04. Right to Participate in Certain Sales. (a) (i) If GCP II
receives from a Third Party or Parties a bona fide offer or offers to purchase
or otherwise acquire (for purposes of this Section 2.04, an "OFFER") any shares
of Common Stock held by GCP II, and GCP II intends to pursue a Sale of shares of
Common Stock held thereby to such Third Party or Parties, GCP II shall provide
written notice (for purposes of this Section 2.04, the "OFFER NOTICE") of such
Offer to each of the other Stockholders (for purposes of this Section 2.04, the
"OTHER STOCKHOLDERS") not later than 20 Business Days prior to the consummation
of the Sale contemplated by the Offer. The Offer Notice shall contain a true,
complete and correct copy of any and all available documents constituting the
agreement to Sell and, to the extent not set forth in the accompanying
documents, shall identify the maximum number of shares of Common Stock the Offer
is made for (for purposes of this Section 2.04, the "OFFERED SHARES"), the
consideration per Share offered for such Offered Shares, all other material
terms and conditions of the Offer and, in the case of an Offer in
<PAGE>
14
which the consideration payable for Offered Shares consists in whole or in part
of consideration other than cash, such information relating to such other
consideration as is reasonably available to GCP II. Each of the Other
Stockholders shall have the right and option, for a period of 15 Business Days
after the date the Offer Notice is given to such Other Stockholders (for
purposes of this Section 2.04, the "NOTICE PERIOD"), to notify GCP II of such
Other Stockholder's interest in Selling up to its Pro Rata Portion (as defined
in Section 2.04(a)(v) below) of the Offered Shares pursuant to the Offer. Each
Other Stockholder desiring to exercise such option shall, prior to the
expiration of the Notice Period, provide GCP II with a written notice specifying
the number of shares of Common Stock as to which such Other Stockholder has an
interest in Selling pursuant to the Offer (for purposes of this Section 2.04. a
"NOTICE OF INTEREST"), and shall deliver to GCP II (A) the certificate or
certificates evidencing the Shares to be Sold pursuant to such Offer by such
Other Stockholder duly endorsed in blank or accompanied by written instruments
of transfer in form reasonably satisfactory to GCP II executed by such Other
Stockholder, (B) an instrument of assignment reasonably satisfactory to GCP II
assigning, as of the consummation of the Sale to the Third Party or Parties, all
such Other Stockholder's rights hereunder with respect to the Shares to be Sold,
and (C) a special irrevocable power-of-attorney authorizing GCP II to Sell such
Shares pursuant to the terms of the Offer and to take all such actions as shall
be necessary or appropriate in order to consummate such Sale. Delivery of such
certificate or certificates evidencing the Shares to be Sold, the instrument of
assignment and the special irrevocable power-of-attorney authorizing GCP II to
Sell such Shares, shall constitute an irrevocable election by such Other
Stockholder to Sell Such Shares pursuant to the Offer. The number of shares of
Common Stock which GCP II shall be entitled to Sell pursuant to the Offer shall
be reduced by the aggregate number of shares of Common Stock with respect to
which it shall have received Notices of Interest (and the certificates,
instruments and other documents required by this Section 2.04(a)(i)) from Other
Stockholders. In the event any Other Stockholder does not elect to Sell any or
all of its Pro Rata Portion of the Offered Shares pursuant to the Offer, GCP II
shall have the right to Sell an additional number of Shares held thereby equal
to the aggregate unused portion of the Other Stockholders' Pro Rata Portion of
the Offered Shares.
(ii) Promptly after the consummation of the Sale of the Shares held
by GCP II and the Other Stockholders to the Third Party or Parties pursuant to
the Offer, GCP II shall remit to each Other Stockholder the total sales price of
the Shares of such Other Stockholder Sold pursuant thereto less such Other
Stockholder's pro rata share of (A) any amounts deposited in escrow or required,
in the sole discretion of GCP II, to be reserved against any liabilities arising
in connection with or resulting from such Sale; provided that in the event any
such escrow amount is subsequently released or such reserve amount is
subsequently decreased, other than as a result of the accrual or payment of any
liability for which such escrow or reserve was established, GCP II shall remit
to each Other Stockholder its pro rata share of the amount released from escrow
or the amount by which such reserve is
<PAGE>
15
decreased; and (B) all expenses (including, without limitation, attorneys' fees
and expenses) incurred by GCP II in connection with such Sale.
(iii) If at the end of the Notice Period any Other Stockholder shall
not have given a Notice of Interest (and delivered all other required documents)
with respect to some or all of its Pro Rata Portion of the Offered Shares, such
Other Stockholder shall be deemed to have waived all its rights under this
Section 2.04 with respect to the Sale pursuant to the Offer of the portion of
its Pro Rata Portion of the Offered Shares with respect to which a Notice of
Interest shall not have been given. The Company shall have 180 days from the
date of the Offer Notice to consummate the proposed Sale of the Offered Shares.
Notwithstanding the foregoing, GCP II may Sell the shares of Common Stock
pursuant to the Offer at a price and upon terms that are more favorable to GCP
II than those specified in the Offer Notice; provided that any Sale of Shares by
any Other Stockholder consummated at the time of such Sale shall be upon the
same more favorable terms; provided further that if any Other Stockholder did
not elect to Sell its Pro Rata Portion of the Offered Shares based upon the
terms specified in the relevant Offer Notice, the Company shall provide such
Other Stockholders with a revised Offer Notice reflecting such more favorable
terms, and such Other Stockholders shall have 10 Business Days from the date it
receives such revised Offer Notice to agree to Sell up to its Pro Rata Portion
of such Offered Shares to be Sold upon the more favorable terms set forth in the
revised Offer Notice by giving written notice to the Company of its desire to
Sell such Offered Shares. In the event GCP II proposes to Sell shares of Common
Stock to a Third Party or Parties after such 180-day period or shares of Common
Stock in addition to those Specified in the Offer Notice, it must again comply
with the procedures set forth in this Section 2.04. If, at the and of the 180-
day period following the giving of the Offer Notice, GCP II has not completed
the Sale of its Pro Rata Portion of the Offered Shares and the Offered Shares
with respect to which Other Stockholders shall have given Notices of Interest
pursuant to this Section 2.04, GCP II shall return to such Other Stockholders
all certificates evidencing the unsold shares of Common Stock that such Other
Stockholders delivered for Sale pursuant to this Section 2.04 and such Other
Stockholders' related documents, instruments of assignment and powers-of-
attorney.
(iv) Except as expressly provided in this Section 2.04, GCP II shall
have no obligation to any Other Stockholder with respect to the Sale of any
Shares held by such Other Stockholder in connection with this Section 2.04.
Anything herein to the contrary notwithstanding and irrespective of whether any
Notice of Interest shall have been given, GCP II shall have no obligation to any
Other Shareholder to Sell any Shares held thereby pursuant to this Section 2.04
or as a result of any decision by GCP II not to accept or consummate any Offer
or Sale with respect to any Shares held thereby (it being understood that any
and all such decisions shall be made by GCP II in its sole and absolute
discretion). No Other Stockholder shall be entitled to Sell Shares directly to
any Third Party or Parties pursuant to an Offer (it being understood that all
such Sales shall be made only on the terms and pursuant to the procedures set
forth in this Section 2.04).
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16
(v) For purposes of this Section 2.04, "PRO RATA PORTION" shall
mean, with respect to each Stockholder, a number of Shares equal to the product
of (A) the total number of Offered Shares and (B) a fraction, the numerator of
which shall be the total number of Fully Diluted Shares then held by such
Stockholder, and the denominator of which shall be the total number of Fully
Diluted Shares then outstanding.
(b) Anything in this Section 2.04 or in Section 2.03 to the
contrary notwithstanding, (i) the provisions of this Section 2.04 shall not be
applicable to any Sale of Shares pursuant to a Public Offering, pursuant to
Section 3.01 or Section 3.02 or to any transfer described in clauses (i) through
(v) of Section 2.03(a) (other than a Sale made pursuant to this Section 2.04)
and (ii) in the event that GCP II shall exercise the option referred to in
Section 2.05 to require each of the Other Stockholders (as defined in and for
purposes of Section 2.05) to participate in the Sale of Shares referred to
therein, such Other Stockholders (as defined in and for the purposes of Section
2.05) shall thereafter have no right pursuant to this Section 2.04 to
participate in any proposed Sale pursuant to this Section 2.04, but shall
instead comply with the terms of Section 2.05. Nothing in this Section 2.04
shall affect any of the obligations of any of the Stockholders under any other
provision of this Agreement.
SECTION 2.05. Right to Compel Participation in Certain Sales. (a)(i)
If GCP II shall, in any transaction or series of related transactions, directly
or indirectly, propose (for purposes of this Section 2.05, an "OFFER") to Sell
any Shares held thereby (for purposes of this Section 2.05, the "OFFERED
SHARES") to a Third Party or Parties, GCP II may, at its option, require each
of the other Stockholders (for purposes of this Section 2,05, the "OTHER
STOCKHOLDERS") to Sell pursuant to the Offer the Pro Rata Portion (as defined in
Section 2,05(a)(ii) below) of the Shares then held by each such Other
Stockholder for the same consideration per Share (less, in the case of any
Shares which are rights, options, warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Common
Stock, the total consideration, if any, payable to the Company upon exercise,
conversion or exchange thereof) and otherwise on the same terms and conditions
upon which GCP II Sells its Shares; provided, however, that GCP II may not
require CCFL or Domtar U.S. to sell Shares held thereby without its consent
unless all amounts outstanding under the Subordinated Credit Agreement or the
Note, as the case may be, shall have been paid in full.
(ii) For purposes of this Section 2.05, "PRO RATA PORTION" shall
mean, with respect to each Other Stockholder, a number of Shares equal to the
product of (A) the total number of Fully Diluted Shares then held by such Other
Stockholder and (B) a fraction, the numerator of which shall be the total number
of Offered Shares, and the denominator of which shall be the total number of
Fully Diluted Shares then held by GCP II.
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17
(b) (i) GCP II shall provide a written notice (for purposes of this
Section 2.05, the "OFFER NOTICE") of such Offer to each of the Other
Stockholders not later than 30 days prior to the consummation of the Sale
contemplated by the Offer. The Offer Notice shall contain written notice of the
exercise of GCP II's rights pursuant to Section 2.05(a), a true, complete and
correct copy of any and all available documents constituting the agreement to
Sell and, to the extent not set forth in the accompanying documents, shall
identify the Offered Shares, the consideration per Share offered for such
Offered Shares, all other material terms and conditions of the Offer and, in the
case of an Offer in which the consideration payable for Offered Shares consists
in whole or in part of consideration other than cash, such information relating
to such other consideration as is reasonably available to GCP II. Within seven
Business Days following the date the Offer Notice is given, each of the Other
Stockholders shall deliver to GCP II (A) the certificate or certificates
evidencing the Pro Rata Portion of the Shares held by such Other Stockholder
duly endorsed in blank or accompanied by written instruments of transfer in form
satisfactory to GCP II executed by such Other Stockholder, and (B) a special
irrevocable power-of-attorney authorizing GCP II, on behalf of such Other
Stockholder, to Sell such Shares pursuant to the terms of the Offer and to take
all such actions as shall be necessary or appropriate in order to consummate
such Sale.
(ii) Promptly after the consummation of the Sale of Shares held by
GCP II and the Other Stockholders to the Third Party or Parties pursuant to the
Offer, GCP II shall remit to each Other Stockholder the total sales price of the
Shares of such Other Stockholder Sold pursuant thereto less such Other
Stockholder's pro rata share of (A) any amounts deposited in escrow or required,
in the sole discretion of GCP II, to be reserved against any liabilities arising
in connection with or resulting from such Sale; provided that in the event any
such escrow amount is subsequently released, or such reserve amount is
subsequently decreased, other than as a result of the accrual or payment of any
liability for which such escrow or reserve was established, GCP II shall remit
to each Other Stockholder its pro rata share of the amount released from escrow
or the amount by which such reserve is decreased; provided further that CCFL's
and Domtar U.S.'s respective pro rata shares of any such escrow amount shall,
except to the extent any claim is then pending with respect thereto, be released
to CCFL and Domtar U.S., respectively, not later than the second anniversary of
the consummation of the Sale giving rise to such escrow arrangement; and (B) all
expenses (including, without limitation, attorneys' fees and expenses) incurred
by GCP II in connection with such Sale. The Company shall promptly reimburse
CCFL, Domtar U.S. and each Management Stockholder for any expenses paid thereby
pursuant to Section 2.05(b)(ii)(B).
(iii) If, at the end of the 180-day period following the giving of
the Offer Notice, GCP II shall not have completed the Sale of all the Offered
Shares and the Shares delivered to GCP II pursuant to Section 2.05(b)(i), GCP II
shall return to each of the Other Stockholders all certificates evidencing
unsold Shares that such Other Stockholder delivered
<PAGE>
18
for Sale pursuant to this Section 2.05, the instruments of transfer and such
Other Stockholders' related powers-of-attorney.
(iv) Except as expressly provided in this Section 2.05, GCP II shall
have no obligation to any Other Stockholder with respect to the Sale of any
Shares held by such Other Stockholder in connection with this Section 2.05.
Anything herein to the contrary notwithstanding, GCP II shall have no obligation
to any Other Stockholder to Sell any Offered Shares pursuant to this Section
2.05 or as a result of any decision by GCP II not to accept or consummate any
Offer or Sale with respect to the Offered Shares (it being understood that any
and all such decisions shall be made by GCP II in its sole and absolute
discretion). No Other Stockholder shall be (A) obligated to accept or consummate
any Offer or Sale with respect to the Shares of such Other Stockholder unless
GCP II accepts or consummates the related Offer or Sale of the Offered Shares or
(B) entitled to make any Sale of Shares directly to any Third Party or Parties
pursuant to an Offer (it being understood that all such Sales shall be made only
on the terms and pursuant to the procedures set forth in this Section 2.05).
Nothing in this Section 2.05 shall affect any of the obligations of any of the
Stockholders under any other provision of this Agreement.
(c) Anything in this Section 2.05 or in Section 2.03 to the
contrary notwithstanding, the provisions of this Section 2.05 shall not be
applicable to any Sale of Shares pursuant to a Public Offering or pursuant to
Section 3.01 or Section 3.02.
SECTION 2.06. Management Stockholder Put and Company Call Options upon
Termination of Employment. (a) If any Management Stockholder ceases to be an
Employee, (i) the Company shall then have the right (for purposes of this
Section 2.06, the "CALL OPTION"), exercisable during the Call Period (as defined
below), to purchase all or, subject to Section 2.06(b)(iii), any portion of the
Shares held by such Management Stockholder and/or such Stockholder's Permitted
Transferees (for purposes of this Section 2.06, the "CALL OPTION SHARES") at
Fair Market Value, and, if the Company has not elected to purchase any, or has
elected to purchase fewer than all of, the Call Option Shares, each other
Stockholder (for purposes of this Section 2.06, the "OTHER STOCKHOLDERS") shall
then have the right to purchase all, or subject to Section 2.06(b)(iii), any
portion of the Call Option Shares not therefore subscribed for by the Company,
pro rata among such Other Stockholders on the basis of the number of Shares
owned thereby; provided, however, that in the event any such Other Stockholder
does not purchase any or all of its pro rata portion of the remaining Call
Option Shares, then the other Other Stockholders shall have the right, on such
pro rata basis, to purchase an amount of such unpurchased Call Option Shares
based on the relative proportions of ownership of Shares of the Other
Stockholders who elect to purchase such unpurchased Call Option Shares; and (ii)
such Management Stockholder and/or such Stockholder's Permitted Transferees
shall then have the right (for purposes of this Section 2.06, the "Put Option"),
exercisable during the Put Period (as defined below), to sell to the Company all
of the Shares held by such Management Stockholder and/or such
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19
Stockholder's Permitted Transferees (for purposes of this Section 2.06, the "PUT
OPTION SHARES") at Fair Market Value.
(b) (i) The Company may exercise the Call Option by delivering
written notice thereof to the Management Stockholder (for purposes of this
Section 2.06, the "CALL OPTION NOTICE") at any time during the Call Period. If
the Company does not deliver a Call Option Notice or if the Company elects to
purchase fewer than all of the Call Option Shares, then the Company shall
deliver, prior to the expiration of the Call Period, written notice to each
Other Stockholder of its pro rata share of the number of Call Option Shares not
subscribed for by the Company (for purposes of this Section 2.06, the "CALL
OPTION PORTION NOTICE"). Each Other Stockholder may exercise its portion of the
Call Option by delivering written notice thereof to the Management Stockholder
(for purposes of this Section 2.06, the "CALL OPTION PRO RATA NOTICE"), with a
copy to the Company, within 45 days of such Other Stockholder's receipt of the
Call Option Portion Notice. The Call Option Pro Rata Notice shall also specify
whether such Other Stockholder elects to purchase any Call Option Shares in
addition to such Other Stockholder's pro rata portion of the Call Option Shares
in the event there is an aggregate undersubscription for all Call Option Shares.
Unsubscribed Call Option Shares, if any, shall be apportioned among the Other
Stockholders who elect to purchase such shares based on such Other Stockholders'
relative proportions of ownership of Shares.
(ii) If the Company and/or the Other Stockholders exercise the Call Option
with respect to the Call Option Shares, then the Management Stockholder and/or
such Stockholder's Permitted Transferees shall sell the Call Option Shares to
the Company and/or such Other Stockholders, as the case may be, within 30 days
after the date of receipt of the Call Option Notice or 30 days after the date of
receipt of the last Call Option Pro Rata Notice received by such Management
Stockholder, as the case may be,
(iii) Unless the Management Stockholder shall have consented to the
purchase of fewer than all of the Call Option Shares, neither the Company nor
the Other Stockholders may purchase any Call Option Shares unless all Call
Option Shares owned by such Management Stockholder and/or such Stockholder's
Permitted Transferees are purchased.
(iv) For purposes of this Section 2.06, "CALL PERIOD" shall mean, with
respect to each Management Stockholder, the period commencing on such
Stockholder's Termination Date and ending on the earlier of (A) the date on
which such Stockholder exercises its Put Option and (B) the first anniversary of
such Stockholder's Termination Date.
(c) (i) The Management Stockholder and/or such Stockholder's
Permitted Transferees may exercise the Put Option by delivering written notice
thereof to the Company (for purposes of this Section 2.06, the "Put Option
Notice") at any time during the Put Period.
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20
(ii) If the Management Stockholder and/or such Stockholder's Permitted
Transferees exercises the Put Option with respect to the Put Option Shares, then
such Management Stockholder and/or such Stockholder's Permitted Transferees
shall sell the Put Option Shares to the Company within 30 days after the date of
delivery of the Put Option Notice.
(iii) For purposes of this Section 2.06, "PUT PERIOD" shall mean, with
respect to each Management Stockholder, the period commencing on such
Stockholder's Termination Date and ending on the earlier of (A) the date on
which the Company exercises its Call Option (provided, however, that in the
event a Management Stockholder and the Company exercise their respective Put
Option and Call Option on the same date, the Put Period shall be deemed to have
ended on the day immediately preceding the date on which the Company shall have
exercised its Call Option; provided that all Call Option Shares owned by such
Management Stockholder and/or such Stockholder's Permitted Transferees are
purchased by the Company and/or the Other Stockholders in connection with such
exercise) with respect to such Stockholder's Shares and (B) the first
anniversary of such Stockholder's Termination Date.
(d) Upon the consummation of any purchase by the Company and/or any
Other Stockholder pursuant to the exercise of the Call Option or the Put Option,
the Management Stockholder and/or such Stockholder's Permitted Transferees shall
deliver certificates or other documents satisfactory to the Company in its sole
discretion evidencing the Shares sold duly endorsed, or accompanied by written
instruments of transfer, free and clear of any Encumbrances, against delivery of
the Fair Market Value of such Shares in cash.
(e) Subject to the other provisions of this Agreement, from and
after the time at which the Company and/or any Other Stockholder shall have
tendered in immediately available funds to the Management Stockholder and/or
such Stockholder's Permitted Transferees the Fair Market Value of the Shares
purchased pursuant to the exercise of the Call Option or the Put Option, as the
case may be, all rights (other than the right to receive payment of the Fair
Market Value of such Shares) of the Management Stockholder and/or such
Stockholder's Permitted Transferees with respect to the Shares for which tender
has been made, including, without limitation, all voting and dividend rights,
shall permanently cease and terminate, and such Management Stockholder and/or
such Stockholder's Permitted Transferees shall no longer be considered the owner
of such Shares.
(f) Anything herein to the contrary notwithstanding, the Company
shall not be required to purchase any Shares pursuant to this Section 2.06 to
the extent that and so long as any such purchase would conflict with (i) any
provision set forth in, or constitute a Default or an Event of Default (each as
defined in the Senior Credit Agreement and the
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21
Subordinated Credit Agreement, respectively) under, the Senior Credit Agreement
or the Subordinated Credit Agreement, or (ii) any applicable law.
