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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934..........................FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NO. 0-16289
REPAP ENTERPRISES INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CANADA 98-0178526
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
300 ATLANTIC STREET, SUITE 200
STAMFORD, CONNECTICUT 06901
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 964-6160
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE.
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 4, 1998 was $124,703,700.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's 1997 Annual Report to Shareholders is incorporated by reference
into Parts I, II and IV of this report. The Registrant's Management Proxy
Circular for the 1998 Annual and Special Meeting of Shareholders is incorporated
by reference into Part III of this report. Only those sections of the Annual
Report to Shareholders and the Management Proxy Circular referred to in Parts I,
II, III and IV are deemed "filed" as part of this Form 10-K report.
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FORM 10-K TABLE OF CONTENTS
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ITEM DESCRIPTION PAGE
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<S> <C> <C>
Exchange Rates.............................................. 4
PART I
1. Business
(a) General description of business......................... 5
(b) Financial information about industry segments........... 8
(c) Principal products...................................... 8
(d) Customers............................................... 9
(e) Raw Materials........................................... 9
(f) Human Resources......................................... 10
(g) Research and Development................................ 10
(h) Environment............................................. 10
(i) Executive Officers of the Registrant.................... 11
2. Properties.................................................. 11
3. Legal Proceedings........................................... 12
4. Submission of matters to a vote of security holders......... 12
PART II
5. Market for the Company's common stock and related Security
holder matters.............................................. 13
6. Selected financial data..................................... 14
7. Management's discussion and analysis of results of
operations and financial condition.......................... 14
8. Financial statements and supplementary data................. 14
9. Disagreements on accounting and financial disclosure........ 14
PART III
10. Directors and executive officers............................ 15
11. Executive compensation...................................... 15
12. Security ownership of certain beneficial owners and
management.................................................. 15
13. Certain relationships and related transactions.............. 15
PART IV
14. Exhibits, financial statements schedules and reports on Form
8-K
(a)(1) Documents............................................ 16
(2) Financial statement schedules........................... 16
(3) Exhibit Index........................................... 16
(b) Reports on Form 8-K.................................. 18
</TABLE>
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EXCHANGE RATES
Repap Enterprises Inc. publishes its consolidated financial statements in
Canadian dollars. In this annual report, unless otherwise specified or the
context otherwise requires, all dollar amounts are expressed in Canadian dollars
("$", "Cdn.$", "dollars" or "Cdn. dollars").
The Government of Canada permits a floating exchange rate to determine the
value of the Canadian dollar against the United States dollar ("U.S.$" or "U.S.
dollar"). The exchange rates at the end of each of the five years ended December
31 and the average, the high, and the low exchange rates, being the noon buying
rates in New York City for cable transfers in Canadian dollars as certified for
customs purposes by the Federal Reserve Bank of New York expressed in U.S.
dollars, for each of those periods were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1996 1995 1994 1993
----- ----- ----- ----- -----
U.S.$ per Cdn.$
<S> <C> <C> <C> <C> <C>
At end of year (1).................................... .6997 .7301 .7323 .7128 .7544
Average for year (2).................................. .7222 .7226 .7305 .7300 .7729
High for year......................................... .7496 .7513 .7527 .7628 .8046
Low for year.......................................... .6945 .7235 .7023 .7103 .7439
</TABLE>
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(1) Noon buying rate on last banking day
(2) Based on the average of the daily buying rates during the year.
On February 5, 1998 the U.S.$ exchange rate was U.S.$0.6949 per Cdn.$1.00.
2
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PART I
ITEM 1. BUSINESS.
(a) General Description of Business
Repap Enterprises Inc. (the "Corporation") was incorporated under the laws
of Canada on January 9, 1963 and was continued under the Canada Business
Corporations Act on April 9, 1980. The Corporation, together with its
subsidiaries and partnership interests (collectively "Repap"), currently carries
on business as a North American coated groundwood paper company. Repap's coated
paper operations now consist of a fully integrated coated groundwood facility
located in Miramichi, New Brunswick, Canada.
Prior to 1997, the Corporation's assets included a pulp mill and three
sawmills in British Columbia, an unbleached pulp and Kraft paper mill and
sawmill in Manitoba and coated paper mills in Wisconsin and New Brunswick.
During 1997, the British Columbia, Manitoba and Wisconsin operations were sold
or otherwise disposed of and no longer form part of the ongoing operations of
the Corporation. As at December 31, 1997, Repap's only production facilities
were in New Brunswick. Repap has its executive offices and sales headquarters in
Connecticut and a research and development centre in Pennsylvania.
Repap New Brunswick Inc.'s ("Repap New Brunswick") coated paper mill
produces coated groundwood paper with an annual capacity of 492,000 tons. The
New Brunswick mill is integrated with a Kraft pulp mill which has an annual
capacity of 235,000 metric tons ("tonnes") of northern bleached softwood Kraft
("NBSK") pulp and a groundwood pulp mill which has an annual capacity of 123,000
tonnes of groundwood pulp. Repap New Brunswick also operates two sawmills with
an annual production capacity of 58 Mmfbm (million foot board measures). The
coated paper operations of Repap New Brunswick are ISO 9002 certified.
In May 1996, the Board of Directors of Repap retained financial advisors to
assist it in identifying strategic alternatives available to Repap, including a
sale or merger. Following this, an auction process was conducted during the
second half of 1996, culminating in the execution of a pre-merger agreement
among Repap, Avenor Inc. ("Avenor") a Canadian producer of newsprint, pulp,
white paper and wood products and the principal shareholders of Repap. This
agreement provided for an amalgamation pursuant to which Avenor would acquire
all of Repap's outstanding common shares in exchange for Avenor common shares. A
Joint Management Proxy Circular was mailed to shareholders of Repap and Avenor
on February 6, 1997. Financial market reaction to the original proposal
necessitated revisions to the terms and on March 6, 1997, a Supplement to the
Joint Management Proxy Circular was mailed to shareholders describing amendments
to the pre-merger agreement. On March 26, 1997, the Avenor shareholders rejected
the proposed merger, although the transaction was approved by the Repap
shareholders on that date. Following the vote by Avenor shareholders, Repap
again resolved to pursue the strategic alternatives process.
In order to facilitate the proposed Avenor amalgamation, the Corporation,
on March 3, 1997, entered into a restructuring and settlement agreement with,
among others, the secured lenders to Repap British Columbia Inc. pursuant to
which it granted an option to the secured lenders to Repap British Columbia Inc.
to acquire all of the shares in the capital of Repap British Columbia Inc. Repap
British Columbia Inc. had an annual capacity of 450,000 tonnes of northern
bleached softwood Kraft pulp marketed primarily in Europe and Asia. Also on
March 3, 1997, an order was issued under the Companies' Creditors Arrangement
Act (Canada) staying the claims of Repap British Columbia Inc.'s creditors. On
March 27, 1997 the secured lenders exercised their option and all of the issued
and outstanding shares of Repap British Columbia Inc. were transferred to them.
The name of Repap British Columbia Inc. was then changed to Skeena Cellulose
Inc. ("Skeena").
On July 18, 1997, the Corporation entered into a Share Purchase Agreement
with Tolko Industries Ltd. in which it agreed to sell to Tolko Industries Ltd.
all of the issued and outstanding shares in the capital of Repap Manitoba Inc.
for a purchase price of $109 million less long term debt plus working capital.
Repap Manitoba Inc.'s Kraft paper operations consisted of an unbleached Kraft
paper mill at The Pas, Manitoba with an annual capacity of 170,000 tons and a
saw mill with an annual capacity of 95 Mmfbm. The purchase and sale of the
issued and outstanding shares in the capital of Repap Manitoba Inc. was
concluded on August 8, 1997. Net proceeds of $34.5 million were applied to
reduce the Corporation's long term indebtedness.
On August 8, 1997, the Corporation and Consolidated Papers, Inc. entered
into a Stock Purchase Agreement for the sale by the Corporation and the purchase
by Consolidated Papers, Inc. of all of the issued and outstanding shares in the
capital stock of Repap USA Inc. and all the issued and outstanding Preferred
Stock of Repap
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Wisconsin, Inc. owned by the Corporation on the date of the closing of the sale
(collectively, the "Purchased Shares") for an aggregate purchase price of
US$227.4 million plus or minus adjustments (the "Purchase Price"). Repap
Wisconsin, Inc.'s coated paper mill produced a full range of coated paper sheets
and rolls with an annual capacity of 508,000 tons. It was integrated with a
groundwood pulp mill with an annual capacity of 45,000 tonnes and an off-site
deinked pulp plant with an annual capacity of 29,000 tonnes.
A number of steps were taken to exclude certain assets of Repap Wisconsin,
Inc. Repap USA Inc.'s investment in WWF Paper Corporation was transferred to the
Corporation. The amount recorded as a long-term account receivable on the
balance sheet of Repap Wisconsin, Inc. with respect to prepayments received by
the Corporation from Repap Wisconsin, Inc. and owed by the Corporation to Repap
Wisconsin, Inc. pursuant to a pulp purchase agreement, dated September 1, 1995,
was reduced to nil. The amount recorded as a long-term account receivable on the
balance sheet of Repap Wisconsin, Inc. with respect to prepayments received by
Skeena from Repap Wisconsin, Inc. and owed by Skeena to Repap Wisconsin, Inc.
pursuant to the pulp purchase agreements dated July 12, 1995, and October 19,
1995, among Repap Wisconsin, Inc. and Skeena, was reduced to nil and those pulp
purchase agreements were cancelled. Repap Wisconsin, Inc. reduced the amount
recorded on its balance sheet for its investment in the Series A Preferred
Shares of the Corporation to nil and the Corporation repurchased those shares
for cancellation for a nominal amount.
Repap Wisconsin, Inc., Repap Sales Corp. (the "Subsidiaries"), and WWF
Paper Corporation were the only active entities in which Repap USA Inc. had any
ownership interest. Prior to the closing of the Sale, the Corporation caused
Repap USA, Inc. or the Subsidiaries to acquire all of the outstanding capital
stock of all classes of the Subsidiaries, including payment of any cumulative
dividends payable on any such shares.
The Corporation acquired the 240.963 shares of Class III Preferred Stock
and the 180.047 shares of Class IV Preferred Stock in the capital of Repap
Wisconsin, Inc. owned by Skeena and held by the secured lenders to Skeena
Cellulose Inc. as security for Skeena's indebtedness to them who in turn
returned to the Corporation the $15 million drawdown of Tranche D under the
Standby Loan Agreement, and released the Corporation from its $50 million
guarantee of Skeena's indebtedness. In turn the Corporation used a portion of
the proceeds of the sale to pay Skeena's secured lenders $50 million and caused
Repap Wisconsin, Inc. to release Skeena from its obligation to deliver to Repap
Wisconsin, Inc. 32,500 tonnes of pulp under two pulp purchase agreements entered
into between Repap Wisconsin, Inc. and Skeena during 1995. Repap used the
proceeds from the sale of the shares of Repap Wisconsin, Inc. to repay its
secured creditors and to provide additional working capital.
In addition, the Corporation acquired from George S. Petty Management
Limited the 12.490 shares of Class III Preferred Stock in the capital of Repap
Wisconsin, Inc. at their redemption price.
The sale of the shares of Repap USA Inc. and Repap Wisconsin, Inc. closed
on September 30, 1997 and the purchase price was adjusted for: (a) increases or
decreases in consolidated net working capital; (b) increases or decreases in
US$454.6 million of long-term debt and provisions for liabilities reflected upon
the balance sheet dated March 31, 1997; and (c) any capital expenditures. As a
result of these adjustments, Consolidated Papers, Inc. paid an additional
US$23.9 million to the Corporation.
On July 28, 1997, the Corporation also announced that it intended to repay
its US$130 million 8.5% Convertible Debentures through the issuance of Common
shares. On August 1, 1997 the Corporation repaid all of its 8.5% Convertible
Debentures due on that date by issuing 619,023,800 Common shares to the holders
of its 8.5% Convertible Debentures, bringing the number of issued and
outstanding Common shares to 742,460,637.
On August 13, 1997 Mr. George Petty announced his resignation as the
Chairman and Chief Executive Officer of the Corporation. Also on that date, Mr.
Ronald H. Sumner announced his resignation as Executive Vice President, Finance
and Chief Financial Officer of the Corporation. Along with Mr. Petty and Mr.
Sumner, six of the Corporation's remaining directors resigned. Mr. Stephen C.
Larson, the Corporation's President and Chief Operating Officer, was then
appointed the Corporation's President and Chief Executive Officer. Mr. William
J. Anderson, a director of Silverton International Fund Limited, the
Corporation's single largest shareholder, became the Chairman of the
Corporation. Mr. Anderson, together with Mr. Robert Poile and Mr. David
McAusland were appointed directors of the Corporation.
The Corporation has one inactive operation which it is attempting to sell.
Alcell Technologies Inc. owns a research and development solvent pulping
facility located adjacent to Repap New Brunswick's Kraft pulp mill. This
facility has been shut down since April 1996. The Corporation entered into a
non-binding letter of intent with
4
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Malaspina Capital Inc. on October 23, 1997 to sell all of the issued and
outstanding shares in the capital of Alcell Technologies Inc. for $4 million, $2
million of which will be paid in cash and $2 million of which will be satisfied
by the issuance of a $2 million debenture convertible into common shares of
Malaspina Capital Limited. The closing of this transaction is subject to a
number of conditions which the parties are attempting to clear. The original
closing date of no later than February 14, 1998 has been extended until April
30, 1998.
On January 9, 1998 the Corporation entered into a Share Purchase Agreement
with Tembec Inc. with respect to the sale of all of the issued and outstanding
shares in the capital of Alcell Forest Products Inc., the subsidiary which
acquired a 125,000 tonne-per-year magnesium-bisulphite Pulp Mill in Atholville,
New Brunswick from Noranda Forest Inc. in December 1994. The purchase price was
$1 million in cash and $10 million of Class B shares in the capital of AV Cell
Inc., the acquiring corporation formed as a joint venture between Tembec Inc.
and the Aditya Birla Group. The transaction was closed on February 20, 1998.
(b) Financial Information about Industry Segments
For certain financial information for each of the industry segments during
the three years ended December 31, 1997, see note 19 to the Notes to
Consolidated Financial Statements contained in the Corporation's 1997 Annual
Report attached hereto as Appendix A and filed herewith as an exhibit, which
Consolidated Financial Statements are incorporated herein by reference.
(C) Principal Products
Coated Paper
Coated groundwood paper is used primarily for magazine publishing and is
also used by commercial printers for catalogues, inserts and flyers where cost
and weight considerations are critical. Repap New Brunswick produces a variety
of grades and weights of lightweight coated groundwood paper on two machines at
its Miramichi, New Brunswick mill site. Repap New Brunswick's shipments
represent approximately 9% of North American coated groundwood paper capacity.
Pulp and Lumber
The Repap New Brunswick operations includes two pulp mills: a fully
integrated groundwood pulp mill with an annual capacity of 123,000 tonnes; and a
Kraft pulp mill with an annual capacity of 235,000 tonnes. The Repap New
Brunswick Kraft pulp mill, provides an integrated supply of NBSK pulp to the two
on-site coated paper machines. Approximately one-third of the Kraft mill's
production is sold to the market, primarily to customers in North America.
Repap New Brunswick's lumber operation consists of two sawmills with a
combined annual capacity of 58 Mmfbm of dimension lumber. On-site kilns provide
the capacity to dry 50% of lumber production. The two sawmills also provide wood
chips for the Repap New Brunswick Kraft pulp mill.
Markets
Repap's products are sold primarily in the United States and Canada with a
relatively small volume of coated paper and pulp sold in off-shore markets.
Coated paper sales in the United States are made through Repap Marketing Inc., a
wholly owned subsidiary, in Canada by the Corporation and in off-shore markets
by international agents. Pulp sales are made directly by the Corporation. Lumber
sales are made either directly or through brokers.
Competition
Repap competes in North America with North American and European coated
paper producers. Approximately 4-6% of the North American coated groundwood
market is supplied by European producers. Repap, the fifth largest coated
groundwood paper producer in North America, has approximately 9% of the North
American coated groundwood paper capacity. Significant competitors of the
Corporation with similar or greater capacity in coated groundwood paper include
Consolidated Papers, Inc., Champion International Corporation, International
Paper Co., UPM Kymmene and Bowater Incorporated. Coated groundwood paper also
competes with other grades of paper such as coated freesheet and supercalendered
paper. Price, quality and service are important competitive considerations.
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Repap's pulp and lumber products are global commodities. Pricing and the
level of shipments are influenced by the supply and demand for those products
which in turn is influenced by inventory levels, exchange rates and economic
conditions.
(d) Customers
During 1997, Repap sold approximately 70,000 tons of lightweight coated
groundwood paper to WWF Paper Corporation representing in excess of 10% of the
Corporation's consolidated revenues.
(e) Raw Materials
Approximately 44% of the wood supply for the Repap New Brunswick operations
is obtained from Crown timber allocations provided by the Province of New
Brunswick. The remaining wood is acquired from third parties under various
supply agreements or harvested from land owned by Repap New Brunswick.
Repap New Brunswick has approximately 300,000 hectares under the "Lower
Miramichi Licence" and approximately 400,000 hectares under the "Upper Miramichi
Licence" representing a combined allowable annual cut ("AAC") of 1.2 million
cubic metres. The lands cover areas in the northeastern part of New Brunswick in
proximity to the pulp mills. The species mix available from these licences
consists primarily of spruce and balsam fir.
These forest licences were granted by the Province of New Brunswick for
25-year terms and are governed by forest management agreements which provide
that every five years, in order for such agreements to remain in effect, Repap
is required to submit for approval a renewed five-year plan for management of
the licensed tenures. In 1997, Repap New Brunswick submitted a forest management
plan for the five year period ending in 2002 and for the 25 year period ending
in 2022. When approved, it is expected that this plan will be incorporated into
an amended and restated forest management agreement for a term ending in 2022.
Additional wood requirements are met by purchases of wood from local wood lot
suppliers and of chips from local sawmills. Repap New Brunswick also obtains
wood from its own freehold acreage aggregating approximately 17,000 hectares
representing an AAC of 35,000 cubic metres.
(f) Human Resources
Repap has approximately 1680 employees as at January 31, 1998. At Repap New
Brunswick, approximately 1400 unionized employees are represented by three
labour organizations, namely: International Woodworkers of America-Canada
("IWA"); Communications, Energy and Paperworkers of Canada ("CEP"); and United
Brotherhood of Carpenters and Joiners of America "(UBJC"). Five CEP Local
contracts involving approximately 1,180 employees and one UBJC contract covering
approximately 80 employees will expire and be renegotiated in 1998. The IWA
contract which covers 27 employees at the Miramichi sawmill expires May 31,
1999. One CEP contract covering 65 employees was renegotiated in 1997 and
expires April 30, 2000.
(g) Research and Development
Repap Technologies Inc., a wholly owned subsidiary of the Corporation,
provides technical assistance to Repap's coated paper and pulp mills through its
research facilities in Valley Forge, Pennsylvania.
(h) Environment
Repap is subject to environmental laws, regulations and standards by
Canadian federal, provincial and local authorities which impose effluent and
emission standards and other requirements of the Company's operations. These
laws and regulations require Repap to obtain permits and licences from
appropriate governmental authorities with respect to its mill and to operate its
mill in compliance with such permits and licences. Repap operates in material
compliance with all applicable, existing, environmental laws and regulations.
Repap New Brunswick has begun a program to eliminate the release of foul
condensate containing total reduced sulphur compounds. This program is expected
to be completed over 1998 and 1999 at an approximate cost of $9 million. In
addition, Repap New Brunswick is in the process of replacing its existing
landfill site. The timing of completing the landfill replacement, which is
estimated to cost $4.4 million, depends upon the continuing availability of the
existing site.
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(i) Executive Officers of the Registrant
The Corporation's executive officers and significant employees are as
listed below:
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NAME AGE PRINCIPAL OCCUPATION
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<S> <C> <C>
STEPHEN C. LARSON...................... 49 President and Chief Executive Officer
MICHELE A. CORMIER..................... 41 Vice-President, Finance
NEIL M. FALCO.......................... 49 Vice-President, Repap Enterprises Inc., President, Repap
Marketing Inc.
TERRY W. MCBRIDE....................... 55 Vice-President, General Counsel and Secretary
</TABLE>
During the past five years, the above individuals have held those positions
with the companies indicated opposite their names, except as follows: from
August 1991 to October 1994 Mr. Larson was President -- Pulp and Paper Group of
Domtar Inc., Mr. Larson served as President and Chief Operating Officer of
Domtar Inc. between October 1994 and March 1, 1996 and President and Chief
Operating Officer of the Corporation from February 1996 to August 1997. Prior to
October 1, 1997, Mr. Falco served as President of Repap Sales Corporation, a
subsidiary of Repap that was sold as part of the transaction with Consolidated
Papers, Inc. completed in 1997; from January 1993 to May 1994, Ms. Cormier
served as Manager, Finance of Repap Enterprises Inc., from May 1994 to January
1996 she served as Assistant Vice President, Finance and from January 1996 to
August 1997 she served as Vice President, Finance-Operations.
ITEM 2. PROPERTIES.
The Repap New Brunswick operations consist of the Repap New Brunswick
coated paper mill and the Repap New Brunswick Kraft pulp mill, which are both
located in Miramichi, the Repap New Brunswick groundwood pulp mill and the
Miramichi sawmill which are located across the Miramichi River from the Repap
New Brunswick coated paper mill and the Blackville sawmill which is located 45
kilometers west of the coated paper operations.
(i) The Repap New Brunswick Coated Paper Mill includes two coated paper
machines. The A-1 machine, built in 1985/86, has a design capacity of
240,000 tons per year and produces lightweight coated groundwood paper.
The A-2 machine, built in 1989, has a design capacity of 252,000 tons
and produces coated groundwood paper.
(ii) The Repap New Brunswick Kraft Pulp Mill, acquired by Repap in 1985,
has an annual design capacity of 235,000 tonnes of NBSK pulp, of which
approximately two-thirds are used in this facility, with the balance
sold as market pulp.
(iii) The Repap New Brunswick Groundwood Pulp Mill manufactures stone
groundwood pulp, with a capacity of 123,000 tonnes per year. All of the
available groundwood pulp produced by the Repap New Brunswick groundwood
pulp mill is used in the coated paper operations.
(iv) The Miramichi sawmill (formerly the Nelson sawmill) produces stud
lumber for the North American market and has an annual capacity of 10
Mmfbm. The Blackville sawmill produces dimension lumber for the North
American market and has a capacity of 48 Mmfbm.
In addition to its principal properties, the Corporation, through its
wholly owned subsidiary, Repap Technologies Inc., operates a technology centre
in Valley Forge, Pennsylvania which conducts research and development in coated
paper technology. The Corporation has a wholly-owned subsidiary, Alcell
Technologies Inc., which is the owner of a proprietary organic solvent pulping
technology. The Corporation has agreed to sell this subsidiary to Malaspina
Capital Inc. for a purchase price of $4 million. This transaction is subject to
a number of conditions, including financing, and is expected to close by April
30, 1998.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings and there are no proceedings under
any environmental protection laws, which are pending or, to the Corporation's
knowledge, threatened, against Repap.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
As of March 4, 1998, there were 1,775 holders of record of Common shares,
of which 1,208 were shareholders of record with addresses in the United States.
The Common shares of the Corporation are listed and traded in Canada on the
Montreal Exchange and The Toronto Stock Exchange. The Corporation voluntarily
delisted its common shares from the Vancouver Stock Exchange as of December 31,
1997. In the United States there is no longer an established trading market for
the Common shares. The Common shares were listed on the National Market of the
Nasdaq National Market, Inc. (the "Nasdaq National Market") until December 5,
1997 when the Corporation's Board of Directors resolved to delist the Common
shares from the Nasdaq National Market. The following tables show the high and
low prices and volume of trading of the Common shares on The Toronto Stock
Exchange (the principal trading market in Canada), and the Nasdaq National
Market for the periods indicated:
<TABLE>
<CAPTION>
TSE
----------------
HIGH LOW VOLUME
------ ------ -----------
<S> <C> <C> <C>
1996
First Quarter............................................... $7.00 $5.13 20,288,159
Second Quarter.............................................. 6.45 4.85 13,827,419
Third Quarter............................................... 5.70 4.65 9,733,584
Fourth Quarter.............................................. 5.80 3.75 34,610,876
1997
First Quarter............................................... $4.20 1.45 35,637,612
Second Quarter.............................................. 1.73 0.50 38,812,144
Third Quarter............................................... 0.72 0.16 172,461,712
Fourth Quarter.............................................. 0.28 0.10 192,330,631
</TABLE>
<TABLE>
<CAPTION>
NASDAQ
----------------
HIGH LOW VOLUME
------ ------ -----------
(in U.S.$)
<S> <C> <C> <C>
1996
First Quarter............................................... $5.19 $3.75 29,233,900
Second Quarter.............................................. 4.75 3.55 26,333,220
Third Quarter............................................... 4.19 3.38 16,320,821
Fourth Quarter.............................................. 4.31 2.72 27,700,455
1997
First Quarter............................................... $3.063 $1.03 24,692,664
Second Quarter.............................................. 1.25 0.375 17,726,415
Third Quarter............................................... 5.31 0.094 36,113,798
Fourth Quarter(1)........................................... 0.219 0.094 17,984,577
</TABLE>
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(1) Until December 5,1997
On March 4, 1998 the closing price of the Common shares on The Toronto
Stock Exchange was $0.235.