SECTION 2.07. Certain Persons to Execute Agreement. (a) No Stockholder
shall, directly or indirectly, make any Sale of, or create, incur or assume any
Encumbrance with respect to, any Shares held by such Stockholder, unless, prior
to the consummation of any such Sale or the creation, incurrence or assumption
of any such Encumbrance, (i) the person to whom such Sale is proposed to be made
or the person in whose favor such Encumbrance is proposed to be created,
incurred or assumed (a "PROSPECTIVE TRANSFEREE") (A) 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 Shares
that are the subject of such Sale or Encumbrance, it shall be deemed to be a
"Stockholder" for the purposes of this Agreement and agrees to be bound by all
the terms of this Agreement, and (B) unless such Prospective Transferee is a
recognized institutional investor, financial institution or other institutional
lender or GCP II, delivers to the Company an opinion of counsel, satisfactory in
form and substance to the Company, to the effect that the agreement referred to
above that is delivered by such Prospective Transferee is a legal, valid and
binding obligation of such Prospective Transferee enforceable against such
Prospective Transferee in accordance with its terms; and (ii) in the event any
Prospective Transferee is an affiliate or the issue or spouse or a corporation,
all of the capital stock of which, or a trust, all of the beneficiaries of
which, are the issue or spouse of such transferor Stockholder, such Stockholder
executes and delivers to the Company an agreement, in form and substance
satisfactory to the Company, whereby such Stockholder confirms that, with
respect to the Shares that are the subject of such Sale or Encumbrance, it shall
guarantee the performance by such Prospective Transferee of all the terms of
this Agreement. Upon the execution and delivery by such Prospective Transferee
of the agreements referred to in clauses (i)(A) and (ii), as the case may be, of
the next preceding sentence and, if required, the delivery of the opinion of
counsel referred to in clause (i)(B) of the next preceding sentence, such
Prospective Transferee shall be deemed a "Stockholder" for the purposes of this
Agreement, and shall have the rights and be subject to the obligations of a
Stockholder hereunder with respect to the Shares held by such Prospective
Transferee or in respect of which such Encumbrance shall have been created,
incurred or assumed.
(b) In the event that the Company shall issue any Shares, or make a
Sale of any issued Shares, to any person, or shall otherwise request any person
owning Shares or owning the right to acquire Shares to execute an agreement,
such person shall execute and deliver to the Company an agreement, in form and
substance satisfactory to the Company, whereby such person confirms that, with
respect to the Shares that are the subject of such Sale or request, it shall be
deemed to be a "Stockholder" for purposes of this Agreement and agrees to be
bound by all the terms of this Agreement, and such person shall thereupon be
deemed a "Stockholder" for purposes of this Agreement, and shall have the rights
and be
<PAGE>
22
subject to the obligations of a Stockholder hereunder with respect to the Shares
held by such person.
(c) Anything in this Section 2.07 or in Section 2.03 to the
contrary notwithstanding, the provisions of this Section 2.07 shall not be
applicable to (i) any Sale of Shares pursuant to a Public Offering or pursuant
to Section 3.01 or Section 3.02, (ii) any Sale of Shares in a Rule 144
Transaction so long as immediately prior to, and immediately after the
consummation of, such Rule 144 Transaction the Company is a Public Company, or
(iii) any Encumbrance incurred by any Management Stockholder under the terms of
any Employee Plan with respect to Shares held by such Management Stockholder.
SECTION 2.08. Certain Information. In the event that and so long as
the Company shall be a Public Company, it shall file all reports and other
information required to be filed by Section 13 or 15(d) under the Exchange Act,
as the case may be, as shall be necessary in order that the conditions to the
availability of Rule 144 in connection with any Sale of Shares by a Stockholder
shall be met.
SECTION 2.09. Improper Sale or Encumbrance. Except as specifically
permitted under this Agreement, any attempt to make any Sale of, or create,
incur or assume any Encumbrance with respect to, any Shares shall be null and
void and neither the Company nor any transfer agent thereof shall give any
effect in the Company's stock records to such attempted Sale or Encumbrance.
ARTICLE III
REGISTRATION RIGHTS
SECTION 3.01. Incidental Registration. (a) If the Company at any time
proposes to register any Shares under the Securities Act on a form and in a
manner that would permit registration of Registrable Securities for sale to the
public under the Securities Act, each such time it shall give prompt written
notice to all holders of Registrable Securities of its intention to do so,
describing such securities and specifying the form and manner and the other
relevant facts involved in such proposed registration (including, without
limitation, whether or not such registration will be in connection with an
underwritten offering of Shares and, if so, the identity of the managing
underwriter and whether such offering will be pursuant to a "best efforts" or
"firm commitment" underwriting). Upon the written request of any such holder of
Registrable Securities delivered to the Company within 30 days after such notice
shall have been given to such holder (which request shall specify the
Registrable Securities intended to be disposed of by such holder and the
intended method of disposition thereof), the Company shall use its best efforts
to effect the registration under the Securities Act, as expeditiously as is
reasonable, of all Registrable Securities that the Company has
<PAGE>
23
been so requested to register by the holders of Registrable Securities, to the
extent requisite to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of the Registrable Securities so to be registered;
provided, however, that:
(i) if, at any time after giving such written notice of its
intention to register any Shares and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason not to register Shares, the Company
may, at its election, give written notice of such determination to each
holder of Registrable Securities that has requested to register Registrable
Securities and thereupon the Company shall be relieved of its obligation to
register any Registrable Securities in connection with such registration
(but not from its obligation to pay the Registration Expenses in connection
therewith to the extent provided in Section 3.01(b));
(ii) if (A) the registration so proposed by the Company involves
an underwritten offering of securities so to be registered, to be
distributed by or through one or more underwriters of recognized standing
under underwriting terms appropriate for such a transaction, and (B) the
managing underwriter of such underwritten offering selected by the Company
shall advise the Company that, in its judgment, the number of shares of
Registrable Securities and any other securities proposed to be included in
such offering should be limited (1) due to market conditions or (2) because
the inclusion of Registrable Securities could adversely impact the purchase
price obtained for the securities proposed to be included in such offering
by the Company, then the Company shall promptly advise each such holder of
Registrable Securities thereof and may require, by written notice to each
such holder accompanying such advice, that, to the extent necessary to meet
such limitation, all holders of Registrable Securities proposing to sell
shares of Registrable Securities in such offering shall share pro rata in
the number of shares of Registrable Securities to be excluded from such
offering, such sharing to be based on the respective numbers of shares of
Registrable Securities as to which registration has been requested by such
holders and that the distribution of such Registrable Securities as are so
excluded be deferred (in case of a deferral as to a portion of such
Registrable Securities, such portion to be allocated among such holders in
proportion to the respective numbers of shares of Registrable Securities so
requested to be registered by such holders) until the completion of the
distribution of such securities by such underwriters; provided that in the
case of Registrable Securities held by any Management Stockholder, the
Company may require that all (or such other number of shares of Registrable
Securities greater than such Management Stockholder's pro rata share) of
such Management Stockholder's shares of Registrable Securities be excluded
from such offering; and
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24
(iii) the Company shall not be obligated to effect any
registration of Registrable Securities under this Section 3.01 that is
incidental to the registration of any of its securities in connection with
any merger, acquisition, exchange offer, dividend reinvestment plan or
Employee Plan.
(b) The Company shall pay all Registration Expenses in connection
with each registration of Registrable Securities effected by it pursuant to this
Section 3.01.
SECTION 3.02. Registration Upon Request. (a) Upon the written request
of any Demand Right Holder requesting that the Company effect the registration
under the Securities Act of all or part of the Registrable Securities held by
such Demand Right Holder and specifying the intended method or methods of
disposition of such Registrable Securities, the Company shall promptly give
written notice of such requested registration to all holders of Registrable
Securities and thereupon will use its best efforts to effect the registration
under the Securities Act, as expeditiously as is reasonable, of (i) the
Registrable Securities that the Company has been so requested to register by
such holder or holders, for disposition in accordance with the intended method
of disposition stated in such request, and (ii) all other Registrable Securities
that the Company has been requested to register by the holders of Registrable
Securities by written request delivered to the Company within 30 days after the
giving of such written notice by the Company (which request shall specify the
intended method of disposition of such Registrable Securities), all to the
extent requisite to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of the Registrable Securities so to be registered.
(b) Anything contained in Section 3.02(a) to the contrary
notwithstanding, the Company shall not be required to effect any registration
pursuant to this Section 3.02 if the Board determines that, in its judgment, it
would (because of the existence of, or in anticipation of, any acquisition
involving the Company or any of its subsidiaries or any financing activity, or
the unavailability for reasons substantially beyond the Company's control of any
required financial statements, or any other event or condition of similar
significance to the Company or any of its subsidiaries) be significantly
disadvantageous (for purposes of this Section 3.02, a "DISADVANTAGEOUS
CONDITION") to the Company or any of its subsidiaries for such a registration
statement to become effective, or to be maintained effective, the Company shall,
notwithstanding any other provision of this Article III, be entitled, upon the
giving of a written notice (for purposes of this Section 3.02, a "DELAY NOTICE")
to such effect to each holder of Registrable Securities included or to be
included in such registration statement, to cause such registration statement to
be withdrawn and the effectiveness of such registration statement terminated,
or, in the event no registration statement has yet been filed, shall be entitled
not to file any such registration statement, until, in the judgment of the
Board, such Disadvantageous Condition no longer exists (notice of which the
Company shall promptly deliver to the holders of Registrable Securities with
respect to which any such registration statement has been filed, or was to have
been filed).
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Upon receipt of any notice of the existence of a Disadvantageous Condition, such
holders of Registrable Securities selling securities pursuant to an effective
registration statement will forthwith discontinue use of the prospectus
contained in such registration statement and, if so directed by the Company,
each such holder of Registrable Securities will deliver to the Company all
copies, other than permanent file copies then in such holder's possession, of
the prospectus then covering such Registrable Securities current at the time of
receipt of such notice, and, in the event no registration statement has yet been
filed, all drafts of the prospectus covering such Registrable Securities.
(c) In connection with any underwritten offering with respect to
which holders of Registrable Securities shall have requested registration
pursuant to this Section 3.02, the Company shall have the right to select the
managing underwriter with respect to such offering; provided, however, that in
connection with an underwritten offering of Registrable Securities where GCP II
or any of its affiliates are the holders of a majority of such Registrable
Securities, GCP II shall have the right to select the managing underwriter with
respect to such offering.
(d) The Company shall pay all Registration Expenses in connection
with each of the registrations of Registrable Securities effected by it pursuant
to this Section 3.02.
SECTION 3.03. Registration Procedures. (a) If and whenever the Company
is required to use its best efforts to effect the registration of any
Registrable Securities under the Securities Act as provided in Section 3.01 or
3.02, the Company shall, as expeditiously as is reasonable:
(i) prepare and file with the Commission on any appropriate
form a registration statement with respect to such Registrable Securities
and use its best efforts to cause such registration statement to become
effective;
(ii) prepare and file with the Commission such amendments
(including post-effective amendments) and supplements to such registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply with
the provisions of the Securities Act with respect to the disposition of all
Registrable Securities and other securities covered by such registration
statement until the earlier of (A) such time as all such Registrable
Securities and other securities have been disposed of in accordance with
the intended methods of disposition by the seller or sellers thereof set
forth in such registration statement and (B) the expiration of 30 days
from the date such registration statement first becomes effective;
(iii) furnish to each seller of such Registrable Securities
such number of conformed copies of such registration statement and of each
such amendment and
<PAGE>
26
supplement thereto (in each case including all exhibits), such number of
copies of the prospectus included in such registration statement (including
each preliminary prospectus and any summary prospectus), in conformity with
the requirements of the Securities Act, such documents incorporated by
reference in such registration statement or prospectus, and such other
documents, as such seller may reasonably request in order to facilitate the
sale or disposition of such Registrable Securities;
(iv) use its best efforts to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or "blue sky" laws of such
jurisdictions as each seller shall reasonably request, and do any and all
other acts and things that may be necessary to enable such seller to
consummate the disposition in such jurisdictions of its Registrable
Securities covered by such registration statement, except that the Company
shall not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it is not so
qualified, or to subject itself to taxation in respect of doing business in
any such jurisdiction, or to consent to general service of process in any
such jurisdiction;
(v) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller, of (A) any opinion of counsel for the
Company, dated the effective date of such registration statement (or, if
such registration includes an underwritten public offering, dated the date
of the closing under the underwriting agreement), received by the Company in
connection with such registration statement, and (B) any "cold comfort"
letter signed by the independent public accountants who have issued a report
on the Company's financial statements included in such registration
statement received by the Company in connection with such registration
statement;
(vi) immediately notify each seller of Registrable Securities
covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of
the happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing or if it is necessary to amend or
supplement such prospectus to comply with applicable law, and at the request
of any such seller prepare and furnish to such seller a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities or securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing and
<PAGE>
27
shall otherwise comply in all material respects with applicable law and so
that such prospectus, as amended or supplemented, shall comply with
applicable law;
(vii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to
its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least 12 months, beginning with the
first month of the first fiscal quarter after the effective date of such
registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act;
(viii) use its best efforts to list such securities on each
securities exchange on which similar securities issued by the Company are
then listed, if such securities are not already so listed and if such
listing is then permitted under the rules of such exchange, and provide a
transfer agent and registrar for such Registrable Securities not later than
the effective date of such registration statement; and
(ix) issue to any underwriter to which any holder of
Registrable Securities may sell such Registrable Securities in connection
with any such registration (and to any direct or indirect transferee of any
such underwriter) certificates evidencing Shares without the legends
described in Section 2.02(a).
(b) The Company may require each seller of Registrable Securities as
to which any registration is being effected to furnish the Company with such
information regarding such seller and the distribution of such securities as the
Company may from time to time reasonably request in writing and as shall be
required by law or by the Commission in connection therewith.
(c) If requested by the underwriters for any underwritten offering
of Registrable Securities on behalf of a holder or holders of Registrable
Securities pursuant to a registration requested under Section 3.02, the Company
shall enter into an underwriting agreement with such underwriters for such
offering, such agreement to contain such representations and warranties by the
Company and such other terms and conditions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities to the effect and to the extent provided in
Section 3.04.
(d) If so required by the managing underwriters in connection with
an underwritten offering of Registrable Securities pursuant to Section 3.01 or
3.02, holders of Registrable Securities shall not effect any public sale or
distribution (including any sale pursuant to Rule 144) of Registrable Securities
(other than as part of such underwritten public offering) within seven days
prior to the effective date of the registration statement with
<PAGE>
28
respect to such underwritten public offering or 120 days after the effective
date of such registration statement or within such other period as required by
the managing underwriters.
(e) If so required by the managing underwriters in connection with
an underwritten offering of Registrable Securities pursuant to Section 3.01 or
3.02, the Company shall not effect any public sale or distribution of any Shares
during the seven days prior to and the 180 days after the effective date of any
registration statement with respect to such underwritten public offering, except
as part of such underwritten offering or except in connection with a stock
option plan, stock purchase plan, savings or similar plan, or an acquisition,
merger or exchange offer.
(f) It is understood that in any underwritten offering of
Registrable Securities in addition to the Shares (for purposes of this Section
3.03, the "INITIAL SHARES") the underwriters have committed to purchase, the
underwriting agreement may grant the underwriters an option to purchase a number
of additional Shares (for purposes of this Section 3.03, the "OPTION SHARES")
equal to up to 15% of the Initial Shares (or such other maximum amount as the
National Association of Securities Dealers, Inc. may then permit), solely to
cover over-allotments. Shares proposed to be sold by the Company and the holders
under Section 3.01 shall be allocated between Initial Shares and Option Shares
as agreed or, in the absence of agreement, pursuant to Section 3.01(a)(ii).
SECTION 3.04. Indemnification. (a) In the event of any registration of
any debt or equity securities of the Company under the Securities Act, the
Company shall, and hereby does, to the fullest extent permitted by applicable
law, indemnify and hold harmless, in the case of any registration statement
filed pursuant to Section 3.01 or 3.02, the seller of any Registrable Securities
covered by such registration statement, its directors and officers, general and
limited partners (and directors and officers thereof and, if such seller is a
portfolio or investment fund, its investment advisors), each other person who
participates as an underwriter in the offering or sale of such securities, each
officer and director of each such underwriter, and each other person, if any,
who controls such seller or any such underwriter within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act, against any losses,
claims, damages, liabilities and expenses, joint or several, to which such
seller or any such director or officer or participating or controlling person
may become subject under the Securities Act or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such securities were registered under the Securities Act,
any preliminary prospectus, final prospectus or summary prospectus included
therein, or any amendment or supplement thereto, or any document incorporated by
reference therein, or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Company shall reimburse such seller, and each
such director, officer, partner, advisor,
<PAGE>
29
underwriter and controlling person for any legal or other fees and expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or fee or
expense arises out of or is based upon (A) an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus, amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company for use in the preparation thereof by such indemnified
party, or (B) an untrue statement or alleged untrue statement or omission or
alleged omission made in any preliminary prospectus but notified to such
indemnified party prior to any sale of Registrable Securities and subsequently
corrected by the Company in any final prospectus, amendment or supplement made
available to such indemnified party but which final prospectus, amendment or
supplement was not used by such indemnified party in the sale of Registrable
Shares that gave rise to such loss, claim, damage, liability (or action or
proceeding in respect thereof) or fee or expense. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
such seller or any such director, officer, partner, advisor, underwriter or
controlling person and shall survive the transfer of such securities by such
seller.
(b) The Company may require, as a condition to including any
Registrable Securities in any registration statement filed pursuant to Section
3.01 or 3.02, that the Company shall have received an undertaking satisfactory
to it from (i) the prospective seller of such securities, to indemnify and hold
harmless (in the same manner and to the same extent as set forth in Section
3.04(a), except that any such prospective seller shall not in any event be
liable to the Company pursuant thereto for an amount in excess of the net
proceeds of sale of such prospective seller's Registrable Securities so to be
sold) the Company, each such underwriter of such securities, each officer and
director and each general and limited partner (and each director and officer
thereof and if such prospective seller's a portfolio or investment fund, each
investment advisor thereof) of each such underwriter and each other person, if
any, who controls the Company or any such underwriter within the meaning of
Section 15 of the Securities Act or Section 20 or the Exchange Act, and (ii)
each such underwriter of such securities, to indemnify and hold harmless (in the
same manner and to the same extent as set forth in Section 3.04(a)) the Company,
each officer and director of the Company, each prospective seller, each officer
and director and each general and limited partner (and each director and officer
thereof and, if such prospective seller is a portfolio or investment fund, each
investment advisor thereof) of each prospective seller and each other person, if
any, who controls the Company or any such prospective seller within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act, with
respect to any statement in or omission from such registration statement, any
preliminary prospectus, final prospectus or summary prospectus included therein,
or any amendment or supplement thereto, if such statement or omission was made
in reliance upon and in conformity with
<PAGE>
30
written information furnished by such prospective seller or such underwriter, as
the case may be, to the Company for use in the preparation of such registration
statement, preliminary prospectus, final prospectus, summary, prospectus,
amendment or supplement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any such
underwriter, director, officer or controlling person and shall survive the
transfer of such securities by such seller.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding (including any governmental
investigation) involving a claim referred to in Section 3.04(a) or (b), such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding provisions of this Section 3.04, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of such
claim (in which case, the indemnifying party shall not be liable for the fees
and expenses of more than one counsel (other than local counsel) for all sellers
of Registrable Securities, or more than one counsel (other than local counsel)
for the underwriters in connection with any one action or separate but similar
or related actions), the indemnifying party shall be entitled to participate in
and to assume the defense thereof, jointly with any other indemnifying party
similarly notified, to the extent that it may wish with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other fees and expenses subsequently incurred by the latter in
connection with the defense thereof.