ITEM 6. SELECTED FINANCIAL DATA.
A summary of selected historical financial data is set forth on page 30 of
the 1997 Annual Report of the Corporation and is incorporated herein by
reference. The Corporation has paid no dividends to holders of Common shares in
the past five years.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The management's discussion and analysis of financial condition and results
of operations is set forth on pages 6 to 12 of the Corporation's 1997 Annual
Report and is incorporated herein by reference.
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As described in note 1 to the Notes to Consolidated Financial Statements
set forth on page 18 of the Corporation's 1997 Annual Report and is incorporated
herein by reference, the use by the Corporation of generally accepted accounting
principles as applicable to a going concern may not be appropriate in the
circumstances because there can be no assurance that the Corporation will be
able to continue as a going concern because of the uncertainty with respect to
it being able to i) maintain profitability, and ii) generate positive cash flow
from operations.
As further described under note 23 to the Notes to Consolidated Financial
Statements set forth on pages 27 to 29 of the Corporation's 1997 Annual Report
(attached hereto as Appendix A and filed herewith as an exhibit) which pages are
incorporated herein by reference, the accounting policies followed by the
Corporation differ in certain respects from those that would have been followed
had these financial statements been prepared in conformity with accounting
principles generally accepted in the United States and the accounting principles
and practices required by the United States Securities and Exchange Commission.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Auditors Report, Consolidated Balance Sheets, Statements of Operations,
Statements of Changes in Financial Position and Deficit, Notes to Consolidated
Financial Statements and Quarterly Financial Information appearing on pages 13
to 30 of the 1997 Annual Report of the Corporation are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
9
<PAGE> 11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding the Corporation's directors is incorporated herein by
reference to the material under the heading "Nominees for Election as Director"
in the Corporation's Proxy Circular with respect to the Annual Meeting of
Shareholders scheduled to be held on May 20, 1998 (the "Proxy Circular") filed
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended.
Information regarding the Corporation's executive officers is provided
under the heading "Executive Officers of the Registrant" in Part I of this
report.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation is incorporated herein by
reference to the material under the heading "Compensation of Directors and
Executive Officers" in the Proxy Circular.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding the share ownership of Repap's voting securities (1)
of any person or group known to the Corporation to be the beneficial owner of
more than five per cent of Repap's voting securities and (2) of the directors
and the named executive officers is incorporated herein by reference to the
material under the heading "Voting Shares and Principal Holders Thereof" in the
Proxy Circular.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain transactions between the Corporation and
certain executive officers of the Corporation is incorporated herein by
reference to the material under the heading "Table of Indebtedness of Directors
and Executive Officers" and "Interest of Management and others in Material
Transactions" in the Proxy Circular.
10
<PAGE> 12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Report on Form 10-K:
(1) The following documents are included at the indicated page in the
Corporation's 1997 Annual Report and are incorporated herein by reference:
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Report of auditors.......................................... 13
Consolidated Balance Sheets................................. 14-15
Consolidated Statements of Operations....................... 16
Consolidated Statements of Changes in Financial Position.... 17
Consolidated Statements of Deficit.......................... 16
Notes to Consolidated Financial Statements.................. 19-29
</TABLE>
(2) Financial Statement Schedules
Schedule 1 -- Condensed Financial Information of Registrant
(b) Reports on Form 8-K
None
(c) Exhibits
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit No.
2.1* Stock Purchase Agreement between Repap Enterprises Inc. and
Tolko Industries Ltd. dated as of July 18, 1997.
2.2* Stock Purchase Agreement between Repap Enterprises Inc. and
Consolidated Papers, Inc. dated as of August 8, 1997.
3.1 Certificate of Amendment and Articles of Amendment of the
Corporation dated July 8, 1994, which certificate and
articles of amendment were filed as an exhibit to the Annual
Report on Form 20-F of Repap Enterprises for the fiscal year
ended December 31, 1994 (the "1994 Form 20-F") and are
incorporated herein by reference.
3.2* By-law 1986-1 of the Corporation dated September 22, 1986;
By-law 1986-2 of the Corporation dated October 14, 1986; and
By-law 1987-1 of the Corporation dated May 11, 1988.
4.1(1) Indenture, dated as of April 15, 1995, between Repap New
Brunswick and The Bank of New York, the trustee, relating to
the First Priority Floating Rate Senior Secured Notes Due
2000 of Repap New Brunswick, which indenture was filed as an
exhibit to the 1994 Form 20-F and is incorporated herein by
reference.
4.2(1) Indenture, dated as of April 15, 1995, between Repap New
Brunswick and The Bank of New York, as trustee, relating to
the 9 7/8% First Priority Fixed Rate Senior Secured Notes
Due 2000 of Repap New Brunswick, which indenture was filed
as an exhibit to the 1994 Form 20-F and is incorporated
herein by reference.
4.3(1) Indenture, dated as of April 15, 1995, between Repap New
Brunswick and Bankers Trust Company, as trustee, relating to
the 10 5/8% Second Priority Senior Secured Notes of Repap
New Brunswick, which indenture was filed as an exhibit to
the 1994 Form 20-F and is incorporated herein by reference.
10.1* Amended and Restated Forest Management License (the "Lower
Miramichi License") between Her Majesty the Queen in right
of the Province of New Brunswick and Miramichi Pulp & Paper
Inc.
10.2* Amended and Restated Forest Management License (the "Upper
Miramichi License") between Her Majesty the Queen in right
of the Province of New Brunswick and Miramichi Pulp & Paper
Inc.
10.3* Employment contract between Repap Enterprises Inc. and
Stephen C. Larson dated as of September 25, 1997.
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
<S> <C> <C>
10.4* Change in Control contract between Repap Enterprises Inc.
and Terry W. McBride dated October 1, 1997.
10.5* Change in Control contract between Repap Enterprises Inc.
and Michelle A. Cormier dated October 1, 1997.
10.6* Change in Control contract between Repap Enterprises Inc.
and Neil M. Falco dated October 1, 1997.
10.7* Repap Enterprises Inc. Registered Pension Plan and Amendment
No. 1.
10.8* Repap Enterprises Inc. Supplementary Pension Plan.
10.9* Repap Enterprises Inc. Top Executives Supplementary Pension
Plan.
10.10* Shareholder Protection Rights Plan Agreement dated as of
February 8, 1994 between Repap Enterprises Inc. and Montreal
Trust Company, as rights agent, as amended by agreement
dated July 31, 1996.
10.11* 1987 Directors, Officers and Employees Stock Option Plan, as
amended
11.1* Statement regarding computation of per share earnings.
13.1* The Corporation's Annual Report to Shareholders (except for
those portions thereof which are expressly incorporated by
reference herein, this exhibit is furnished for the
information of the Commission and is not deemed to be filed
as a part hereof).
21.1* Subsidiaries of Repap Enterprises Inc.
23.1* Consent of Ernst & Young.
27. Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith.
(1) Instruments, other than as set forth above, have been omitted with respect
to long term debt of the Registrant and its subsidiaries which authorized
securities having a face value not exceeding 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis. The Registrant
hereby agrees to furnish a copy of those instruments on request.
12
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
REPAP ENTERPRISES INC.
"STEPHEN C. LARSON"
By:
-----------------------------------------
Stephen C. Larson
President and Chief Executive Officer
Date: February 18, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, on February 18, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
"WILLIAM J. ANDERSON" Director and Chairman February 18, 1998
- ---------------------------------------------
William J. Anderson
"ROBERT E. BELLAMY" Director February 18, 1998
- ---------------------------------------------
Robert E. Bellamy
"GUY G. DUFRESNE" Director February 18, 1998
- ---------------------------------------------
Guy G. Dufresne
"STEPHEN C. LARSON" Director, President February 18, 1998
- --------------------------------------------- and Chief Executive Officer
Stephen C. Larson
"DAVID MCAUSLAND" Director February 18, 1998
- ---------------------------------------------
David McAusland
"ROBERT POILE" Director February 18, 1998
- ---------------------------------------------
Robert Poile
"JOHN R. PURCELL" Director February 18, 1998
- ---------------------------------------------
John R. Purcell
"MICHELLE A. CORMIER" Vice President, Finance February 18, 1998
- ---------------------------------------------
Michelle A. Cormier
</TABLE>
13
<PAGE> 15
FINANCIAL STATEMENT SCHEDULES
SCHEDULE I -- NON CONSOLIDATED FINANCIAL STATEMENTS OF REPAP ENTERPRISES INC.
SUMMARIZED BALANCE SHEETS (SEE NOTE 1)
<TABLE>
<CAPTION>
AS AT DECEMBER 31,
------------------
NOTE 1997 1996
---- ------- -------
(Millions of
Canadian dollars)
<S> <C> <C> <C>
ASSETS
CURRENT
Cash and short-term deposits................................ $ 42.7 $ 4.9
Accounts receivable and prepaid expenses.................... 0.8 3.9
Inventories................................................. 0.3 1.9
Due from subsidiaries and affiliated companies.............. 26.1 62.0
------ ------
Total current assets........................................ 69.9 72.7
------ ------
Investment.................................................. 15.2 --
Investments in subsidiaries, at cost........................ 423.5 815.4
Deferred charges and other assets........................... 1.8 30.5
Fixed assets, net........................................... -- 2.4
------ ------
Total assets................................................ 510.4 921.0
====== ======
LIABILITIES
CURRENT
Accounts payable and accrued liabilities.................... 14.5 21.9
Due to subsidiaries and affiliated companies................ 23.2 31.3
Current portion of long term debt........................... 2 3.3 20.2
------ ------
Total current liabilities................................... 41.0 73.4
------ ------
Long-term debt.............................................. -- 210.6
SHAREHOLDERS' EQUITY
Common shares............................................... 640.4 483.3
Preferred shares............................................ 16.0 26.0
Other paid in capital....................................... 2 71.7 216.3
Deficit..................................................... (258.7) (88.6)
------ ------
Total shareholders' equity.................................. 469.4 637.0
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. 510.4 921.0
====== ======
</TABLE>
See accompanying notes
14
<PAGE> 16
SUMMARIZED STATEMENTS OF NET INCOME (LOSS) AND
RETAINED EARNINGS (DEFICIT) (SEE NOTE 1)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1996 1995
------- ------- ------
(Millions of Canadian dollars)
<S> <C> <C> <C>
REVENUES
Management fees from subsidiary companies................... $ 10.6 $ 10.2 $ 7.5
Commissions from subsidiary companies....................... 3.4 1.6 2.9
Dividends from subsidiary companies......................... -- -- 53.4
Other revenues.............................................. 2.2 -- 5.3
------- ------- ------
16.2 11.8 69.1
------- ------- ------
EXPENSES
Interest on long-term debt.................................. 14.5 11.3 16.2
Administrative expenses..................................... 60.8 25.3 32.7
Depreciation and amortization............................... 2.8 (0.3) 7.7
------- ------- ------
78.1 36.3 56.6
------- ------- ------
Income (loss) before income taxes........................... (61.9) (24.5) 12.5
Provision for income taxes.................................. -- -- --
------- ------- ------
Income (loss) from continuing operations.................... (61.9) (24.5) 12.5
(Income) loss from discontinued operations.................. 93.8 159.7 (30.7)
------- ------- ------
NET INCOME (LOSS) FOR THE YEAR.............................. (155.7) (184.2) 43.2
Provision for accretion of other paid-in capital............ 14.4 19.0 17.6
------- ------- ------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS....... (170.1) (203.2) 25.6
RETAINED EARNINGS (DEFICIT), BEGINNING OF YEAR.............. (88.6) 114.6 (12.6)
Gain on redemption of preferred shares...................... -- -- 101.6
------- ------- ------
RETAINED EARNINGS (DEFICIT), END OF YEAR.................... (258.7) (88.6) 114.6
======= ======= ======
</TABLE>
See accompanying notes
15
<PAGE> 17
SUMMARIZED STATEMENTS OF CHANGES IN FINANCIAL POSITION (SEE NOTE 1)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
-------- -------- --------
(Millions of Canadian dollars)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income (loss) from continuing operations.................... $ (61.9) $ (24.5) $ 12.5
Add (deduct) items not affecting cash
Depreciation and amortization............................. 2.8 (0.3) 7.7
Foreign exchange and other................................ 27.5 7.5 7.5
-------- -------- --------
Cash flow before net change in non-cash working capital
items related to operations............................... (31.6) (17.3) 27.7
Non-cash working capital changes............................ (9.8) 2.7 63.1
-------- -------- --------
CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS............ (41.4) (14.6) 90.8
-------- -------- --------
INVESTING ACTIVITIES
Decrease in due to subsidiaries and affiliates.............. -- -- 99.9
Increase in investments..................................... (25.2) (3.0) --
Additions to fixed assets................................... (0.2) (0.4) (1.1)
-------- -------- --------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES............. (25.4) (3.4) 98.8
-------- -------- --------
FINANCING ACTIVITIES
Additions to debt........................................... 63.6 122.3 0.8
Repayment of debt........................................... (292.3) (19.9) (184.9)
Issue of share capital...................................... 157.1 -- 13.2
Conversion of debentures.................................... (157.1) -- --
Redemption of preferred shares.............................. -- -- (20.0)
Other....................................................... -- -- 9.2
-------- -------- --------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............. (228.7) 102.4 (181.7)
-------- -------- --------
CASH PROVIDED BY (USED) IN DISCONTINUED OPERATIONS.......... 333.3 (88.7) (13.8)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH POSITION.................... 37.8 (4.3) (5.9)
Cash position, beginning of year............................ 4.9 9.2 15.1
-------- -------- --------
CASH POSITION, END OF YEAR.................................. 42.7 4.9 9.2
======== ======== ========
Cash is represented by cash and short-term deposits
</TABLE>
See accompanying notes
16
<PAGE> 18
FINANCIAL STATEMENT SCHEDULES
SCHEDULE I -- NON CONSOLIDATED FINANCIAL STATEMENTS OF REPAP ENTERPRISES INC.
NOTES TO NON CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Millions of Canadian Dollars)
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
BASIS OF FINANCIAL STATEMENT PRESENTATION
These financial statements have been prepared by management in accordance
with accounting principles generally accepted in Canada except as follows:
These statements are non consolidated and the Corporation's investments in
subsidiaries are stated at cost; For presentation purposes the gain (loss)
on disposal of investments together with intercompany transactions have been
included in discontinued operations. These financial statements should be
read in conjunction with the Corporation's consolidated financial
statements.
The accounting policies followed by the Corporation differ in certain
respects from those that would have been followed had these financial
statements been prepared in conformity with accounting principles generally
accepted in the United States and the accounting principles and practices
required by the Securities and Exchange Commission.
These financial statements have been prepared on a going concern basis which
presumes the realization of assets and the discharge of liabilities in the
normal course of business for the foreseeable future.
Repap New Brunswick Inc's ("Repap New Brunswick") revolving credit facility
of $97.5 million matures in April 1998. Additionally, during 1996 and 1997,
the Corporation's continuing operations did not generate sufficient cash
flow to cover operating costs and to fund investments in working capital and
additions to fixed assets. The Corporation also incurred operating losses
during 1997, and as at December 31, 1997, has a consolidated net deficit in
shareholders' equity of $17.3 million. The Corporation is currently
negotiating with the lender of Repap New Brunswick's revolving credit
facility and expects a new agreement to be finalized prior to the maturity
date. The Corporation is also currently considering other financing
alternatives to replace its existing revolving credit facility.
The Corporation's ability to continue as a going concern is dependent upon
its ability to refinance the revolving credit facility at its maturity,
achieving profitable operations, and upon generating positive cash flow from
operations. While The Corporation has not received any indications that the
revolving credit facility will not be renewed, the outcome of these matters
cannot be determined with certainty at this time. These financial statements
do not included any adjustments to the amounts and classifications of assets
and liabilities that might be necessary should the Corporation be unable to
continue in business.
2. LONG TERM DEBT AND CONVERTIBLE DEBENTURES
LONG TERM DEBT
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Standby credit facility bearing interest at bankers'
acceptance rate +3.0% to 6.0%............................. $ -- $119.5
Loans bearing interest at LIBOR + 0.5% [U.S.$64.1
million].................................................. -- 87.8
------ ------
-- 207.3
====== ======
</TABLE>
CONVERTIBLE DEBENTURES
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
9% Convertible Redeemable Subordinate Debentures
Liability Component......................................... $ 3.3 $ 9.3
Equity Component............................................ 71.7 65.7
------ ------
75.0 75.0
====== ======
8.5% Convertible Redeemable Subordinate Debentures (US $130
million)
Liability Component......................................... -- 14.2
Equity Component............................................ -- 150.6
------ ------
-- 164.8
====== ======
Total Redeemable Subordinate Debentures
Debentures are classified on the balance sheet as follows
Current portion of long term debt......................... 3.3 23.5
Other paid in capital..................................... 71.7 216.3
------ ------
75.0 239.8
====== ======
</TABLE>
The 9% Convertible Redeemable Subordinate Debentures are convertible at the
option of the holder at any time prior to June 30, 1998 or, if previously
called for redemption, prior to the date specified for redemption, into
Common Shares of the Corporation at a conversion price of $17.00 per Common
Share.
17
<PAGE> 19
FINANCIAL STATEMENT SCHEDULES
SCHEDULE I -- NON CONSOLIDATED FINANCIAL STATEMENTS OF REPAP ENTERPRISES INC.
NOTES TO NON CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
(Millions of Canadian Dollars)
The Corporation may, at its option, repay the debentures on maturity or
redemption by issuing Common Shares at a price equal to 95% of the weighted
average trading price of the shares on the Toronto Stock Exchange for thirty
consecutive trading days ending not more than five days prior to maturity,
or twenty consecutive trading days ending not more than five days prior to
giving notice of redemption.
The debentures are redeemable at 101% and 100% of the principal amount plus
accrued and unpaid interest for each of the twelve-month periods ending June
30, 1997 and 1998.
On August 1, 1997, the Corporation repaid its U.S. $130 million 8.5%
convertible debentures through the issuance of 619,023,800 Common Shares.
3. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform to the
presentation adopted for the current year.
18
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
2.1* Stock Purchase Agreement between Repap Enterprises Inc. and
Tolko Industries Ltd. dated as of July 18, 1997.
2.2* Stock Purchase Agreement between Repap Enterprises Inc. and
Consolidated Papers, Inc. dated as of August 8, 1997.
3.1 Certificate of Amendment and Articles of Amendment of the
Corporation dated July 8, 1994, which certificate and
articles of amendment were filed as an exhibit to the Annual
Report on Form 20-F of Repap Enterprises for the fiscal year
ended December 31, 1994 (the "1994 Form 20-F") and are
incorporated herein by reference.
3.2* By-law 1986-1 of the Corporation dated September 22, 1986;
By-law 1986-2 of the Corporation dated October 14, 1986; and
By-law 1987-1 of the Corporation dated May 11, 1988.
4.1(1) Indenture, dated as of April 15, 1995, between Repap New
Brunswick and The Bank of New York, the trustee, relating to
the First Priority Floating Rate Senior Secured Notes Due
2000 of Repap New Brunswick, which indenture was filed as an
exhibit to the 1994 Form 20-F and is incorporated herein by
reference.
4.2(1) Indenture, dated as of April 15, 1995, between Repap New
Brunswick and The Bank of New York, as trustee, relating to
the 9 7/8% First Priority Fixed Rate Senior Secured Notes
Due 2000 of Repap New Brunswick, which indenture was filed
as an exhibit to the 1994 Form 20-F and is incorporated
herein by reference.
4.3(1) Indenture, dated as of April 15, 1995, between Repap New
Brunswick and Bankers Trust Company, as trustee, relating to
the 10 5/8% Second Priority Senior Secured Notes of Repap
New Brunswick, which indenture was filed as an exhibit to
the 1994 Form 20-F and is incorporated herein by reference.
10.1* Amended and Restated Forest Management License (the "Lower
Miramichi License") between Her Majesty the Queen in right
of the Province of New Brunswick and Miramichi Pulp & Paper
Inc.
10.2* Amended and Restated Forest Management License (the "Upper
Miramichi License") between Her Majesty the Queen in right
of the Province of New Brunswick and Miramichi Pulp & Paper
Inc.
10.3* Employment contract between Repap Enterprises Inc. and
Stephen C. Larson dated as of September 25, 1997.
10.4* Change in Control contract between Repap Enterprises Inc.
and Terry W. McBride dated October 1, 1997.
10.5* Change in Control contract between Repap Enterprises Inc.
and Michelle A. Cormier dated October 1, 1997.
10.6* Change in Control contract between Repap Enterprises Inc.
and Neil M. Falco dated October 1, 1997.
10.7* Repap Enterprises Inc. Registered Pension Plan and Amendment
No. 1.
10.8* Repap Enterprises Inc. Supplementary Pension Plan.
10.9* Repap Enterprises Inc. Top Executives Supplementary Pension
Plan.
10.10* Shareholder Protection Rights Plan Agreement dated as of
February 8, 1994 between Repap Enterprises Inc. and Montreal
Trust Company, as rights agent, as amended by agreement
dated July 31, 1996.
10.11* 1987 Directors, Officers and Employees Stock Option Plan, as
amended
11.1* Statement regarding computation of per share earnings.
13.1* The Corporation's Annual Report to Shareholders (except for
those portions thereof which are expressly incorporated by
reference herein, this exhibit is furnished for the
information of the Commission and is not deemed to be filed
as a part hereof).
21.1* Subsidiaries of Repap Enterprises Inc.
23.1* Consent of Ernst & Young.
27. Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith.
(1) Instruments, other than as set forth above, have been omitted with respect
to long term debt of the Registrant and its subsidiaries which authorized
securities having a face value not exceeding 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis. The Registrant
hereby agrees to furnish a copy of those instruments on request.
<PAGE> 1
- --------------------------------------------------------------------------------
EXHIBIT 2.1
SHARE PURCHASE AGREEMENT
BETWEEN
REPAP ENTERPRISES INC.
AND
TOLKO INDUSTRIES LTD.
DATED AS OF THE 18TH DAY OF JULY, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I -- INTERPRETATION
1.1 Definitions................................................. 2
(a) Affiliate............................................. 2
(b) Agreement............................................. 2
(c) Arbitrator............................................ 2
(d) Assets................................................ 2
(e) Audited Financial Information......................... 3
(f) Auditor Calculations................................. 3
(g) Business.............................................. 3
(h) Business Day.......................................... 3
(i) Buyer................................................ 3
(j) Claim Notice......................................... 4
(k) Closing............................................... 4
(l) Closing Date Financial Information................... 4
(m) Closing Date........................................... 4
(n) Competition Act....................................... 4
(o) Continuing Affiliate.................................. 4
(p) Contracts............................................. 4
(q) Damage................................................ 4
(r) Director............................................. 5
(s) Deductible........................................... 5
(t) Encumbrances......................................... 5
(u) Environmental Law..................................... 5
(v) Estimated Purchase Price.............................. 5
(w) Ferrostaal Credit Facility............................ 5
(x) Financial Damage Threshold............................ 6
(y) Financial Statements.................................. 6
(z) Forest Tenures........................................ 6
(aa) GATX Amount........................................... 6
(bb) GATX Equipment Lease.................................. 6
(cc) General Damage Threshold.............................. 6
(dd) General Damage Threshold.............................. 7
(ee) Indemnified Party..................................... 7
(ff) Indemnifying Party................................... 7
(gg) Interim Financial Information......................... 7
(hh) Leased and Licensed Assets............................ 7
(ii) Lenders.............................................. 7
(jj) Liabilities.......................................... 7
(kk) Licence............................................... 7
(ll) Material Adverse Effect.............................. 8
(mm) New Certificate........................................ 8
(nn) Notice Period......................................... 8
(oo) Operating Credit Agreement............................ 8
(pp) Permitted Encumbrances................................ 8
(qq) Person................................................ 8
(rr) Personal Property.................................... 9
(ss) Plan................................................. 9
(tt) Preferred Shares..................................... 9
(uu) Purchase Price........................................ 9
(vv) Quarterly Financial Information....................... 9
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(ww) Real Property.......................................... 9
(xx) Repap Manitoba Debt Payout Amount..................... 9
(yy) Repap Manitoba Debt Payout Direction.................. 9
(zz) Repap Manitoba Debt Payout Statements................. 10
(aaa) Shares................................................ 10
(bbb) Standby Loan Agreement................................ 10
(ccc) Surplus Plan.......................................... 10
(ddd) Tax Returns........................................... 10
(eee) Taxes................................................. 10
(fff) Term Loan Agreement.................................. 11
(ggg) Third Party Claim Notice.............................. 11
(hhh) Total Adjustment...................................... 11
(iii) Underfunded Plans.................................... 11
(jjj) Working Capital...................................... 11
1.2 Other Terms................................................. 12
1.3 Gender and Number........................................... 12
1.4 Currency.................................................... 12
1.5 Schedules................................................... 12
ARTICLE II -- PURCHASE AND SALE OF SHARES............................ 13
2.1 Purchase, Sale and Allotment of Shares...................... 13
2.2 Working Capital and GATX Amount............................. 14
2.3 Actuarial Report............................................ 14
2.4 Adjustment to Purchase Price................................ 15
2.5 Closing..................................................... 17
2.6 Delivery and Payment........................................ 17
2.7 Total Adjustment Calculation and Payout..................... 20
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF REPAP............... 21
3.1 Representations and Warranties of Repap..................... 21
(a) Incorporation and Qualification....................... 21
(b) Capitalization........................................ 22
(c) Authority; Filings, Consents and Approvals............ 23
(d) Absence of Changes.................................... 24
(e) Financial Statements.................................. 26
(f) Absence of Undisclosed Liabilities................... 27
(g) No Conflict........................................... 27
(h) Compliance............................................ 28
(i) Litigation........................................... 29
(j) Trademark and Patent Infringement.................... 29
(k) Labour and Employment Relations....................... 29
(l) Benefit Plans........................................ 30
(m) Property............................................... 31
(n) Condition of Assets................................... 32
(o) Real Property......................................... 33
(p) Subleases............................................. 33
(q) Property Taxes........................................ 33
(r) Equipment............................................ 33
(s) Other Operating and Fixed Assets..................... 34
(t) Encroachments........................................ 34
(u) Inventory............................................. 35
(v) Consignment Inventory................................. 35
(w) Non-Business Assets................................... 35
(x) Shares................................................ 36
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
(y) Jurisdictions in which the Business is Carried On..... 36
(z) Adverse Events........................................ 36
(aa) Bankruptcy............................................ 36
(bb) Tax Matters........................................... 36
(cc) Acquisitions/Dispositions............................. 38
(dd) Undepreciated Capital Cost............................ 38
(ee) Other Jurisdictions................................... 38
(ff) Income Tax Ruling Disclosure......................... 39
(gg) Contracts............................................. 39
(hh) Environmental Matters................................. 40
(ii) Licences............................................. 41
(jj) List of Insurance Policies........................... 42
(kk) Good Standing......................................... 42
(ll) Outstanding Claims................................... 42
(mm) No Requirements........................................ 42
(nn) Brokers and Finders................................... 43
(oo) Books and Records..................................... 43
(pp) Residency............................................. 43
(qq) Accounts Receivable?.................................. 43
3.2 No Other Representations or Warranties...................... 44
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF THE BUYER............ 44
4.1 Representations and Warranties of The Buyer................. 44
(a) Incorporation......................................... 44
(b) Authority; Filings, Consents and Approvals............ 45
(c) No Conflict........................................... 46
(d) Brokers and Finders................................... 47
(e) Financial Capability.................................. 47
(f) Due Diligence........................................ 47
4.2 No Other Representations or Warranties...................... 48
ARTICLE V -- COVENANTS AND AGREEMENTS OF REPAP AND THE BUYER......... 48
5.1 Access and Information...................................... 48
5.2 Registrations, Filings and Consents; Proceedings............ 50
5.3 Operation of Business....................................... 51
5.4 Continued Employment; Employee Benefit Plans................ 54
5.5 Retention of Books and Records.............................. 54
5.6 Closing Date Financial Information.......................... 55
5.7 Notification of Certain Matters............................. 55
5.8 Non-Solicitation of Employees............................... 56
5.9 Change of Name.............................................. 56
5.10 Inter Company Accounts...................................... 56
5.11 Tax Return.................................................. 57
5.12 Further Assurances.......................................... 57
ARTICLE VI -- CONDITIONS TO CLOSING.................................. 57
6.1 Conditions for the Benefit of The Buyer..................... 57
6.2 Conditions for the Benefit of Repap......................... 61
6.3 Conditions for the Benefit of The Buyer and Repap........... 62
6.4 Termination in the Event of Shareholder Action.............. 63
ARTICLE VII -- TERMINATION........................................... 64
7.1 Termination................................................. 64
7.2 Effect of Termination....................................... 65
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE VIII -- SURVIVAL AND INDEMNIFICATION......................... 65
Survival of Representations, Warranties, Covenants and
8.1 Agreements; Knowledge of Breach............................. 65
8.2 Indemnification............................................. 68
8.3 Method of Asserting Claims.................................. 69
ARTICLE IX -- MISCELLANEOUS.......................................... 71
9.1 Amendment and Modification; Waiver.......................... 71
9.2 Return of Information....................................... 72
9.3 Expenses.................................................... 72
9.4 Public Disclosure........................................... 72
9.5 Assignment.................................................. 73
9.6 Entire Agreement............................................ 73
9.7 Fulfilment of Obligations................................... 73
9.8 Parties in Interest; No Third Party Beneficiaries........... 73
9.9 Schedules................................................... 74
9.10 Counterparts................................................ 74
9.11 Section Headings............................................ 74
9.12 Notices..................................................... 74
Governing Law; Submission to Jurisdiction; Selection of
9.13 Forum....................................................... 76
9.14 Severability................................................ 77
</TABLE>
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<PAGE> 6
SHARE PURCHASE AGREEMENT
THIS AGREEMENT made as of the 18th day of July, 1997.
BETWEEN:
REPAP ENTERPRISES INC., a corporation incorporated under the laws of
Canada,
(hereinafter referred to as "REPAP"),
OF THE FIRST PART,
-- and --
TOLKO INDUSTRIES LTD., a corporation, incorporated under the laws of
British Columbia
(hereinafter referred to as the "BUYER"),
OF THE SECOND PART.
WHEREAS, Repap owns all of the issued and outstanding shares in the capital
of Repap Manitoba Inc., a Canada corporation ("REPAP MANITOBA");
AND WHEREAS, Repap desires to sell and transfer to Buyer, and Buyer desires
to purchase from Repap, all of the issued and outstanding shares in the capital
of Repap Manitoba (consisting of 185,140,000 common shares, no par value (the
"SHARES")), as more specifically provided herein;
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
contained herein, and subject to and on the terms and conditions herein set
forth, the parties hereto agree as follows:
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<PAGE> 7
ARTICLE I
INTERPRETATION
1.1 DEFINITIONS. Unless otherwise specifically provided or the context
otherwise requires, where used in this Agreement and in the Schedules hereto,
the following terms shall have the meanings set forth or as referenced below:
(a) "Affiliate", as applied to any Person, means any other Person
directly or indirectly controlling, controlled by or under common
control with that Person.
(b) "Agreement" means this agreement and all schedules attached to this
Agreement, in each case, as they may be amended or supplemented from
time to time, and the expressions "hereof", "herein", "hereto",
"hereunder", "hereby", and similar expressions, when used in this
Agreement, refer to this Agreement as a whole and not to any particular
provision of this Agreement, and unless otherwise indicated, references
to Articles and Sections are to Articles and Sections in this Agreement.
(c) "Arbitrator" has the meaning set forth in Section 2.4(c).
(d) "Assets" means all rights, properties, assets, permits, licences,
rights and materials whether real or personal, tangible or intangible,
owned or held by Repap Manitoba, or to which Repap Manitoba is entitled
to the benefit including without limitation:
(i) the Real Property;
(ii) the Personal Property;
(iii) the Contracts;
(iv) the Forest Tenures;
(v) the Leased and Licenced Assets; and
(vi) any other assets reflected in the Financial Statements.
(e) "Audited Financial Information" has the meaning set forth in Section
3.1(e).
(f) "Auditor Calculations" has the meaning set forth in Section 2.4(b).
(g) "Business" means the business and operations carried on by Repap
Manitoba as of the date of this Agreement, which includes pulp, paper,
sawmilling and logging operations of Repap Manitoba in the Province of
Manitoba.
(h) "Business Day" means any day other than a Saturday, a Sunday or a day
on which banks in Winnipeg, Manitoba are authorized or obligated by law
or executive order to close.
(i) "Buyer" has the meaning set forth in the preamble.
(j) "Claim Notice" has the meaning set forth in Section 8.3.
(k) "Closing" has the meaning set forth in Section 2.5.
(l) "Closing Date Financial Information" means the audited financial
statements of Repap Manitoba to be prepared by the auditor of Repap
Manitoba pursuant to Section 2.4 and the determination of the actual
Working Capital and the actual GATX Amount in accordance with Section
2.4.
(m) "Closing Date" has the meaning set forth in Section 2.5.
(n) "Competition Act" means the Competition Act (Canada) R.S., 1985,
c.C-34, as amended.
(o) "Continuing Affiliate" means an Affiliate of Repap other than Repap
Manitoba.
(p) "Contracts" means the contracts and agreements described in Schedule
3.1(gg).
(q) "Damage" has the meaning set forth in Section 8.1.
(r) "Director" means the Director of Investigation and Research
appointed under the Competition Act.
(s) "Deductible" has the meaning set forth in Section 8.1.
(t) "Encumbrances" has the meaning set forth in Section 3.1(b).
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<PAGE> 8
(u) "Environmental Law" means any law, regulation, code, license, permit,
order, judgment, decree or injunction relating to the protection of the
environment (including air, water, soil and natural resources) or the
use, storage, handling, release or disposal of any hazardous or toxic
substance as in effect on the date hereof.
(v) "Estimated Purchase Price" means the sum of $109,000,000 plus the
estimated Working Capital less the estimated GATX Amount (both as
determined in accordance with Section 2.2) and less the Repap Manitoba
Debt Payout Amount.
(w) "Ferrostaal Credit Facility" means the credit facility agreement
dated March 5, 1992 between Repap and Ferrostaal AG, as amended by an
amendment dated June 15, 1993, by a memorandum of understanding dated
January 20, 1995 and by a loan extension agreement dated July 31, 1996.
(x) "Financial Damage Threshold" has the meaning set forth in Section
8.1(a)(i).
(y) "Financial Statements" has the meaning set forth in Section 3.1(e).
(z) "Forest Tenures" means the timber harvesting rights described in the
Amended and Restated Forest Management Licence Agreement between Her
Majesty the Queen in Right of the Province of Manitoba represented by
the Minister of Natural Resources and Repap Manitoba dated as of May 4,
1989 listed as item A-2 in Schedule 3.1(gg) and item D-11 in Schedule
3.1(ii).
(aa) "GATX Amount" means the long term portion of the GATX Equipment Lease
as estimated by Repap in accordance with Section 2.2 and determined in
accordance with Section 2.4 and converted into Canadian dollars from
United States dollars using the Bank of Canada noon rate of exchange on
the Closing Date.
(bb) "GATX Equipment Lease" means the equipment lease agreement dated May
28, 1996 between GATX Capital Canada Inc. and Repap Manitoba, and any
and all supplements and amendments thereto.
(cc) "General Damage Threshold" has the meaning set forth in Section
8.1(a)(ii).
(dd) "Holdback" has the meaning set forth in Section 2.6(i)(A).
(ee) "Indemnified Party" has the meaning set forth in Section 8.2.
(ff) "Indemnifying Party" has the meaning set forth in Section 8.2.
(gg) "Interim Financial Information" has the meaning set forth in Section
3.1(e).
(hh) "Leased and Licensed Assets" means those of the Assets that are
leased from any Person by Repap Manitoba, including without limitation
the Real Property and the Personal Property shown in Schedules 3.1(o)
and 3.1(r), respectively, as being leased by Repap Manitoba, and any of
the Assets the benefit of which Repap Manitoba is entitled to pursuant
to a Licence.
(ii) "Lenders" means Royal Bank of Canada and The Toronto-Dominion Bank.
(jj) "Liabilities" has the meaning set forth in Section 3.1(f).
(kk) "Licence" means a permit, licence, consent, authorization, approval,
privilege, waiver, exemption, certificate, ruling, or other concession
granted by, or entered into or otherwise held by Repap Manitoba with,
any governmental or regulatory authority or any other Person.
(ll) "Material Adverse Effect" means a material adverse effect on the
Business, the Assets, the financial condition or the results of
operations of Repap Manitoba as determined in accordance with Section
8.1.
(mm) "New Certificate" has the meaning set forth in Section 2.6(a).
(nn) "Notice Period" has the meaning set forth in Section 8.3.
(oo) "Operating Credit Agreement" means the operating credit agreement
dated October 31, 1995 between Repap Manitoba and The Toronto-Dominion
Bank.
(pp) "Permitted Encumbrances" means the Encumbrances listed in Schedule
1.1(pp) hereto.
(qq) "Person" means any individual, corporation, partnership, firm, joint
venture, association, joint-share company, trust, unincorporated
organization, governmental or regulatory body or other entity.
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<PAGE> 9
(rr) "Personal Property" means the mobile, computer and computer related
equipment and other operating and fixed assets described in Schedule
3.1(r).
(ss) "Plan" has the meaning set forth in Section 3.1 (l).
(tt) "Preferred Shares" means that number of preferred shares in the
capital of Repap Manitoba having an aggregate redemption and
subscription price equal to the Repap Debt Payout Amount.
(uu) "Purchase Price" has the meaning set forth in Section 2.1.
(vv) "Quarterly Financial Information" has the meaning set forth in
Section 3.1(e).
(ww) "Real Property" means the real property, whether owned or leased,
described in Schedule 3.1(o).
(xx) "Repap Manitoba Debt Payout Amount" means the amount owed by Repap
Manitoba to each of the Lenders as set out in the Repap Manitoba Debt
Payout Statements.
(yy) "Repap Manitoba Debt Payout Direction" has the meaning set forth in
Section 2.6(e).
(zz) "Repap Manitoba Debt Payout Statements" has the meaning set forth in
Section 2.6(c).
(aaa) "SPADA" means the share purchase and development agreement dated
November 2, 1995 between Repap Manitoba and the Province of Manitoba.
(bbb) "Shares" has the meaning set forth in the preamble.
(ccc) "Standby Loan Agreement" means the standby loan agreement made as of
August 1, 1996 between Repap, as borrower, TD Capital Group Limited,
Royal Bank of Canada, and The Toronto-Dominion Bank as lenders, and TD
Capital Group Limited as agent, as amended, supplemented or restated
from time to time.
(ddd) "Surplus Plan" means the Repap Manitoba Salaried Employees' Pension
Plan, Manitoba Registration No. and Revenue Canada Registration No.
0369314, Fund Account No. 037-170904-6 listed as item B-1 in Schedule
3.1(l).
(eee) "Tax Returns" means all federal, provincial, local or foreign tax
returns, tax reports, and declarations of estimated tax.
(fff) "Taxes" means all federal, provincial, local or foreign income,
capital, gross receipts, windfall or excess profits, severance,
property, production, sales, use, license, excise, employment or similar
or other taxes, duties, fees, royalties, levies, assessments,
reassessments, deductions, charges or withholdings of any kind or nature
whatsoever under any applicable tax or excise legislation, together with
any interest, additions, fines or penalties with respect thereto and any
interest in respect of such additions or penalties.
(ggg) "Term Loan Agreement" means the term loan agreement between Repap
Manitoba and the Lenders dated as of October 31, 1995, as amended.
(hhh) "Third Party Claim Notice" has the meaning set forth in Section 8.3.
(iii) "Total Adjustment" has the meaning set forth in Section 2.7.
(jjj) "Underfunded Plans" means the Repap Manitoba Pension Plan for Hourly
Paid Employees Represented by the Communications, Energy and
Paperworkers of Canada, Local 1403, Manitoba and Federal Registration
No. 0369462, Fund Account No. 037-170905-8 and the Repap Manitoba
Pension Plan for Hourly Paid Employees Represented by IWA-Canada, Local
1-324, Manitoba and Federal Registration No. 00960278, Fund Account No.
7228-1 listed as items B-2 and B-3, respectively, in Schedule 3.1(l).
(kkk) "Working Capital" means current assets of Repap Manitoba less current
liabilities of Repap Manitoba, including without limitation the current
portion of the GATX Equipment Lease, and less any other liabilities of
Repap Manitoba disclosed on the balance sheet of the Closing Date
Financial Information other than the long term portion of the GATX
Equipment Lease, as estimated by Repap in accordance with Section 2.2
and determined in accordance with Sections 2.3 and 2.4.
1.2 OTHER TERMS. Other terms may be defined elsewhere in the text of this
Agreement and, unless otherwise indicated, shall have such meaning
indicated throughout this Agreement.
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<PAGE> 10
1.3 GENDER AND NUMBER. The terms defined in the singular shall have a
comparable meaning when used in the plural, and vice versa and words
importing gender include all genders.
1.4 CURRENCY. The terms "dollars" and "$" shall mean Canadian Dollars.
1.5 SCHEDULES. The following are the Schedules attached to this Agreement:
<TABLE>
<S> <C> <C>
Schedule 1.1(pp) Permitted Encumbrances
Schedule 2.6(i)(B) Escrow Agreement
Schedule 3.1(c) Repap's Consents and Approvals
Schedule 3.1(e) Financial Statements
Schedule 3.1(g) Conflicts
Schedule 3.1(i) Litigation
Schedule 3.1(k) Labour and Employment Relations
Schedule 3.1(l) Benefit Plans
Schedule 3.1(m) Property Deficiencies
Schedule 3.1(n) Capital Expenditures
Schedule 3.1(o) Real Property
Schedule 3.1(r) Personal Property
Schedule 3.1(v) Consignment Inventory
Schedule 3.1(bb) Tax Matters
Schedule 3.1(dd) Undepreciated Capital Cost
Schedule 3.1(gg) Contracts
Schedule 3.1(hh) Environmental Matters
Schedule 3.1(ii) Licences
Schedule 3.1(jj) Insurance
</TABLE>
ARTICLE II
PURCHASE AND SALE OF SHARES
2.1 PURCHASE, SALE AND ALLOTMENT OF SHARES. The Buyer shall:
(a) purchase from Repap, and Repap shall sell to the Buyer free and clear
of all Encumbrances, the Shares, for an amount equal to $109,000,000
plus Working Capital as at the Closing Date less:
(i) the GATX Amount; and
(ii) the Repap Manitoba Debt Payout Amount;
(the net amount of which is the "PURCHASE PRICE") all subject to
adjustment as provided in this Agreement; and
(b) subscribe for the allotment and issuance of the Preferred Shares for
an aggregate subscription price equal to the amount of the Repap
Manitoba Debt Payout Amount.
2.2 WORKING CAPITAL AND GATX AMOUNT. Since the Working Capital and the GATX
Amount will not be precisely known at the Closing Date, an estimate of Working
Capital and the GATX Amount will be made by Repap based on the best and most
current financial data available (to be determined and gathered by Repap and
shared with the Buyer) 3 Business Days prior to the Closing Date with a final
adjustment, based on the Closing Date Financial Information once available, to
be made as soon as practicable after the Closing Date and in any event in
accordance with Section 2.4 hereof.
2.3 ACTUARIAL REPORT. Upon execution of this Agreement Repap shall instruct
Repap Manitoba's pension benefits actuary to prepare a full actuarial report and
valuation for the Plans as at the Closing Date to be completed as soon as
reasonably possible after the Closing Date, and in any event not more than 30
days after the Closing Date. If the amount of the unfunded liability for the
Underfunded Plans less the amount of the surplus for the Surplus Plan as
calculated by Repap Manitoba's pension benefits actuary exceeds $1,300,000, then
the amount of the excess
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<PAGE> 11
shall be included as an additional liability on the balance sheet of the Closing
Date Financial Information for the purposes of calculating actual Working
Capital. No further adjustments shall be made to Working Capital on account of
the calculation or determination of liabilities under the Underfunded or Surplus
Plans.
2.4 ADJUSTMENT TO PURCHASE PRICE.
(a) Closing Financial Information: On the Closing Date Repap shall
instruct Repap Manitoba's auditors to prepare, in consultation with the
Buyer's auditors, and deliver to each of Repap and Repap's solicitors
and the Buyer and the Buyer's solicitors not later than 40 calendar days
after the Closing Date audited financial statements of Repap Manitoba
prepared in accordance with accounting principles generally accepted in
Canada, including a calculation of Working Capital and the GATX Amount,
all such information to be current to the Closing Date and to reflect
transactions required by this Agreement to be undertaken on the Closing
Date at or before the time of Closing. If the auditors agree on the
amount of the Working Capital and the GATX Amount, those amounts shall
be the actual Working Capital and the actual GATX Amount.
(b) Disagreement: If Repap Manitoba's auditors and the Buyer's auditors
disagree on the calculation of the Working Capital or the GATX Amount,
then each auditor shall prepare separate calculations of any particular
amounts or items of the Working Capital and GATX Amount calculations
that are not agreed upon, together with an explanation of any such
calculations ("AUDITOR CALCULATIONS"), which shall be delivered to Repap
and the Buyer and each of their respective solicitors together with the
audited financial statements prepared pursuant to this Section.
(c) Arbitrator: Within 3 Business Days of receipt of the Auditor
Calculations, Repap and the Buyer shall instruct a partner at the
Vancouver office of Arthur Andersen, Chartered Accountants (the
"ARBITRATOR"), who is experienced in forestry accounting practices to
select one of the Auditor Calculations in respect of each amount or item
that is not agreed upon and adjust the Working Capital and the GATX
Amount to reflect those selections and notify Repap and the Buyer and
each of their respective solicitors in writing of those selections
within 30 calendar days after receiving instructions to make the
selections. The resulting Working Capital and GATX Amount, as the case
may be, as determined by the Arbitrator shall be the actual Working
Capital or the actual GATX Amount, or both. The Auditor Calculations
selected by the Arbitrator and the resulting Working Capital and GATX
Amount shall be final and binding on each of Repap and the Buyer. If
either Repap or the Buyer fails to instruct the Arbitrator, the
Arbitrator shall be entitled to rely on the instructions of the party
that does instruct the Arbitrator.
(d) Method of Adjustment: To the extent the estimated Working Capital
forming part of the Estimated Purchase Price differs from the actual
Working Capital and/or the estimated GATX Amount forming part of the
Estimated Purchase Price differs from the actual GATX Amount Repap (if
the Total Adjustment calculated in accordance with Section 2.7 is a
positive number) or the Buyer (if the Total Adjustment calculated in
accordance with Section 2.7 is a negative number), as the case may be,
shall pay to the other, by certified cheque, bank draft or solicitor's
trust cheque within 5 calendar days after the delivery to Repap and the
Buyer and each of their respective solicitors of the Closing Date
Financial Information, the absolute amount of the Total Adjustment. To
the extent the payment is to be made from the Holdback, it shall be made
in accordance with Section 2.7.
(e) Costs: The audit costs associated with the preparation and
finalization of Closing Date Financial Information of Repap Manitoba,
other than any costs associated with the Buyer's auditor, will remain
the responsibility of Repap, provided that the costs of the Arbitrator
shall be allocated between Repap and the Buyer based on the Arbitrator's
assessment, in the Arbitrator's discretion, of what is equitable having
regard to the Arbitrator's selection of the Auditor Calculations and the
impact of those selections on the actual Working Capital and actual GATX
Amount.
2.5 CLOSING. The closing of the purchase and sale of the Shares (the "CLOSING")
shall take place at the offices of Thompson Dorfman Sweatman, Toronto Dominion
Centre, 2200-201 Portage Avenue, Winnipeg, Manitoba at 9:00 a.m. local time, on
August 8, 1997, or at such other time and place as the parties hereto may
mutually agree in writing. The date on which the Closing occurs is called the
"CLOSING DATE" and the transaction shall take effect from and as of 8:00 a.m. on
the Closing Date. Each of Repap and the Buyer shall in good faith make diligent
efforts
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to satisfy or help satisfy the conditions to Closing set out in Article VI as
soon as commercially reasonable after this Agreement is signed.
2.6 DELIVERY AND PAYMENT. At the Closing, Repap shall deliver or cause to be
delivered to the Buyer:
(a) cancelled certificates representing the Shares registered in the name
of TD Capital Group Limited, as agent, duly endorsed for transfer to the
Buyer together with a share certificate (the "NEW CERTIFICATE")
representing the Shares registered in the name of the Buyer;
(b) certified copies of resolutions of the directors of Repap Manitoba
approving the transfer of the Shares to, and issuing the New Certificate
in proper form in the name of, the Buyer;
(c) payout statements ("REPAP MANITOBA DEBT PAYOUT STATEMENTS") for the
full amounts owing by Repap Manitoba to the Lenders as at Closing Date
under the Term Loan Agreement and the Operating Credit Agreement;
(d) discharges in registrable form of the Encumbrances granted in favour
of the Lenders that are described in Schedule 1.1(pp);
(e) a direction (the "REPAP MANITOBA DEBT PAYOUT DIRECTION") from Repap
Manitoba to the Buyer to pay on behalf of Repap Manitoba directly to
each of the Lenders the amount owed to each of the Lenders as set out in
the Repap Manitoba Debt Payout Statements;
(f) a share certificate representing the Preferred Shares registered in
the name of the Buyer and certified copies of resolutions of the
directors of Repap Manitoba allotting the Preferred Shares to the Buyer;
(g) discharges in registrable form of any security granted by Repap in
connection with the Standby Loan Agreement or the Ferrostaal Credit
Facility, and discharges of any other security granted in connection
with the Standby Loan Agreement or the Ferrostaal Credit Facility to the
extent they create any Encumbrance on the Shares, or any of the Assets
or the Business;
and the Buyer shall pay to:
(h) the Lenders, the amounts specified in the Repap Manitoba Debt Payout
Statements in accordance with the Repap Manitoba Debt Payout Direction
as payment for the allotment and issuance by Repap Manitoba to the Buyer
of the Preferred Shares;
(i) the amount of the Estimated Purchase Price as follows:
(A) by delivery to Repap of a certified cheque or bank draft in an
amount equal to the Estimated Purchase Price less $10,000,000 (the
"HOLDBACK"); and
(B) by delivering to Thompson Dorfman Sweatman a certified cheque or
bank draft in the amount of the Holdback payable to Thompson
Dorfman Sweatman, in trust, on terms and conditions set out in the
escrow agreement substantially in the form attached hereto as
Schedule 2.6(i)(B) and on the condition that the Holdback be held
until Thompson Dorfman Sweatman has received the Closing Date
Financial Information from the auditors of Repap Manitoba and the
Buyer or, if any matter is referred to the Arbitrator pursuant to
Section 2.4, from the Arbitrator.