SECTION 3.05. Contribution. (a) If the indemnification provided for in
Section 3.04 is unavailable to the indemnified party or parties in respect of
any losses, claims, damages or liabilities referred to therein, then each
indemnifying party and the Company shall contribute to the amounts paid or
payable by such indemnified parties as a result of such losses, claims, damages
or liabilities (i) as between the Company and the holders of Registrable
Securities covered by a registration statement, on the one hand, and the
underwriters, on the other, in such proportion as is appropriate to reflect the
relative benefits received by the Company and such holders, on the one hand, and
the underwriters, on the other, from the offering of the Registrable Securities,
or if such allocation is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits but also the relative
fault of the Company and such holders, on the one hand, and of the underwriters,
on the other, in connection with the statements or omissions that resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations, and (ii) as between the Company, on the one hand, and
each holder
<PAGE>
31
of Registrable Securities covered by a registration statement, on the other, in
such proportion as is appropriate to reflect the relative fault of the Company
and of each such holder in connection with such statements or omissions, as well
as any other relevant equitable considerations. The relative benefits received
by the Company and such holders, on the one hand, and the underwriters, on the
other, shall be deemed to be in the same proportion as the total proceeds from
the offering {net of underwriting discounts and commissions but before deducting
expenses) received by the Company and such holders bear to the total
underwriting discounts and commissions received by the underwriters. The
relative fault of the Company and such holders, on the one hand, and of the
underwriters, on the other, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
applied by the Company and such holders or by the underwriters. The relative
fault of the Company, on the one hand, and of each such holder, on the other,
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact relates to information supplied by
such party, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
(b) The Company and the holders of Registrable Securities agree that
it would not be just and equitable if contribution pursuant to this Section 3.05
were determined by pro rata allocation (even if the underwriters were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in the next preceding
paragraph. The amount paid or payable by an indemnified party as a result of the
losses, claims, damages or liabilities referred to in the next preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other fees and expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 3.05, no underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission, and no
holder of Registrable Securities shall be required to contribute any amount in
excess Of the amount by which the total price at which the Registrable
Securities of such holder were offered to the public exceeds the amount of any
damages that such holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. Each Stockholder's obligation
to contribute pursuant to this Section 3.05 is several in the proportion that
the proceeds of the offering received by such Stockholder bears to the total
proceeds of the offering received by all the Stockholders and not joint.
<PAGE>
32
SECTION 3.06. Nominees of Beneficial Owners. In the event that
any Registrable Securities are held by a nominee for the beneficial owner
thereof, the beneficial owner thereof may, at its election, be treated as the
holder of such Registrable Securities for purposes of any request or other
action by any holder or holders of Registrable Securities pursuant to this
Agreement or any determination of any number or percentage of shares of
Registrable Securities held by any holder or holders of Registrable Securities
contemplated by this Agreement. If the beneficial owner of any Registrable
Securities so elects, the Company may require assurances reasonably satisfactory
to it of such owner's beneficial ownership of such Registrable Securities.
ARTICLE IV
CALL AND PUT OPTIONS
SECTION 4.01. Grant of Options. (a) The Company shall have the right
(for purposes of this Article IV, a "CALL OPTION"), during the Call Period (as
defined below) applicable to CCFL or Domtar U.S., as the case may be, to
purchase all, but not fewer than all, the Shares then held by CCFL or Domtar
U.S., as the case may be, at the Call Purchase Price (as defined below).
(b) Each of CCFL and Domtar U.S. shall have the right (for purposes
of this Article IV, a "PUT OPTION"), during the Put Period (as defined below)
applicable to CCFL or Domtar U.S., as the case may be, to sell all, but not
fewer than all, the Shares then held by CCFL or Domtar U.S., as the case may be,
at the Put Purchase Price (as defined below).
(c) For purposes of this Section 4.01:
(i) "CALL PERIOD" shall mean (A) with respect to CCFL, the
period commencing on the later of (1) the date on which all amounts
outstanding under the Subordinated Credit Agreement shall have been paid in
full and (2) the first anniversary of the date on which all amounts
outstanding under the Subordinated Credit Agreement shall have become due
and payable in full, and ending on the tenth anniversary of the date
hereof, and (B) with respect to Domtar U.S., the period commencing on the
later of (1) the date on which all amounts outstanding under the Note shall
have been paid in full and (2) the first anniversary of the date on which
all amounts outstanding under the Note shall have become due and payable in
full, and ending on the tenth anniversary of the date hereof;
(ii) "CALL PURCHASE PRICE" shall mean the purchase price per
Share equal to the greater of (A) the Call Value per Share and (B) the Fair
Market Value
<PAGE>
33
per Share, each determined as of the date that the Company delivers a Call
Option Notice (as defined below); provided, however, that no Call Option
shall be exercisable under this Section 4.01 at any time that EBIT for
the four fiscal quarters then most recently ended is less than
US$20,000,000;
(iii) "PUT PERIOD" shall mean (A) with respect to CCFL, the
period commencing on the date on which all amounts outstanding under the
Credit Agreement shall have become due and payable in full, and ending on
the tenth anniversary of the date hereof, and (B) with respect to Domtar
U.S., the period commencing on the date on which all amounts outstanding
under the Note shall have become due and payable in full, and ending on the
tenth anniversary of the date hereof:
(iv) "PUT PURCHASE PRICE" shall mean the purchase price per
Share equal to the greater of (A) the Put Value per Share and (B) the Fair
Market Value per Share, each determined as of the date that CCFL or Domtar
U.S., as the case may be, delivers a Put Option Notice.
SECTION 4.02. Exercise of Options. (a) In order to exercise a Call
Option pursuant to Section 4.01, the Company shall deliver to CCFL or Domtar
U.S., as the case may be, written notice (a "CALL OPTION NOTICE") of its
election to exercise the Call Option with respect to such Stockholder's Shares,
which Call Option Notice shall set forth (i) the date (which date shall be not
fewer than 20 nor more than 90 days after the date such Call Option Notice is
delivered to CCFL or Domtar U.S., as the case may be) on which it will purchase
such Stockholder's Shares, (ii) the Call Purchase Price and (iii) in reasonable
detail, the calculation of the Call Purchase Price. The Company shall attach to
the Call Option Notice (or promptly deliver to CCFL or Domtar U.S., as the case
may be, upon completion) a complete and correct copy of the audited financial
statements of the Company and its subsidiaries on a consolidated basis for the
then most recently ended 12-month period for which such statements are available
or are being prepared.
(b) In order to exercise its Put Option pursuant to Section 4.02,
CCFL or Domtar U.S., as the case may be, shall deliver to the Company written
notice (a "PUT OPTION NOTICE") of its election to exercise the Put Option with
respect to such Stockholder's Shares. Within 10 Business Days of receipt of any
such Put Option Notice, the Company shall deliver to CCFL or Domtar U.S., as the
case may be, written notice (a "PUT PURCHASE NOTICE") of acceptance of such
election, which Put Purchase Notice shall specify (i) the date (which date shall
be not fewer than 20 nor more than 90 days after the date such Put Purchase
Notice is delivered to CCFL or Domtar U.S., as the case may be) on which it will
purchase the Shares with respect to which such Put Option has been exercised,
(ii) the Put Purchase Price and (iii) in reasonable detail, the calculation of
the Put Purchase Price. The Company shall attach to the Put Purchase Notice (or
promptly deliver to CCFL or Domtar
<PAGE>
34
U.S., as the case may be, upon completion) a complete and correct copy of the
audited financial statements of the Company and its subsidiaries on a
consolidated basis for the then most recently ended 12-month period for which
such statements are available or are being prepared.
(c) In the event that Domtar delivers a Put Option Notice to the
Company, the Company shall promptly deliver to CCFL written notice thereof, and
the Company shall not close the purchase of Shares pursuant thereto until at
least 30 days after delivery of such Put Option Notice to CCFL. If CCFL shall
deliver a Put Option Notice prior to the expiration of such 30-day period,
CCFL's right to receive the Put Purchase Price per Share for the Shares held by
CCFL shall have priority over Domtar's right to receive the Put Purchase Price
per Share for the Shares held by Domtar with respect to such Put Option Notice,
and the Company shall not pay any amounts to Domtar pursuant to the exercise of
Domtar's Put Option until all amounts due CCFL pursuant to the exercise of
CCFL's Put Option shall have been paid in full. If CCFL shall not deliver a Put
Option Notice prior to the expiration of such 30-day period, CCFL's right to
receive the Put Purchase Price per Share for the Share held by CCFL pursuant to
any subsequent exercise of its Put Option shall rank pari passu with Domtar's
right to receive the Put Purchase Price per Share for the Shares held by Domtar.
(d) Unless the Company shall receive from CCFL or Domtar U.S., as
the case may be, a written notice (a "DISPUTE NOTICE") disputing the amount of
the Call Purchase Price or the Put Purchase Price set forth in a Call Option
Notice or a Put Purchase Notice, as the case may be (which Dispute Notice shall
set forth in reasonable detail the basis of such Holder's claim that the
amount of the Call Purchase Price or the Put Purchase Price, as the case may be,
set forth in any such notice does not accurately reflect the Call Value per
Share, the Put Value per Share or the Fair Market Value, as the case may be, of
the Shares subject to such Call Option or Put Option, as the case may be),
within 20 days of the date any such Call Option Notice or Put Purchase Notice,
as the case may be, was delivered by the Company to such Stockholder (or, if
later, the date on which any other information required to be delivered pursuant
to Section 4.02(a) or 4.02(b) shall have been delivered to such Stockholder),
the amount of the Call Purchase Price or the Put Purchase Price set forth in any
such Call Option Notice or Put Purchase Notice, as the case may be, shall,
assuming the completeness and correctness of the information provided by the
Company pursuant to Section 4.02(b), be final, binding and conclusive on the
Company and CCFL or Domtar U.S., as the case may be.
(e) In the event CCFL or Domtar U.S., as the case may be, delivers
to the Company a Dispute Notice, the Company and CCFL or Domtar U.S., as the
case may be, shall, within 10 Business Days of the date of any such Dispute
Notice, commence good faith negotiations to resolve the issues forming the basis
of such Dispute Notice.
<PAGE>
35
(f) In the event the parties to the negotiations referred to in
Section 4.02(e) are unable to resolve the issues forming the basis of such
Dispute Notice within 30 days of the date of such Dispute Notice, CCFL or Domtar
U.S., as the case may be, shall choose one appraiser, the Company shall choose
one appraiser, and CCFL or Domtar U.S., as the case may be, and the Company
together shall choose a third appraiser. Each appraiser shall be an Independent
Financial Expert reasonably acceptable to the Company and CCFL or Domtar U.S.,
as the case may be. If the Company and CCFL or Domtar U.S., as the case may be,
are unable to agree on a third appraiser, such appraiser shall be chosen by
CCFL's or Domtar U.S.'s, as the case may be, and the Company's respective
appraisers. The parties shall choose such appraisers within 20 days of the date
of the Dispute Notice received by the Company. CCFL or Domtar U.S., as the case
may be, and the Company shall each use its reasonable best efforts to assist the
appraisers in completing their appraisals in a timely manner. In the event that
the calculation of Fair Market Value shall form the basis upon which the Dispute
Notice shall have been delivered, each appraiser shall separately appraise in
accordance with the Valuation Criteria the fair value of the Shares subject to
the Call Option or the Put Option, as the case may be, as of a date which is
within 30 days of the date as of which the determination is to be made. In the
event that the Call Value per Share or the Put Value per Share (or any component
thereof) shall form the basis upon which the Dispute Notice shall have been
delivered, each appraiser shall separately calculate in accordance with
generally accepted accounting principles the Call Value per Share or the Put
Value per Share, as the case may be. After each appraiser has completed its
appraisal, the two appraisals closest to each other in value shall be retained
and the third appraisal shall be discarded. The average of the remaining
appraisals shall be used to calculate the Call Purchase Price or Put Purchase
Price, as the case may be, for purposes of this Article IV.
(g) The costs and expenses of any appraisers retained pursuant to
Section 4.03(f) shall be borne (i) by the Company in the case of the appraiser
selected thereby, (ii) by CCFL or Domtar U.S., as the case may be, in the case
of the appraiser selected thereby, and (iii) equally by the Company and CCFL or
Domtar U.S., as the case may be, in the case of the appraiser selected jointly.
(h) The Company shall purchase the Shares with respect to which it
has delivered any Call Option Notice or Put Purchase Notice, as the case may
be, on the date specified by the Company in any such Notice; provided, however,
that in the event any Dispute Notice is received by the Company in response to
any Call Option Notice or Put Purchase Notice delivered by the Company, the
Company shall purchase the Shares covered by such Call Option Notice or Put
Purchase Notice, as the case may be, within 10 Business Days after the appraisal
procedure described in Section 4.03(f) has been completed, and a final, binding
and conclusive Call Purchase Price or Put Purchase Price, as the case may be,
determined.
<PAGE>
36
(i) Anything herein to the contrary notwithstanding, the Company shall
not be required to purchase any Shares pursuant to this Article IV to the extent
that and so long as any such purchase would (i) conflict with any provision set
forth in, or constitute or give rise to a Default or an Event of Default (each
as defined in the Senior Credit Agreement and the Subordinated Credit Agreement,
respectively) under, the Senior Credit Agreement or the Subordinated Credit
Agreement, or constitute a "default" or "event of default" under any other
agreement with respect to indebtedness of the Company or any of its
subsidiaries; provided, however, that any such restriction or prohibition on
purchasing the Shares in such agreement shall apply equally to paying dividends
on or making redemptions of any shares of capital stock of the Company; (ii)
violate any applicable law; or (iii) render the Company insolvent. The Company
shall not amend the Senior Credit Agreement or the Subordinated Credit Agreement
in a manner so as to restrict the Company's ability to honor or prohibit the
Company from honoring the Put Option unless such restriction or prohibition
applies equally to the payment of dividends on or redemption of shares of
capital stock of the Company, without regard to the identity of the holder
thereof.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Rights Upon Issuance of Additional Shares. (a) The
Company hereby grants to CCFL and Domtar U.S. the following rights with respect
to any and all proposed issuances or Sales of additional Shares by the Company
to GCP II:
(i) The Company shall give CCFL and Domtar U.S. written notice of
the Company's intention to issue or Sell to GCP II additional Shares (the
"GCP II ISSUANCE NOTICE"), describing the type of Shares, the price at
which such Shares will be Sold and the general terms upon which the Company
proposes to issue or Sell such Shares, including the anticipated date of
such issuance or Sale;
(ii) CCFL and Domtar U.S., shall each have 30 days from the date
it receives the GCP II Issuance Notice to agree to purchase all of its Pro
Rata Portion (as defined in Section 5.01(a)(iv) below) of such Shares by
giving written notice to the Company of its desire to purchase such Shares
(the "RESPONSE NOTICE"). Such Response Notice shall constitute the
irrevocable agreement of CCFL or Domtar U.S., as the case may be, to
purchase such Shares at the price and upon the terms stated in the GCP II
Issuance Notice; provided, however, that if the Company is proposing to
issue or Sell to GCP II Shares for consideration other than all cash, the
Company shall accept from CCFL and Domtar U.S. either non-cash
consideration which is reasonably comparable to the non-cash consideration
proposed by the Company or the cash value of such non-cash consideration.
Any purchase by CCFL or Domtar U.S., as the case may be, of Shares pursuant
to this Section 5.01 shall be consummated on
<PAGE>
37
or prior to the later of (A) the dare on which the Shares described in the
applicable GCP II Issuance Notice are issued or Sold to GCP II or (B) the
tenth Business Day following delivery of the Response Notice by CCFL or
Domtar U.S., as the case may be;
(iii) The Company shall have 180 days from the date of the GCP
II Issuance Notice to consummate the proposed issuance or Sale of the
Shares which CCFL and Domtar U.S. have not elected to purchase pursuant to
Section 5.01(a)(ii). Notwithstanding the foregoing, the Company may Sell
the Shares which CCFL and Domtar U.S. have not elected to purchase pursuant
to a Response Notice at a price and upon terms that are less favorable to
the Company than those specified in the GCP II Issuance Notice; provided
that any purchase of Shares by CCFL or Domtar U.S. consummated at the time
of such Sale, pursuant to the last sentence of Section 5.01(a)(ii), shall
be upon the same less favorable terms; provided further that if CCFL or
Domtar U.S. did not elect to purchase its Pro Rata Portion of Shares based
upon the terms specified in the relevant GCP II Issuance Notice, the
Company shall provide CCFL or Domtar U.S., as the case may be, with a
revised GCP II Issuance Notice reflecting such less favorable terms, and
CCFL or Domtar U.S., as the case may be, shall have 10 Business Days from
the date it receives such revised GCP II Issuance Notice to agree to
purchase all of its Pro Rata Portion of such Shares to be issued upon the
less favorable terms set forth in the revised GCP II Issuance Notice by
giving written notice to the Company of its desire to purchase such Shares.
In the event the Company proposes to issue or Sell Shares to GCP II after
such 180-day period or Shares in addition to those specified in the GCP II
Issuance Notice, it must again comply with the procedures set forth in this
Section 5.01; and
(iv) For purposes of this Section 5.01, "PRO RATA PORTION" shall
mean a number equal to the product of (A) the total number of Shares
specified in the GCP II Issuance Notice and (B) a fraction, the numerator
of which shall be the number of Fully Diluted Shares then held by CCFL or
Domtar U.S., as the case may be, and the denominator of which shall be the
total number of Fully Diluted Shares outstanding as of the date of the GCP
II Issuance Notice.
(b) The Company hereby grants to CCFL the following rights with
respect to any and all issuances of shares of Common Stock by the Company to any
Employee in connection with any Employee Plan or otherwise:
(i) The Company shall give CCFL written notice of any such
issuance of shares of Common Stock (an "EMPLOYEE ISSUANCE NOTICE"), which
Employee Issuance Notice shall set forth the total number of shares of
Common Stock so issued and the total number of shares of Common Stock CCFL
would need to be
<PAGE>
38
issued to it in order for it to maintain its proportionate equity interest
in the Company;
(ii) CCFL shall have 30 days from the date it receives an
Employee Issuance Notice to agree to purchase for nominal consideration
that number of shares of Common Stock it would need to be issued to it in
order for it to maintain its proportionate equity interest in the Company
by giving written notice to the Company of its desire to purchase such
shares; and
(iii) The Company shall promptly issue to CCFL for nominal
consideration that number of shares of Common Stock with respect to which
CCFL has given proper notice pursuant to Section 5.01(b)(ii).
(c) CCFL shall not be entitled to purchase any shares of Common Stock
pursuant to Section 5.01(b) in connection with the issuance of any shares of
Common Stock to any person pursuant to the Offering Memorandum.
SECTION 5.02. Recapitalizations, Exchanges, Etc., Affecting Common
Stock. The provisions of this Agreement shall apply, to the full extent set
forth herein with respect to Shares covered hereby, to any and all shares of
capital stock of the Company which may be issued in respect of, in exchange for,
or in substitution of, Shares covered hereby, and shall be appropriately
adjusted for any stock dividends, splits, reverse splits, combinations,
recapitalizations and the like occurring after the date hereof. Prior to
consummating a Public Offering of Common Stock, the Company shall, if necessary
(and each Stockholder hereby agrees to vote to) reclassify the Company's capital
to accommodate such Public Offering.
SECTION 5.03. Covenant to Vote. Each voting Stockholder shall take all
actions within its power necessary to call, or cause the Company and the
appropriate officers and directors of the Company to call, special or annual
meetings of stockholders of the Company and to vote, or consent in writing with
respect to, all shares of voting Common Stock owned or held of record by such
voting Stockholder at any such annual or Special meeting, or in connection with
any consent of stockholders in lieu of any such meeting, in a manner so as to
implement the terms of, and otherwise effect the intent of, this Agreement.
SECTION 5.04. Conduct of Business. It is the intention of each
Stockholder that the business and affairs of the Company and its subsidiaries be
managed by their respective boards of directors (or equivalent governing bodies)
in the best interests of the Company and its subsidiaries taken as a whole. In
furtherance of the foregoing, from and after the date hereof, no Stockholder nor
any of their respective affiliates shall enter into any written or oral
contract, agreement or other arrangement to engage in business or enter into any
transaction, or shall engage in business or enter into any transaction, with the
Company or any of its subsidiaries unless the terms and provisions of such
contract, agreement or other
<PAGE>
39
arrangement or the terms on which such business or transaction is conducted, as
the case may be, are fair to the Company or such subsidiary and are
substantially equivalent to terms that would have been obtained in an arm's-
length relationship; provided that (a) the management fee, if any, payable by
the Company or any subsidiary thereof to GCLLC or any affiliate thereof, and (b)
the Employment Agreement, shall be deemed to satisfy the requirements of this
Section 5.04.
SECTION 5.05. Option Plan. The Company shall, and each voting
Stockholder shall cause the Company to, institute a stock option plan in a form
approved by the Board, pursuant to which up to an additional 10% of the total
number of Fully Diluted Shares outstanding from time to time will be reserved
for the Management Stockholders and other employees of the Company.
SECTION 5.06. Stop Order. A stop order shall be placed in the stock
transfer records of the Company against the transfer of Shares subject to this
Agreement.
SECTION 5.07. Board Representation; Attendance at Board Meetings. (a)
CCFL shall have the right to nominate one director for election to the Board,
and each Stockholder shall act pursuant to Section 5.03 to elect such nominee to
the Board.
(b) CCFL shall have the right to have two of its representatives
attend each meeting of the Board, and the Company shall reimburse CCFL for the
reasonable expenses of such representatives incurred in connection with the
attendance at any such meeting of the Board.