2.7 TOTAL ADJUSTMENT CALCULATION AND PAYOUT. Promptly following receipt of the
Closing Date Financial Information the Holdback shall be paid out of trust as
follows:
(i) any amount by which the Holdback exceeds the Total Adjustment (as
calculated below) shall be paid to Repap; and
(ii) any portion of the Holdback not paid to Repap shall be paid to the
Buyer in partial or full satisfaction (as the case may be) of Repap's
obligations pursuant to Section 2.4;
For the purpose of this Section 2.7:
(EWC -- AWC) + (AGA -- EGA) = Total Adjustment
EWC = estimated Working Capital
AWC = actual Working Capital
AGA = actual GATX Amount
EGA = estimated GATX Amount
Notwithstanding the foregoing, if the Auditor Calculations are referred to
the Arbitrator pursuant to Section 2.4, any excess of the Holdback over the
Total Adjustment based on the Auditor Calculations of the Buyer's
7
<PAGE> 13
auditor shall be paid to Repap on delivery by the auditors of the Auditor
Calculations. On delivery by the Arbitrator to Thompson Dorfman Sweatman of
notice of the actual Working Capital and/or the actual GATX Amount, as the case
may be, the balance of the Holdback shall be paid to Repap or the Buyer, as the
case may be, in accordance with this Section 2.7.
For the purpose of this Section 2.7, the parties hereto shall provide to
and Thompson Dorfman Sweatman shall be entitled to rely on copies of the Closing
Date Financial Information, the Arbitrator's Calculations and the Arbitrator's
notice, if any, pursuant to this Article II and in accordance with the
provisions of the escrow agreement referred to in Section 2.6(i)(B).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF REPAP
3.1 REPRESENTATIONS AND WARRANTIES OF REPAP. Repap represents and warrants to
the Buyer as of the date hereof (except that representations and warranties that
are made as of a specific date need be true only as of such date) as follows:
(a) Incorporation and Qualification. Repap Manitoba is a corporation
duly incorporated, organized and validly subsisting under the laws of
Canada, and is up to date with its filings in the office of the Director
appointed under the Canada Business Corporations Act. Repap Manitoba has
all requisite corporate power and authority to own, lease and operate
the Assets and to carry on the Business as now being conducted and is
duly registered, licensed and qualified to carry on business in each
jurisdiction in which the nature of the Business as now being conducted
by it or the Assets makes such registration, licensing or qualification
necessary;
(b) Capitalization. The authorized capital of Repap Manitoba consists of
an unlimited number of common shares with no par value, and an unlimited
number of preferred shares of which only the Shares are issued and
outstanding. The Shares are duly authorized, validly issued, fully paid
and non-assessable, have been offered, allotted, issued, sold and
delivered in compliance with all applicable laws, the articles and
by-laws of Repap Manitoba, and all applicable agreements, and are owned
of record by TD Capital Group Limited, as agent, pursuant to the Standby
Loan Agreement and beneficially by Repap. Subject to the lien granted
pursuant to the Standby Loan Agreement (which lien will be discharged by
Closing), Repap has good and valid title to the Shares. Upon
consummation of the transactions contemplated in this Agreement, Repap
shall have transferred such title to the Shares to the Buyer pursuant to
the terms of this Agreement, free and clear of any liens, charges,
pledges, security interests, adverse claims or other encumbrances
(collectively, "ENCUMBRANCES"), other than such Encumbrances which were
incurred by the Buyer as a result of the transactions contemplated by
this Agreement. Except as contemplated by this Agreement, there are not
now, and at the Closing Date there will not be, any outstanding options,
warrants or rights to purchase or acquire, or securities convertible
into or exchangeable for, any issued or unissued shares in the capital
of Repap Manitoba and there are no contracts, commitments, agreements,
understandings, arrangements or restrictions which require Repap
Manitoba to allot, issue, sell or deliver any of its shares.
(c) Authority; Filings, Consents and Approvals. Repap is a corporation
duly incorporated, organized and validly subsisting under the laws of
Canada, and has the corporate power and authority to enter into this
Agreement and, subject to the receipt of the approvals, consents and
authorizations contemplated in this Agreement, to carry out the
transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by Repap and constitutes a legal,
valid and binding obligation of Repap, enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles, and no other proceedings on the part of Repap are necessary
to authorize this Agreement and the consummation of the transactions
contemplated hereby.
Except as set forth in Schedule 3.1(c) or as required by the Competition
Act or the filing of appropriate notices with the relevant stock
exchanges, material change reports and press releases, the execution,
delivery and performance of this Agreement or the transactions
contemplated in this Agreement will not require Repap or Repap Manitoba
to obtain any consent, waiver, authorization, approval or
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order-in-council of, or make any filing with or give notice to, any
Person, except where the failure to obtain such consents, waivers,
authorizations or approvals would not be reasonably likely to have a
Material Adverse Effect, or would not be reasonably likely to prohibit
or materially delay Repap's ability in performing its obligations under
this Agreement.
(d) Absence of Changes.
(i) General: Since December 31, 1996 there has been no change in the
nature or condition of the Assets or the Business, and, after
having made due inquiry of the management of Repap Manitoba, Repap
has no knowledge of any change in the prospects for the Business,
financial or otherwise, which has not been publicly disclosed and
which in either event would constitute a Material Adverse Effect
or which might reasonably be expected to constitute a Material
Adverse Effect.
(ii) Specific Transactions: Except for the transactions contemplated
by or otherwise disclosed in this Agreement, or as set forth in
the Financial Statements, since December 31, 1996, Repap Manitoba
has not:
(A) issued or allotted (conditionally or otherwise) any shares or
other securities;
(B) incurred any Liability except current liabilities incurred in
the ordinary course of business, all of which as to their
nature and amount are consistent with the Business as
previously carried on;
(C) discharged or satisfied any Encumbrance or paid any Liability
except in the ordinary course of business and except for
regularly scheduled payments of term debt and lease payments;
(D) declared, paid, authorized or made any dividend, payment or
distribution of any kind or nature to its shareholders in
their capacity as such or redeemed or purchased or otherwise
acquired any of its capital stock or agreed or become
obligated to do so;
(E) subjected any of the Assets to any Encumbrance other than
Permitted Encumbrances and other than in the ordinary course
of the Business;
(F) sold or transferred any of the Assets or cancelled or
released any debts or claims, except, in each case, in the
ordinary course of the Business;
(G) waived any rights of value other than in the ordinary course
of the Business;
(H) except as contemplated in Section 5.3(f), entered upon any
transaction or into any contracts or agreements or
modifications or cancellations thereof other than in the
ordinary course of the Business;
(I) made or authorized any payment to officers, directors or
employees in their capacity as such except in the ordinary
course of the Business and at rates of salary, bonus or other
remuneration consistent with remuneration of previous years;
or
(J) used any funds other than in the ordinary course of the
Business.
(e) Financial Statements. Attached hereto as Schedule 3.1(e) is a copy
of (i) the audited balance sheet of Repap Manitoba as at December 31,
1995 and December 31, 1996 and the statements of operations, retained
earnings and changes in financial position for the fiscal years ended
December 31, 1995 and December 31, 1996 (collectively, with the notes
thereto, the "AUDITED FINANCIAL INFORMATION"), (ii) a copy of the
unaudited balance sheet, quarterly income statement and changes in
financial position of Repap Manitoba as at March 31, 1997 for the three
months then ended (collectively, with the notes thereto, the "QUARTERLY
FINANCIAL INFORMATION"), and (iii) a copy of the unaudited balance
sheet, quarterly income statement and changes in financial position of
Repap Manitoba as at the most recent month end prior to the date of this
Agreement (the "INTERIM FINANCIAL INFORMATION"). The Audited Financial
Information has been prepared in accordance with accounting principles
generally accepted in Canada (except as may be noted therein), and the
Audited Financial Information, the Quarterly Financial Information and
the Interim Financial Information (collectively the "FINANCIAL
STATEMENTS") present fairly, in all material respects, the financial
position of Repap Manitoba as at their respective
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<PAGE> 15
dates and for the periods then ended, subject, in the case of the
Quarterly Financial Information and the Interim Financial Information,
to normal year-end adjustments.
(f) Absence of Undisclosed Liabilities. Except as reflected in the
Financial Statements, as disclosed in this Agreement, the Closing Date
Financial Information, or as otherwise disclosed in writing to the Buyer
prior to the Closing Date, or as incurred in the ordinary course of the
Business since June 30, 1997, Repap Manitoba does not have any
liabilities or obligations of any nature that would have a Material
Adverse Effect, whether absolute or contingent, accrued or unaccrued,
liquidated or unliquidated, due or to become due, including any
liability for Taxes (collectively, "LIABILITIES"), which, either
individually or in the aggregate, are materially in excess of the
liabilities reflected or reserved against in the Financial Statements.
(g) No Conflict. Subject to the receipt of approval from the Lenders and
the governmental and regulatory authorities referred to in this
Agreement and except as disclosed in Schedule 3.1(g), the execution and
delivery of this Agreement by Repap does not, and the performance of
this Agreement by Repap and the consummation by it of the transactions
contemplated by this Agreement will not:
(i) conflict with or violate the articles or by-laws or equivalent
constating and organizational documents of Repap or Repap
Manitoba;
(ii) conflict with or violate any law, rule, regulation, permit,
order, judgment or decree applicable to Repap or Repap Manitoba or
by which any of their respective assets or properties is bound or
affected, the conflict with which or violation of which would have
a Material Adverse Effect or would prohibit or materially delay
Repap's ability to perform its obligations under this Agreement;
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 any Person any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of an
Encumbrance on any of the Assets pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, licence, permit,
franchise or other instrument or obligation to which Repap
Manitoba is a party or by which Repap Manitoba is bound or
affected, which, in any such case, would have a Material Adverse
Effect or would prohibit or materially delay Repap's ability to
perform its obligations under this Agreement.
(h) Compliance. Except for any conflicts, defaults or violations which
would not, individually or in the aggregate, have a Material Adverse
Effect or as disclosed in Schedule 3.1(g), Repap Manitoba is not in
conflict with, or in default or violation of, (i) its articles or
by-laws or equivalent constating and organizational documents, (ii) any
zoning requirement, by-law, law, rule, regulation, order, permit,
judgment or decree applicable to Repap Manitoba or by which any one of
the Assets or the Business is bound or affected or (iii) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Repap Manitoba is a
party or by which Repap Manitoba is bound or affected.
(i) Litigation. Except as disclosed in Schedule 3.1(i), there are no
claims, actions, demands, proceedings, suits, investigations or reviews
pending or, to the knowledge of Repap after having made due inquiry of
the management of Repap Manitoba, threatened against Repap Manitoba
that, individually or in the aggregate, if adversely determined, would
have a Material Adverse Effect. As at the date hereof, Repap Manitoba is
not subject to any judgment, order or decree which has or will have a
Material Adverse Effect, except as disclosed in Schedule 3.1(i).
(j) Trademark and Patent Infringement. The conduct of the Business by
Repap Manitoba does not and did not infringe upon any patent, trademark
or other proprietary right, domestic or foreign, of any Person that
would have a Material Adverse Effect.
(k) Labour and Employment Relations. Except as set forth in Schedule
3.1(k), Repap Manitoba is not a party to any oral or written employment
contract, consulting contract, management contract, labour services
contract or similar agreement for the services of a particular
individual or group of individuals under which any employee of Repap
Manitoba is employed on other than an indefinite hiring basis terminable
on reasonable notice according to law without further liability to Repap
Manitoba. Without
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<PAGE> 16
limiting the generality of the foregoing, except as disclosed in
Schedule 3.1(k) hereof, Repap Manitoba is not a party to any written or
oral agreement providing for severance or termination payments to any
director or officer as a result of the transactions contemplated by this
Agreement or any employment agreement with any of its directors or
officers. Except as set forth in Schedule 3.1(k), Repap Manitoba is not
a party to or bound by any labour agreement or collective bargaining
agreement respecting its employees, nor is there pending, or to the
knowledge of Repap threatened, any strike, walkout or other work
stoppage or any union organizing effort by or respecting the employees.
(l) Benefit Plans. Except as disclosed in Schedule 3.1(l), (i) there
are no pension, retirement, group RRSP, profit sharing, bonus, savings,
deferred compensation, share option, purchase, or appreciation, group
insurance or other employee benefit plans, policies, programs or
arrangements maintained or contributed to by Repap Manitoba or Repap for
the benefit of the employees of Repap Manitoba (each such plan, program
or arrangement, a "PLAN"), (ii) there are no outstanding violations or
defaults thereunder nor any actions, claims, or other proceedings
pending or, to the knowledge of Repap, threatened with respect to the
Plans, (iii) no promise or commitment to increase benefits under the
Plans has been made except as required by law, (iv) no event has
occurred which could subject any person or fund to any tax or penalty in
connection with the Plans, and (v) there have been no withdrawals of
surplus or contributions holidays except as permitted by law and the
terms of the Plans, where the effect of such action or failure to comply
under (ii) through (v) above would have a Material Adverse Effect.
Except as disclosed in Schedule 3.1(l), all contributions required to be
made by Repap Manitoba to the Plans have been properly made and all the
Plans are fully funded, and all returns and other documents have been
filed and all amounts owing to any governmental or other regulatory
authority relating to the Plans have been paid. The amount of the
unfunded actuarial liability of the Underfunded Plans less the amount of
the actuarial surplus of the Surplus Fund is not more than $1,300,000.
The provisions of the Surplus Plan and applicable legislation allow
Repap Manitoba to suspend employer contributions in respect of the
Surplus Plan.
(m) Property.
(i) Owned Assets: Except as disclosed in Schedule 3.1(m), Repap
Manitoba has good and marketable title to all of the Real Property
and all of the Personal Property other than the Leased and
Licenced Assets, in each case subject to no Encumbrance except for
Permitted Encumbrances, and except as reflected in the balance
sheets forming part of the Financial Statements of Repap Manitoba,
except where the failure to have such title, individually or in
the aggregate, would not be reasonably likely to have a Material
Adverse Effect. No Person has any right, agreement or option,
present or future, contingent or absolute or any right capable of
becoming a right, agreement or option to purchase all or any part
of the Assets, other than inventory in the ordinary course of the
Business.
(ii) Leased and Licenced Assets: The Leased and Licenced Assets are
held by Repap Manitoba under valid and subsisting leases, LicenceS
and other forms of contracts or agreements, in each case subject
to no Encumbrances except for Permitted Encumbrances and except
where the failure to so hold the Leased and Licenced Assets would
not be reasonably likely to have a Material Adverse Effect.
(n) Condition of Assets. To the best of Repap's knowledge after having
made due inquiry of the management of Repap Manitoba, the summaries and
budgets attached to this Agreement as Schedule 3.1(n) set out all
capital expenditures anticipated to be required for the periods set out
in those summaries and budgets in order to maintain the Assets used in
the operation of the Business in their current operating condition,
subject to reasonable wear and tear, where the failure to make such
expenditures (either individually or in the aggregate) would have a
Material Adverse Effect.
(o) Real Property. The Real Property constitutes, and as set out in
Schedule 3.1(o) accurately describes, all interests of Repap Manitoba in
real property, whether owned or leased. Neither asbestos nor urea
formaldehyde foam (to the best of Repap's knowledge having made due
enquiry of Repap Manitoba management) is now present in any of the
materials from which the buildings or pipe insulation situate on the
Real Property are comprised except as specified in Schedule 3.1(o) or
Schedule 3.1(gg).
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(p) Subleases. Except as disclosed in Schedule 3.1(o), Repap Manitoba
has not leased, subleased or licensed to any Person the use of any
portion of any of the Assets.
(q) Property Taxes. All property, municipal, school, general and special
taxes, rates, assessments, local improvement charges, frontage taxes,
business taxes, development cost charges, other subdivision charges and
costs and other levies which are chargeable against any of the Real
Property and which are payable by Repap Manitoba have been paid in full
unless the same are not due and payable.
(r) Equipment. The list of equipment dated May 6, 1997 attached to
Schedule 3.1(r) accurately reflects all the mobile equipment and the
memorandum dated July 9, 1997 attached to Schedule 3.1(r) accurately
reflects all the computer and computer related equipment owned or leased
by Repap Manitoba other than mobile equipment sold, leased or purchased
in the ordinary course of the Business since May 6, 1997 and other than
computer and computer related equipment sold, leased or purchased in the
ordinary course of the Business since July 9, 1997.
(s) Other Operating and Fixed Assets. The other operating and fixed
assets set out or referred to in Schedule 3.1(r) accurately reflects all
operating and fixed assets owned or leased by Repap Manitoba having an
original capital cost of in excess of $10,000 per item which are not
disclosed elsewhere pursuant to this Agreement and other than operating
fixed assets sold, leased or purchased in the ordinary course of the
Business since May 7, 1997 in respect of lumber operating and fixed
assets, and since April 30, 1997 in respect of other operating and fixed
assets.
(t) Encroachments. All buildings, fixtures, leasehold improvements and
facilities owned or leased by Repap Manitoba are wholly within the
boundaries of the Real Property on which those buildings, fixtures,
leasehold improvements and facilities are located and do not infringe
upon or contravene the provisions of any by-law, easement, right of way
or encumbrance registered against or otherwise affecting those
properties in a manner that would have a Material Adverse Effect on any
of the Assets that are necessary for the operation of the Business.
There are no buildings, fixtures, improvements or facilities on any
adjoining lands, whether public or private, that encroach on those
properties in a manner that would have a Material Adverse Effect on any
of the Assets that are necessary for the operation of the Business.
(u) Inventory. For the purposes of the Financial Statements, logs, chips
and supplies are valued at the lower of cost, determined primarily on a
weighted average basis, and replacement cost and paper and lumber are
valued at the lower of cost, determined on a weighted average basis, and
net realizable value.
(v) Consignment Inventory. There is no consignment inventory owned by
Repap Manitoba comprising any portion of the Assets located outside of
Canada except as disclosed in Schedule 3.1(v).
(w) Non-Business Assets. Except as disclosed in Schedule 3.1(r) Repap
Manitoba has no Asset which has a book value of more than $25,000 or a
disposal cost or a yearly aggregate storage or maintenance cost
associated with disposing of or owning the Asset of more than $25,000,
which is not used in the Business. The Assets include all the assets
that have a current book value of more than $25,000 that are material to
the operation of the Business. For those Assets set out in Schedule
3.1(r) that have a disposal cost or a yearly aggregate storage or
maintenance cost of $25,000 or more associated with disposing of or
owning the Assets, the amount of the disposal cost or the yearly
aggregate storage or maintenance cost is accurately set out in Schedule
3.1(r).
(x) Shares. Repap Manitoba does not own, directly or indirectly, any
shares or other interest in any firm, company, corporation or business.
(y) Jurisdictions in which the Business is Carried On. Other than owning
inventory in England and Tennessee, and except as disclosed in Schedules
3.1(r) and 3.1(v), Repap Manitoba does not carry on business or own or
lease any assets in any jurisdiction other than Manitoba.
(z) Adverse Events. Since December 31, 1996, Repap Manitoba has not
experienced and, to the knowledge of Repap after having made due inquiry
of the management of Repap Manitoba, Repap is not aware of any
occurrence or event which has had, or might reasonably be expected to
have, a Material Adverse Effect.
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(aa) Bankruptcy. No actions have been taken or authorized by Repap
Manitoba or, to the knowledge of Repap after having made due inquiry of
the management of Repap Manitoba, by any other Person to initiate
proceedings for or in respect of the bankruptcy, insolvency,
liquidation, dissolution or winding-up of Repap Manitoba.
(bb) Tax Matters. Except as reflected in the Financial Statements or as
would not be reasonably likely to have a Material Adverse Effect, Repap
Manitoba has duly filed on a timely basis and in the manner prescribed
by law all Tax Returns required to be filed by it and has paid all Taxes
which are due and payable. Repap Manitoba has made adequate reserves,
accruals and provision in its financial records for Taxes payable by it
for the current period that are not yet due and any previous period for
which tax returns are not yet required to be filed. There are no
actions, suits, proceedings, investigations or claims pending or, to the
best knowledge of Repap threatened against Repap Manitoba in respect of
Taxes, nor are any matters under discussion with any government
authority relating to Taxes asserted by any such authority. There is no
liability for Taxes and no basis on which any liability for Taxes might
reasonably be expected to be asserted against Repap Manitoba for any
period prior to December 31, 1996. There will be no liability for Taxes
or any basis on which any liability for Taxes might reasonably be
expected to be asserted against Repap Manitoba for any period prior to
the Closing Date in excess of the reserves, accruals and provision taken
into account for purposes of determining the Working Capital. Repap
Manitoba has withheld from each payment made to any of its past or
present directors, officers and employees, and to any non-resident of
Canada, the amount of all Taxes and other deductions required to be
withheld therefrom and has paid the same to the proper Tax authority or
other receiving officials within the time required under any applicable
legislation. Repap Manitoba has remitted to the appropriate Tax
authority where required by law to do so all amounts collected by it on
account of GST. Repap Manitoba has received notice of assessment from
Revenue Canada for its taxation year ending December 31, 1995 and there
are no agreements, waivers or other arrangements providing for an
extension of time with respect to the filing of any tax return or
payment of any Tax by, or the assessment or reassessment of any Tax
against Repap Manitoba. Copies of the federal and provincial tax returns
for Repap Manitoba for its taxation year ending December 31, 1995 and
the taxation year ending December 31, 1996 have been provided to the
Buyer and copies of all elections pursuant to the Income Tax Act
(Canada) or any other fiscal legislation made by or affecting Repap
Manitoba have been provided to the Buyer. All such returns are correct
in all material respects and fully disclose the Taxes, expenses,
deductions and credits due for such periods to the extent required by
law. Repap Manitoba is a registrant for purposes of the Excise Tax Act
(Canada) and set out in Schedule 3.1(bb) is its registration number.
(cc) Acquisitions/Dispositions. Except as disclosed in the Financial
Statements Repap Manitoba has not acquired property from, or disposed of
property to, any Person with whom it does not deal at arm's length.
(dd) Undepreciated Capital Cost. The undepreciated capital cost of the
Assets as at June 30, 1997 is not less than the amounts set out in
Schedule 3.1(dd).
(ee) Other Jurisdictions. Repap Manitoba has not been and is not
currently required to file any returns, elections or designations with
any taxation authority located in any jurisdiction other than in Canada.
(ff) Income Tax Ruling Disclosure. After having made due enquiries,
Repap does not have any information or knowledge of any facts that were
not disclosed to Revenue Canada in advance income tax ruling request
letters from Stikeman, Elliott to Revenue Canada dated June 8, 1995 and
July 21, 1995 or that were not disclosed to the Buyer, which could
reasonably be expected to cause Revenue Canada to withdraw ruling "D" of
the advance income tax ruling issued by Revenue Canada and dated July
28, 1995.
(gg) Contracts. Except as set forth in the Financial Statements or in
Schedule 3.1(gg) and except for contracts caused by the Buyer to be
entered into or cancelled by Repap Manitoba in connection with this
Agreement and the transactions contemplated hereby: (i) Repap Manitoba
is not a party to, or bound by, any contract of any kind which is to be
performed or as to which Repap Manitoba may have any right or obligation
after the Closing Date other than contracts which have been entered into
in the ordinary and usual course of the Business consistent with past
practice or pursuant to which Repap
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<PAGE> 19
Manitoba is or would be obligated to expend, or entitled to receive,
less than $250,000 in any 12-month period or which is subject to
cancellation by Repap Manitoba upon less than three (3) months' notice,
without incurring any expenditure and without penalty or increased cost;
(ii) all contracts to which Repap Manitoba is a party constitute valid
and binding obligations of Repap Manitoba, enforceable against Repap
Manitoba in accordance with their respective terms (subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles) and are in full
force and effect without default, except for such contracts the
invalidity or unenforceability of which alone or in the aggregate would
not have a Material Adverse Effect; and (iii) there is not any pending
or, to the knowledge of Repap, threatened cancellation, existing
default, or event under any such contract which, after notice or lapse
of time, or both, would constitute a default, except for such pending or
threatened cancellations, existing defaults or events which, alone or in
the aggregate, would not have a Material Adverse Effect.
(hh) Environmental Matters. Except as disclosed in Schedule 3.1(hh), or
as would not be reasonably likely to have a Material Adverse Effect,
Repap Manitoba: (i) is in compliance with applicable Environmental Laws;
(ii) has not received any written notices from any governmental
authority having jurisdiction alleging the violation of, or any claim or
liability under, and, after having made due inquiry of the management of
Repap Manitoba, Repap has no knowledge of any threatened claims,
investigations or other proceedings under any applicable Environmental
Law; (iii) is not the subject of any court order, administrative order
or decree arising under any Environmental Law; and (iv) has obtained all
environmental permits which are required in order to carry on the
Business under all applicable Environmental Laws, where non compliance
or failure to obtain the same would have individually or in the
aggregate a Material Adverse Effect. Except for the undertakings
contained in the Reclamation Agreement between Her Majesty the Queen in
Right of the Province of Manitoba and Manfor Ltd. (a predecessor of
Repap Manitoba), neither Repap nor Repap Manitoba has at any time given
any written undertakings with respect to remedying any breach of
Environmental Laws which have not been duly performed in accordance with
the terms of such undertakings, which breach would have a Material
Adverse Effect.
(ii) Licences. Except as disclosed in Schedule 3.1(ii) Repap Manitoba
has acquired, currently holds and previously held, all LicenceS required
in connection with the Assets and the Business, the failure of which to
hold would have a Material Adverse Effect. Schedule 3.1(ii) contains a
complete and accurate list of all LicenceS required for the Business
currently held by, granted to, or issued in favour of Repap Manitoba by
any governmental or regulatory authority or any third party, including
without limitation any timber harvesting rights, the failure of which to
hold would have a Material Adverse Effect. All of the foregoing held by
Repap Manitoba are in good standing (other than those that have expired
or have been terminated in circumstances where their continuance was not
required by law) and are being and have been complied with in all
respects.
(jj) List of Insurance Policies. Schedule 3.1(jj) contains a complete
and accurate listing of all insurance policies relating to the Assets
and the Business including all property damage, general liability, motor
vehicle, director and officer liability and life insurance policies.
(kk) Good Standing. Each of the insurance policies listed in Schedule
3.1(jj) is in good standing, all premiums required to be paid have been
properly paid, there have been no misrepresentations or failures to
disclose material facts, and there has been no refusal to renew any of
the policies and Repap Manitoba has no knowledge of any facts which
could reasonably be expected to render any of the policies invalid or
unenforceable.
(ll) Outstanding Claims. Except as disclosed in Schedule 3.1(jj) no
threatened or actual claims against or under any of the policies
described in Schedule 3.1(jj) have been made in the last three years.
Repap Manitoba has given notice of or has otherwise presented in a
timely fashion every claim under each insurance policy.
(mm) No Requirements. Except as disclosed in Schedule 3.1(jj), there are
no requirements or recommendations of any insurer of Repap Manitoba with
respect to any repair, or modification to or improvements of any of the
Assets or the Business the failure of which to comply with or implement
would have a Material Adverse Effect.
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(nn) Brokers and Finders. Other than TD Securities Inc. and Dillon Read &
Co., Inc., Repap and Repap Manitoba have not employed any broker,
finder, consultant or intermediary in connection with the transactions
contemplated by this Agreement who would be entitled to a broker's,
finder's or similar fee or commission in connection therewith or upon
the consummation thereof, or if the Closing does not occur. Repap agrees
to bear all costs it incurs, including fees and expenses of TD
Securities Inc. and Dillon Read & Co., Inc., in connection with the
transactions contemplated by this Agreement unless otherwise expressly
provided herein.
(oo) Books and Records. The corporate records and minute books of Repap
Manitoba are maintained in all material respects in accordance with
applicable laws.
(pp) Residency. The Vendor is not a non-resident of Canada within the
meaning of the Income Tax Act (Canada).
(qq) Accounts Receivable. All receivables recorded on the books of Repap
Manitoba are due and payable and no right of set off or counterclaim
exists with respect thereto, subject to an allowance for doubtful
accounts determined in accordance with accounting principles generally
accepted in Canada. The reserves taken for doubtful or bad accounts as
shown in the Financial Statements have been determined on a basis
consistent with the past practice and consistent with the accounting
procedures used by Repap Manitoba in previous fiscal periods. Repap has
no knowledge, having made due enquiry of Repap Manitoba management, of
any circumstance which would indicate that such reserve is not adequate,
where such inadequacy would have a Material Adverse Effect.
3.2 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the representations and
warranties contained in this Article III, neither Repap, Repap Manitoba nor any
other Person makes any other express or implied representation or warranty on
behalf of Repap or Repap Manitoba.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
4.1 REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants to Repap as of the date hereof (except that representations and
warranties that are made as of a specific date need be true only as of such
date) as follows:
(a) Incorporation. The Buyer is a corporation duly incorporated,
organized and validly subsisting under the laws of British Columbia.
(b) Authority; Filings, Consents and Approvals. The Buyer has the
corporate power and authority to enter into this Agreement and, subject
to the receipt of the approvals, consents and authorizations
contemplated in this Agreement, to carry out the transactions
contemplated hereby. This Agreement has been duly authorized, executed
and delivered by the Buyer and constitutes a legal, valid and binding
obligation of the Buyer, enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles, and no
other proceedings on the part of the Buyer are necessary to authorize
this Agreement and the consummation of the transactions con-templated
hereby.
Except as required by the Competition Act or the filing of appropriate
notices with the relevant stock exchanges, material change reports and
press releases, the execution, delivery and performance of this
Agreement will not require the Buyer or any of its subsidiaries to
obtain any consent, waiver, authorization or approval of, or make any
filing with or give notice to, any Person, except for such consents,
waivers, authorizations or approvals which the failure to obtain would
not be reasonably likely to have a material adverse effect on the
business, assets, financial condition or results of operations of the
Buyer and its subsidiaries, taken as a whole, or would not be reasonably
likely to prohibit or materially delay the Buyer's ability to perform
its obligations under this Agreement.
(c) No Conflict. Subject to the receipt of the regulatory approvals
referred to in this Agreement or disclosed in writing to Repap, the
execution and delivery of this Agreement by the Buyer does not, and
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the performance of this Agreement by the Buyer and the consummation by
it of the transactions contemplated by this Agreement shall not:
(i) conflict with or violate the articles or by-laws or equivalent
constating and organizational documents of the Buyer;
(ii) conflict with or violate any law, rule, regulation, permit,
order, judgment or decree applicable to the Buyer or its
subsidiaries or by which any of their respective properties is
bound or affected, the conflict with which or violation of which
would have a material adverse effect on the business, assets,
financial condition or results of operations of the Buyer and its
subsidiaries taken as a whole or would prohibit or materially
delay the Buyer's ability to perform its obligations under this
Agreement; 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 rights of termination, amendment,
acceleration or cancellation of, or result in the creation of an
Encumbrance on any of the properties or assets of the Buyer or any
of its subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, licence, permit, franchise
or other instrument or obligation to which the Buyer or any of its
subsidiaries is a party or by which the Buyer or any of its
subsidiaries or any of their respective properties is bound or
affected, which, in any such case, would have a material adverse
effect on the business, assets, financial condition or results of
operations of the Buyer and its subsidiaries taken as a whole or
would prohibit or materially delay the Buyer's ability to perform
its obligations under this Agreement.
(d) Brokers and Finders. Other than Buckley Gingell & Associates Ltd.,
the Buyer has not employed any broker, finder, consultant or
intermediary in connection with the transactions contemplated by this
Agreement who would be entitled to a broker's, finder's or similar fee
or commission in connection therewith or upon the consummation thereof,
or if the Closing does not occur. The Buyer agrees to bear all costs it
incurs, including fees and expenses of Buckley Gingell & Associates
Ltd., in connection with the transactions contemplated by this Agreement
unless otherwise expressly provided herein.
(e) Financial Capability. On the Closing Date, the Buyer will have
sufficient funds to purchase the Shares on the terms and conditions
contemplated by this Agreement.
(f) Due Diligence. As of the date the Agreement is signed, the Buyer
does not have any actual knowledge of any fact which the Buyer in its
sole judgment, deems to constitute a breach of any warranty or
representation made by Repap in this Agreement. The Buyer does not make
any representation or warranty that the due diligence examination upon
which it based its judgement was accurate or complete and Repap hereby
acknowledges that the enforceability of the representations and
warranties made by Repap in this Agreement shall not in any manner be,
or be deemed to be, waived or otherwise affected by the Buyer's actual
knowledge of any fact constituting such material breach.
4.2 NO OTHER REPRESENTATIONS OR WARRANTIES. Except for the representations and
warranties contained in this Article IV, neither the Buyer nor any other Person
makes any other express or implied representation or warranty on behalf of the
Buyer.
ARTICLE V
COVENANTS AND AGREEMENTS
OF REPAP AND THE BUYER
5.1 ACCESS AND INFORMATION.
(a) Repap shall permit the Buyer and its representatives after the date
of execution of this Agreement to have reasonable access, during regular
business hours and upon reasonable advance notice, to any and all of the
Assets and to the officers of Repap Manitoba, subject to Repap's
reasonable rules and regulations, and shall furnish, or cause to be
furnished, to the Buyer any financial and operating data or other
information that is available with respect to the Business or the Assets
as may be reasonably necessary for the Buyer or Repap to obtain any
third party action, consent or approval required
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hereunder or as the Buyer shall from time to time otherwise reasonably
request, provided that the foregoing shall not require Repap to permit
any inspection, or to disclose any information, that in its reasonable
judgment would result in the disclosure of any trade secrets of third
parties or violate any of Repap's or Repap Manitoba's obligations with
respect to confidentiality if Repap shall have used its reasonable best
efforts to obtain the consent of any such third party to such inspection
or disclosure.
(b) In the event of the termination of this Agreement, the Buyer at its
own expense shall promptly deliver (without retaining any copies
thereof) to Repap, or (at Repap's option) confirm in writing to Repap
that it has destroyed all information furnished to the Buyer, any of its
Affiliates or its representatives by Repap, Repap Manitoba or any of
their respective agents, employees or representatives as a result hereof
or in connection herewith, whether so furnished before or after the
execution hereof, and all analyses, compilations, forecasts, studies or
other documents prepared by the Buyer or its representatives which
contain or reflect any such information. The Buyer shall at all times
prior to the Closing Date, and in the event of termination of this
Agreement, cause any information so obtained to be kept confidential and
will not use, or permit the use of, such information in its business or
in any other manner or for any other purpose except as contemplated
hereby.
(c) All information provided or obtained pursuant to clause (a) above
shall be held by the Buyer in accordance with and subject to the terms
of the confidentiality agreement, dated May 12, 1997, between the Buyer
and Repap.
5.2 REGISTRATIONS, FILINGS AND CONSENTS; PROCEEDINGS.
(a) Repap and the Buyer will cooperate and use their respective
reasonable best efforts to fulfil the conditions precedent to the other
party's obligations hereunder, including but not limited to, securing as
promptly as practicable all consents, approvals, waivers and
authorizations required, necessary or desirable in connection with the
transactions contemplated hereby. The Buyer and Repap will promptly file
documentary materials required by the Competition Act, Environmental
Laws and each of the other items listed in Section 3.1(c) and Section
4.1(b) and promptly file any additional information requested as soon as
practicable after receipt of request therefor; provided that each party
shall duly file with the Director the notification required under the
Competition Act with respect to the sale and purchase of the Shares no
later than three Business Days after the date hereof.
(b) Without limiting the provisions set forth in paragraph (a) above, the
Buyer shall use its best efforts to take or cause to be taken all
actions necessary, proper or advisable to obtain any consent, waiver,
approval or authorization relating to the Competition Act that is
required for the consummation of the transactions contemplated by this
Agreement, which efforts shall not include, the proffer by the Buyer of
its willingness to accept an order providing for the divestiture by the
Buyer of such of the Assets or the Business or the assets and businesses
of the Buyer as are necessary for the Buyer to fully consummate the
transactions contemplated by this Agreement, or an offer to hold
separate any such assets and businesses pending such divestiture.
(c) Each of the Buyer and Repap shall vigorously defend or cause to be
defended any lawsuits or other legal proceedings brought against it or
any Affiliate thereof challenging this Agreement or the completion of
the transactions contemplated by this Agreement. Neither the Buyer nor
Repap shall settle or compromise any claim brought by their respective
present, former or purported holders of any of their securities in
connection with the transactions contemplated by this Agreement prior to
the Closing Date without the prior written consent of the other party,
which consent shall not be unreasonably withheld.
5.3 OPERATION OF BUSINESS. During the period commencing on the date hereof and
continuing until the Closing Date, unless the Buyer shall otherwise agree in
writing (such agreement not to be unreasonably withheld) or as otherwise
expressly contemplated or permitted by this Agreement, Repap will cause Repap
Manitoba:
(a) to carry on its business in the regular and ordinary course (in
substantially the same manner as heretofore conducted) and use its
reasonable best efforts to preserve intact the Assets, the Business,
organization, employees, customers, suppliers and goodwill;
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(b) not to subdivide, consolidate, redeem, purchase or otherwise acquire
or reclassify any of its outstanding shares of any class, declare any
dividends on or make other distributions (whether in cash, securities or
property or any combination thereof) in respect of its shares of any
class;
(c) not to amend its articles or by-laws or similar constating and
organizational documents (and Repap shall not amend them);
(d) not to allot, issue, authorize or propose or commit to the issuance
of (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise), or,
directly or indirectly, through an Affiliate or otherwise, purchase or
propose the purchase of, any shares in its capital of any class or
securities convertible into or exchangeable for, or rights, warrants or
options to acquire, any such shares or other convertible or exchangeable
securities;
(e) not to commit to or merge or consolidate with or into any other
Person;
(f) not to sell, lease, transfer, mortgage, hypothecate or otherwise
dispose of any of the Assets that are material, individually or in the
aggregate, to the Business, the other Assets, financial condition or
results of operations of Repap Manitoba taken as a whole other than in
the ordinary course of business and other than one R8 chlorine dioxide
generator and the pressure parts and structural steel for a Gotaverken
recovery boiler which are not necessary for the business of Repap
Manitoba;
(g) not to
(i) incur indebtedness for money borrowed in any amount or assume,
guarantee, endorse or otherwise become liable or responsible for
the financial obligations of any other Person other than in the
ordinary course of the Business for amounts less than $100,000, or
issue or sell any debt securities (it being understood that such
prohibition shall not prevent or hinder the drawing of funds
pursuant to credit facilities established and available as of the
date hereof);
(ii) approve any new capital expenditures in excess of $100,000
individually and $500,000 in the aggregate except as disclosed in
Schedule 3.1(n) or approved in writing by the Buyer;
(iii) dispose of or incur, create or assume any Encumbrance other than
Permitted Encumbrances on any individual capital asset of Repap
Manitoba without the written consent of the Buyer;
(iv) enter into any further hedging or trading transactions pursuant to
a treasury products contract or similar agreement or any similar
type of transaction through or with any Person; and
(v) enter into a contract, agreement, lease, commitment or arrangement
with respect to any of the foregoing; and
(h) not to grant to any officer of Repap Manitoba any increase in
compensation or in severance or termination pay, or enter into new or
amend existing agreements respecting employment (including benefits)
with any director or officer of Repap Manitoba, except as may be
required under employment or termination agreements in effect on the
date hereof or as may be required by law or in a manner consistent with
past practices.
5.4 CONTINUED EMPLOYMENT; EMPLOYEE BENEFIT PLANS. The Buyer shall:
(a) cause Repap Manitoba to retain in employment all employees of Repap
Manitoba who were employed on the Closing Date, for a period of at least
30 days, at the same rate of compensation in effect immediately prior to
the Closing; and
(b) give Employees of Repap Manitoba credit for all service with Repap
Manitoba and Repap and its Continuing Affiliates (including any other
service credited for purposes of the Plans) under all employee benefit
plans, programs and policies of the Buyer in which they become
participants for purposes of eligibility, vesting and benefit accrual
(other than benefit accrual under tax-qualified defined benefit pension
plans where such accrual would result in a duplication of benefits).
5.5 RETENTION OF BOOKS AND RECORDS. The Buyer shall cause Repap Manitoba to
retain, until all applicable tax statutes of limitations (including periods of
waiver) have expired, all books, records and other documents pertaining to Repap
Manitoba in existence on the Closing Date that are required to be retained under
current retention policies and to make the same available after the Closing Date
for the purpose of preparing the Closing Date Financial Information, and for
inspection and copying by Repap or its agents at Repap's expense, during regular
business
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hours and upon reasonable request and upon reasonable advance notice. Repap
shall keep such records strictly confidential and use them only for tax and
accounting purposes except as required by law or regulatory authority, or
reasonably required in connection with legal or regulatory proceedings.
5.6 CLOSING DATE FINANCIAL INFORMATION. For a period of one year from and
after the Closing Date, to the extent reasonably necessary for Repap or its
Continuing Affiliates to prepare consolidated financial statements or any
governmental permits, licenses or required filings and to comply with reporting
obligations in respect thereof, upon the written request of Repap and upon Repap
paying the Buyer's out-of-pocket costs, the Buyer shall cause Repap Manitoba to
provide, to Repap and its accountants within 20 Business Days of such request
such computer support, access to employees and the Buyer's accountants and
financial information of Repap Manitoba as of the Closing Date as Repap may
reasonably request in the format customarily required by Repap or its Affiliates
and, upon Repap's request, it will be accompanied by supplemental financial
schedules customarily required by Repap or its Affiliates in support of such
financial information. Repap shall keep such records strictly confidential and
use them only for accounting and tax purposes.
5.7 NOTIFICATION OF CERTAIN MATTERS. Each of the Buyer and Repap shall
promptly notify the other if any of the representations and warranties made by
it and contained in this Agreement ceases to be true, accurate and complete in
any material respect and of any failure to comply in any material respect with
any of its obligations under this Agreement.
5.8 NON-SOLICITATION OF EMPLOYEES. For a period of one (1) year following the
Closing Date, neither Repap nor any Continuing Affiliate shall solicit the
employment of any person, it knows to be an employee of Repap Manitoba or employ
any person it knows to be such an employee (other than any hourly worker or any
Employee who serves in a clerical function) without the prior written consent of
the Buyer; provided, however, that
(a) general solicitations of employment published in a journal, newspaper
or other publication of general circulation and not specifically
directed towards such employees shall not be deemed to constitute
solicitation for purposes of this Section 5.8; and
(b) Repap, its Continuing Affiliates and representatives shall not be
prohibited from employing any such person who contacts them on his or
her own initiative and without any solicitation by Repap, its Continuing
Affiliates or representatives.
5.9 CHANGE OF NAME. The Buyer shall, forthwith after the Closing, cause Repap
Manitoba to file all documents required to change the name of Repap Manitoba to
a name which does not make any use of the name "Repap" or any name similar
thereto, and the Buyer shall not use, and the Buyer shall cause Repap Manitoba
to not use, the name "Repap" or any name similar thereto.
5.10 INTER COMPANY ACCOUNTS. On the Closing Date, all intercompany accounts
between Repap Manitoba, on the one hand, and Repap or its Continuing Affiliates,
on the other hand, shall be settled and paid.
5.11 TAX RETURN. The parties shall co-operate with each other with the
preparation of the tax return for Repap Manitoba for the taxation year that ends
on the change of control resulting from the transactions contemplated in this
Agreement, which the Buyer shall cause Repap Manitoba to file with Revenue
Canada in a timely manner.
5.12 FURTHER ASSURANCES. At any time after the Closing Date, Repap and the
Buyer shall, and the Buyer shall cause Repap Manitoba to, promptly execute,
acknowledge and deliver any other assurances or documents reasonably requested
by the Buyer or Repap, as the case may be, and necessary for the Buyer or Repap,
as the case may be, to satisfy its obligations hereunder or obtain the benefits
contemplated hereby. Neither the Buyer nor Repap shall enter into any
transaction or perform any act which might reasonably be expected to interfere
or be inconsistent with the successful completion of the transactions
contemplated by this Agreement or which would render inaccurate any of its
representations and warranties in this Agreement.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 CONDITIONS FOR THE BENEFIT OF THE BUYER. The obligation of the Buyer to
consummate the transactions contemplated by this Agreement shall be subject to
the satisfaction or waiver by the Buyer in writing on or prior to the Closing
Date of each of the following conditions:
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(a) (i) Each of the representations and warranties of Repap contained in
this Agreement which refers to a Material Adverse Effect or otherwise
makes reference to a concept of materiality shall be true when made and
as of the Closing Date, and each of the other representations and
warranties of Repap contained in this Agreement shall be true in all
material respects when made and as of the Closing Date, with the same
effect as though such representations and warranties had been made on
and as of the Closing Date (except (A) representations and warranties
that are made as of a specific date need be true, or true in all
material respects, as the case may be, only as of such date and (B) as
expressly permitted by this Agreement to change between the date of this
Agreement and the Closing Date); (ii) each of the covenants and
agreements of Repap to be performed on or prior to the Closing Date
shall have been duly performed in all material respects; and (iii) the
Buyer shall have received at the Closing, certificates to the effect (i)
and (ii) above and to the effect that Repap does not have any actual
knowledge of any fact which Repap, in its sole judgment, deems to
constitute a breach of any warranty or representation made by the Buyer
in this Agreement, dated as of the Closing Date and executed on behalf
of Repap by its President or any of its Vice Presidents and its
Secretary or any of its Assistant Secretaries, provided that the
enforceability of the representations and warranties made by the Buyer
in this Agreement shall not in any manner be, or be deemed to be, waived
or otherwise affected by Repap's actual knowledge of any fact
constituting such material breach.
(b) The Reclamation Agreement dated May 4, 1989 between Her Majesty the
Queen in Right of the Province of Manitoba and Manfor Ltd. as amended by
the letter dated November 29, 1990 from Manitoba Environment to Repap
Manitoba.
(c) The Buyer shall have received from Repap an opinion of Thompson
Dorfman Sweatman, counsel to Repap, dated as of the Closing Date, in
form and content reasonably satisfactory to the Buyer and its
solicitors.
(d) Repap shall have delivered to the Buyer resignations of all corporate
directors and officers of Repap Manitoba, effective immediately after
the Closing, provided that the resignations of corporate officers shall
specifically provide that the resignation does not constitute a
resignation of employment with Repap Manitoba.
(e) Receipt by the Buyer prior to the Closing Date of assurances
satisfactory to the Buyer that there will be no liability to Repap
Manitoba as a result of the completion of the transactions contemplated
in this Agreement arising from any reassessment by Revenue Canada of the
transactions described in, or from the withdrawal by Revenue Canada of,
the advance income tax ruling dated July 28, 1995 in relation to Skeena
Cellulose Inc.
(f) Receipt by the Buyer from GATX Capital Canada Inc. prior to the
Closing Date of confirmation that Repap is not in default under the GATX
Equipment Lease and that the GATX Equipment Lease entitles Repap
Manitoba to acquire clear title to the equipment described in the GATX
Equipment Lease on the terms and conditions described therein.
(g) Conclusion to the Buyer's satisfaction prior to the Closing Date of
its discussions with the Province of Manitoba with respect to the
Buyer's capital and management plan and the Province's intent regarding
the SPADA.
(h) The termination, prior to the Closing Date, without liability to
Repap Manitoba or the Buyer of all sales, marketing and other contracts
between Repap Manitoba and Repap and/or its Continuing Affiliates and/or
Skeena Cellulose Inc. identified by the Buyer as requiring termination,
and if any such contracts are not able to be terminated prior to the
Closing Date then the giving of notice of termination of those contracts
in accordance with their terms prior to the Closing Date and the receipt
of the written consent of Skeena Cellulose Inc. or the approval of the
Supreme Court of British Columbia to the termination of the agreements
to which Skeena Cellulose Inc. is a party and which are to be
terminated.
(i) Repap and Repap Manitoba shall have obtained all consents and
approvals set forth in Schedule 3.1(c).
(j) Repap and Repap Manitoba shall deliver all documents reasonably
requested by the Buyer or its counsel and shall take all actions
reasonably necessary to complete the transactions contemplated by this
Agreement.
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(k) The execution and delivery by Repap and Repap Manitoba of an
assignment agreement, in form and content satisfactory to the Buyer
acting reasonably, assigning the SPADA from Repap to Repap Manitoba with
effect as of the Closing Date.
6.2 CONDITIONS FOR THE BENEFIT OF REPAP. The obligation of Repap to consummate
the transactions contemplated by this Agreement shall be subject to the
satisfaction or waiver by Repap in writing on or prior to the Closing Date of
each of the following conditions:
(a) (i) Each of the representations and warranties of the Buyer contained
in this Agreement qualified by a concept of materiality shall be true
when made and as of the Closing Date, and each of the other
representations and warranties of the Buyer contained in this Agreement
shall be true in all material respects when made and as of the Closing
Date, with the same effect as though such representations and warranties
had been made on and as of the Closing Date (except (A) representations
and warranties that are made as of a specific date need be true, or true
in all material respects, as the case may be, only as of such date and
(B) as expressly permitted by this Agreement to change between the date
of this Agreement and the Closing Date); (ii) each of the covenants and
agreements of the Buyer to be performed on or prior to the Closing Date
shall have been duly performed in all material respects; and (iii) Repap
shall have received at the Closing certificates to the effect of (i) and
(ii) and to the effect that the Buyer does not have any actual knowledge
of any fact which the Buyer, in its sole judgment, deems to constitute a
breach of any warranty or representation made by Repap in this
Agreement, dated as of the Closing Date and executed on behalf of the
Buyer by its President or any of its Vice Presidents and its Secretary
or any of its Assistant Secretaries, provided that the enforceability of
the representations and warranties made by Repap in this Agreement shall
not in any manner be, or be deemed to be, waived or otherwise affected
by the Buyer's actual knowledge of any fact constituting such material
breach.