(c) The provisions of Section 5.07(a) and (b) shall immediately
terminate and shall be of no further force and effect on the earlier of (i) (A)
the date on which CCFL shall first cease to own any Shares, (ii) the later of
(A) the date on which all amounts outstanding under the Subordinated Credit
Agreement shall have been paid in full and (B) the Maturity Date (as defined in
the Subordinated Credit Agreement), and (iii) the date on which the Company
shall have completed an underwritten Public Offering of Common Stock and shall
be a Public Company.
SECTION 5.08. Certain Material Changes. (a) Notwithstanding any other
provision of this Agreement to the contrary (except for Sections 5.08(c) and
6.01(a)), the Stockholders shall not approve and the Company shall not
implement, without the express written consent of CCFL, which consent shall not
be unreasonably withheld:
(i) any amendment or repeal of any provision of the certificate
of incorporation or by-laws of the Company if such amendment or repeal
would materially and adversely affect CCFL's rights as a Stockholder;
<PAGE>
40
(ii) any non-arm's length contract between the Company and any
Stockholder or any affiliate thereof except any such contract (A) entered
into in the ordinary course of the Company's business so long as any
consideration payable thereunder is substantially the same as would be
payable in an arm's length transaction under similar circumstances, and (B)
between the Company and GCP II or any affiliate thereof (including GCLLC)
so long as the aggregate amount of any management fees payable thereunder
does not exceed the amount permitted under the Subordinated Credit
Agreement;
(iii) any material change in the nature of the Business (as
defined in the Subordinated Credit Agreement) of the Company; and
(iv) any payment of bonuses or other special compensation
(excluding base salary) to senior management employees of Panolam U.S. or
Panolam Canada in excess of the amounts provided for such payments in the
Annual Plan (as defined in the Subordinated Credit Agreement) for the
relevant fiscal period.
The provisions of this Section 5.08(a) shall immediately terminate and shall be
of no further force and effect on the earlier of (A) the date on which CCFL
shall first cease to own any Shares, (B) the Maturity Date (as defined in the
Subordinated Credit Agreement) and (C) the date on which the Company shall have
completed an underwritten Public Offering of Common Stock and shall be a Public
Company.
(b) Notwithstanding any other provision of this Agreement to the
contrary (except for Section 6.01(a)), the Stockholders shall not approve and
the Company shall not implement, without the express written consent of Domtar
U.S., which consent may be withheld in Domtar U.S.'s sole discretion, any
amendment or repeal of any provision of the certificate of incorporation or by-
laws of the Company or of Panolam International if such amendment or repeal
would expand the scope of the business which might be carried on by either the
Company or Panolam International. The provisions of this Section 5.08(b) shall
immediately terminate upon payment in full of the Note.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Termination. (a) The provisions of Sections 2.04, 2.05,
5.01, 5.02, 5.03, and 5.08 shall terminate on the date on which the Company
shall have completed an underwritten Public Offering of Common Stock and shall
be a Public Company.
<PAGE>
41
(b) The provisions of Sections 2.03 and 2.07 shall terminate with
respect to any particular Shares upon the registration thereof under the
Securities Act.
(c) Any Stockholder who no longer owns any Shares (otherwise than by
reason of a transfer or transfers in violation of this Agreement) shall
automatically and with no further action by any party hereto no longer be a
party to this Agreement for any purpose.
SECTION 6.02. Representations. Each party hereto hereby represents
that this Agreement has been duly authorized, executed and delivered by such
party and constitutes a legal, valid and binding obligation of such party,
enforceable against it in accordance its terms.
SECTION 6.03. 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. Without limiting the
generality of the foregoing, the Company shall pay all costs and expenses of
counsel to the Company incurred in connection with the preparation and
negotiation of this Agreement.
SECTION 6.04. 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 6.04).
SECTION 6.05. Headings. The descriptive headings contained in the
Agreement are for convenience of reference only and shall not affect in any way
the meaning, construction or interpretation of this Agreement.
SECTION 6.06. 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 transaction 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
<PAGE>
42
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.
SECTION 6.07. Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, between
or among the parties with respect to the subject matter hereof; provided,
however, that to the extent any provision of the Employment Agreement regarding
options or other rights to acquire shares of Class A Common Stock conflict with
any provision of this Agreement, the terms of the Employment Agreement shall
prevail.
SECTION 6.08. Assignment. No Stockholder may assign any of its rights
under this Agreement to any person other than a transferee that has, if
applicable, complied with the requirements of Section 2.07 in all respects.
SECTION 6.09. No Third Party Beneficiaries. Except for the provisions
of Section 3.04 relating to indemnification (which provisions shall inure to the
benefit of the parties entitled to indemnification thereunder), this Agreement
shall be binding upon and inure solely to the benefit of the parties hereto and
their respective successors and permitted assigns; provided, however, that this
Agreement shall not inure to the benefit of any Prospective Transferee unless
such Prospective Transferee shall have agreed in writing to be bound by the
terms of this Agreement. 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 6.10. Amendment; Waiver. This Agreement may not be amended,
waived, supplemented or otherwise modified except by an instrument in writing
duly executed by, or on behalf of, the Requisite Holders; provided, however,
that any amendment, waiver, supplement or other modification to this Agreement
(a) shall also require the consent of any Stockholder who owns 33% or more of
the Fully Diluted Shares then outstanding and subject to this Agreement, and (b)
that adversely affects the rights of GCP II, CCFL, Domtar U.S. or the Management
Stockholders as a group, in each case in the opinion of such Stockholder acting
reasonably and in good faith, without having a corresponding adverse effect on
all other Stockholders, shall require the consent of such Stockholder, or, in
the case of the Management Stockholders, the consent of Management Stockholders
owning at least a majority of the shares of Common Stock then owned by the
Management Stockholders.
SECTION 6.11. 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
<PAGE>
43
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 6.12. 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.
SECTION 6.13. Remedies. The failure by any party hereto to comply in
all material respects with each provision of this Agreement applicable thereto,
or to fulfill in all material respects each of its obligations under this
Agreement, will result in immediate and irreparable harm to the other parties
hereto, which harm cannot be compensated adequately by recovery of damages
alone. In the event of any such failure or threatened failure, the other parties
hereto shall, in addition to any other rights or remedies available at law, in
equity or otherwise, be entitled to temporary and permanent injunctive relief,
specific performance and other equitable remedies.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PANOLAM INDUSTRIES
HOLDINGS, INC.
By: /s/ William J. MacDonald
----------------------------
Name: WILLIAM J. MACDONALD
Title: PRESIDENT
By:____________________________
Name:
Title:
Metro Tower, Suite 1170
950 Tower Lane
Foster City, California 94404-2121
Attention: Richard D. Paterson
Telephone: (415) 286-2350
Telecopy: (415) 286-2383
GENSTAR CAPITAL
PARTNERS II, L.P.
By Genstar Capital LLC,
as general partner
By:____________________________
Name:
Title:
By:____________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PANOLAM INDUSTRIES
HOLDINGS, INC.
By:____________________________
Name:
Title:
By: /s/ [SIGNATURE ILLEGIBLE]
----------------------------
Name:
Title:
Metro Tower, Suite 1170
950 Tower Lane
Foster City, California 94404-2121
Attention: Richard D. Paterson
Telephone: (415) 286-2350
Telecopy: (415) 286-2383
GENSTAR CAPITAL
PARTNERS II, L.P.
By Genstar Capital LLC,
as general partner
By: /s/ [SIGNATURE ILLEGIBLE]
----------------------------
Name:
Title:
By: /s/ [SIGNATURE ILLEGIBLE]
----------------------------
Name:
Title:
Metro Tower, Suite 1170
950 Tower .Lane
Foster City, California 94404-2121
Attention: Richard D. Paterson
Telephone: (415) 286-2350
Telecopy: (415) 286-2383
CCFL SUBORDINATED DEBT
FUND AND COMPANY,
LIMITED PARTNERSHIP
By: CCFL Mezzanine Partners of
Canada Limited, as general partner
By:/s/ Nagib Premji
-------------------------
Name: NAGIB PREMJI
Title: TREASURER
70 University Avenue
Suite 1450
Toronto, Ontario, Canada
M5J 2M4
Attention: Robert Olsen
Telephone: (416) 977-1450
Telecopy: (416) 977-6764
DOMTAR INDUSTRIES INC.
By: /s/ Y.G. Katsuyama
-------------------------
Name: Y.G. KATSUYAMA
Title: ASST. GENERAL COUNSEL
c/o Domtar Inc.
395 de Maisonneuve Blvd. West
Montreal, Quebec, Canada
H3A IL6
Attention; Pierre Fitzgibbon
Telephone: (514) 848-5400
Telecopy: (514) 848-5057
/s/ Claude P. Arcand
-------------------------
CLAUDE P. ARCAND
As party to the Stockholders'
Agreement among Panolam Industries
Holdings Inc. and the holders of its
capital stock, dated June ________, 1996
CPA
<PAGE>
EXHIBIT 10.5
EXECUTION COPY
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of June 7, 1996 (as hereafter
amended, supplemented or otherwise modified, this "AGREEMENT"), among PANOLAM
INDUSTRIES INTERNATIONAL, INC., a corporation organized and existing under the
laws of the State of Delaware ("PANOLAM INTERNATIONAL") and a direct wholly
owned subsidiary of Panolam Industries Holdings, Inc., a corporation organized
and existing under the laws of the State of Delaware ("PANOLAM HOLDINGS");
GENSTAR CAPITAL PARTNERS II, L.P., a limited partnership organized and existing
under the laws of the State of Delaware ("GCP II"); 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 U.S."); and CLAUDE P. ARCAND (together with GCP II, CCFL and Domtar
U.S., the "PARENT STOCKHOLDERS");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Parent Stockholders own, beneficially and of record, all
of the issued and outstanding shares of capital stock of Panolam Holdings (the
"PARENT SHARES");
WHEREAS, Panolam International owns, beneficially and of record, all
of the issued and outstanding shares of Panolam Industries Ltd., a corporation
organized and existing under the laws of the Province of Ontario (the
"COMPANY");
WHEREAS, as a condition to the willingness of the Parent Stockholders
to enter into certain transactions and agreements relating to the acquisition by
Panolam Holdings and its subsidiaries, including Panolam International, of
certain assets of Domtar Inc., a corporation organized under the federal laws of
Canada, and Domtar U.S., the Parent Stockholders have required that Panolam
International agree, and in order to induce the Parent Stockholders to enter
into such transactions and agreements, Panolam International has agreed, to
enter into this Agreement with respect to all shares of the Company now owned or
hereafter acquired by Panolam International (the "OPTION SHARES");
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:
SECTION 1. GRANT. (a) Panolam International hereby grants to the
Parent Stockholders and, upon the issuance thereof, the holders of any Parent
Shares issued after the date hereof (collectively, the "GRANTEES") an
irrevocable option (the "OPTION") to purchase
<PAGE>
2
the Option Shares at a purchase price per Option Share equal to the Per Share
Amount (as defined below), net to Panolam International in cash, all in
accordance with the terms of this Agreement.
(b) For purposes of this Agreement, "PER SHARE AMOUNT" shall mean, as
of any date of determination, US$1,000.00, divided by the total number of Option
Shares outstanding on such date on a fully-diluted basis.
SECTION 2. EXERCISE. (a) At any time from and after the date hereof to
and including the tenth anniversary of the date hereof (the "EXPIRATION DATE")
the holders of a majority of the Parent Shares (the "MAJORITY HOLDERS") may
exercise the Option; provided, however, that so long as GCP II holds 20% or more
of the outstanding Parent Shares, the Option may not be exercised unless GCP II
is among the Majority Holders; provided further that so long as any amounts
remain outstanding under (i) the credit agreement, dated as of the date hereof
(as thereafter amended, supplemented or otherwise modified, the "SENIOR CREDIT
AGREEMENT"), among the Company and Panolam Industries, Inc., a corporation
organized and existing under the laws of the State of Delaware and an indirect
wholly owned subsidiary of Panolam Holdings, as borrowers, Panolam Holdings,
Panolam International, The Melamine Group, Inc., a corporation organized under
the laws of the State of Oregon and an indirect wholly owned subsidiary of
Panolam Holdings, and Melamine Decorative Laminates, Inc., a corporation
organized under the laws of the state of Oregon and an indirect wholly owned
subsidiary of Panolam Holdings, as guarantors, the Bank of Nova Scotia
("SCOTIABANK"), as agent for the lenders thereunder, and the other financial
institutions party thereto, as lenders, (ii) the credit agreement, dated as of
the date hereof (as thereafter amended, supplemented or otherwise modified, the
"SUBORDINATED CREDIT AGREEMENT") between the Company and CCFL, (iii) the note,
dated the date hereof (as thereafter amended, supplemented or otherwise
modified, the "NOTE"), made by Panolam Holdings in favor of Domtar U.S., the
Option may not be exercised.
(b) In order to exercise the Option, the Majority Holders shall
deliver written notice of their election to exercise the Option, substantially
in the form attached hereto as Exhibit A (the "EXERCISE NOTICE"), to Panolam
---------
International and to each Grantee (the "OTHER GRANTEES") not a party to such
Exercise Notice.
(c) Within 10 days of receipt of the Exercise Notice, Panolam
International shall deliver to each Grantee unaudited financial statements of
the Company for each complete fiscal year from the date hereof through the date
of the Exercise Notice, together with copies of any additional financial
information regarding the Company provided to CCFL during the immediately
preceding 12-month period.
(d) In order for each Other Grantee to join in the exercise of the
Option, each such Other Grantee (together with the Majority Holders, the
"EXERCISING HOLDERS")
<PAGE>
3
shall, within 20 days of such Other Grantee's receipt of the Exercise Notice,
deliver written notice of its election to join in the exercise of the Option,
substantially in the form attached hereto as Exhibit B (a "PURCHASE NOTICE"), to
---------
Panolam International, each Majority Holder and each Other Grantee.
(e) For purposes of this Agreement, (i) "PRO RATA SHARE" shall mean,
with respect to each Grantee and as of the date of the Exercise Notice, that
number of Option Shares equal to the product of (A) the total number of Option
Shares then held by Panolam International and (B) a fraction, the numerator of
which shall be the total number of Parent Shares then held by such Grantee, and
the denominator of which shall be the total number of Parent Shares then issued
and outstanding; and (ii) "ADDITIONAL PRO RATA SHARE" shall mean, with respect
to each Exercising Holder and as of the date of the Exercise Notice, that number
of Option Shares equal to the product of (A) the total number of Option Shares
then held by Panolam International less the aggregate Pro Rata Shares of the
----
Exercising Holders and (B) a fraction, the numerator of which shall be the total
number of Parent Shares then held by such Exercising Holder, and the denominator
of which shall be the total number of Parent Shares then held by all of the
Exercising Holders.
SECTION 3. CLOSING. The closing of the purchase of the Option Shares
(the "CLOSING") shall be held at the place and time specified in the Exercise
Notice. At the Closing, Stockholder shall deliver to each Exercising Holder a
certificate or certificates evidencing such Exercising Holder's Pro Rata Share,
and such Exercising Holder's Additional Pro Rata Share, if any, of the Option
Shares, and such Exercising Holder shall purchase each such Option Share from
Panolam International for the Per Share Amount. Each such certificate shall be
duly endorsed in blank or accompanied by stock powers duly executed in blank, in
proper form for transfer and reasonably satisfactory to the Majority Holders,
and shall be accompanied by evidence reasonably satisfactory to the Majority
Holders, and shall be accompanied by evidence reasonably satisfactory to the
Majority Holders of the payment of all applicable transfer taxes. All payments
made by any Exercising Holder to Panolam International pursuant to this Section
3 shall be made by wire transfer in immediately available funds to a bank
account specified by Panolam International in an amount equal to the aggregate
purchase price of the Option Shares purchased thereby.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PANOLAM INTERNATIONAL.
The Company hereby represents and warrants as of the date hereof as follows:
(a) ORGANIZATION AND AUTHORITY. Panolam International is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all necessary power, capacity and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Stockholder and the consummation by Stockholder of the
transactions contemplated hereby have been duly and validly authorized by all
necessary action on the part of the Stockholder.
<PAGE>
4
(b) AUTHORITY; NO CONFLICTS. The execution and delivery of this
Agreement by Stockholder does not, and the performance of this Agreement by
Stockholder will not, except as would not prevent Stockholder from performing
its obligations under this Agreement and subject to compliance with the share
transfer restrictions contained in the articles of incorporation of the Company,
(i) require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or foreign,
(ii) conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Stockholder or by which any property or asset of
Stockholder is bound or affected, or (iii) result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance of any nature whatsoever on any property or asset of Stockholder or
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which
Stockholder is a party or by which Stockholder or any property or asset of
Stockholder is bound or affected.
(c) BINDING AND ENFORCEABLE. This Agreement has been duly executed and
delivered by Panolam International and is a legal, valid and binding obligation
of Panolam International, enforceable against Panolam International in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
arrangement, moratorium and other laws of general applicability relating to or
affecting creditor's rights and to general principles of equity, whether
considered in a proceeding at law or in equity.
(d) TITLE TO THE SHARES. As of the date hereof, Panolam International
is the record and beneficial owner of 1,000 class A common shares of the
Company, which are all the issued and outstanding shares of the Company on the
date hereof. Except for security interests, liens or other encumbrances created
pursuant to the Senior Credit Agreement, the Subordinated Credit Agreement and
the Note, Panolam International owns all such shares free and clear of all
security interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on Panolam International's voting rights, charges and
other encumbrances of any nature whatsoever, and Panolam International has not
appointed or granted any proxy, which appointment or grant is still effective,
with respect to such shares. Upon the exercise of the Option and the delivery
pursuant to Section 3 to the relevant Exercising Holder by Panolam International
of a certificate or certificates evidencing such shares owned by Panolam
International, such Exercising Holder will receive good, valid and marketable
title to such shares, free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal, agreements, limitations on such
Exercising Holder's voting rights, charges and other encumbrances of any nature
whatsoever.
SECTION 5. ASSIGNMENT. Each Grantee may assign all or a portion of its
rights under this Agreement; provided, however, that each such assignment shall
-------- -------
be to an assignee reasonably acceptable to Panolam Holdings and the parties to
each such assignment
<PAGE>
5
shall execute and deliver to Panolam Holdings, for its acceptance and recording
in its records, an assignment and acceptance, substantially in the form of
Exhibit C hereto. Upon such execution, delivery, acceptance and recording, from
- ---------
and after the effective date specified in each assignment and acceptance (i) the
assignee thereunder shall be a party hereto and, to the extent that rights
hereunder have been assigned to it pursuant to such assignment and acceptance,
have the rights of a Grantee hereunder and (ii) the assignor thereunder shall,
to the extent that rights hereunder have been assigned by it pursuant to such
assignment and acceptance, relinquish its rights under this Agreement (and, in
the case of an assignment and acceptance covering all or the remaining portion
of an assigning Grantee's rights under this Agreement, such Grantee shall cease
to be a party hereto). Upon its receipt of an assignment and acceptance executed
by an assigning Grantee and an assignee acceptable to Panolam Holdings, Panolam
Holdings shall, if such assignment and acceptance has been completed and is in
substantially the form of Exhibit C hereto, accept such assignment and
---------
acceptance and record the information contained therein in its records.
SECTION 6. NO THIRD PARTY BENEFICIARIES. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto (and the
holders from time to time of Parent Shares) and their respective successors and
assigns. Nothing in this Agreement, whether express or implied, is intended to
or shall confer upon any person other than the parties hereto (and the holders
from time to time of Parent Shares) 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 7. TERMINATION. This Agreement (a) may be terminated prior to
the Expiration Date at the election of the holders of a majority of the Parent
Shares from time to time outstanding or by resolutions duly adopted by the board
of directors of Panolam Holdings and (b) shall terminate immediately upon
Panolam Holdings becoming a Public Company (as defined in the stockholders'
agreement, dated as of the date hereof, among the Parent Stockholders and
Panolam Holdings (the "STOCKHOLDERS' AGREEMENT"); terms used and not otherwise
defined herein are used herein as defined in the Stockholders' Agreement). Upon
termination of this Agreement as provided in this Section 7, this Agreement
shall forthwith become void and no party hereto shall have any rights or
obligations hereunder.
SECTION 8. STOCKHOLDERS' AGREEMENT. Prior to the exercise of the
Option, the terms of the Stockholders' Agreement shall apply mutatis mutandis to
the rights hereunder of the Grantees (and their respective successors and
permitted assigns), and upon exercise of the Option, the terms of the
Stockholders' Agreement shall apply mutatis mutandis to the Option Shares;
provided, however, that in either case the holders of a majority of the then
- -------- -------
outstanding Parent Shares acting in their sole discretion shall be entitled to
amend, supplement or otherwise modify the terms of the Stockholders' Agreement
as applied to the Grantees' rights hereunder or the Option Shares, as the case
may be.