(b) Repap shall have received from Ladner Downs, as counsel for the
Buyer, an opinion, dated as of the Closing Date, in form and content
reasonably satisfactory to Repap and its solicitors.
(c) the Buyer shall deliver all documents reasonably requested by Repap
or its counsel and shall take all actions reasonably necessary to
complete the transactions contemplated by this Agreement.
6.3 CONDITIONS FOR THE BENEFIT OF THE BUYER AND REPAP. The obligations of the
parties to consummate the transactions contemplated by this Agreement shall be
subject to the satisfaction or waiver by both parties on or prior to the Closing
Date of the following conditions:
(a) Each party shall have duly filed with the Director the information
required under the Competition Act with respect to the sale and purchase
of the Shares and been notified that the Director does not intend to
apply to the Competition Tribunal under section 92 or 100 of the
Competition Act or the waiting period required by the Competition Act,
and any extensions thereof obtained by request or other action of the
Director, shall have expired without the Director notifying either party
that the Director intends to apply to the Competition Tribunal under
section 92 or 100 of the Competition Act.
(b) No court or governmental authority of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute,
rule, regulation, judgment, decree, injunction or other order which is
in effect on the Closing Date and prohibits the consummation of the
Closing.
6.4 TERMINATION IN THE EVENT OF SHAREHOLDER ACTION. If: (a) the consummation
of the Closing on the Closing Date is prevented as a result of an action,
proceeding or claim initiated by or participated in by or on behalf of any
shareholder or debenture holder of Repap before any court, securities
commission, stock exchange or other regulatory authority, or (b) not more than
two hours prior to the Closing such action, proceeding or claim reasonably could
be expected, if ultimately successful, to result in the transactions
contemplated by this Agreement being delayed, prevented or voided then, provided
the condition to Closing contained in Section 6.1(g) shall have been satisfied
or waived by the Buyer, the Buyer shall have the right, notwithstanding any
other provision of this Agreement, to terminate this Agreement by written notice
to Repap whereupon Repap shall pay to the Buyer within five (5) Business Days of
receipt by Repap of such notice by certified cheque in the amount of $2,500,000,
plus documented out-of-pocket expenses incurred by the Buyer in connection with
this Agreement and not exceeding $1,500,000, in satisfaction of all liabilities
of Repap to the Buyer pursuant to this Agreement. Upon such
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termination of this Agreement pursuant to this Section 6.4 and payment by Repap
to the Buyer of the amounts referred to in this Section 6.4, the provisions of
Section 7.2 shall apply.
ARTICLE VII
TERMINATION
7.1 TERMINATION. This Agreement may be terminated at any time prior to the
Closing:
(a) by agreement of the Buyer and Repap;
(b) by either the Buyer or Repap, by giving written notice of such
termination to the other party, if (x) any condition for the benefit of
the terminating party hereunder has not been satisfied or waived and (y)
the Closing shall not have occurred on or prior to August 8, 1997;
provided that the terminating party is not in material breach of its
obligations under this Agreement;
(c) by either the Buyer or Repap if there shall be in effect any law or
regulation that prohibits the consummation of the Closing or if
consummation of the Closing would violate any order, injunction, decree
or judgment of any court or governmental body having competent
jurisdiction;
7.2 EFFECT OF TERMINATION. In the event of the termination of this Agreement in
accordance with Section 6.4 or 7.1 hereof, this Agreement shall thereafter
become void and have no effect, and no party hereto shall have any liability to
the other party hereto or their respective Affiliates, directors, officers or
employees, except for the obligations of the parties hereto contained in this
Section 7.2 and in Sections 5.1(b), 5.1(c), 9.2, 9.3 and 9.4 hereof, and except
that nothing herein will relieve any party from liability for any breach of this
Agreement prior to such termination in accordance with Section 7.1.
ARTICLE VIII
SURVIVAL AND INDEMNIFICATION
8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS; KNOWLEDGE
OF BREACH.
(a) Notwithstanding any investigations made by any party or any otherwise
applicable statutory limitation periods, the representations and
warranties included or provided for herein or in any document or
certificate delivered at the Closing shall survive the Closing, and any
reorganization, amalgamation, arrangement, sale or transfer of the
Shares or the Preferred Shares or the Assets, until three years after
the Closing Date; provided, however, that any representation, warranty,
covenant or agreement contained in Sections 3.1(bb), (ff) and (nn), and
Section 4.1(d) hereof, shall survive the Closing until the expiration of
the applicable statutory limitation periods (including any waivers or
extensions thereof) with respect to such matters. The covenants and
other agreements contained in this Agreement shall survive the Closing
until the date or dates specified therein or (except as to Section
5.4(a)) the expiration of the applicable statutory limitation periods
(including any waivers or extensions thereof) with respect to such
matters, whichever is later. Except with respect to the representations,
warranties, covenants and agreements contained in Sections 3.1(nn) and
4.1(d) hereof, in no event shall the Buyer be liable to Repap or Repap
be liable to the Buyer, as the case may be, for any breach or inaccuracy
of the representations, warranties, covenants and agreements included or
provided for herein or in any schedule or certificate or other document
delivered pursuant to this Agreement, unless and until all claims for
which any damage, loss, liability, cost or expense may be suffered or
incurred ("DAMAGE") are recoverable hereunder by the Buyer or Repap, as
the case may be, exceed $1,000,000 (the "DEDUCTIBLE"), in which case the
Buyer or Repap, as the case may be, shall be entitled to Damages in an
amount up to ten percent of the Purchase Price in the aggregate;
provided, however, that the Buyer or Repap, as the case may be, shall be
liable only for the amount by which all such recoverable damages exceed
the Deductible; provided, further, that for purposes of this Agreement,
in determining whether there is a breach of, or action or state of facts
inconsistent with, any representation or warranty, the terms "MATERIAL",
"MATERIALITY" and "MATERIAL ADVERSE EFFECT", when applied to:
(i) the representations and warranties contained in sub-paragraphs
3.1(d)(ii), (e) and (f) shall mean Damage in excess of $25,000 (the
"FINANCIAL DAMAGE THRESHOLD");
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(ii) all other representations and warranties contained in Section 3.1
and for breach of any other term or condition of this Agreement
shall mean any Damage in excess of $100,000 (the "GENERAL DAMAGE
THRESHOLD");
for each individual proven Damage (or group of Damages arising from the
same event, condition or course of conduct) for which indemnification is
being sought (whether or not such claim is being made against the
Deductible). For this purpose, if the relevant representation and
warranty contains a material, materiality or Material Adverse Effect
standard in the aggregate, the Financial Damage Threshold or General
Damage Threshold as applicable shall similarly apply in the aggregate.
(b) No party hereto shall be deemed to have breached any representation,
warranty, covenant or agreement if (i) such party shall have notified
the other parties hereto in writing, on or prior to the Closing Date, of
the breach of, or inaccuracy in, or of any facts or circumstances
constituting or resulting in the breach of or inaccuracy in, such
representation, warranty, covenant or agreement, specifically referring
to the provisions of this Agreement so breached or rendered inaccurate,
and (ii) the other party has permitted the Closing to occur and, for
purposes of this Agreement, is thereby deemed to have waived such breach
or inaccuracy; provided, however, that a disclosure pursuant to this
Section 8.1(b) shall not prejudice the rights of the parties pursuant to
Article VII hereof not to consummate the transactions contemplated by
this Agreement and to recover damages incurred as a result of such
breach or inaccuracy.
8.2 INDEMNIFICATION.
(a) For a period commencing on the Closing Date and ending, as the case
may be, upon the expiration of the periods specified in Section 8.1(a)
hereof, Repap or the Buyer, as the case may be (the "INDEMNIFYING
PARTY"), shall, subject to the limitations set forth in Sections 8.1(a)
and 8.1(b) hereof, indemnify, defend and hold harmless respectively the
Buyer, or Repap, as the case may be (the "INDEMNIFIED PARTY"), against
and in respect of all losses, damages, liabilities, costs and expenses
(including reasonable legal fees and expenses incurred in investigating,
preparing or defending any claims covered hereby) sustained or incurred
arising out of any breaches of the Indemnifying Party's representations,
warranties, covenants and agreements set forth in this Agreement. Any
payments pursuant to this Section 8.2 shall be treated as an adjustment
to the Purchase Price.
(b) Repap releases and waives any right of indemnity and contribution
from Repap Manitoba.
(c) The indemnities provided herein as they relate to this Agreement and
the transactions contemplated by this Agreement shall, in each case, be
the sole and exclusive remedy of the parties hereto, their Affiliates,
successors and assigns with respect to any and all claims for losses,
damages, liabilities, costs and expenses sustained or incurred arising
out of this Agreement and the transactions contemplated by this
Agreement, except for the right of the parties hereto to seek specific
performance of or injunctive relief in respect of the obligations set
forth in Article II and Sections 5.1(c), 5.4 and 5.8 of this Agreement.
8.3 METHOD OF ASSERTING CLAIMS. All claims for indemnification by any
Indemnified Party hereunder shall be asserted and resolved as set forth in this
Section 8.3. If any written claim or demand for which an Indemnifying Party
would be liable to any Indemnified Party hereunder is asserted against or sought
to be collected from any Indemnified Party by a third party, such Indemnified
Party shall promptly, but in no event more than 15 days following such
Indemnified Party's receipt of such claim or demand, notify the Indemnifying
Party of such claim or demand and the amount or the estimated amount thereof to
the extent then feasible (which estimate shall not in any manner prejudice the
right of the Indemnified Party to indemnification to the fullest extent provided
hereunder) (the "THIRD PARTY CLAIM NOTICE") and in the event that an Indemnified
Party shall assert a claim for indemnity under this Article VIII, not including
a third party claim, the Indemnified Party shall notify the Indemnifying Party
promptly following the determination by the Indemnified Party that it has a
basis for a claim and the information relied on to make the claim (together,
with a Third Party Claim Notice, a "CLAIM NOTICE"); provided, that the failure
to notify on the part of the Indemnified Party in the manner set forth herein
shall not foreclose any rights otherwise available to such Indemnified Party
hereunder, except to the extent that the Indemnifying Party is prejudiced by
such failure to notify. The Indemnifying Party shall have 30 days from the
delivery of the Third Party Claim Notice (except that such a period shall be
decreased to a time that is 10 days before a scheduled appearance
23
<PAGE> 29
date in a litigated matter) (the "NOTICE PERIOD") to notify the Indemnified
Party (i) whether or not the Indemnifying Party disputes the liability of the
Indemnifying Party to the Indemnified Party hereunder with respect to such claim
or demand and (ii) whether or not it desires to defend the Indemnified Party
against such claim or demand. All costs and expenses incurred by the
Indemnifying Party in defending such claim or demand shall be a liability of,
and shall be paid by, the Indemnifying Party. If the Indemnifying Party notifies
the Indemnified Party within the Notice Period that it desires to defend the
Indemnified Party against such claim or demand, as hereinafter provided, the
Indemnifying Party shall have the right to defend the Indemnified Party by
appropriate proceedings and by counsel reasonably acceptable to the Indemnified
Party. If any Indemnified Party desires to participate in, but not control, any
such defense or settlement it may do so at its sole cost and expense. The
Indemnified Party shall not settle a claim or demand without the prior written
consent of the Indemnifying Party, such consent not to be unreasonably withheld.
The Indemnifying Party shall not, without the prior written consent of the
Indemnified Party, such consent not to be unreasonably withheld, settle,
compromise or offer to settle or compromise any such claim or demand on a basis
which would result in the imposition of a consent order, injunction or decree
which would restrict the future activity or conduct of, or which would otherwise
have a material adverse effect on, the Indemnified Party or any subsidiary or
Affiliate thereof. If the Indemnifying Party elects not to defend the
Indemnified Party against such claim or demand, whether by not giving the
Indemnified Party timely notice as provided above or otherwise, then the amount
of any such claim or demand, or, if the same be contested by the Indemnified
Party, then that portion of any such claim or demand as to which such defense is
unsuccessful (and all reasonable costs and expenses pertaining to such defense)
shall be the liability of the Indemnifying Party hereunder, subject to the
limitations set forth in Section 8.1 hereof. To the extent the Indemnifying
Party shall control or participate in the defense or settlement of any third
party claim or demand, the Indemnified Party will give to the Indemnifying Party
and its counsel reasonable access to all business records and other documents
relevant to such defense or settlement, and shall permit them to consult with
the employees and counsel of the Indemnified Party. The Indemnified Party shall
use its best efforts in the defense of all such claims, and in connection
therewith shall be entitled to reimbursement by the Indemnifying Party of
expenses directly related to efforts undertaken at the specific request of the
Indemnifying Party.
ARTICLE IX
MISCELLANEOUS
9.1 AMENDMENT AND MODIFICATION; WAIVER. This Agreement may only be amended or
modified in writing, signed by Repap and the Buyer, at any time prior to the
Closing with respect to any of the terms contained herein. At any time prior to
the Closing either Repap or the Buyer may (i) extend the time for the
performance of any of the obligations or other acts of the other party hereto,
(ii) waive any inaccuracies in the representations and warranties of the other
party contained herein or in any document delivered pursuant hereto, and (iii)
waive compliance with any of the agreements or conditions of the other party
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid if set forth in an instrument in writing
signed by the party granting such extension or waiver. No waiver of any
provision of this Agreement shall constitute a waiver of any other provision nor
shall any waiver of any provision of this Agreement constitute a continuing
waiver unless otherwise expressly provided.
9.2 RETURN OF INFORMATION. If for any reason whatsoever the sale and purchase
of the Shares pursuant to this Agreement is not consummated, the Buyer shall
promptly return to Repap or Repap Manitoba all books, records and documents of
Repap or Repap Manitoba (including all copies, if any, thereof) furnished by
Repap, Repap Manitoba, or any of their respective agents, employees, or
representatives, and shall not use or disclose the information contained in such
books, records or documents for any purpose or make such information available
to any other Person.
9.3 EXPENSES. Except as otherwise expressly provided in this Agreement,
whether or not the transactions contemplated by this Agreement are consummated,
the parties shall bear their own respective expenses (including, but not limited
to, all compensation and expenses of counsel, financial advisors, consultants,
actuaries and independent accountants) incurred in connection with this
Agreement and the transactions contemplated hereby.
9.4 PUBLIC DISCLOSURE. Each of the parties to this Agreement hereby agrees
with the other parties hereto that, except as may be required to comply with the
requirements of applicable law or the rules and regulations of the
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<PAGE> 30
share exchanges upon which the securities of the parties or their Affiliates are
listed, no press release or similar public announcement or communication will be
made or caused to be made concerning the execution, content, terms or
performance of this Agreement unless specifically approved in advance by all
parties hereto; provided, however, that to the extent that either party to this
Agreement is required by law or the rules and regulations of any share exchange
upon which the securities of one of the parties or its Affiliates is listed to
make such a public disclosure, such public disclosure shall only be made after
prior consultation with the other party to this Agreement.
9.5 ASSIGNMENT. No party to this Agreement may assign any of its rights or
obligations under this Agreement without the prior written consent of the other
party hereto other than an assignment by the Buyer to an Affiliate, which may be
done by the Buyer without the consent of Repap. Any assignment of this Agreement
by the Buyer to an Affiliate shall not relieve the Buyer from the Buyer's
obligations under this Agreement.
9.6 ENTIRE AGREEMENT. This Agreement contains the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral or written, with respect to such
matters, except for the Confidentiality Agreement which will remain in full
force and effect for the term provided for therein.
9.7 FULFILMENT OF OBLIGATIONS. Any obligation of any party to any other party
under this Agreement, which obligation is performed, satisfied or fulfilled by
an Affiliate of such party, shall be deemed to have been performed, satisfied or
fulfilled by such party.
9.8 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. This Agreement shall
enure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Nothing in this Agreement, ex-press
or implied, is intended to confer upon any Person other than the Buyer, Repap,
or their successors or permitted assigns, any rights or remedies under or by
reason of this Agreement.
9.9 SCHEDULES. The inclusion of any matter in any schedule to this Agreement
shall be deemed to be an inclusion for all purposes of this Agreement, including
each representation and warranty to which it may relate, but inclusion therein
shall expressly not be deemed to constitute an admission by Repap, or otherwise
imply, that any such matter is material or creates a measure for materiality for
the purposes of this Agreement.
9.10 COUNTERPARTS. This Agreement and any amendments hereto may be executed in
one or more counterparts, each of which shall be deemed to be an original by the
parties executing such counterpart, but all of which shall be considered one and
the same instrument.
9.11 SECTION HEADINGS. The section and paragraph headings and table of
contents contained in this Agreement are for reference purposes only and shall
not in any way affect the meaning or interpretation of this Agreement.
9.12 NOTICES. All notices hereunder shall be deemed given if in writing and
delivered personally or sent by facsimile, telex or by registered or certified
mail (return receipt requested) to the parties at the following addresses (or at
such other addresses as shall be specified by like notice):
(a) if to Repap, to:
Repap Enterprises Inc.
1250 Rene-Levesque Blvd. West
Suite 3800
Montreal, Quebec
H3B 4Y3 Canada
Attention: Terry W. McBride,
Vice President and
General Counsel
fax: (514) 846-1328
With copies to:
Thompson Dorfman Sweatman
Toronto Dominion Centre
2200-201 Portage Avenue
Winnipeg, Manitoba
R3B 3L3
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<PAGE> 31
Attention: Michael Sinclair
fax: (202) 943-6445
(b) if to the Buyer, to:
Tolko Industries Ltd.
Box 39
3203 -- 30(th) Avenue
Vernon, British Columbia
V1T 6M1
Attention: Doug Wilkes
Chief Financial Officer
fax: (250) 545-4783
With a copy to:
Ladner Downs
Barristers & Solicitors
1200 Waterfront Centre
200 Burrard Street
P.O. Box 48600
Vancouver, British Columbia
V7X 1T2
Attention: William F. Sirett
fax: (604) 687-1415
Any notice given by mail shall be deemed to be delivered, if mailed at any
other time than during a general discontinuance of postal service due to strike,
lockout or otherwise, on the fourth Business Day after the post-marked date
thereof. Any notice given by telex or facsimile shall be deemed to be delivered
on the Business Day following the sending. Any notice delivered personally shall
be deemed to be delivered at the time it is delivered to the applicable address
noted above either to the individual designated above or to an individual at
such address having apparent authority to accept deliveries on behalf of the
addressee. In the event of a general discontinuance of postal service due to
strike, lock-out or otherwise, notices or other communications shall be
delivered personally or by telex or facsimile.
9.13 GOVERNING LAW; SUBMISSION TO JURISDICTION; SELECTION OF FORUM. This
Agreement shall be governed by, and construed in accordance with, the laws of
the Province of Manitoba without reference to the choice of law principles
thereof. Each party hereto hereby submits to the jurisdiction, but not the
exclusive jurisdiction, of the courts of the Province of Manitoba.
9.14 SEVERABILITY. The provisions of this Agreement shall be deemed severable
and the invalidity or unenforceability of any provision shall not affect the
validity or enforceability of the other provisions hereof. If any provision of
this Agreement, or the application thereof to any person or entity or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other persons, entities or circumstances shall not be affected by
such invalidity or unenforceability.
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<PAGE> 32
IN WITNESS WHEREOF, this Agreement has been signed on behalf of each of the
parties hereto as of the date first written above.
REPAP ENTERPRISES INC.
Per:
Name:
Title:
Per:
Name:
Title:
TOLKO INDUSTRIES LTD.
Per:
Name: John Thorlakson
Title: Vice-President
Per:
Name: Doug Wilkes
Title: Chief Financial Officer
27
<PAGE> 33
SCHEDULES
<TABLE>
<S> <C> <C>
Schedule 1.1(pp) Permitted Encumbrances
Schedule 2.6(i)(B) Escrow Agreement
Schedule 3.1(c) Repap's Consents and Approvals
Schedule 3.1(e) Financial Statements
Schedule 3.1(g) Conflicts
Schedule 3.1(i) Litigation
Schedule 3.1(k) Labour and Employment Relations
Schedule 3.1(l) Benefit Plans
Schedule 3.1(m) Property Deficiencies
Schedule 3.1(n) Capital Expenditures
Schedule 3.1(o) Real Property
Schedule 3.1(r) Personal Property
Schedule 3.1(v) Consignment Inventory
Schedule 3.1(bb) Tax Matters
Schedule 3.1(dd) Undepreciated Capital Cost
Schedule 3.1(gg) Contracts
Schedule 3.1(hh) Environmental Matters
Schedule 3.1(ii) Licences
Schedule 3.1(jj) Insurance
</TABLE>
<PAGE> 34
SCHEDULE 1.1(pp) TO A SHARE PURCHASE AGREEMENT MADE BETWEEN REPAP
ENTERPRISES INC. AND TOLKO INDUSTRIES LTD., AS OF THE 18TH DAY OF JULY, 1997.
PERMITTED ENCUMBRANCES
A. Charges or liens on account of taxes, assessments or governmental or
statutory charges or levies not at the time due and delinquent or the
validity of which are being contested in good faith by proper legal or
administrative proceedings, as approved in writing by the Buyer.
B. Charges or liens arising by virtue of any judgment rendered or claim filed
against Repap Manitoba which is being contested in good faith by proper
legal proceedings, as approved in writing by the Buyer.
C. Undetermined or inchoate liens and charges incidental to current operations
which have not at such time been filed against Repap Manitoba pursuant to
law or which relate to obligations not due or delinquent.
D. Restrictions, easements, rights-of-way, servitudes or other similar rights
(the "Rights") in the Real Property which are granted to or reserved by
other persons and which in the aggregate do not have a Material Adverse
Effect.
E. The right reserved or vested in any municipality or governmental or other
public authority by the terms of any lease, Licence, franchise or grant
acquired by Repap Manitoba or by any statutory provisions, to terminate any
such lease, Licence, franchise or grant or to require annual or other
payments as a condition to the continuance thereof.
F. The encumbrance resulting from the deposit of cash or securities by Repap
Manitoba in connection with contracts, tenders or expropriation
proceedings, or to secure workers' compensation, surety or appeal bonds,
costs of litigation when required by law and public and statutory
obligations, liens or claims incidental to construction, builders' and
mechanics', warehouseman's, carriers' and other similar liens.
G. Security given to a public utility or any municipality or governmental or
other public authority when required by such utility or other authority in
connection with the operation of the Business, all in the ordinary course
of the Business.
H. The reservations, limitations, provisions and conditions, if any, expressed
in any original grants from the Crown.
I. Title defects or irregularities which are of a minor nature and in the
aggregate will not materially impair the use of any of the Assets for the
purpose for which they are held by Repap Manitoba.
J. Applicable municipal and other governmental restrictions affecting the use
of the Assets or the nature of any structures which may be erected on the
Real Property, provided such restrictions have been substantially complied
with.
K. Encumbrances, reservations and renewals thereof on equipment acquired or
leased by Repap Manitoba after July 3, 1997 to secure the payment of the
purchase price or the lease payments or the repayment of moneys borrowed to
pay the purchase price or the lease payments of such equipment.
L. Encumbrances which are approved in writing by the Buyer.
M. Reservations, limitations, provisos and interests set out in ss. 58(1) of The
Real Property Act (Manitoba).
N. Encumbrances listed on the attached list of Personal Property Registry
(Manitoba) registrations marked as Exhibit "I".
O. Encumbrances listed on the attached list of Real Property marked as Exhibit
"II".
P. Bank of Canada registration No. 29384 in favour of The Toronto-Dominion Bank
and registration No. 29385 in favour of The Royal Bank of Canada, both
dated October 25, 1995 and which will be discharged on closing.
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<PAGE> 35
EXHIBIT I
PERSONAL PROPERTY SECURITY REGISTRATIONS
The following is a list of registrations in the Personal Property Registry
(Manitoba) as of 4:30 p.m. on July 3, 1997:
DEBTOR: REPAP MANITOBA
<TABLE>
<S> <C> <C>
1. Registration No: 951020-109747
Secured Party: NEL National Capital Leasing Ltd
276-A Colony Street
Winnipeg MB R3C 1W3
Description: Purchase Money Security Interest ("PMSI") covering equipment
described as 1 Cisco 2500 Ethernet Dual Serial Multi
Protocl, 1 High Density Male DTE V/35 Cable, 10 feet, 1 IDS
Desktop feature set
Expiry: October 20, 1998
NOTE: Registration also under other business debtor names (Skeena Cellulose Inc.).
2. Registration No: 950515-108244
Secured Party: Dana Commercial Credit, Canada Inc.
310 -- 690 Dorval Drive
Oakville ON L6K 3W7
Description: Security Agreement covering equipment described in a
Schedule.
Expiry: May 15, 1998
NOTE: Also registered under other debtor business name (Skeena Cellulose Inc.)
3. Registration No: 950504-109044
Secured Party: National Typewriter and Office Equipment
272 Main Street
Winnipeg MB R3C 1B1
Description: PMSI covering a Canon LC5000 # VBY10118 Fax and a Canon
LC7000
VBY03817 Fax.
Expiry: May 4, 1998
4. Registration No: 950207-101999
Secured Party: NEL National Equipment Leasing Ltd.
276 Colony Street
Winnipeg MB R3C 1W3
Description: PMSI covering equipment (1 QCA6021C 11 Hour Storage, 1
QCA8242A 8 Port,
1 Q0C414C Card, 1 QPC513H Card).
Expiry: February 7, 1998
NOTE: This registration is registered under other debtor business names (Skeena Cellulose
Inc.)
DEBTOR: REPAP MANITOBA, A DIVISION OF SKEENA CELLULOSE INC.
5. Registration No: 950224-100319
Secured Party: National Typewriter and Office Equipment (see No. 3)
Description: PMSI covering a Canon fax LC5000, S/N UBV10118.
Expiry: February 24, 1998
DEBTOR: REPAP MANITOBA INC.
6. Registration No: 970605-106276
Secured Party: NEL National Capital Leasing Ltd.
Description: PMSI covering 1 Panasonic CF25 10X CD-ROM S/N # 7EK5C05922
Expiry: June 5, 2000
</TABLE>
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<TABLE>
<S> <C> <C>
7. Registration No: 970602-103080
Secured Party: Ford Credit Canada Ltd.
Description: PMSI covering 1997 Ford F250 pickup S/N 1FTFF28L4VKC88779
Expiry: June 2, 2000
8. Registration No: 970522-108471
Secured Party: NEL National Capital Leasing Ltd. (see No. 1)
Description: PMSI covering 1 HP LJ 4V 500 Sheet Cassette 1 Goldstar 8X
IDE CD ROM.
Expiry: May 22, 2000
9. Registration No: 970512-112357
Secured Party: NEL National Capital Leasing Ltd. (see No. 1)
Description: PMSI covering 1 Panasonic CF25 10X CD ROM; 3 NEC Versa 6000
battery charger; 2 NEC Versa 6000 Portbar.
Expiry: May 12, 2000.
10. Registration No: 970429-106612
Secured Party: Dana Commercial Credit, Canada Inc. 27 -- 1075 North Service
Road West Oakville ON L6N 2G2
Description: Security Agreement covering the collateral described in the
attached Schedule.
Expiry: April 29, 2000.
11. Registration No: 970429-106604
Secured Party: Dana Commercial Credit, Canada Inc. (see No. 9)
Description: Security Agreement covering the collateral described in
attached Schedule.
Expiry: April 29, 2000.
12. Registration No: 970418-103840
Secured Party: NEL National Capital Leasing Ltd. (see No. 1)
Description: PMSI covering equipment described in the attached Schedule.
Expiry: April 18, 2000.
13. Registration No: 970408-109034
Secured Party: NEL National Capital Leasing Ltd. (see No. 1)
Description: PMSI covering equipment described in the attached Schedule.
Expiry: April 8, 2000.
14. Registration No: 970327-109250
Secured Party: NEL National Capital Leasing Ltd. (see No. 1)
Description: PMSI covering equipment described in the attached Schedule.
Expiry: March 27, 2000.
15. Registration No: 970314-105191
Secured Party: Toyota Credit Canada Inc.
80 Microcourt Suite 200
Markham ON L3R 4Z5
Description: Security Agreement covering a 1997 Toyota 4Runner, Serial
Number
JT3HN86R7V0086606.
Expiry: March 14, 2000.
16. Registration No: 970228-108021
Secured Party: NEL National Capital Leasing Ltd. (see No. 1)
Description: PMSI covering 3-DEC Celebris GLST 6/200 3 4-DEC 17" SVGA
Frost White.
Expiry: February 28, 2000.
</TABLE>
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<TABLE>
<S> <C> <C>
17. Registration No: 961002-110555
Secured Party: MTC Leasing Inc.
3310 South Service Road
Burlington ON L7R 3Y7
Description: PMSI covering the collateral described in the attached
Schedule.
Expiry: October 2, 1999.
18. Registration No: 960916-108218
Secured Party: AT&T Capital Canada Inc.
900 -- 925 West Georgia Street
Vancouver BC V6C 3L2
Description: PMSI covering PMP System Upgrade Package together with all
attachments.
Expiry: September 16, 1999.
19. Registration No: 960722-126452
Secured Party: Dana Commercial Credit, Canada Inc.
690 Dorval Drive South
Oakville ON L6K 3W7
Description: Security Agreement covering the collateral described in the
attached Schedule.
Expiry: July 22, 1999.
20. Registration No: 960722-107296
Secured Party: Ford Credit Canada Ltd.
300 -- 1610 Ness Avenue
Winnipeg MB R3J 3X3
Description: PMSI covering a 1996 Ford F150 Pick-up, Serial Number
1FTEF15Y6TLC02000.
Expiry: July 22, 1999.
21. Registration No: 960722-107288
Secured Party: Ford Credit Canada Ltd. (see No. 19)
Description: PMSI covering a 1996 Ford F150 Pick-up, Serial Number
1FTEF15Y3TLC04769.
Expiry: July 22, 1999.
22. Registration No: 960717-103118
Secured Party: Ford Credit Canada Ltd. (see No. 19)
Description: PMSI covering a 1996 Ford F150 Pick-up, Serial Number
1FTEF15Y1TLC04771.
Expiry: July 17, 1999.
23. Registration No: 960717-103053
Secured Party: Ford Credit Canada Ltd. (see No. 19)
Description: PMSI covering a 1996 Ford F150 Pick-up, Serial Number
1FTEF15YXTLC04770.
Expiry: July 17, 1999.
24. Registration No: 960527-103510
Secured Party: GATX Capital Canada Inc.
2411 -- 150 King Street West
Toronto ON M5K 1J9
Description: PMSI covering the collateral described in the attached
Schedule.
Expiry: May 27, 1999.
25. Registration No: 960226-101016
Secured Parties: (a) NEL National Capital Leasing Ltd. (see No. 1)
(b) The Bank of Nova Scotia
200 Portage Avenue
Winnipeg MB R3C 3X2
Description: PMSI covering 1 Volvo Zettelmeyer ZL802 Articulated Wheel
Loader,
S/N ZL8026701345 C/W Bucket and Forks.
Expiry: February 26, 1999.
</TABLE>
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<TABLE>
<S> <C> <C>
26. Registration No: 960226-101008
Secured Party: NEL National Capital Leasing Ltd. (see No. 4)
Description: PMSI covering the collateral described in the attached
Schedule.
Expiry: February 26, 1999.
27. Registration No: 960209-104273
Secured Party: Caterpillar Financial Services Ltd.
700 Dorval Drive, Suite 705
Oakville ON L6K 3B3
Description: Security Agreement covering one Caterpillar Model D8N Track
Type Tractor,
S/N 5DJ02329.
Expiry: February 9, 1999.
28. Registration No: 960205-113219
Secured Party: Caterpillar Financial Services Ltd. (see No. 26)
Description: PMSI covering one new Caterpillar Model GP40LP Forklift, S/N
1CM00702.
Expiry: February 5, 1999.
29. Registration No 960125-103646
Secured Party: National Typewriter and Office Equipment (see No. 3)
Description: PMSI covering a Canon Fax LC5000, S/N UBV58911, .5 MB
Memory.
Expiry: January 25, 1999.
30. Registration No: 951106-117742
Secured Parties: (a) The Toronto-Dominion Bank
Toronto-Dominion Centre
Toronto ON M5K 1A2
(b) Royal Bank of Canada
20 King Street West
Toronto ON M5H 1C4
Description: Joint Demand Debenture for $55,000,000 US dated November 7,
1995.
Expiry: No expiry.
31. Registration No: 951031-102485
Secured Parties: (a) The Toronto-Dominion Bank (see No. 29)
(b) Royal Bank of Canada (see No. 29)
Description: Security Agreement covering all intangibles, inventory and
book debts of the business debtor.
Expiry: October 31, 1998.
32. Registration No: 860327-108882
Secured Party: The Toronto-Dominion Bank
55 King Street West and Bay Street
Toronto ON M5K 1A2
Description: Security Agreement covering Assignment of Book Debts dated
March 21, 1986.
Expiry: March 27, 1998.
ALBERTA
DEBTOR: REPAP MANITOBA INC.
1. Registration No: 95103120176
Secured Party: The Toronto-Dominion Bank
Royal Bank of Canada
Description: General Security Agreement
Expiry: October 31, 2000
</TABLE>
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<TABLE>
<S> <C> <C>
2. Registration No: 92060513626
Secured Party: The Toronto-Dominion Bank
Description: Accounts
Expiry: June 5, 1997
DEBTOR: REPAP MANITOBA/SKEENA CELLULOSE INC.
3. Registration No: 91103023601
Secured Party: General Electric Capital Canada Leasing Inc.
Description: Railway Rolling Stock
Expiry: October 30, 2001
4. Registration No: 91103023643
Secured Party: General Electric Capital Canada Leasing Inc.
Description: Railway Rolling Stock
Expiry: October 31, 2001
DEBTOR: SKEENA CELLULOSE INC.
5. Registration No: 92120700502
Secured Party: General Electric Capital Canada Leasing Inc.
Description: Railway Rolling Stock (railcars)
Expiry: December 7, 2002
DEBTOR: REPAP MANITOBA, A DIVISION OF SKEENA CELLULOSE INC.
6. Registration No: 91103023601
Secured Party: General Electric Capital Canada Leasing Inc.
Description: Railway Rolling Stock
Expiry: October 30, 2001
7. Registration No: 91103023643
Secured Party: General Electric Capital Canada Leasing Inc.
Description: Railway Rolling Stock
Expiry: October 31, 2001
8. Registration No: 92060513626
Secured Party: The Toronto-Dominion Bank
Description: Accounts
Expiry: June 5, 1997
9. Registration No: 95103120176
Secured Party: The Toronto-Dominion Bank
Royal Bank of Canada
Description: General Security Agreement
Expiry: October 31, 2000
ONTARIO
DEBTOR: REPAP MANITOBA INC.
1. Registration No: 951026 1403 0028 5569
Secured Party: The Toronto-Dominion Bank
Description: Inventory, Accounts, Other
Expiry: October 26, 2000
2. Registration No: 951026 1403 0028 5570
Secured Party: The Toronto-Dominion Bank
Royal Bank of Canada
Description: Inventory, Accounts, Other
Expiry: October 26, 2000
</TABLE>
7
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<TABLE>
<S> <C> <C>
ARKANSAS
JURISDICTION: SECRETARY OF STATE
DEBTOR: REPAP MANITOBA INC.
1. Registration No: 987791
Secured Party: Royal Bank of Canada
Description: All of Debtor's inventory consisting of pulpwood, unbleached
pulp, kraft pulp, sack kraft pulp and lumber, whether now
owned or hereafter acquired, including all products and
proceeds of the foregoing
Expiry: N/A
2. Registration No: 987792
Secured Party: The Toronto-Dominion Bank
Description: All of Debtor's inventory consisting of pulpwood, unbleached
pulp, kraft pulp, sack kraft pulp and lumber, whether now
owned or hereafter acquired, including all products and
proceeds of the foregoing
Expiry: N/A
JURISDICTION: ASHLEY COUNTY
DEBTOR: REPAP MANITOBA INC.
3. Registration No: 95-1135
Secured Party: Royal Bank of Canada
Description: All of Debtor's inventory consisting of pulpwood, unbleached
pulp, kraft pulp, sack kraft pulp and lumber, whether now
owned or hereafter acquired, including all products and
proceeds of the foregoing
Expiry: N/A
4. Registration No: 95-1136
Secured Party: The Toronto-Dominion Bank
Description: All of Debtor's inventory consisting of pulpwood, unbleached
pulp, kraft pulp, sack kraft pulp and lumber, whether now
owned or hereafter acquired, including all products and
proceeds of the foregoing
Expiry: N/A
CALIFORNIA
JURISDICTION: SECRETARY OF STATE
DEBTOR: REPAP MANITOBA INC.
1. Registration No: 9530560051
Secured Party: The Toronto-Dominion Bank
Description: All of Debtor's inventory consisting of pulpwood, unbleached
pulp, kraft pulp, sack kraft pulp and lumber, whether now
owned or hereafter acquired, including all products and
proceeds of the foregoing.
Expiry: N/A
2. Registration No: 9530560080
Secured Party: Royal Bank of Canada
Description: All of Debtor's inventory consisting of pulpwood, unbleached
pulp, kraft pulp, sack kraft pulp and lumber, whether now
owned or hereafter acquired, including all products and
proceeds of the foregoing.
Expiry: N/A
</TABLE>
8
<PAGE> 41
<TABLE>
<S> <C> <C>
JURISDICTION: PLACER COUNTY
DEBTOR: REPAP MANITOBA INC.
3. Registration No: 95-058474
Secured Party: The Toronto-Dominion Bank
Description: All of Debtor's inventory consisting of pulpwood, unbleached
pulp, kraft pulp, sack kraft pulp and lumber, whether now
owned or hereafter required, including all products and
proceeds of the foregoing
Expiry: N/A
4. Registration No: 95-058475
Secured Party: Royal Bank of Canada
Description: All of Debtor's inventory consisting of pulpwood, unbleached
pulp, kraft pulp, sack kraft pulp and lumber, whether now
owned or hereafter acquired, including all products and
proceeds of the foregoing.
Expiry: N/A
OHIO
JURISDICTION: SECRETARY OF STATE
DEBTOR: REPAP MANITOBA INC.
1. Registration No: 022035 10319511713
Secured Party: The Toronto-Dominion Bank
Description: All of Debtor's inventory consisting of pulpwood, unbleached
pulp, kraft pulp, sack kraft pulp and lumber, whether now
owned or hereafter acquired, including all products and
proceeds of the foregoing.
Expiry: N/A
2. Registration No: 022035 10319511712
Secured Party: Royal Bank of Canada
Description: All of Debtor's inventory consisting of pulpwood, unbleached
pulp, kraft pulp, sack kraft pulp and lumber, whether now
owned or hereafter acquired, including all products and
proceeds of the foregoing.
Expiry: N/A
JURISDICTION: HAMILTON COUNTY
DEBTOR: REPAP MANITOBA INC.
3. Registration No: 6897 1210
Secured Party: The Toronto-Dominion Bank
Description: All of Debtor's inventory consisting of pulpwood, unbleached
pulp, kraft pulp, sack kraft pulp and lumber, whether now
owned or hereafter acquired, including all products and
proceeds of the foregoing.
Expiry: N/A
4. Registration No: 6897 1209
Secured Party: Royal Bank of Canada
Description: All of Debtor's inventory consisting of pulpwood, unbleached
pulp, kraft pulp, sack kraft pulp and lumber, whether now
owned or hereafter acquired, including all products and
proceeds of the foregoing.
Expiry: N/A
</TABLE>
9
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EXHIBIT II
REAL PROPERTY
THE MILL SITE PROPERTY
PARCEL ONE: Parcels A, B and C Plan 5153 PLTO (N Div) in 78-6 EPM
Exc all mines, minerals and other reservations as
contained in The Crown Lands Act.
(Certificate of Title No. 1486470)
Encumbrances:
Mortgage No. 95-7061 filed November 7, 1995 in favour of The
Toronto-Dominion Bank and Royal Bank of Canada.
PPSN No. 96-4040 Personal Property Security Notice filed June 13, 1996
by GATX Capital Canada Inc.
PARCEL TWO: Parcel: S 1/2 30 and all that portion Section 19,
which lies to the north of the left bank of the
Saskatchewan River, in 56-25 WPM, as shown on
Township Diagram dated June 24, 1915, exc all mines,
minerals and other reservations as contained in The
Crown Lands Act.
Parcel 2: All those portions of NW 1/4 13, NE 1/4
14, Legal Subdivision 11 of said Section 14, and
SE 1/4 24, which lies to the north of the left bank of
the Saskatchewan River, Legal Subdivisions 13 and 14
of Section 14, all Section 23, N 1/2 and SW 1/4 24,
and S 1/2 25 and S 1/2 26, all in 56-26 WPM, as shown
on Township Diagram dated November 29, 1913, exc
1stly: out of the Sw 1/4 26, the sly 750 feet perp of
the nly 1240 feet perp 2ndly: out of the SE 1/4 26,
the sly 750 feet perp of the nly 1240 feet perp of
the wly 360 feet perp 3rdly: all mines, minerals and
other reservations as contained in The Crown Lands
Act.
(Certificate of Title No. 1486472)
Encumbrances:
Caveat No. 42594 filed August 19, 1969 at 9:33 a.m. by the Manitoba
Hydro Electric Board giving notice of an Easement
Agreement made on August 5, 1969 between Churchill
Forestry Industries (Manitoba) Limited and the
Manitoba Hydro Electric Board.
Caveat No. 43329 filed October 15, 1970 at 9:14 a.m. by the Manitoba
Hydro Electric Board giving notice of an Easement
Agreement made October 1, 1970 between Churchill
Forest Industries (Manitoba) Limited and MHEB.
Caveat No. 46192 filed November 12, 1975 at 9:22 a.m. by Canadian
National Railway Company giving notice of a
Right-of-Way Agreement dated May 28, 1975.
Caveat No. 85-1935 filed March 15, 1985 by the Manitoba Hydro Electric
Board giving notice of an Easement Agreement dated
November 29, 1984 between Manfor Ltd. and the
Manitoba Hydro Electric Board.
Mortgage No. 95-7061 filed November 7, 1995 in favour of The
Toronto-Dominion Bank and Royal Bank of Canada.
PPSN No. 96-4040 Personal Property Security Notice filed June 13, 1996
by GATX Capital Canada Inc.
PARCEL THREE: Parcel 1: All that portion of the Government Road
Allowance (now closed) in 56-25 WPM, lying between
Sections 19 and 30, in 56-25 WPM which lies between
the straight productions Sly of the eastern and
western limits of said
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<PAGE> 43
Section 30. Exc all mines, minerals and other
reservations as contained in The Crown Lands Act.
Parcel 2: All that portion of the Government Road
Allowance (now closed) lying between the western
limits of Sections 19 and 30 and the straight
production Sly of the Western limit of said Section
30, in 56-25 WPM and the eastern limits of Sections
24 and 25 and the straight production Sly of the
eastern limit of said Section 25, in 56-26 WPM which
lies between the left bank of the Saskatchewan River
and the straight production Wly of the northern limit
of the SW 1/4 of said Section 30, Exc all mines,
minerals and other reservations as contained in The
Crown Lands Act.
Parcel 3: All that portion of the Government Road
Allowance (now closed), in 56-26 WPM, lying between
the western limit of Sections 13, 24 and 25, and the
straight production Sly of the western limit of said
Section 25, all in 56-26 WPM, and the eastern limits
of Sections 14, 23 and 26 and the straight production
Sly of the eastern limit of said Section 26, all in
56-26 WPM, which lies between the left bank of the
Saskatchewan River and the straight production Wly of
the northern limit of the SW 1/4 of said Section 25,
exc all mines, minerals and other reservations as
contained in The Crown Lands Act.
Parcel 4: All that portion of the Government Road
Allowance (now closed), in 56-26 WPM, lying between
Sections 24 and 25, in 56-26 WPM, which lies between
the straight productions Sly of the eastern and
western limits of said Section 25, exc all mines,
minerals and other reservations as contained in The
Crown Lands Act.
Parcel 5: All that portion of the Government Road
Allowance (now closed), in 56-26 WPM, lying between
Sections 23 and 26, in 56-26 WPM, which lies between
the straight productions Sly of the eastern and
western limits of said Section 26, exc all mines,
minerals and other reservations as contained in The
Crown Lands Act.
(Certificate of Title No. 1486527)
Encumbrances:
Caveat No. 43329N filed October 15, 1970 at 9:14 a.m. by the Manitoba
Hydro Electric Board giving notice of an Easement
Agreement made October 1, 1970 between Churchill
Forest Industries (Manitoba) Limited and MHEB.
Mortgage No. 95-7061 filed November 7, 1995 in favour of The
Toronto-Dominion Bank and Royal Bank of Canada.
PPSN 96-4040 Personal Property Security Notice filed June 13, 1996
by GATX Capital Canada Inc.
PARCEL FOUR: The Sly 750 feet perp of the Nly 1240 feet perp of
SW 1/4 26, and the Sly 750 feet perp of the Nly 1240
feet perp of the Wly 360 feet perp of SE 1/4 26, all
in 56-26 WPM Exc all mines, minerals and other
reservations as contained in The Crown Lands Act.
(Certificate of Title No. 1486557)
Encumbrances:
Caveat No. 46192N filed November 12, 1975 at 9:22 a.m. by Canadian
National Railway Company giving notice of a
Right-of-Way Agreement dated May 28, 1975.
Caveat No. 85-1935N filed March 15, 1985 by the Manitoba Hydro Electric
Board giving notice of an Easement Agreement dated
November 29, 1984 between Manfor Ltd. and the
Manitoba Hydro Electric Board.
11
<PAGE> 44
Mortgage No. 95-7061 filed November 7, 1995 in favour of The
Toronto-Dominion Bank and Royal Bank of Canada.
PPSN 96-4040 Personal Property Security Notice filed June 13, 1996
by GATX Capital Canada Inc.
PARCEL FIVE: NW 1/4 27-56-26 WPM Exc all mines, minerals and other
reservations as contained in The Crown Lands Act.
(Certificate of Title No. 1486577)
Encumbrances:
Mortgage No. 95-7061 filed November 7, 1995 in favour of The
Toronto-Dominion Bank and Royal Bank of Canada.
PPSN No. 96-4040 Personal Property Security Notice filed June 13, 1996
by GATX Capital Canada Inc.
PARCEL SIX: N 1/2 26-56-26 WPM Exc all mines, minerals and other
reservations as contained in The Crown Lands Act.
(Certificate of Title No. 1486490)
Encumbrances:
Mortgage No. 95-7061 filed November 7, 1995 in favour of The
Toronto-Dominion Bank and Royal Bank of Canada.
PPSN No. 96-4040 Personal Property Security Notice filed June 13, 1996
by GATX Capital Canada Inc.
PARCEL SEVEN: NW 1/4 22-56-26 WPM, exc 1stly: Rly Plan 539 PLTO (N
Div) 2ndly: Plans 4597 PLTO (N Div) and 7295 PLTO (N
Div) 3rdly: all mines, minerals and other
reservations as contained in The Crown Lands Act.
(Certificate of Title No. 1486493)
Encumbrances:
Agreement No. 199296N registered October 204 1969 at 9:43 a.m. by the
Manitoba Hydro Electric Board giving notice of an
Agreement between HMQ (Manitoba) and the Manitoba
Hydro Electric Board.
Easement No. 81-8732N registered August 17, 1981 by the Manitoba Hydro
Electric Board giving notice of an Easement Agreement
made June 24, 1981 between HMQ (Manitoba) and the
Manitoba Hydro Electric Board.
Caveat No. 85-1935 filed March 15, 1985 by the Manitoba Hydro Electric
Board giving notice of an Easement Agreement dated
November 29, 1984 between Manfor Ltd. and the
Manitoba Hydro Electric Board.
Caveat No. 96-816 filed February 5, 1996 by MTS NetCom Inc. giving
notice of an Easement Agreement.
Mortgage No. 95-7061 filed November 7, 1995 in favour of The
Toronto-Dominion Bank and Royal Bank of Canada.
PPSN No. 96-4040 Personal Property Security Notice filed June 13, 1996
by GATX Capital Canada Inc.
PARCEL EIGHT: Parcel 1: E 1/2 27-56-26 WPM, exc 1stly: Rly Plan
539 PLTO (N Div) 2ndly: Plan 4597 PLTO (N Div) 3rdly:
all mines, minerals and other reservations as
contained in The Crown Lands Act.
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<PAGE> 45
Parcel 2: All that portion of the Government Road
Allowance (now closed) which lies between Sections 26
and 27-56-26 WPM Exc all mines, minerals and other
reservations as contained in The Crown Lands Act.
(Certificate of Title No. 1486501)
Encumbrances:
Agreement No. 202496 registered December 24, 1975 between Manitoba
Forestry Resources Ltd. and Canadian National Railway
Company.
Caveat No. 85-1935 filed March 15, 1985 by the Manitoba Hydro Electric
Board giving notice of an Easement Agreement dated
November 29, 1984 between Manfor Ltd. and the
Manitoba Hydro Electric Board.
Mortgage No. 95-7061 filed November 7, 1995 in favour of The
Toronto-Dominion Bank and Royal Bank of Canada.
PPSN No. 96-4040 Personal Property Security Notice filed June 13, 1996
by GATX Capital Canada Inc.
PARCEL NINE: SW 1/4 27-56-26 WPM exc 1stly: Rly Plan 539 PLTO (N
Div) 2ndly: Road Plan 7049 PLTO (N Div) 3rdly: Plan
4597 PLTO (N Div) and 7295 PLTO (N Div) 4thly: all
mines, minerals and other reservations as contained
in The Crown Lands Act.