<PAGE>
6
SECTION 9. REMEDIES. The failure by any party hereto to comply in all
material respects with each provision of this Agreement applicable thereto, or
to fulfill in all material respects each of its obligations under this
Agreement, will result in immediate and irreparable harm to the other parties
hereto, which harm cannot be compensated adequately by recovery of damages
alone. In the event of any such failure or threatened failure, the other parties
hereto shall, in addition to any other rights or remedies available at law, in
equity or otherwise, be entitled to temporary and permanent injunctive relief,
specific performance and other equitable remedies.
SECTION 10. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, between
or among the parties with respect to the subject matter hereof.
SECTION 11. 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
(and the holders from time to time of Parent Shares) 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 12. 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 (and holders from time to time of Parent Shares) at their
addresses set forth on the signature pages to this Agreement or, in the case of
holders of Parent Shares other than GCP II, at their addresses set forth in the
stock transfer books of Panolam Holdings (or at such other address for a party
hereto as shall be specified in a notice given in accordance with this Section
12).
SECTION 13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE,
WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS.
<PAGE>
7
SECTION 14. 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 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.
SECTION 16. EXPENSES. All costs and expenses, including, without
limitation, fees and disbursements of counsel, incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party,
or holders of Parent Shares, as the case may be, incurring such costs and
expenses.
SECTION 17. AMENDMENTS. This Agreement may not be amended, modified,
supplemented or waived except by an instrument in writing signed by, or on
behalf of, Panolam International and the Majority Holders; provided, however,
-------- -------
that Section 2(a) may not be amended, modified, supplemented or waived in any
manner adverse to any creditor under the Senior Credit Agreement, the
Subordinated Credit Agreement or the Note except by an instrument in writing
signed by, or on behalf of, Scotiabank, CCFL or Domtar U.S., respectively.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PANOLAM INDUSTRIES
HOLDINGS, INC.
By:______________________________
Name:
Title:
By:______________________________
Name:
Title:
Metro Tower, Suite 1170
950 Tower Lane
Foster City, California 94404-2121
Attention: Richard D. Paterson
Telephone: (415) 286-2350
Telecopy: (415) 286-2383
GENSTAR CAPITAL
PARTNERS II, L.P.
By Genstar Capital LLC,
as general partner
By:______________________________
Name:
Title:
By:______________________________
Name:
Title:
<PAGE>
Metro Tower, Suite 1170
950 Tower Lane
Foster City, California 94404-2121
Attention: Richard D. Paterson
Telephone: (415) 286-2350
Telecopy: (415) 286-2383
CCFL SUBORDINATED DEBT
FUND AND COMPANY,
LIMITED PARTNERSHIP
By: CCFL Mezzanine Partners of
Canada Limited, as general partner
By:______________________________
Name:
Title:
70 University Avenue
Suite 1450
Toronto, Ontario, Canada
M5J 2M4
Attention: Robert Olsen
Telephone: (416) 977-1450
Telecopy: (416) 977-6764
DOMTAR INDUSTRIES INC.
By:______________________________
Name:
Title:
c/o Domtar Inc.
395 de Maisonneuve Blvd. West
Montreal, Quebec, Canada
H3A 1L6
Attention: Pierre Fitzgibbon
Telephone: (514) 848-5400
Telecopy: (514) 848-5057
<PAGE>
______________________________
CLAUDE P. ARCAND
<PAGE>
EXHIBIT A
FORM OF EXERCISE NOTICE
[INSERT DATE]
Panolam Industries International, Inc.
c/o Genstar Capital Partners II, L.P.
Metro Tower, Suite 1170
950 Tower Lane
Foster City, California 94404-2121
Attention: Daniel J. Boverman
Panolam Industries Ltd.
Option Exercise Notice
----------------------
Ladies and Gentlemen:
Reference is made to the stock option agreement, dated as of June 7,
1996 (as thereafter amended, supplemented or otherwise modified, the "Stock
Option Agreement"; terms used and not otherwise defined herein are used herein
as defined in the Stock Option Agreement), among Panolam Industries
International, Inc., a corporation organized and existing under the laws of the
State of Delaware ("Panolam International") and a direct wholly owned subsidiary
of Panolam Industries Holdings, Inc., a corporation organized and existing under
the laws of the State of Delaware ("Panolam Holdings"); Genstar Capital Partners
II, L.P., a limited partnership organized and existing under the laws of the
State of Delaware; CCFL Subordinated Debt Fund and Company, Limited Partnership,
a limited partnership organized and existing under the laws of the Province of
Quebec; Domtar Industries Inc., a corporation organized and existing under the
laws of the State of Delaware; and Claude P. Arcand.
In accordance with Section 2 of the Stock Option Agreement, the
undersigned hereby elect[s] to exercise the Option.
The closing of the purchase of the Option Shares (the "Closing") will
be held at your offices at Metro Tower, Suite 1170, 950 Tower Lane, Foster City,
California 94404-2121, on [INSERT DATE]/1/, at [10:00 a.m.] local time.
_____________________
1 Such date shall be a Business Day not later than 60 days from the date of
the Exercise Notice.
<PAGE>
2
At the Closing, the undersigned will [each] purchase its Pro Rata
Portion of the Option Shares, as well as its Additional Pro Rata Portion of any
Option Shares with respect to which the Other Grantees have not timely delivered
a Purchase Notice.
[Each of the] [The] undersigned hereby represents and warrants to
Panolam International that:
1. such Grantee holds, beneficially and of record, the number of
Parent Shares indicated beneath such Grantee's name on the signature page
to this option exercise notice, and that such shares represent the
percentage of the total number of Parent Shares issued and outstanding on
the date hereof indicated beneath such Grantee's name on the signature page
to this option exercise notice;
2. such Grantee understands that the Option Shares are being
offered and sold without registration under the Securities Act in reliance
upon the exemption provided in Section 4(2) of the Securities Act, and that
such exemption depends in part upon, and such Shares are being sold in
reliance on, the representations and warranties set forth in this option
exercise notice;
3. such Grantee has full power and authority to enter into this
agreement, and that this agreement constitutes a valid and legally binding
obligation of such Grantee, enforceable against it in accordance with its
terms;
4. such Grantee's Pro Rata Portion and Additional Pro Rata
Portion, if any, of the Option Shares will be acquired for investment for
such Grantee's own account, not as a nominee or agent, and not with a view
to the resale or distribution of any part thereof, such Grantee has no
present intention of selling, granting any participation in, or otherwise
distributing the same, and such Grantee does not presently have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person,
with respect to any of such Option Shares;
5. such Grantee is an experienced investor in securities of
companies and acknowledges that it can bear the economic risk of its
investment and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the
investment in the Option Shares;
6. such Grantee has not been organized for the purpose of
acquiring the Shares;
7. such Grantee understands that the Option Shares are
characterized as "restricted securities" under the federal securities laws
inasmuch as
<PAGE>
3
they are being acquired from Panolam International in a transaction not
involving a public offering and that under such laws and applicable
regulations such shares may be resold without registration under the
Securities Act only in certain limited circumstances;
8. such Grantee is familiar with Commission Rules 144 and 144A,
as presently in effect, and understands the resale limitations imposed
thereby and by the Securities Act;
9. such Grantee has had access to the management and records of
the Company and has had an opportunity to ask questions of management of
the Company regarding its business and affairs; and
10. a copy of this option exercise notice has been delivered to
each of the Other Grantees.
Please acknowledge your understanding of the foregoing and your
receipt of this option exercise notice by signing in the space provided below
and returning to the undersigned a copy of this letter to the address indicated
beneath its name below.
Very truly yours,
[LIST MAJORITY HOLDERS]
By:______________________________
Name:
Title:
[INSERT ADDRESS]
Attention: [INSERT NAME]
Telephone: .
Telecopy: .
Number of Parent Shares held:____
Percent of outstanding Parent Shares:____
<PAGE>
4
ACKNOWLEDGED on [INSERT DATE]:
PANOLAM INDUSTRIES
INTERNATIONAL, INC.
By:______________________________
Name:
Title:
By:______________________________
Name:
Title:
<PAGE>
EXHIBIT B
FORM OF PURCHASE NOTICE
[INSERT DATE]
Panolam Industries International, Inc.
c/o Genstar Capital Partners II, L.P.
Metro Tower, Suite 1170
950 Tower Lane
Foster City, California 94404-2121
Attention: Daniel J. Boverman
Panolam Industries Ltd.
Purchase Notice
---------------
Ladies and Gentlemen:
Reference is made to the stock option agreement, dated as of June 7,
1996 (as thereafter amended, supplemented or otherwise modified, the "Stock
Option Agreement"; terms used and not otherwise defined herein are used herein
as defined in the Stock Option Agreement), among Panolam Industries
International, Inc., a corporation organized and existing under the laws of the
State of Delaware ("Panolam International") and a direct wholly owned subsidiary
of Panolam Industries Holdings, Inc., a corporation organized and existing under
the laws of the State of Delaware ("Panolam Holdings"); Genstar Capital Partners
II, L.P., a limited partnership organized and existing under the laws of the
State of Delaware; CCFL Subordinated Debt Fund and Company, Limited Partnership,
a limited partnership organized and existing under the laws of the Province of
Quebec; Domtar Industries Inc., a corporation organized and existing under the
laws of the State of Delaware; and Claude P. Arcand.
In accordance with Section 2 of the Stock Option Agreement, the
undersigned hereby elects to join with the Majority Holders in the exercise of
the Option.
At the Closing, the undersigned will purchase its Pro Rata Portion of
the Option Shares, as well as its Additional Pro Rata Portion of any Option
Shares with respect to which the Other Grantees have not timely delivered a
Purchase Notice.
The undersigned hereby represents and warrants to Panolam
International that:
1. such Grantee holds, beneficially and of record, the number
of Parent Shares indicated beneath such Grantee's name on the signature
page to this
<PAGE>
2
option exercise notice, and that such shares represent the percentage of
the total number of Parent Shares issued and outstanding on the date hereof
indicated beneath such Grantee's name on the signature page to this
purchase notice;
2. such Grantee understands that the Option Shares are being
offered and sold without registration under the Securities Act in reliance
upon the exemption provided in Section 4(2) of the Securities Act, and that
such exemption depends in part upon, and such Shares are being sold in
reliance on, the representations and warranties set forth in this purchase
notice;
3. such Grantee has full power and authority to enter into this
agreement, and that this agreement constitutes a valid and legally binding
obligation of such Grantee, enforceable against it in accordance with its
terms;
4. such Grantee's Pro Rata Portion and Additional Pro Rata
Portion, if any, of the Option Shares will be acquired for investment for
such Grantee's own account, not as a nominee or agent, and not with a view
to the resale or distribution of any part thereof, such Grantee has no
present intention of selling, granting any participation in, or otherwise
distributing the same, and such Grantee does not presently have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person,
with respect to any of such Option Shares;
5. such Grantee is an experienced investor in securities of
companies and acknowledges that it can bear the economic risk of its
investment and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the
investment in the Option Shares;
6. such Grantee has not been organized for the purpose of
acquiring the Shares;
7. such Grantee understands that the Option Shares are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from Panolam International in a
transaction not involving a public offering and that under such laws and
applicable regulations such shares may be resold without registration under
the Securities Act only in certain limited circumstances;
8. such Grantee is familiar with Commission Rules 144 and 144A,
as presently in effect, and understands the resale limitations imposed
thereby and by the Securities Act;
<PAGE>
3
9. such Grantee has had access to the management and records of
the Company and has had an opportunity to ask questions of management of
the Company regarding its business and affairs; and
10. a copy of this purchase notice has been delivered to each of
the Majority Holders and each of the Other Grantees.
Please acknowledge your understanding of the foregoing and your
receipt of this purchase notice by signing in the space provided below and
returning to the undersigned a copy of this letter to the address indicated
beneath its name below.
Very truly yours,
[OTHER GRANTEE]
By: _______________________
Name:
Title:
[INSERT ADDRESS]
Attention: [INSERT NAME]
Telephone: .
Telecopy: .
Number of Parent Shares held: _____________
Percent of outstanding Parent Shares:______
ACKNOWLEDGED on [INSERT DATE]:
PANOLAM INDUSTRIES
INTERNATIONAL, INC.
By: ______________________
Name:
Title:
By: ______________________
Name:
Title:
<PAGE>
EXHIBIT C
FORM OF ASSIGNMENT AND ACCEPTANCE
[INSERT DATE]
[ASSIGNEE]
[INSERT ADDRESS]
Attention: [INSERT NAME]
Panolam Industries Holdings, Inc.
c/o Genstar Capital Partners II, L.P.
Metro Tower, Suite 1170
950 Tower Lane
Foster City, California 94404-2121
Attention: Daniel J. Boverman
Panolam Industries Ltd.
Assignment and Acceptance
-------------------------
Ladies and Gentlemen:
Reference is made to the stock option agreement, dated as of June 7,
1996 (as thereafter amended, supplemented or otherwise modified, the "Stock
Option Agreement"; terms used and not otherwise defined herein are used herein
as defined in the Stock Option Agreement), among Panolam Industries
International, Inc., a corporation organized and existing under the laws of the
State of Delaware ("Panolam International") and a direct wholly owned subsidiary
of Panolam Industries Holdings, Inc., a corporation organized and existing under
the laws of the State of Delaware ("Panolam Holdings"); Genstar Capital Partners
II, L.P., a limited partnership organized and existing under the laws of the
State of Delaware; CCFL Subordinated Debt Fund and Company, Limited Partnership,
a limited partnership organized and existing under the laws of the Province of
Quebec; Domtar Industries Inc., a corporation organized and existing under the
laws of the State of Delaware; and Claude P. Arcand.
1. The [INSERT ASSIGNOR NAME] (the "Assignor") hereby sells and
assigns to [INSERT ASSIGNOR NAME] (the "Assignee"), and the Assignee hereby
purchases and assumes from the Assignor, that interest in and to all of the
Assignor's rights and obligations under the Stock Option Agreement as of the
date hereof.
<PAGE>
2
2. The Assignor represents and warrants as of the Effective Date (as
defined below) that it is the legal and beneficial owner of the interest being
assigned by it hereunder and that such interest is free and clear of any liens
or encumbrances.
3. The Assignee confirms that it has received a copy of the Stock
Option Agreement and the Stockholders' Agreement.
4. Following the execution of this assignment and acceptance by the
Assignor and the Assignee, it will be delivered to Panolam Holdings for
acceptance and recording in its records by the Panolam Holdings. The effective
date of this assignment and acceptance shall be the date of acceptance thereof
by Panolam Holdings (the "Effective Date").
5. Upon such acceptance and recording by Panolam Holdings, as of the
Effective Date, (i) the Assignee shall be a party to the Stock Option Agreement
and, to the extent provided in this assignment and acceptance, have the rights
and obligations of a Grantee thereunder and (ii) the Assignor shall, to the
extent provided in this assignment and acceptance, relinquish its rights and be
released from its obligations under the Stock Option Agreement.
7. This assignment and acceptance shall be governed by, and construed
in accordance with, the laws of the State of Delaware
<PAGE>
3
Please acknowledge your understanding of the foregoing and your
receipt of this purchase notice by signing in the space provided below and
returning to the undersigned a copy of this letter to the address indicated
beneath its name below.
Very truly yours,
[ASSIGNOR]
By: ________________________
Name:
Title:
[INSERT ADDRESS]
Attention: [INSERT NAME]
Telephone: .
Telecopy: .
Number of Parent Shares held: _____________
Percent of outstanding Parent Shares: _____
ACKNOWLEDGED AND AGREED
on [INSERT DATE]:
[ASSIGNEE]
By: ___________________
Name:
Title:
<PAGE>
4
ACCEPTED on this _____ day
of __________ , ____
PANOLAM INDUSTRIES
HOLDINGS, INC.
By: _________________________
Name:
Title:
By: _________________________
Name:
Title:
<PAGE>
AMENDMENT NO. 1 TO STOCK OPTION AGREEMENT
TO: The parties to the Stock Option Agreement (the "Agreement") dated as of
June 7, 1996 among Panolam Industries International, Inc., Genstar Capital
Partners II, L.P. ("GCP II") and the other Parent Stockholders (as defined
in the Agreement)
In connection with (a) the refinancing of the credit facilities
established under the Senior Credit Agreement and the Subordinated Credit
Agreement; (b) the corporate reorganization pursuant to which all of the issued
and outstanding shares of the Company were transferred to PII Third, Inc.
("Third Intermediate Parent"); and (c) the sale by CCFL to GCP II of all the
Parent Shares owned by CCFL, the undersigned hereby amend the Agreement pursuant
to Section 17 thereof as follows:
(a) by replacing the name "Panolam International" in Sections 1 through 3
and 5 through 17 of the Agreement with "Third Intermediate Parent";
(b) by replacing clauses (i) and (ii) of Section 2(a) with the following:
"(i) (A) the credit agreement dated as of November 19, 1997 (as
amended, supplemented or otherwise modified from time to time,
the "Senior Canadian Credit Agreement") among the Company,
General Electric Capital Canada Inc. ("GE Canada") and certain
other parties, (B) the credit agreement dated as of November 19,
1997 (as amended, supplemented or otherwise modified from time to
time, the "Senior U.S. Credit Agreement") among Panolam
Industries, Inc., General Electric Capital Corporation ("GE
U.S.") and certain other parties, and (C) the note purchase
agreement dated as of November 19, 1997 (as amended, supplemented
or otherwise modified from time to time, the "Note Purchase
Agreement") among Panolam Industries International, Inc. ("First
Intermediate Parent"), GE U.S. and the Purchasers (as defined
therein), (ii) any extension, renewal, refunding or refinancing
of any indebtedness referred to in clause (i) of this Section,
(the indebtedness in clauses (i) and (ii) of this Section being
referred to collectively as the "Senior Debt")";
(c) by deleting the phrase "together with copies of any additional
financial information regarding the Company provided to CCFL during
the immediately preceding 12- month period" in Section 2(c) of the
Agreement;
<PAGE>
-2-
(d) by replacing the phrase "the Senior Credit Agreement, the Subordinated
Credit Agreement or" with the phrase "(i) the Senior Canadian Credit
Agreement (as the same may be amended, supplemented or otherwise
modified from time to time or any extensions, renewals or refinancings
of the foregoing), (ii) the Senior U.S. Credit Agreement (as the same
may be amended, supplemented or otherwise modified from time to time
or any extensions, renewals or refinancings of the foregoing) or Note
Purchase Agreement (as the same may be amended, supplemented or
otherwise modified from time to time or any extensions, renewals or
refinancings of the foregoing) or (iii)" and replacing the phrase
"Scotiabank, CCFL or Domtar U.S., respectively" with "GE Canada, GE
U.S. or Domtar U.S., respectively, or the agent under any extension,
renewal or refinancing of the Senior Debt" in Section 17;
(e) by adding the following as Section 18:
"SECTION 18. Priority of Stock Pledges. The parties acknowledge
that certain of the indebtedness referred to in Section 2(a) is
secured, in part, by pledges of stock of First Intermediate
Parent and its subsidiaries. The parties acknowledge, confirm and
agree that (a) the Option is subject in all respects to the
rights of each such pledgee, (b) no Parent Stockholder shall have
or assert any rights (including, without limitation, any property
rights) in respect of the Option Shares by virtue of this
Agreement (or otherwise) for so long as any such pledge remains
in effect and (c) the Option rights granted under this Agreement
shall terminate automatically in the event that any such pledgee
exercises its sale rights in accordance with the terms of any
such pledge."; and
(f) by deleting Section 6 in its entirety and replacing it with the
following:
"This Agreement shall be binding upon and inure solely to the
benefit of the parties hereto, and each of the holders from time
to time of the Parent Shares or the Senior Debt, and their
respective successors and assigns. Nothing in this Agreement,
whether express or implied, is intended to or shall confer upon
any person other than the parties hereto, and each of the holders
from time to time of the Parent Shares or the Senior Debt, 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."
______________________
PII Third, Inc. hereby covenants and agrees that it shall perform,
observe and be bound by the Agreement, as amended, from and after the date
hereof.
<PAGE>
-3-
All terms used above that are defined in the Agreement have the
respective meanings given to them in the Agreement.
DATED the day of November, 1997.
PANOLAM INDUSTRIES
INTERNATIONAL, INC.
by /s/ SIGNATURE ILLEGIBLE
--------------------------
__________________________
PII THIRD, INC.
by /s/ SIGNATURE ILLEGIBLE
--------------------------
__________________________
GENSTAR CAPITAL PARTNERS II, L.P.
BY GENSTAR CAPITAL LLC,
AS GENERAL PARTNER
by /s/ SIGNATURE ILLEGIBLE
---------------------------
____________________________
<PAGE>
EXHIBIT 10.6
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED, AND IS BEING SOLD PURSUANT TO AN EXEMPTION FROM REGISTRATION
THEREUNDER. THIS SECURITY MAY NOT BE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THIS SECURITY WAS ISSUED WITH ORIGINAL ISSUE DISCOUNT FOR UNITED STATES FEDERAL
INCOME TAX PURPOSES.
PROMISSORY NOTE
PANOLAM INDUSTRIES HOLDINGS, INC.
U.S. $8,000,000 Dated: June 12, 1996
FOR VALUE RECEIVED, the undersigned, Panolam Holdings, Inc., a
corporation incorporated under the laws of the State of Delaware (the
"Company"), hereby promises to pay to the order of Domtar Industries Inc. (the
"Holder") the principal amount of eight million dollars (U.S. $8,000,000) on
December 10, 2001 (the "Maturity Date") together with interest thereon as
hereinafter provided.
The principal amount hereof remaining unpaid and outstanding from time
to time shall bear interest from and after the date hereof until paid, both
before and after maturity, default or judgment, at a rate of 12% per annum,
compounded semi-annually on June 30 and December 31 of each year commencing
December 31, 1996; provided that any portion of the principal amount hereof
remaining unpaid after the Maturity Date shall bear interest as aforesaid from
and after the Maturity Date at a rate of 13% per annum. Such interest shall
accrue on a day-to-day basis and shall be payable contemporaneously with payment
of the principal amount hereof. All computations of interest hereunder shall be
made on the basis of a year of 365 or 366, as the case may be, days for the
actual number of days (including the first day but excluding the last day)
occurring in the period for which interest is to be calculated. All compounded
interest shall be added to the principal amount hereof.
The Company may at any time prepay all or any portion of the
indebtedness evidenced by this Note without notice or penalty, provided that any
such payment shall be applied firstly against any accrued and unpaid interest
and secondly against the unpaid principal amount hereof.
<PAGE>
-2-
ARTICLE I
INTERPRETATION
--------------
1.1 DEFINITIONS. As used in this Note, the following terms shall have the
-----------
following meanings, such terms to be equally applicable to the singular and
plural forms of the terms so defined:
(a) "AFFILIATE" of any specified person means (i) any other person which,
directly or indirectly, is in control of, is controlled by or is under
common control with such specified person or (ii) any other person who
is a director, executive officer, general partner, managing member of,
or holds an equivalent position with (A) such specified person, (B)
any Subsidiary of such specified person or (C) any person described in
clause (i) above;
(b) "BANK DEBT AGREEMENT" means the credit agreement dated as of June 7,
1996 among Can Opco and U.S. Opco, as borrowers, the Company, Holdco,
The Melamine Group, Inc. and Melamine Decorative Laminate, Inc., as
guarantors, certain financial institutions from time to time parties
thereto as lenders and The Bank of Nova Scotia, as agent for such
lenders, as amended, supplemented, restated or otherwise modified from
time to time, and any other agreement or agreements which refinance or
replace, whether in whole or in part and whether for the same or a
greater or lesser principal amount, the credit facilities provided for
in such credit agreement;
(c) "BUSINESS DAY" means a day of the year on which banks are not required
or authorized to close in New York City;
(d) "CAN OPCO" means Panolam Industries Ltd. (formerly known as 1166293
Ontario Inc.), a corporation incorporated under the laws of the
Province of Ontario;
(e) "CANADIAN ASSET PURCHASE AGREEMENT" means the asset purchase agreement
dated as of February 15, 1996 between Domtar Inc. and Can Opco, as
amended, supplemented, restated or otherwise modified from time to
time;
(f) "CAPITAL LEASE OBLIGATION" of a person means any obligation which is
required to be classified and accounted for as a capital lease on the
face of a balance sheet of such person prepared in accordance with
GAAP; the amount of such obligation shall be the capitalized amount
thereof, determined in accordance with GAAP;
(g) "CAPITAL STOCK" of a corporation means any and all shares, interests,
rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) corporate stock;
(h) "CCFL" means CCFL Subordinated Debt Fund and Company, Limited
Partnership;
<PAGE>
-3-
(i) "CREDIT AGREEMENTS" means the Bank Debt Agreement and the Subordinated
Debt Agreement;
(j) "DEBT" of any person means, without duplication:
(i) the principal of and premium (if any) in respect of (A)
indebtedness of such person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other
similar instruments for the payment of which such person is
responsible or liable;
(ii) all Capital Lease Obligations of such person;
(iii) all obligations of such person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of
such person and all obligations of such person under any title
retention agreement (but excluding trade accounts payable
arising in the ordinary course of business);
(iv) all obligations of such person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar
credit transaction (other than obligations with respect to
letters of credit securing obligations (other than obligations
described in clauses (i) through (iii) above) entered into in
the ordinary course of business of such person to the extent
such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the
fifth Business Day following receipt by such person of a demand
for reimbursement following payment on the letter of credit);
(v) all obligations of the type referred to in clauses (i) through
(iv) above of other persons for the payment of which, in either
case, such person is responsible or liable as obligor, guarantor
or otherwise; and
(vi) all obligations of the type referred to in clauses (i) through
(v) above of other persons secured by any lien on any property
or asset of such person (whether or not such obligation is
assumed by such person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets
or the amount of the obligation so secured;
(k) "EBITDA" means, for any period, the sum of the following amounts for
such period:
(i) net income;
(ii) interest expense;
<PAGE>
-4-
(iii) to the extent deducted in determining net income, federal,
state, provincial, local and foreign income taxes, whether paid
or deferred;
(iv) to the extent deducted in determining net income, depreciation
and amortization expense, the non-cash portion of post-
retirement benefits expense and other non-cash charges and
expenses;
(v) to the extent deducted in determining net income, extraordinary
losses; and
(vi) to the extent deducted in determining net income, restructuring
or similar charges or expenses in respect of (A) the integration
and rationalization of the two Oregon facilities of U.S. Opco,
(B) the acquisition and rationalization of the equipment
purchased by U.S. Opco from a facility located in Ruston,
Louisiana or (C) the relocation of senior executives of Can Opco
or U.S. Opco;
minus
(vii) to the extent included in net income, extraordinary gains;
in each case, determined on a consolidated basis for the Company and
its Subsidiaries in accordance with GAAP;
(l) "EQUITY AGREEMENTS" means (i) the subscription agreements by which
the stockholders of the Company have subscribed for an aggregate of
100,000 shares of class A common stock of the Company, (ii) the
stockholders agreement of even date herewith among such
stockholders, the Company and the Holder, (iii) the Warrant and (iv)
the option agreement of even date herewith granted by Holdco in
favour of the stockholders of the Company with respect to the shares
of Can Opco;
(m) "EVENTS OF DEFAULT" has the meaning ascribed thereto in Section 5.1;
(n) "EXCESS CASH FLOW" means, for any fiscal year of the Company, the
excess (if any) of:
(i) EBITDA for such fiscal year;
over
(ii) the sum of the following amounts for such fiscal year:
(A) interest expense;
<PAGE>
-5-
(B) all payments (whether or not scheduled or mandatory) of the
principal amount of the Opco Debt;
(C) all federal, state, provincial, local and foreign income
taxes paid in such year;
(D) all payments in such year on account of capital
expenditures or, if either of the Credit Agreements
provides for a maximum amount of capital expenditures
permitted to be made by Can Opco and/or U.S. Opco for such
year, the higher of:
i) such maximum permitted amount for such year; and
ii) the amount of all payments in such year on
account of capital expenditures; and
(E) the amount of the net increase, if any, of current assets
(excluding cash) over current liabilities (excluding the
current portion of any Debt) from the last day of the
immediately preceding fiscal year;
minus
(F) the amount of the net increase, if any, of current
liabilities (excluding the current portion of any Debt)
over current assets (excluding cash) from the last day of
the immediately preceding fiscal year;
in each case, determined on a consolidated basis for the Company and
its Subsidiaries in accordance with GAAP;
(o) "GAAP" means those generally accepted accounting principles applied in
the United States in the preparation of financial statements;
(p) "GENSTAR" means Genstar Capital Partners II, L.P., Genstar Capital,
L.L.C. and their respective Affiliates;
(q) "HOLDCO" means Panolam Industries International, Inc., a corporation
incorporated under the laws of the State of Delaware;
(r) "MATERIAL CONTRACTS" means the Purchase Agreements, the Credit
Agreements, the Equity Agreements, this Note and all agreements,
instruments and other documents delivered in connection with the
foregoing and the transactions contemplated thereby, including,
without limitation, the limited recourse guarantees given by the
<PAGE>
-6-
Company with respect to the Opco Debt and the share pledge agreements
executed by the Company in support of such guarantees;
(s) "OPCO DEBT" means any and all amounts payable under or in respect of
the Credit Agreements including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to Can Opco, U.S. Opco,
Holdco or the Company, whether or not a claim for post-filing interest
is allowed in such proceedings), fees, charges, expenses,
reimbursement obligations, guarantees and all other amounts payable
thereunder or in respect thereof;
(t) "PURCHASE AGREEMENTS" means the Canadian Asset Purchase Agreement, the
U.S. Asset Purchase Agreement and the U.S. Share Purchase Agreement;
(u) "SUBORDINATED DEBT AGREEMENT" means the credit agreement dated as of
June 7, 1996 between Can Opco and CCFL, as amended, supplemented,
restated or otherwise modified from time to time, and any other
agreement or agreements which refinance or replace, whether in whole
or in part and whether for the same or a greater or lesser principal
amount, the credit facilities provided for in such credit agreement;
(v) "SUBSIDIARY" of any specified person means any corporation,
association, partnership or other business entity of which more than
50% of the total voting power of the Capital Stock or other interests
(including partnership interests) entitled (without regard to the
occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) such specified person, (ii) such
specified person and one or more Subsidiaries or (iii) one or more
Subsidiaries of such specified person;
(w) "U.S. ASSET PURCHASE AGREEMENT" means the asset purchase agreement
dated as of February 15, 1996 between the Holder and U.S. Opco, as
amended, supplemented, restated or otherwise modified from time to
time;
(x) "U.S. OPCO" means Panolam Industries, Inc. (formerly known as PAN
Acquisition, Inc.), a corporation incorporated under the laws of the
State of Delaware;
(y) "U.S. SHARE PURCHASE AGREEMENT" means the share purchase agreement
dated as of February 15, 1996 between the Holder and U.S. Opco, as
amended, supplemented, restated or otherwise modified from time to
time; and
(z) "WARRANT" means the warrants to purchase shares of class A common
stock of the Company granted by the Company to the Holder pursuant to
a warrant agreement of even date herewith.
<PAGE>
-7-
1.2 CURRENCY. In this Note, all dollar amounts are expressed in United States
--------
currency.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 (a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
--------------------------------------------
and warrants as follows:
(i) the Company, Holdco and U.S. Opco are corporations duly
incorporated, validly existing and in good standing under the
laws of the State of Delaware;
(ii) Can Opco is a corporation duly incorporated, validly existing
and in good standing under the laws of the Province of Ontario;
(iii) the execution, delivery and performance by the Company of this
Note are within the Company's corporate powers and have been
duly authorized by all necessary corporate action;
(iv) no authorization or approval or other action by, and no notice
to or filing with, any governmental authority, or regulatory
body is required for the due execution, delivery and
performance by the Company of this Note;
(v) this Note is a legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its
terms;
(vi) none of the Company, Holdco, Can Opco or U.S. Opco has any
material assets other than (A) its investment (direct or
indirect) in Can Opco and U.S. Opco and (B) assets acquired or
rights arising under the Material Contracts, nor does any of
them have any material liabilities or obligations other than
(X) any intercorporate Debt owing to Holdco or its Subsidiaries
and (Y) liabilities or obligations incurred or assumed pursuant
to the Material Contracts, including without limitation, the
limited recourse guarantees given by the Company with respect
to the Opco Debt and the share pledge agreements executed by
the Company in support of such guarantees;
(vii) the Debt of the Company, determined on a consolidated basis for
the Company and its Subsidiaries (excluding Debt assumed by Can
Opco and U.S. Opco pursuant to the Purchase Agreements), is not
greater than $80,000,000;
(viii) none of the Company, Holdco, Can Opco or U.S. Opco is a party
to, or bound by, any material agreement or instrument other
than the Material Contracts;
<PAGE>
-8-
(ix) the authorized share capital of the Company consists of 150,000
shares of class A common stock and 150,000 shares of non-voting
class B common stock, of which 100,000 shares of class A common
stock are issued and outstanding as fully paid and non-
assessable shares and are held of record as follows:
<TABLE>
<S> <C> <C>
Genstar 88,640 (88.6%)
CCFL 11,000 (11.0%)
Claude P. Arcand 360 (0.4%)
------- -----
100,000 100.0%
======= =====
</TABLE>
(x) no person has any agreement or any option, warrant,
subscription privilege, conversion privilege or other right to
purchase or otherwise acquire any unissued (or, to the
Company's knowledge, issued) shares of any class of Capital
Stock of the Company other than pursuant to (A) the Equity
Agreements and (B) any stock option plan or plans established
from time to time for the benefit of employees of the Company
and its Subsidiaries, provided that not more than 10% of the
equity in the Company is issued or available to be issued
thereunder;
(xi) Holdco is a wholly-owned Subsidiary of the Company and each of
Can Opco and U.S. Opco is a wholly-owned Subsidiary of Holdco;
no person has any agreement or any option, warrant,
subscription privilege, conversion privilege or other right to
purchase or otherwise acquire any unissued or issued shares of
any class of Capital Stock of Holdco, Can Opco or U.S. Opco
other than pursuant to the Equity Agreements; and
(xii) none of the Company and its Subsidiaries is in breach of, and
neither the execution and delivery of this Note nor the
performance by the Company of its obligations under this Note
will result in any breach of, or create a state of facts which,
after notice or lapse of time, or both, would constitute a
breach of, (A) the certificate of incorporation, by-laws or
resolutions of the Company or its Subsidiaries, (B) the
Material Contracts or (C) any applicable law (excluding, in the
case of this clause (C), any breaches which in the aggregate do
not have a material adverse effect on the consolidated
business, operations or financial condition of the Company).
(b) Representations and Warranties of the Holder. The Holder represents and
--------------------------------------------
warrants as follows:
(i) the Holder is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware;
<PAGE>
-9-
(ii) the execution, delivery and performance by the Holder of this
Note are within the Holder's corporate powers, have been duly
authorized by all necessary corporate action, and do not
contravene (A) the Holder's articles or by-laws or (B) any law
or contractual restriction binding on or affecting the Holder;
(iii) no authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body
is required for the due execution, delivery and performance by
the Holder of this Note; and
(iv) the Holder has been advised and understands that this Note not
been registered under the U.S. Securities Act of 1933, as
amended. The Holder, by purchasing this Note, agrees for the
benefit of the Company that this Note may only be resold,
pledged or otherwise transferred pursuant to an effective
registration statement under such Act or pursuant to an
exemption from registration under such Act, provided an opinion
of counsel is furnished reasonably satisfactory in form and
substance to the Company, stating that an exemption from the
registration requirements of such Act is available.
ARTICLE III
COVENANTS OF THE COMPANY
------------------------
3.1 AFFIRMATIVE COVENANTS. For so long as any amount under this Note shall
---------------------
remain unpaid, the Company will, unless the Holder shall otherwise consent in
writing:
(a) REPORTING. Furnish to the Holder:
---------
(i) audited annual consolidated financial statements of the Company
and Holdco and unaudited annual consolidated financial
statements of Can Opco and U.S. Opco within 120 days after the
end of each fiscal year;
(ii) unaudited quarterly consolidated financial statements of the
Company, Holdco, U.S. Opco and Can Opco within 45 days after the
end of each of the first three quarters of each fiscal year;
(iii) copies of any definitive agreements that relate to any
refinancing or extension of any Opco Debt; and
(iv) copies of any definitive agreements that relate to the
acquisition or divestiture of assets by the Company or any of
its Subsidiaries, other than in the ordinary course of business,
at a price in excess of $10,000,000;
<PAGE>
-10-
(b) BUSINESS OPERATIONS. Cause the respective business operations of Can
-------------------
Opco and U.S. Opco to be carried on in the normal course with a view
to the best interests of the Company; and
(c) REFINANCING OF OPCO DEBT. In the event of any refinancing or extension
------------------------
of any Opco Debt, cause Can Opco and U.S. Opco to use reasonable
commercial efforts consistent with the best interests of the
operations and financial requirements of Can Opco and U.S. Opco to
negotiate with the relevant holders or prospective holders of Opco
Debt so as to permit the repayment of this Note no later than the
Maturity Date and to permit Can Opco and U.S. Opco to pay to Holdco,
within 120 days after the end of each fiscal year ending after the
Maturity Date, 50% of the Excess Cash Flow for such year. Subject to
the relevant holders of Opco Debt consenting thereto, the Company
shall cause Can Opco and U.S. Opco to make such payments to Holdco and
shall cause Holdco to pay the same to the Company, to be applied by
the Company as payments firstly against any accrued and unpaid
interest hereunder and secondly against the principal amount hereof.
3.2 NEGATIVE COVENANTS. For so long as any amount under this Note shall
------------------
remain unpaid, the Company will not, without the written consent of the Holder:
(a) DEBT. Incur or assume any Debt which ranks senior in right of payment
----
to, or pari passu in right of payment with, this Note (excluding
----------
guarantees with respect to the Opco Debt);
(b) DIVIDENDS, ETC. Declare or pay any dividend or make any other
--------------
distribution on or in respect of any Capital Stock of the Company, or
purchase, redeem or otherwise acquire for value (or permit any of its
Subsidiaries to do so) any Capital Stock of the Company, now or
hereafter outstanding, except that the Company may (i) declare and pay
any dividend or distribution in Capital Stock of the Company, (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
from former employees of the Company or its Subsidiaries;
(c) BUSINESS ACTIVITIES. Engage in, or permit Holdco to engage in, any
-------------------
activities unrelated to their investment in Can Opco and U.S. Opco and
ancillary activities, or permit Can Opco, U.S. Opco or any of their
respective Subsidiaries to engage in any material business activities
other than the manufacture and sale of thermally fused melamine
products and related products and operations;
(d) MANAGEMENT FEES. Pay, or permit any of its Subsidiaries to pay,
---------------
management fees to Genstar which, in the aggregate, exceed U.S.
$600,000 in any fiscal year, which amount shall increase by 3%, on a
cumulative basis, for 1997 and each subsequent fiscal year;
<PAGE>
-11-
(e) TRANSACTIONS WITH GENSTAR. Except for the payment of management fees
-------------------------
permitted under clause (d) above, make any payment or loan to Genstar,
or enter into any material contract or transaction with Genstar, or
permit any of the Subsidiaries of the Company to do so, unless, in any
such case, such arrangement is on terms not less favourable to the
Company or such Subsidiary than those that typically would be
available from a person who deals at arm's length with the Company; or
(f) PLEDGE OF SHARES OF HOLDCO. Pledge the shares of Holdco other than as
--------------------------
security for any Debt of Can Opco and U.S. Opco (excluding any Debt
incurred in connection with the refinancing of any Opco Debt if, at
the time of such refinancing, the ratio of Debt to EBITDA of the
Company, determined on a consolidated basis, is less than 3:1).
ARTICLE IV
SECURITY
--------
4.1 PLEDGE OF SHARES OF HOLDCO. If and for so long as the shares of Holdco
--------------------------
owned by the Company are not pledged or required to be pledged as security for
any Opco Debt, the Company shall pledge such shares as collateral security for
the performance of its obligations under this Note.
ARTICLE V
EVENTS OF DEFAULT
-----------------
5.1 EVENTS OF DEFAULT. If any of the following events ("Events of
-----------------
Default") shall occur and be continuing:
(a) the Company shall fail to pay the principal and accrued interest on
this Note after the same becomes due and payable and such failure
shall continue for a period of 30 or more calendar days;
(b) any representation or warranty made by the Company in this Note shall
prove to have been incorrect in any material respect when made and
such representation or warranty continues to be incorrect for a period
of 30 or more days after written notice thereof shall have been given
to the Company by the Holder;
(c) the Company shall fail to perform or observe any other term, covenant
or agreement contained in this Note on its part to be performed or
observed and such failure shall remain unremedied for a period of 30
or more days after written notice thereof shall have been given to the
Company by the Holder;
<PAGE>
-12-
(d) a writ of execution, garnishment, attachment or similar process is
issued or levied relating to an amount claimed (or, if less, the value
of the property subject thereto) in excess of $5,000,000 and such
writ, execution, garnishment, attachment or similar process is not
released, bonded, satisfied, discharged, vacated, stayed or otherwise
being contested diligently, in good faith and on a timely basis,
within 90 days after its entry, commencement or levy; or
(e) the Company or any of its material Subsidiaries (including, without
limitation, Holdco, Can Opco or U.S. Opco) shall admit in writing its
inability to pay its debts generally, or shall make a general
assignment for the benefit of creditors; or any processing shall be
instituted by or against the Company or any of its material
Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under
any law relating to bankruptcy, insolvency or reorganization or relief
of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its property and, in
the case of any such proceeding instituted against it (but not
instituted by it), either such proceeding shall remain undismissed or
unstayed for a period of 90 days, or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for
relief against, or the appointment of a receiver, trustee, custodian
or other similar official for, it or for any substantial part of its
property) shall occur; or the Company or any of its material
Subsidiaries shall take any corporate action to authorize any of the
actions set forth above in this subsection (e);
the Holder may, by notice to the Company, declare all indebtedness evidenced
hereby to be forthwith due and payable, whereupon all such indebtedness shall
become and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Company to the extent permitted by law; provided, however, that in the event of
an actual or deemed entry of an order for relief with respect to the Company
under the U.S. Federal Bankruptcy Code, all such indebtedness shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by
the Company to the extent permitted by law.
ARTICLE VI
MISCELLANEOUS
-------------
6.1 AMENDMENTS, ETC. No amendment or waiver of any provision of this Note,
---------------
nor consent to any departure by the Company herefrom, shall in any event be
effective unless the same shall be in writing and signed by the Holder and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
<PAGE>
-13-
6.2 NOTICES, ETC. Any notice or communication provided for under this
------------
Agreement shall be in writing and be sufficiently given to the Party to whom it
is addressed if it is delivered or sent by prepaid registered or certified mail
or transmitted by telecopier to or for such Party at the address or telecopier
number of such Party as set out hereinafter or at such other address or
telecopier number as such Party shall have hereafter notified to the other Party
in the manner provided for in this Section.
If to the Holder:
Domtar Industries Inc.
c/o Domtar Inc.
395 de Maisonneuve Blvd. West
Montreal, Quebec
Canada
H3A 1L6
Fax: (514) 848-6850
Attention: Secretary
If to the Company:
Panolam Industries Holdings, Inc.
c/o Genstar Capital Partners II, L.P.
Metro Tower, Suite 1170
950 Tower Lane
Foster City, California
94404-2121, USA
Fax: (415) 286-2383
Attention: Daniel J. Boverman
Any notice or communication addressed and delivered, mailed or
telecopied, as the case may be, as aforesaid shall be deemed to have been
sufficiently given and received on the date on which it was so delivered or, if
such date is not on a Business Day, on the Business Day next following such
date, or, if mailed, on the fifth Business Day next following the date of its
mailing or, if transmitted by telecopier, on the first Business Day next
following the date of its transmission by telecopier, as the case may be.
6.3 TAX INFORMATION. Upon request from the Holder, the Company will
---------------
provide the Holder with the information required in Treasury Regulation, Section
1.1275-3(b)(1)(i). As required by Treasury Regulation Section 1.1275-
3(b)(1)(ii), the name and address of the representative of the Company who will
promptly make available such information is Daniel J. Boverman, Panolam
Industries Holdings, Inc., Metro Tower, Suite 1170, 950 Tower Lane, Foster City,
California 94404-2121.
<PAGE>
-14-
6.4 NO WAIVER; REMEDIES. No failure on the part of the Holder to exercise,
-------------------
and no delay in exercising, any right hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
6.5 WAIVER OF NOTICE. Except as otherwise provided in this Note, the
----------------
Company waives grace, demand, presentment for payment, notice of non-payment,
protest and notice of protest, notice of dishonour or default, notice of intent
to accelerate, notice of acceleration and diligence in collecting and bringing
of suit.
6.6 ATTORNEYS FEES. In the event that suit is brought for the
--------------
enforcement of this Note, the prevailing party shall be entitled to such
attorneys fees and other costs of suit as the court shall determine reasonable.
6.7 BINDING EFFECT.
---------------
(a) Subject to subsection (b) below, this Note shall be binding upon and
inure to the benefit of the Company and the Holder and their respective
successors and assigns, except that the Company shall not have the right to
assign any of its rights or obligations hereunder.
(b) The Holder may, upon at least 20 Business Days' notice to the Company,
assign its rights under this Note to a Subsidiary of Domtar Inc. to whom the
Warrant and any shares of common stock issued upon the exercise thereof may have
been assigned, provided that (i) such assignment shall be in compliance with
applicable securities law and (ii) the Holder and such assignee agree with the
Company that the assignee shall remain a Subsidiary of Domtar Inc. for so long
as the Note remains outstanding and the assignee holds this Note.
<PAGE>
-15-
6.8 GOVERNING LAW. This Note shall be governed by, and construed in
-------------
accordance with, the laws of the State of New York.
IN WITNESS WHEREOF the Company has executed this Note.
PANOLAM INDUSTRIES HOLDINGS, INC.
By /s/ [SIGNATURE ILLEGIBLE]
-------------------------------
Name:
Title: President
By /s/ [SIGNATURE ILLEGIBLE]
-------------------------------
Name:
Title: Secretary
DOMTAR INDUSTRIES, INC.
By /s/ Y.G. Katsuyama
--------------------------------------
Name: Y.G. Katsuyama
Title: Asst. General Counsel
By
--------------------------------------
Name:
Title:
<PAGE>
-16-
PANOLAM INDUSTRIES DOMTAR NOTE INTEREST CALCULATION
<TABLE>
<CAPTION>
Principal Calculated Interest
Plus Accrued Accrual Interest By
Interest Days Expense Year
----------------------------------------------------------------
<S> <C> <C> <C> <C>
6/12/96 8,000,000
6/30/96 8,047,342 18 47,342
12/31/96 8,534,152 184 486,809 534,152
6/30/97 9,041,992 181 507,840
12/31/97 9,588,971 184 546,979 1,054,819
6/30/98 10,159,580 181 570,609
12/31/98 10,774,165 184 614,585 1,185,194
6/30/99 11,415,302 181 641,137
12/31/99 12,105,849 184 690,548 1,331,684
6/30/00 12,830,210 182 724,361
12/31/00 13,606,350 184 776,140 1,500,501
6/30/01 14,416,021 181 809,671
12/10/01 15,188,562 163 772,541 1,582,212
2,007 7,188,562 7,188,562
12/10/01 breakdown:
- -------------------
Principal 8,000,000
Interest 7,188,562
----------
Total owed 15,188,562
==========
</TABLE>
<PAGE>
EXECUTION COPY
EXHIBIT 10.7
WARRANT AGREEMENT
between
PANOLAM INDUSTRIES HOLDINGS, INC.
and
DOMTAR INDUSTRIES INC.
Dated as of June 7, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C>
SECTION 1.01. Certain Defined Terms................................ 2
ARTICLE II
ORIGINAL ISSUE OF WARRANTS
SECTION 2.01. Form of Warrant Certificates......................... 6
SECTION 2.02. Execution and Delivery of Warrant Certificates....... 6
ARTICLE III
EXERCISE PRICE; EXERCISE OF WARRANTS GENERALLY
SECTION 3.01. Exercise Price....................................... 6
SECTION 3.02. Exercise of Warrants................................. 6
SECTION 3.03. Expiration of Warrants............................... 6
SECTION 3.04. Method of Exercise................................... 6
ARTICLE IV
ADJUSTMENTS
SECTION 4.01. Adjustments.......................................... 7
SECTION 4.02. Determination of Adjustment.......................... 9
SECTION 4.03. Statement on Warrants................................ 10
SECTION 4.04. Fractional Interest.................................. 10
</TABLE>
<PAGE>
ii
ARTICLE V
ADDITIONAL AGREEMENTS
<TABLE>
<S> <C>
SECTION 5.01. Warrant Transfer Books................................... 10
SECTION 5.02. No Stock Rights.......................................... 11
SECTION 5.03. Restrictions on Transfer................................. 11
SECTION 5.04. No Registration of Warrants or Warrant Shares under
Securities Laws....................................... 11
SECTION 5.05. Reservation of Common Stock for Issuance on Exercise of
Warrants.............................................. 11
SECTION 5.06. Payment of Taxes......................................... 12
SECTION 5.07. Certain Persons to Execute Agreement..................... 12
SECTION 5.08. Prior Notice of Certain Events........................... 12
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Expenses................................................. 12
SECTION 6.02. Notices.................................................. 13
SECTION 6.03. Headings................................................. 13
SECTION 6.04. Severability............................................. 13
SECTION 6.05. Entire Agreement......................................... 13
SECTION 6.06. No Third Party Beneficiaries............................. 13
SECTION 6.07. Amendment; Waiver........................................ 13
SECTION 6.08. Governing Law............................................ 13
SECTION 6.09. Counterparts............................................. 14
</TABLE>
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of June ___, 1996 (as hereafter amended,
supplemented or otherwise modified, this "AGREEMENT"), between PANOLAM
INDUSTRIES HOLDINGS, INC., a corporation organized and existing under the laws
of the State of Delaware (the "COMPANY"), and DOMTAR INDUSTRIES INC., a
corporation organized and existing under the laws of the State of Delaware
("DOMTAR U.S.");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, in connection with the asset purchase agreement, dated
February 15, 1996, between Domtar U.S. and Panolam Industries, Inc. (formerly
known as PAN Acquisition, Inc.), a corporation organized and existing under the
laws of the State of Delaware ("PANOLAM U.S.") and an indirect wholly owned
subsidiary of the Company, as amended by letter agreements dated March 14, 1996,
March 21, 1996, March 28, 1996 and April 4, 1996 and by an amending agreement,
dated as of April 9, 1996, among Domtar U.S., Domtar Inc., a corporation
organized under the federal laws of Canada, Panolam Canada and Panolam U.S.,
and as further amended by an amending agreement, dated as of the date hereof,
between Domtar U.S. and Panolam U.S., and the delivery of a note (the "NOTE")
made by the Company as payment in part of the purchase price thereunder, the
Company has agreed to issue and deliver to Domtar U.S. warrant certificates (the
"WARRANT CERTIFICATES") evidencing warrants to purchase 5,000 shares of class A
common stock, par value $.01 per share, of the Company (the "CLASS A COMMON
STOCK" and, together with the non-voting class B common stock, par value $.01
per share, of the Company, the "COMMON STOCK"), representing 5.0% of the shares
of Common Stock outstanding or subject to issuance on the date hereof, subject
to adjustment as provided for herein;
WHEREAS, the Warrants (as defined below), Warrant Certificates and
Underlying Common Stock (as defined below) will be subject to the terms and
conditions of the stockholders' agreement, dated as of the date hereof (as
thereafter amended, supplemented or otherwise modified, the "STOCKHOLDERS'
AGREEMENT"), among the Company, Domtar U.S. and the other stockholders of the
Company, including, without limitation, the provisions therein related to
restrictions on transfer of the Warrants and the Underlying Common Stock; 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 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:
<PAGE>
2
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:
"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, Montreal, Quebec or Toronto, Ontario.
"CLASS A COMMON STOCK" shall have the meaning specified in the
recitals to this Agreement.
"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
<PAGE>
3
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.
"DOMTAR U.S." shall have the meaning specified in the preamble to this
Agreement.
"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 mean the earlier of (i) the date on which all
amounts outstanding under the Note are paid in full, if such payment in full
occurs prior to January 1, 2000, and (ii) July 1, 2002.
"FAIR MARKET VALUE" shall mean, with respect to any Shares as of any
date of determination, (i) if such Shares are not registered under the Exchange
Act, the fair value of such Shares (or the Common Stock into or for which such
Shares 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 are registered under the Exchange
Act, the average of the daily Market Prices of such Shares (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 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 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.
"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
<PAGE>
4
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.
"MARKET PRICE" shall mean, with respect to any Shares registered under
the Exchange Act for any specified trading day, (i) in the case of Shares 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 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 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 as
determined as if such Shares 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 January 1, 2000.
"SERIES 2 DETERMINATION DATE" shall mean January 1, 2001.
"SERIES 1 WARRANTS" shall mean warrants designated Series 1 Warrants
to purchase 2,500 shares of Class A Common Stock, representing 2.5% of the
Common Stock outstanding on the date hereof.
<PAGE>
5
"SERIES 2 WARRANTS" shall mean warrants designated Series 2 Warrants
to purchase 2,500 shares of Class A Common Stock. representing 2.5% of the
Common Stock outstanding on the date hereof.
"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 Class A Common
Stock issuable or issued upon the exercise of the Warrants.
"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 Series 2 Warrants.
ARTICLE II
ORIGINAL ISSUE OF WARRANTS
SECTION 2.01. FORM OF WARRANT CERTIFICATES. The Warrant Certificates
shall be 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 Warrants to purchase initially an aggregate of up to
5,000 shares of
<PAGE>
6
Class A Common Stock shall be executed by the Company and delivered to the
purchasers thereof on the date hereof. 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.
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 Class A Common Stock for each Warrant represented thereby at an
exercise price (the "EXERCISE PRICE") of zero ($0.00) 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 Series 2 Warrants shall be
exercisable, on or prior to the Expiration Date, at any time or from time to
time after the Series 2 Determination Date.
SECTION 3.03. EXPIRATION OF WARRANTS. The Warrants shall terminate and
become void as of the close of business on the 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.
(b) Upon surrender of a Warrant Certificate in conformity with the
foregoing provisions, 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.
<PAGE>
7
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 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
<PAGE>
8
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
of 10% of the fully-diluted shares of Common Stock
<PAGE>
9
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 the Agreement.
<PAGE>
10
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, 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 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 each Warrant
Certificate,
<PAGE>
11
the Warrants evidenced thereby and 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 WARRANT SHARES UNDER
SECURITIES LAWS. (a) Neither the Warrants nor the Underlying Common Stock have
been registered under the Securities Act or any state securities laws.
(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 Class A Common Stock,
solely for the purpose of issue upon exercise of Warrants as herein provided,
such number of shares of Class A Common Stock as shall then be issuable upon the
exercise of all outstanding Warrants. All shares of Class A 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.
<PAGE>
12
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 thc rights and be subject to the
obligations of a Holder hereunder with respect to the Warrants held by such
prospective transferee.
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).
<PAGE>
13
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. ENTIRE AGREEMENT. This Agreement and the Stockholders'
Agreement 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 6.06. 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 6.07. 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 6.08. 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 6.09. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which
<PAGE>
14
when executed shall be deemed to be an original but all of which taken together
shall constitute one and the same agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date fast above written.
PANOLAM INDUSTRIES
HOLDINGS, INC.
By: /s/ William J. MacDonald
---------------------------------
Name: WILLIAM J. MACDONALD
Title: PRESIDENT
By: /s/ [SIGNATURE ILLEGIBLE]
---------------------------------
Name:
Title:
Metro Tower, Suite 1170
950 Tower Lane
Foster City, California 94404-2121
Attention: Richard D. Paterson
Telephone: (415) 286-2350
Telecopy: (415) 286-2383
DOMTAR INDUSTRIES INC.
By: /s/ Y. G. Katsuyama
---------------------------------
Name: Y. G. KATSUYAMA
Title: ASST. GENERAL COUNSEL
c/o Domtar Inc.
395 de Maisonneuve Blvd. West
Montreal, Quebec, Canada
H3A 1L6
Attention: Pierre Fitzgibbon
Telephone: (514) 848-5400
Telecopy: (514) 848-5057
<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 EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCKHOLDERS' AGREEMENT, DATED AS OF
JUNE ___, 1996, 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 [1] [2] WARRANT CERTIFICATE
Dated as of June ___, 1996
SERIES [1] [2] WARRANTS TO PURCHASE 2,500 SHARES
OF CLASS A COMMON STOCK
Certificate No. [1] Certificate for 2,500 Warrants
<PAGE>
A-2
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, DOMTAR INDUSTRIES INC., a corporation
organized and existing under the laws of the State of Delaware ("DOMTAR"), or
registered assigns, is the registered holder of the number of Series [1] [2]
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 common stock, par value $.01 per share, of the Company ("COMMON STOCK"),
subject to adjustment upon the occurrence of certain events, at an exercise
price of zero ($.00) 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 Note (as defined in the Warrant Agreement (as
defined below)) are paid in full, if such payment in full occurs prior to
January 1, 2000, and (ii) June 30, 2002 (the "EXPIRATION DATE" ).
This Warrant Certificate is issued under and in accordance with the
warrant agreement, dated as of June ___, 1996 (as thereafter amended, modified
or supplemented, the "WARRANT AGREEMENT"), between the Company and Domtar, and
is subject to the terms and provisions contained in the Warrant Agreement and
the stockholders' agreement, dated as of June ___ 1996 (as thereafter amended,
supplemented or otherwise modified, the "STOCKHOLDERS" AGREEMENT"), among the
Company, Domtar and the other stockholders of the Company, 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 filled in 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.
<PAGE>
A-3
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 Metro Tower, Suite
1170, 950 Tower Lane, Foster City, California 94404-2121, Attention: Richard D.
Paterson.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
A-4
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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date fast above written.
PANOLAM INDUSTRIES
HOLDINGS, INC.
By: ________________________________
Name:
Title:
By: ________________________________
Name:
Title:
<PAGE>
A-5
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 Class A 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 Class A 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)*
_________________________________________________
_______________
* 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>
A-6
(By:)_______________________________________________
(Please Print)
(Name:)__________________________________________
(Title:)_________________________________________
Signature
Guaranteed
By:______________________________________________
(Please Print)
<PAGE>
A-7
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned Holder of the foregoing Warrant
Certificate hereby sells, assigns and transfers* 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
________________________
* 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>
A-8
evidencing the Warrants not so assigned be issued in the name of and delivered
to the undersigned.
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>
PANOLAM INDUSTRIES HOLDINGS, INC.
1996 EQUITY INCENTIVE PLAN
SECTION 1. Purpose. The Panolam Industries Holdings, Inc. 1996 Equity
Incentive Plan (the "Plan") is intended to enhance the ability of Panolam
Industries Holdings, Inc., a corporation organized under the laws of the State
of Delaware (the "Company"), to attract, retain and motivate officers and key
employees of the Company and its subsidiaries, by providing such persons with an
opportunity to obtain a proprietary interest in the Company and by rewarding
them for their contributions to the Company.
SECTION 2. Definitions. Terms used and not otherwise defined herein
are used herein as defined in the stockholders' agreement, dated as of June 7,
1996 (as amended, supplemented or otherwise modified from time to time, the
"Stockholders' Agreement"), among the Company, Genstar Capital Partners II,
L.P., a limited partnership organized under the laws of the State of Delaware,
CCFL Subordinated Debt Fund and Company, Limited Partnership, a limited
partnership organized under the laws of Quebec, Domtar Industries Inc., a
corporation organized under the laws of the State of Delaware, and Claude P.
Arcand. Unless the context otherwise requires, the following terms, when used
herein, shall have the respective meanings specified below:
"Agreement" shall have the meaning specified in Section 6(a).
"Beneficiary" or "Beneficiaries" shall mean the person or persons
designated by a Participant pursuant to the provisions of an Agreement to
receive payments or rights pursuant to such Agreement upon such Participant's
death.
"Cause" with respect to the termination of a Participant's employment,
shall mean (i) the failure or refusal of such Participant to perform the duties
of his or her employment, (ii) such Participant's fraud or dishonesty against
the Company or its subsidiaries, or (iii) such Participant's willful or
negligent acts or omissions which are materially harmful to the Company or its
subsidiaries, including, without limitation, such Participant's unauthorized
disclosure of confidential information related to the business of the Company or
any of its subsidiaries. Whether the Participant's employment has been
terminated for Cause shall be determined in good faith by the Committee, and
such determination shall be final, conclusive and binding on all persons.
"Change of Control" shall mean any of (i) the acquisition, other than
from the Company, by any person of beneficial ownership of more than 50% of the
Company Voting Securities; provided, however, that any acquisition by (A) the
Company, or any employee benefit plan (or related trust) sponsored or maintained
by the Company, or (B) any corporation with respect to which, following such
acquisition, more than 50% of the then
<PAGE>
2
outstanding voting securities of such corporation entitled to vote generally in
the election of directors is then beneficially owned, directly or indirectly, by
all or substantially all of the persons who were the beneficial owners of the
Company Voting Securities immediately prior to such acquisition, in
substantially the same proportion as their ownership immediately prior to such
acquisition of the Company Voting Securities, shall not constitute a Change of
Control of the Company; (ii) approval by the stockholders of the Company of a
sale or other disposition of all or substantially all of the assets of the
Company other than to a corporation with respect to which, following such sale
or disposition, more than 50% of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all of the
persons who were the beneficial owners of the Company Voting Securities
immediately prior to such sale or disposition.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
the roles and regulations promulgated thereunder.
"Committee" shall have the meaning specified in Section 4.
"Common Stock" shall mean the Class A Common Stock.
"Company Voting Securities" shall mean the voting securities of the
Company entitled to vote generally in the election of the directors of the
Company.
"Disability" shall mean "permanent disability" as defined in the long-
term disability policy of the Company or one of its subsidiaries applicable to a
Participant.
"Effective Date" shall mean June 12, 1996.
"Full-Time Employment" shall mean regular employment as a common law
employee of the Company or one of its subsidiaries for at least 35 hours per
week.
"Grant Date" shall mean, with respect to any Option, the date on which
such Option was granted.
"Incentive Stock Option" shall mean an Option which is intended to
qualify as an incentive stock option under Section 422 of the Code.
"Non-qualified Stock Option" shall mean an Option which is not
intended to qualify as an Incentive Stock Option.
"Option" shall mean an option to purchase shares of Common Stock,
subject to the terms and conditions provided for in Section 7.
<PAGE>
3
"Option Price" shall mean the exercise price of an Option, as
determined at the time of grant by the Committee in its discretion and as set
forth in the applicable Agreement; provided that (i) the Option Price for an
Incentive Stock Option shall be no less than 100% of the Fair Market Value of a
share of Common Stock as of the Grant Date and (ii) the Option Price for a Non-
qualified Stock Option shall be no less than 85 % of the Fair Market Value of a
share of Common Stock as of the Grant Date; provided further that the Option
Price of any Option granted under the plan during 1996 shall be $203.07.
"Participant" shall mean any employee of the Company or one of its
subsidiaries who is designated by the Committee to receive an Option under the
Plan.
"Retirement" shall mean the termination or resignation of a
Participant's Full-Time Employment on or after such Participant has attained
normal retirement age as determined in accordance with the Company's policies as
in effect from time to time.
SECTION 3. Shares Available for Grant. The number of shares of Common
Stock that may be issued under the Plan shall not exceed 11,111 shares. Shares
of Common Stock issued under the Plan may be authorized and unissued shares or
issued and re-acquired shares, as the Committee may from time to time determine.
The maximum number of shares of Common Stock that may be issued under the Plan
shall be appropriately adjusted for any stock dividends, splits, reverse splits,
combinations, recapitalizations and the like occurring after the date hereof.
SECTION 4. Administration. The Plan shall be administered by a
committee of the Board (the "Committee"), which shall be appointed by the Board
and which shall consist of two or more members of the Board. The Committee shall
have the authority to interpret and construe the provisions of the Plan and of
any agreements under the Plan and make determinations pursuant to any Plan
provision or agreement. Each interpretation, determination or other action made
or taken pursuant to the Plan by the Committee shall be final, conclusive and
binding on all persons. No member of the Committee shall be liable for anything
done or omitted to be done by such Committee member or by any other member of
the Committee in connection with the Plan, except for his or her own willful
misconduct or as expressly provided by statute.
SECTION 5. Grant of Options. The Committee shall, from time to time,
make grants of Options to Participants; provided that (i) Options to purchase
not fewer than 4,444 shares of Common Stock shall be granted under the Plan
prior to December 31, 1996 and (ii) Options to purchase not fewer than 11,111
shares of Common Stock in the aggregate shall be granted under the Plan prior to
the third anniversary of the Effective Date.
SECTION 6. Agreement. (a) The terms and conditions of each grant of
Options shall be embodied in a written agreement (an "Agreement") in a form
approved by
<PAGE>
4
the Committee which shall contain terms and conditions not inconsistent with the
Plan and which shall incorporate the Plan by reference; provided, however, that
in the event of any conflict or inconsistency between the Plan and any
Agreement, such Agreement shall govern; provided further that in the event of
any conflict or inconsistency between any such Agreement and any employment
agreement between the Company (or any affiliate thereof) and the Participant who
is a party to such Agreement, such employment agreement shall govern.
(b) Each Agreement shall (i) state the Grant Date of the Option, the
number of shares of Common Stock issuable in connection with the Option and the
Option Price; (ii) specify any applicable vesting schedule; (iii) state whether
the Option is intended to qualify as an Incentive Stock Option; (iv) provide for
the treatment of Options in the event of the termination of employment of the
Participant who is a party to such Agreement; (v) provide such other terms and
conditions, not inconsistent with the Plan or any employment agreement with the
Participant who is a party to such Agreement, as the Committee may deem
advisable; (vi) be signed by the recipient of the Option and a person designated
by the Committee; and (vii) be delivered to the recipient of the Option.
(c) If no Beneficiary is designated by a Participant in the Agreement
to which it is a party or if no Beneficiary is living at the time a payment is
due pursuant to such Agreement, payments shall be made to the estate of such
Participant. Each Agreement shall provide a Participant with the right to change
the designated Beneficiaries from time to time by written instrument executed by
such Participant and filed with the Committee in accordance with such rules as
may be specified by the Committee; provided, however, that no Beneficiary
designation shall be effective unless it is received by the Committee prior to
the date of death of such Participant.
SECTION 7. Options. (a) Options may be granted to any Participant to
purchase such number of shares of Common Stock as the Committee shall determine
in its discretion. Options granted under the Plan shall comply with the terms
and conditions set forth in this Section 7.
(b) Each Option shall vest and become exercisable as determined by the
Committee and as set forth in the applicable Agreement; provided that each
Option shall (i) completely vest not more than five years after the Grant Date
thereof and (ii) vest at a rate of not less than 20% per year. An Option shall
be exercisable following a Participant's termination of employment with the
Company and its subsidiaries at such times and in such manner as determined by
the Committee, which the Committee may specify in the applicable Agreement or
determine at the time of such termination of employment.
<PAGE>
5
(c) Each Option shall be effective for such term as shall be
determined by the Committee and set forth in the Agreement; provided that each
vested Option shall be exercisable for a period of not fewer than 10 years after
the Grant Date thereof.
(d) Payment of the Option Price shall be made in full at the time the
notice of exercise of the Option is delivered to the Committee and shall be in
cash, bank certified or cashier's check or personal check (unless at the time of
exercise the Committee in a particular case determines not to accept a personal
check) for the Common Stock being purchased. The Committee may determine at the
time the Option is granted for Incentive Stock Options, or at any time before
exercise for Non-qualified Stock Options, that additional forms of payment will
be permitted.
(e) The Options shall not be exercisable unless either the Common
Stock subject to the Options has been registered under the Securities Act and
qualified under applicable state "blue sky" laws in connection with the offer
and sale thereof, or the exercising Participant has furnished the Company with
an investment representation satisfactory to the Company that such registration
and qualification is not required as a result of the availability of an
exemption from registration under such laws.
(f) As soon as practicable following the exercise of an Option, a
certificate in the exercising Participant's name evidencing the appropriate
number of shares of Common Stock issued in connection with such exercise shall
be delivered to such Participant.
SECTION 8. Termination of Employment. (a) Upon termination of a
Participant's full time employment with the Company, the Options, to the extent
then vested (the "Vested Options"), may be exercised as follows:
(i) If such Participant's Full-Time Employment terminates by
reason of Retirement or Disability, the Vested Options shall be exercisable
by such Participant for one year following the date of such termination;
(ii) If such Participant's Full-Time Employment terminates by
reason of such Participant's death, the Vested Options shall be exercisable
by such Participant's Beneficiary for one year following the date of death;
(iii) If such Participant's Full-Time Employment is terminated
by the Company for Cause or if such Participant voluntarily resigns his
employment with the Company for any reason other than Disability or
Retirement, all Vested Options shall immediately terminate and cease to be
exercisable as of the date of such termination or resignation; and
<PAGE>
6
(iv) If such Participant's Full-Time Employment with the
Company terminates for any other reason not specified above in this Section
8(a), the Vested Options shall be exercisable by such Participant for 90 days
following the date of such termination.
(b) The Committee may, in its sole discretion, provide for a longer
post-termination exercise period than the applicable period specified in Section
8(a). Any Option which is not a Vested Option as of the date of a Participant's
termination of Full-Time Employment shall terminate as of such date and be of no
further force and effect.
SECTION 9. Certain Adjustments. (a) Change of Control/Sale of
Division or Subsidiary. In the event that (i) a Change of Control occurs or (ii)
the division or subsidiary for which a Participant performs services is sold,
merged, consolidated, reorganized or liquidated, then the Committee may, but
shall not be required to, make adjustments and take such actions (including
acceleration of vesting and exerciseability) as the Committee determines to be
necessary or advisable to provide each Participant with a benefit equivalent to
that to which the Participant would have been entitled had such event not
occurred.
(b) Dilution and Other Adjustments. In the event of a stock dividend,
split, reverse split, combination, recapitalization or the like, the Committee
shall, to the extent necessary to provide each Participant with a benefit
equivalent to that to which the Participant would have been entitled had such
event not occurred, adjust the number of Options granted or offered to each
Participant and the Option Price of any Options and make any other adjustments,
or take such other action, as the Committee, in its discretion, deems
appropriate. Such adjustments shall be final, conclusive and binding on all
persons. In the event of a change in the Common Stock which is limited to a
change in the designation thereof to "Capital Stock" or other similar
designation, or to a change in the par value thereof, or from par value to no
par value, without increase or decrease in the number of issued shares, the
shares resulting from any such change shall be deemed to be Common Stock within
the meaning of the Plan.
SECTION 10. Restrictions on Transfer. Each Option granted hereunder
shall not be transferable by the Participant otherwise than by will or the laws
of descent and distribution, and shall be exercisable during the Participant's
lifetime only by the Participant.
SECTION 11. Stockholders' Agreement. Shares of Common Stock issued
upon exercise of an Option granted under the Plan shall be held subject to, and
comply with and shall have the benefits of, the terms, conditions, rights and
restrictions which are set forth in the Stockholders' Agreement.
SECTION 12. Amendment. The Board may at any time and from time to
time alter, amend, suspend or terminate the Plan in whole or in part.
<PAGE>
7
SECTION 13. Termination. Unless previously terminated pursuant to
Section 12, the Plan shall terminate on the tenth anniversary of the Effective
Date, and no further Options may be granted hereunder after such date.
SECTION 14. Use of Proceeds. The proceeds received by the Company
from the sale of Common Stock pursuant to the sale or exercise of Options under
the Plan shall be added to the Company's general funds and used for general
corporate purposes.
SECTION 15. Miscellaneous. (a) No Rights to Grants or Continued
Service. Except as expressly provided for in the Plan, no Participant shall have
any claim or right to be granted an Option under the Plan. Neither the Plan nor
any action taken hereunder shall be construed as giving any Participant any
right to be retained in the employ or service of the Company.
(b) No Restriction on Right of Company to Effect Corporate Changes.
Nothing in the Plan shall affect the right or power of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of stock
or of options, warrants or rights to purchase stock or of bonds, debentures,
preferred or prior preference stocks whose rights are superior to or affect the
Common Stock or the rights thereof or which are convertible into or exchangeable
for Common Stock, or the dissolution or liquidation of the Company, or any sale
or transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
(c) Governing Law. THE PLAN AND ALL AGREEMENTS ENTERED INTO UNDER THE
PLAN SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
LAW OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING
CONFLICT OF LAWS.
(d) Withholding. As a condition to the making of any Option, the
vesting of any Option or the lapse of the restrictions pertaining thereto, the
Company may, in the discretion of the Committee, require the Participant to pay
such sum to the Company as may be necessary to discharge the Company's
obligations with respect to any taxes, assessments or other governmental charges
imposed on property or income received by a Participant pursuant to the Plan. In
the discretion of the Committee, such payment may be in the form of cash or
other property. In the discretion of the Committee, the Company may (i) make
available for delivery a lesser number of shares, in satisfaction of such taxes,
assessments or other governmental charges, or (ii) deduct or withhold from any
payment or distribution to a Participant whether or not pursuant to the Plan.
<PAGE>
8
(e) Stockholder Rights. A Participant shall have no rights as a
stockholder with respect to any shares issued or issuable with respect to an
Option until a certificate or certificates evidencing such shares shall have
been issued to or for the benefit of such Participant, and no adjustment shall
be made for dividends or distributions or other rights in respect of any share
for which the record date is prior to the date upon which the Participant shall
become the holder of record thereof.
(f) Construction of the Term "Participant". Whenever the word
"Participant" is used in this Plan under circumstances where the provision
should logically be construed to apply to the executors, the administrators, the
Beneficiary, or any other person or persons to whom an Option may be transferred
by will or by the laws of descent and distribution or by reason of the death of
the Participant, the word "Participant" shall be deemed to include such person
or persons.
<PAGE>
EXHIBIT 12.1
Statement of Computation of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Predecessor Panolam
------------------------------ ----------------------------
For the year
For the year ended Period from Period from ended
December 31, January 1 May 16 to December 31,
------------------ to June 11, December 31, ---------------
1994 1995 1996 1996 1997 1998
------------------ ----------- ------------ ------- -------
(in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Income from continuing
operations before
income taxes and
extraordinary item..... $ 9,383 $ 10,572 $4,040 $3,171 $ 2,708 $ 5,741
-------- --------- ------ ------ ------- -------
Fixed charges:
Interest............... -- 103 -- 4,459 8,079 8,289
33% of rental expense.. 105 115 76 104 135 159
-------- --------- ------ ------ ------- -------
Total fixed charges.... 105 218 76 4,563 8,214 8,448
-------- --------- ------ ------ ------- -------
Income plus fixed
charges................ $ 9,488 $ 10,790 $4,116 $7,734 $10,922 $14,189
-------- --------- ------ ------ ------- -------
Ratio of earnings to
fixed charges.......... 90.4x 49.5x 54.2x 1.7x 1.3x 1.7x
======== ========= ====== ====== ======= =======
</TABLE>
<PAGE>
EXHIBIT 12.2
Statement of Computation of Ratio of Earnings to Fixed Charges
<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 1995 1996 1997 1998
------------ ------------ ----------- ------------ ------------ ------------ ------------
(unaudited)
(in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
Income from continuing
operations before
income taxes........... $1,271 $ 8,369 $3,455 $1,021 $12,640 $20,587 $20,937
------ ------- ------ ------ ------- ------- -------
Fixed charges:
Interest............... 3,745 4,372 1,590 2,069 3,384 2,663 2,587
33% of rental expense.. 925 1,048 587 587 200 218 252
------ ------- ------ ------ ------- ------- -------
Total fixed charges.... 4,670 5,420 2,177 2,656 3,584 2,881 2,839
------ ------- ------ ------ ------- ------- -------
Income plus fixed
charges................ $5,941 $13,789 $5,632 $3,677 $16,224 $23,468 $23,776
------ ------- ------ ------ ------- ------- -------
Ratio of earnings to
fixed charges.......... 1.3x 2.5x 2.6x 1.4x 4.5x 8.1x 8.4x
====== ======= ====== ====== ======= ======= =======
</TABLE>
<PAGE>
Exhibit 21
----------
SUBSIDIARIES OF PANOLAM GROUP, INC.
-----------------------------------
Name Jurisdiction of Incorporation
- ---- -----------------------------
PII Second, Inc. Delaware
Panolam Industries International, Inc. Delaware
SUBSIDIARIES OF PANOLAM INDUSTRIES INTERNATIONAL, INC.
------------------------------------------------------
Name Jurisdiction of Incorporation
- ---- -----------------------------
Panolam Industries Ltd. Canada
Panolam Industries, Inc. Delaware
Pioneer Plastics Corporation Delaware
The Melamine Group, Inc. Oregon
Melamine Decorative Laminate, Inc. Oregon
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on Form S-4 of
Panolam Industries International, Inc. of our report dated March 12, 1999
relating to the financial statements of Panolam Group, Inc. and Subsidiaries,
which appears in such Registration Statement. We also consent to the reference
to us under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Stamford, Connecticut
May 14, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this 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
May 11, 1999
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
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 Prospectus. We also consent to the reference
to us under the heading "Experts" in such Prospectus.
PricewaterhouseCoopers LLP
Chartered Accountants
Montreal Canada
May 13, 1999
<PAGE>
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
_________
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
</TABLE>
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
PANOLAM INDUSTRIES INTERNATIONAL, INC.
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-2064053
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
20 PROGRESS DRIVE
SHELTON, CT 06484
(Address of principal executive offices) (Zip Code)
11 1/2% SENIOR SUBORDINATED NOTES DUE 2009
(Title of indenture securities)
<PAGE>
GENERAL
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO
WHICH IT IS SUBJECT.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System,
Washington, D.C., Federal Deposit Insurance Corporation,
Washington, D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF
ELIGIBILITY.
1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN
EFFECT.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission as
Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE
BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee to
commence business was necessary or issued is on file with the
Securities and Exchange Commission as Exhibit 2 to Amendment No.
1 to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Morse Shoe,
Inc. (File No. 22-17940) and is incorporated herein by reference
thereto.
3. A copy of the authorization of the trustee to exercise corporate
trust powers, if such authorization is not contained in the
documents specified in paragraph (1) or (2), above.
A copy of the authorization of the trustee to exercise corporate
trust powers is on file with the Securities and Exchange
Commission as Exhibit 3 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No. 22-
17940) and is incorporated herein by reference thereto.
4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS
CORRESPONDING THERETO.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4 to
the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein by
reference thereto.
1
<PAGE>
5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN
DEFAULT.
Not applicable.
6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY
SECTION 321(B) OF THE ACT.
The consent of the trustee required by Section 321(b) of the Act
is annexed hereto as Exhibit 6 and made a part hereof.
7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED
PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING AUTHORITY.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or
examining authority is annexed hereto as Exhibit 7 and made a
part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Hartford and The
State of Connecticut, on the 30th of April 1999.
STATE STREET BANK AND TRUST COMPANY
By: /s/ MICHAEL M. HOPKINS
-------------------------
NAME MICHAEL M. HOPKINS
TITLE VICE PRESIDENT
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by Panolam
Industries International, Inc. of its 11 1/2% Senior Subordinated Notes due
2009, we hereby consent that reports of examination by Federal, State,
Territorial or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ MICHAEL M. HOPKINS
--------------------------
NAME MICHAEL M. HOPKINS
TITLE VICE PRESIDENT
Dated: April 30, 1999
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business December 31, 1998,
-----------------
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin.......................................................... 1,209,293
Interest-bearing balances................................................................................... 12,007,895
Securities....................................................................................................... 9,705,731
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary......................................................................... 9,734,476
Loans and lease financing receivables:
Loans and leases, net of unearned income ................................................................... 6,973,125
Allowance for loan and lease losses......................................................................... 84,308
Allocated transfer risk reserve............................................................................. 0
Loans and leases, net of unearned income and allowances..................................................... 6,888,817
Assets held in trading accounts.................................................................................. 1, 574,999
Premises and fixed assets........................................................................................ 523,514
Other real estate owned.......................................................................................... 0
Investments in unconsolidated subsidiaries....................................................................... 612
Customers' liability to this bank on acceptances outstanding..................................................... 47,334
Intangible assets................................................................................................ 212,743
Other assets..................................................................................................... 1,279,224
----------
Total assets..................................................................................................... 43,184,638
==========
LIABILITIES
Deposits:
In domestic offices......................................................................................... 10,852,862
Noninterest-bearing.................................................................................... 8,331,830
Interest-bearing....................................................................................... 2,521,032
In foreign offices and Edge subsidiary...................................................................... 16,761,573
Noninterest-bearing.................................................................................... 83,010
Interest-bearing....................................................................................... 16,678,563
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary......................................................................... 10,041,324
Demand notes issued to the U.S. Treasury......................................................................... 108,420
Trading liabilities......................................................................................... 1,240,938
Other borrowed money............................................................................................. 322,331
Subordinated notes and debentures................................................................................ 0
Bank's liability on acceptances executed and outstanding......................................................... 47,334
Other liabilities................................................................................................ 1,126,058
Total liabilities................................................................................................ 40,500,840
----------
EQUITY CAPITAL
Perpetual preferred stock and related
surplus.......................................................................................................... 0
Common stock..................................................................................................... 29,931
Surplus.......................................................................................................... 468,511
Undivided profits and capital reserves/Net unrealized holding gains (losses)..................................... 2,164,055
Net unrealized holding gains (losses) on available-for-sale securities.......................... 21,638
Cumulative foreign currency translation adjustments.............................................................. (337)
Total equity capital............................................................................................. 2,683,798
----------
Total liabilities and equity capital............................................................................. 43,184,638
----------
</TABLE>
4
<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PANOLAM
GROUP, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,456
<SECURITIES> 0
<RECEIVABLES> 8,182
<ALLOWANCES> (226)
<INVENTORY> 14,788
<CURRENT-ASSETS> 29,142
<PP&E> 92,718
<DEPRECIATION> (12,591)
<TOTAL-ASSETS> 119,592
<CURRENT-LIABILITIES> 14,631
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 31,138
<TOTAL-LIABILITY-AND-EQUITY> 119,592
<SALES> 146,747
<TOTAL-REVENUES> 146,747
<CGS> (122,572)
<TOTAL-COSTS> (122,572)
<OTHER-EXPENSES> (10,145)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (8,289)
<INCOME-PRETAX> 5,741
<INCOME-TAX> (2,343)
<INCOME-CONTINUING> 3,398
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,398
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