(Certificate of Title No. 1486509)
Encumbrances:
Agreement No. 202496N registered December 24, 1975 between Manitoba
Forestry Resources Ltd. and Canadian National Railway
Company.
Easement No. 81-8732N registered August 17, 1981 by the Manitoba Hydro
Electric Board giving notice of an Easement Agreement
made June 24, 1981 between HMQ (Manitoba) and the
Manitoba Hydro Electric Board.
Caveat No. 85-1935N filed March 15, 1985 by the Manitoba Hydro Electric
Board giving notice of an Easement Agreement dated
November 29, 1984 between Manfor Ltd. and the
Manitoba Hydro Electric Board.
Mortgage No. 95-7061 filed November 7, 1995 in favour of The
Toronto-Dominion Bank and Royal Bank of Canada.
PPSN No. 96-4040 Personal Property Security Notice filed June 13, 1996
by GATX Capital Canada Inc.
THE HOUSE LOCATED IN THE PAS
PARCEL TEN: In the Town of The Pas and being Lot 12 Block 3 Plan
2362 PLTO in the N 1/2 3 and S 1/2 10-56-26 WPM exc
all mines, minerals and other reservations as
contained in The Crown Lands Act.
(Certificate of Title No. E9564)
Encumbrances:
Mortgage No. 95-7061 filed November 7, 1995 in favour of The
Toronto-Dominion Bank and Royal Bank of Canada.
PPSN No. 96-4040 Personal Property Security Notice filed June 13, 1996
by GATX Capital Canada Inc.
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SCHEDULE 3.1(c) TO A SHARE PURCHASE AGREEMENT MADE BETWEEN REPAP
ENTERPRISES INC. AND TOLKO INDUSTRIES LTD., AS OF THE 18TH DAY OF JULY, 1997.
REPAP'S CONSENTS AND APPROVALS
1. Consent of the Lenders to exempt the transactions contemplated by this
Agreement from the definition of "Change of Control" contained in the Term
Loan Agreement and the Operating Credit Agreement.
2. Consent of TD Capital Group Limited as agent for the Lenders including
itself, Royal Bank of Canada and The Toronto-Dominion Bank, under the
Standby Loan Agreement.
3. Consent of GATX Capital Canada Inc. pursuant to the GATX Equipment Lease.
4. Consent of GE Capital Canada pursuant to the equipment lease agreement
dated June 8, 1995 between GE Capital Canada Inc. and Repap Manitoba.
5. Consent of Ferrostaal AG under the Ferrostaal Credit Facility.
6. Consent of Montreal Trust under the Deed of Hypotheque between Repap and
Montreal Trust dated March 18, 1997.
SCHEDULE 3.1(e) TO A SHARE PURCHASE AGREEMENT MADE BETWEEN REPAP
ENTERPRISES INC. AND TOLKO INDUSTRIES LTD., AS OF THE 18TH DAY OF JULY, 1997.
FINANCIAL STATEMENTS
1. See the audited financial statements of Repap Manitoba for the year ending
December 31, 1995 consisting of the attached 16 pages.
2. See the audited financial statements of Repap Manitoba for the year ending
December 31, 1996 consisting of the attached 17 pages.
3. See the quarterly unaudited statements of Repap Manitoba for the quarter
ending March 31, 1997 consisting of the attached three pages.
4. See the quarterly unaudited statements of Repap Manitoba for the quarter
ending June 30, 1997, consisting of the attached three pages.
14
<PAGE> 47
SCHEDULE 3.1(g) TO A SHARE PURCHASE AGREEMENT MADE BETWEEN REPAP
ENTERPRISES INC. AND TOLKO INDUSTRIES LTD. AS OF THE 18TH DAY OF JULY, 1997.
CONFLICTS
A. CONFLICTS
1. The agreements for which consent is required pursuant to Schedule 3.1(c)
and except as otherwise disclosed in any other Schedule to this Agreement.
2. The employment contracts listed in B -2 of Schedule 3.1(k).
B. COMPLIANCE
1. There are outstanding stumpage fees of approximately $1,000,000.00 owing to
the Province of Manitoba by Repap Manitoba Inc. under the Forest Management
Licence Agreement which were due June 15, 1997 and which are scheduled to
be paid in the week of July 21, 1997. These fees are shown as accruing in
the Financial Statements.
2. Repap Manitoba has applied for a water rights licence from the Manitoba
Department of Natural Resources regarding the diversion of water from the
Saskatchewan River. This licence has not yet been issued.
3. Repap Manitoba has not proceeded with the development of the BCTMP Mill and
has not undertaken the additional nine million dollars in capital
expenditures on the sawmill as required under the provisions of the Amended
and Restated Forest Management Licence Agreement and the SPADA.
4. There is an outstanding order of the Manitoba Department of Labour
Workplace Safety and Health regarding a "Spray Coating Operation".
SCHEDULE 3.1(i) TO A SHARE PURCHASE AGREEMENT MADE BETWEEN REPAP
ENTERPRISES INC. AND TOLKO INDUSTRIES LTD., AS OF THE 18TH DAY OF JULY, 1997.
LITIGATION
1. Northern Flood Committee and Cross Lake Indian Bank v. Skeena Cellulose
Inc., carrying on business under the trade name Repap Manitoba, and the
Province of Manitoba (CI 91-01-55236).
Status: Cross Lake Indian Band has commenced an action against the
Province of Manitoba and Repap Manitoba based on a claim of
aboriginal rights to areas under Repap Manitoba's Forest
Management License Agreement. The likelihood of success and the
ultimate loss are not determinable at this time.
2. Henrickson Mechanical and Structural Co. Ltd. v. Repap Manitoba Inc. (CI
92-04-00108).
Status: Hendrickson Mechanical and Structural Co. Ltd. filed a Statement
of Claim in February, 1992 to recover disputed funds. An amended
Statement of Claim was filed on December 10, 1996. The likelihood
of success and the ultimate loss are not determinable at this
time.
3. The People of the Province of Manitoba & Terry Hendrickson v. Repap
Enterprises Inc. (96-04-00300 CIV)
Status: A Statement of Claim was filed in November, 1996 to request that
certain provisions to be placed on Repap Manitoba prior to any
possible sale of Repap. An application to dismiss the action has
been brought which Repap believes will be successful.
4. Marty Lokos v. Manfor Ltd. (CI 88-01-32934)
Status: The Court of Appeal has upheld the trial judges decision
dismissing the claim, but plaintiff's counsel has indicated that
leave may be sought to appeal to the Supreme Court of Canada
(which is unlikely to occur). There has been some dispute between
parties over the wording of the Certificate of Decision of the
Court of Appeal, but it is expected that the Certificate will be
finalized in the immediate future.
5. Skeena Cellulose Inc. (Manitoba Division) v. Canadian Industrial Risk
Insurers.
Status: During the week of October, 1993, the mill was shut down due to
bunker "C" oil that entered condensate system thus contaminating
condensate and feedwater systems. This claim is ongoing and
15
<PAGE> 48
is for less than one million dollars. The likelihood of success
and the ultimate loss are not determinable at this time.
6. A dispute has arisen between Repap Manitoba, Delta Catalytic Constructors
Ltd. and Sandwell Inc. with respect to construction and engineering
services relating to the SPX project. Considerable delays and overruns were
experienced and Delta Catalytic has claimed approximately two million
dollars for extras and compensation to complete the project. Repap Manitoba
believes that some or all of these extras are not justified and are the
responsibility of either Delta Catalytic or Sandwell as engineer. No writs
have been issued and the parties continue to discuss settlement. The
likelihood of success and ultimate loss are not determinable at this time.
7. There is potential litigation with Ladimex Inc., Repap Manitoba's sales
agent for the Carribean, regarding a dispute over the exclusivity of the
oral agency agreement.
SCHEDULE 3.1(k) TO A SHARE PURCHASE AGREEMENT MADE BETWEEN REPAP
ENTERPRISES INC. AND TOLKO INDUSTRIES LTD. AS OF THE 18TH DAY OF JULY, 1997.
LABOUR AND EMPLOYMENT RELATIONS
A. COLLECTIVE AGREEMENTS
1. Agreement made May 21, 1995 between Repap Manitoba and Communications,
Energy and Paperworkers Union of Canada and its Local 342 C.L.C. (CEP Local
342).
2. Agreement between Repap Manitoba and Communications, Energy and
Paperworkers Union of Canada (CEP Local 1403).
3. Master Agreement between Repap Manitoba and Industrial, Wood & Allied
Workers of Canada, (IWA Local 324) effective September 1, 1995 to August
31, 1998.
B. EMPLOYMENT AGREEMENTS
1. There are term contracts for temporary employment of the employees listed
in the attached list consisting of two pages for the terms indicated in
that list.
2. There are agreements providing for severance or termination payments to
officers of Repap Manitoba, copies of which have been provided to the
Buyer.
C. THREATENED OR PENDING STRIKE WALKOUT OR OTHER WORK STOPPAGE
None. Negotiations with both locals of the Communication, Energy and
Paperworkers Union of Canada will follow ratification of the British Columbia
agreements and it is unlikely that a strike will occur. Only one legal strike
has ever occurred at this worksite, however, there have been several
"information picket" lines and one short-lived illegal walkout several years
ago.
D. GRIEVANCES
There are currently six grievances being processed with CEP 1403. They
include issues concerning missed overtime opportunities, qualification standards
for a clerical position and training opportunities. They are all minor in nature
and will be resolved at the second or third stage of the grievance procedure.
The number of year to date grievances for 1997 is 24 grievances.
There are two current grievances with the Industrial, Wood and Allied
Workers of Canada and all are "bumping" issues in our harvesting operations. The
year to date number of grievances for 1997 is 23 grievances.
There have been no grievances filed by any member of CEP Local 342 for
1997.
Overall rates of grievance filings are five per month for all unions, which
has been consistent over the past several years.
SCHEDULE 3.1(l) TO A SHARE PURCHASE AGREEMENT MADE BETWEEN REPAP
ENTERPRISES INC. AND TOLKO INDUSTRIES LTD. AS OF THE 18TH DAY OF JULY, 1997.
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BENEFIT PLANS
A. EMPLOYEE BENEFITS
1. See attached list consisting of three pages.
2. Repap Manitoba has confirmed to its employees that it will cover the cost
of contesting a reassessment by Revenue Canada based on a denial of the
northern travel benefit claimed by its employees.
B. PENSION PLANS
1. Repap Manitoba Salaried Employee's Pension Plan, Manitoba Registration No.
and Revenue Canada Registration No. 0369314, Fund Account No. 037-170904-6.
2. Repap Communications, Energy and Paperworkers Union of Canada Hourly
Employee's Pension Plan, Manitoba and Federal Registration No. 0369462,
Fund Account No. 037-170905-8.
3. Repap Industrial, Wood and Allied Workers of Canada Employee's Pension
Plan, Manitoba and Federal Registration No. 00960278, Fund Account No.
7228-1.
4. The Repap Supplementary Pension Plan dated August, 1996. Effective as of
the Closing Date, Repap shall have no further obligation in respect of this
Plan to employees of Repap Manitoba.
The Administrator for the first three plans is William M. Mercer Ltd. The
Fund Managers for the Salaried/Communications, Energy and Paperworkers Union of
Canada pension plans are Phillips, Hager, North and Knight, Bain, Seath,
Holbrook and Integra Capital Management. The Fund Manager for the Industrial,
Wood and Allied Workers of Canada pension plan is Mutual Life.
There are unfunded liabilities in both the Communications, Energy and
Paperworkers Union of Canada and Industrial, Wood and Allied Workers of Canada
Employee's Pension Plans and there is a surplus in the Salaried Employee's
Pension Plan, the details of which have been disclosed to the Buyer.
Revenue Canada is requiring amendments to the Salaried Employee's Pension
Plan as described in the attached letter from Revenue Canada dated March 6,
1996.
C. SHARE OPTIONS
All employees of Repap Manitoba were entitled to participate in a share
purchase plan involving shares in the capital of Repap and selected senior
management of Repap Manitoba were entitled to participate in a share option plan
involving shares in the capital of Repap.
SCHEDULE 3.1(m) TO A SHARE PURCHASE AGREEMENT MADE BETWEEN REPAP
ENTERPRISES INC. AND TOLKO INDUSTRIES LTD. AS OF THE 18TH DAY OF JULY, 1997.
PROPERTY DEFICIENCIES
1. Skeena Cellulose Inc. has a right of first refusal on the R8 chlorine
dioxide generator described in Section 5.3(f) of the Agreement.
SCHEDULE 3.1(n) TO A SHARE PURCHASE AGREEMENT MADE BETWEEN REPAP
ENTERPRISES INC. AND TOLKO INDUSTRIES LTD. AS OF THE 18TH DAY OF JULY, 1997.
CAPITAL EXPENDITURES
1. See the 1996 -- 2001 capital program summary and accompanying notes
consisting of the attached three pages, the five year capital forecast
summary and plans as of August, 1996 consisting of the attached 20 pages,
the five year asset preservation forecast summary and plans as of August,
1996 consisting of the attached six pages and the five year major
maintenance forecast summary and plans as of August, 1996 consisting of the
attached 17 pages.
2. See the 1997 Capital Expenditure Budget revised July 4, 1997 and dated June
30, 1997 consisting of the attached four pages beginning with an
inter-office memorandum dated July 7, 1997.
SCHEDULE 3.1(o) TO A SHARE PURCHASE AGREEMENT MADE BETWEEN REPAP
ENTERPRISES INC. AND TOLKO INDUSTRIES LTD. AS OF THE 18TH DAY OF JULY, 1997.
17
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REAL PROPERTY
A. OWNED REAL PROPERTY
THE MILL SITE PROPERTY
PARCEL ONE: Parcels A, B and C Plan 5153 PLTO (N Div) in 78-6 EPM
Exc all mines, minerals and other reservations as
contained in The Crown Lands Act. (Certificate of
Title No. 1486470)
Encumbrances:
Mortgage No. 95-7061 filed November 7, 1995 in favour of The
Toronto-Dominion Bank and Royal Bank of Canada.
PPSN No. 96-4040 Personal Property Security Notice filed June 13, 1996
by GATX Capital Canada Inc.
PARCEL TWO: Parcel: S 1/2 30 and all that portion Section 19,
which lies to the north of the left bank of the
Saskatchewan River, in 56-25 WPM, as shown on
Township Diagram dated June24, 1915, exc all mines,
minerals and other reservations as contained in The
Crown Lands Act.
Parcel 2: All those portions of NW 1/4 13, NE 1/4
14, Legal Subdivision 11 of said Section 14, and
SE 1/4 24, which lies to the north of the left bank of
the Saskatchewan River, Legal Subdivisions 13 and 14
of Section 14, all Section 23, N 1/2 and SW 1/4 24,
and S 1/2 25 and S 1/2 26, all in 56-26 WPM, as shown
on Township Diagram dated November 29, 1913, exc
1stly: out of the Sw 1/4 26, the sly 750 feet perp of
the nly 1240 feet perp 2ndly: out of the SE 1/4 26,
the sly 750 feet perp of the nly 1240 feet perp of
the wly 360 feet perp 3rdly: all mines, minerals and
other reservations as contained in The Crown Lands
Act.
(Certificate of Title No. 1486472) Encumbrances:
Caveat No. 42594 filed August 19, 1969 at 9:33 a.m. by the Manitoba
Hydro Electric Board giving notice of an Easement
Agreement made on August 5, 1969 between Churchill
Forestry Industries (Manitoba) Limited and the
Manitoba Hydro Electric Board.
Caveat No. 43329 filed October 15, 1970 at 9:14 a.m. by the Manitoba
Hydro Electric Board giving notice of an Easement
Agreement made October 1, 1970 between Churchill
Forest Industries (Manitoba) Limited and MHEB.
Caveat No. 46192 filed November 12, 1975 at 9:22 a.m. by Canadian
National Railway Company giving notice of a
Right-of-Way Agreement dated May 28, 1975.
Caveat No. 85-1935 filed March 15, 1985 by the Manitoba Hydro Electric
Board giving notice of an Easement Agreement dated
November 29, 1984 between Manfor Ltd. and the
Manitoba Hydro Electric Board.
Mortgage No. 95-7061 filed November 7, 1995 in favour of The
Toronto-Dominion Bank and Royal Bank of Canada.
PPSN No. 96-4040 Personal Property Security Notice filed June 13, 1996
by GATX Capital Canada Inc.
PARCEL THREE: Parcel 1: All that portion of the Government Road
Allowance (now closed) in 56-25 WPM, lying between
Sections 19 and 30, in 56-25 WPM which lies between
the straight productions Sly of the eastern and
western limits of said Section 30. Exc all mines,
minerals and other reservations as contained in The
Crown Lands Act.
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<PAGE> 51
Parcel 2: All that portion of the Government Road
Allowance (now closed) lying between the western
limits of Sections 19 and 30 and the straight
production Sly of the Western limit of said Section
30, in 56-25 WPM and the eastern limits of Sections
24 and 25 and the straight production Sly of the
eastern limit of said Section 25, in 56-26 WPM which
lies between the left bank of the Saskatchewan River
and the straight production Wly of the northern limit
of the SW 1/4 of said Section 30, Exc all mines,
minerals and other reservations as contained in The
Crown Lands Act.
Parcel 3: All that portion of the Government Road
Allowance (now closed), in 56-26 WPM, lying between
the western limit of Sections 13, 24 and 25, and the
straight production Sly of the western limit of said
Section 25, all in 56-26 WPM, and the eastern limits
of Sections 14, 23 and 26 and the straight production
Sly of the eastern limit of said Section 26, all in
56-26 WPM, which lies between the left bank of the
Saskatchewan River and the straight production Wly of
the northern limit of the SW 1/4 of said Section 25,
exc all mines, minerals and other reservations as
contained in The Crown Lands Act.
Parcel 4: All that portion of the Government Road
Allowance (now closed), in 56-26 WPM, lying between
Sections 24 and 25, in 56-26 WPM, which lies between
the straight productions Sly of the eastern and
western limits of said Section 25, exc all mines,
minerals and other reservations as contained in The
Crown Lands Act.
Parcel 5: All that portion of the Government Road
Allowance (now closed), in 56-26 WPM, lying between
Sections 23 and 26, in 56-26 WPM, which lies between
the straight productions Sly of the eastern and
western limits of said Section 26, exc all mines,
minerals and other reservations as contained in The
Crown Lands Act. (Certificate of Title No. 1486527)
Encumbrances:
Caveat No. 43329N filed October 15, 1970 at 9:14 a.m. by the Manitoba
Hydro Electric Board giving notice of an Easement
Agreement made October 1, 1970 between Churchill
Forest Industries (Manitoba) Limited and MHEB.
Mortgage No. 95-7061 filed November 7, 1995 in favour of The
Toronto-Dominion Bank and Royal Bank of Canada.
PPSN 96-4040 Personal Property Security Notice filed June 13, 1996
by GATX Capital Canada Inc.
PARCEL FOUR: The Sly 750 feet perp of the Nly 1240 feet perp of
SW 1/4 26, and the Sly 750 feet perp of the Nly 1240
feet perp of the Wly 360 feet perp of SE 1/4 26, all
in 56-26 WPM Exc all mines, minerals and other
reservations as contained in The Crown Lands Act.
(Certificate of Title No. 1486557)
Encumbrances:
Caveat No. 46192N filed November 12, 1975 at 9:22 a.m. by Canadian
National Railway Company giving notice of a
Right-of-Way Agreement dated May 28, 1975.
Caveat No. 85-1935N filed March 15, 1985 by the Manitoba Hydro Electric
Board giving notice of an Easement Agreement dated
November 29, 1984 between Manfor Ltd. and the
Manitoba Hydro Electric Board.
Mortgage No. 95-7061 filed November 7, 1995 in favour of The
Toronto-Dominion Bank and Royal Bank of Canada.
19
<PAGE> 52
PPSN 96-4040 Personal Property Security Notice filed June 13, 1996
by GATX Capital Canada Inc.
PARCEL FIVE: NW 1/4 27-56-26 WPM Exc all mines, minerals and other
reservations as contained in The Crown Lands Act.
(Certificate of Title No. 1486577)
Encumbrances:
Mortgage No. 95-7061 filed November 7, 1995 in favour of The
Toronto-Dominion Bank and Royal Bank of Canada.
PPSN No. 96-4040 Personal Property Security Notice filed June 13, 1996
by GATX Capital Canada Inc.
PARCEL SIX: N 1/2 26-56-26 WPM Exc all mines, minerals and other
reservations as contained in The Crown Lands Act.
(Certificate of Title No. 1486490)
Encumbrances:
Mortgage No. 95-7061 filed November 7, 1995 in favour of The
Toronto-Dominion Bank and Royal Bank of Canada.
PPSN No. 96-4040 Personal Property Security Notice filed June 13, 1996
by GATX Capital Canada Inc.
PARCEL SEVEN: NW 1/4 22-56-26 WPM, exc 1stly: Rly Plan 539 PLTO (N
Div) 2ndly: Plans 4597 PLTO (N Div) and 7295 PLTO (N
Div) 3rdly: all mines, minerals and other
reservations as contained in The Crown Lands Act.
(Certificate of Title No. 1486493)
Encumbrances:
Agreement No. 199296N registered October 204 1969 at 9:43 a.m. by the
Manitoba Hydro Electric Board giving notice of an
Agreement between HMQ (Manitoba) and the Manitoba
Hydro Electric Board.
Easement No. 81-8732N registered August 17, 1981 by the Manitoba Hydro
Electric Board giving notice of an Easement Agreement
made June 24, 1981 between HMQ (Manitoba) and the
Manitoba Hydro Electric Board.
Caveat No. 85-1935 filed March 15, 1985 by the Manitoba Hydro Electric
Board giving notice of an Easement Agreement dated
November 29, 1984 between Manfor Ltd. and the
Manitoba Hydro Electric Board.
Caveat No. 96-816 filed February 5, 1996 by MTS NetCom Inc. giving
notice of an Easement Agreement.
Mortgage No. 95-7061 filed November 7, 1995 in favour of The
Toronto-Dominion Bank and Royal Bank of Canada.
PPSN No. 96-4040 Personal Property Security Notice filed June 13, 1996
by GATX Capital Canada Inc.
PARCEL EIGHT: Parcel 1: E 1/2 27-56-26 WPM, exc 1stly: Rly Plan
539 PLTO (N Div) 2ndly: Plan 4597 PLTO (N Div) 3rdly:
all mines, minerals and other reservations as
contained in The Crown Lands Act.
Parcel 2: All that portion of the Government Road
Allowance (now closed) which lies between Sections 26
and 27-56-26 WPM Exc all mines, minerals and other
reservations as contained in The Crown Lands Act.
(Certificate of Title No. 1486501)
20
<PAGE> 53
Encumbrances:
Agreement No. 202496 registered December 24, 1975 between Manitoba
Forestry Resources Ltd. and Canadian National Railway
Company.
Caveat No. 85-1935 filed March 15, 1985 by the Manitoba Hydro Electric
Board giving notice of an Easement Agreement dated
November 29, 1984 between Manfor Ltd. and the
Manitoba Hydro Electric Board.
Mortgage No. 95-7061 filed November 7, 1995 in favour of The
Toronto-Dominion Bank and Royal Bank of Canada.
PPSN No. 96-4040 Personal Property Security Notice filed June 13, 1996
by GATX Capital Canada Inc.
PARCEL NINE: SW 1/4 27-56-26 WPM exc 1stly: Rly Plan 539 PLTO (N
Div) 2ndly: Road Plan 7049 PLTO (N Div) 3rdly: Plan
4597 PLTO (N Div) and 7295 PLTO (N Div) 4thly: all
mines, minerals and other reservations as contained
in The Crown Lands Act.
(Certificate of Title No. 1486509)
Encumbrances:
Agreement No. 202496N registered December 24, 1975 between Manitoba
Forestry Resources Ltd. and Canadian National Railway
Company.
Easement No. 81-8732N registered August 17, 1981 by the Manitoba Hydro
Electric Board giving notice of an Easement Agreement
made June 24, 1981 between HMQ (Manitoba) and the
Manitoba Hydro Electric Board.
Caveat No. 85-1935N filed March 15, 1985 by the Manitoba Hydro Electric
Board giving notice of an Easement Agreement dated
November 29, 1984 between Manfor Ltd. and the
Manitoba Hydro Electric Board.
Mortgage No. 95-7061 filed November 7, 1995 in favour of The
Toronto-Dominion Bank and Royal Bank of Canada.
PPSN No. 96-4040 Personal Property Security Notice filed June 13, 1996
by GATX Capital Canada Inc.
THE HOUSE LOCATED IN THE PAS
PARCEL TEN: In the Town of The Pas and being Lot 12 Block 3 Plan
2362 PLTO in the N 1/2 3 and S 1/2 10-56-26 WPM exc
all mines, minerals and other reservations as
contained in The Crown Lands Act.
(Certificate of Title No. E9564)
Encumbrances:
Mortgage No. 95-7061 filed November 7, 1995 in favour of The
Toronto-Dominion Bank and Royal Bank of Canada.
PPSN No. 96-4040 Personal Property Security Notice filed June 13, 1996
by GATX Capital Canada Inc.
B. LEASED/LICENCED REAL PROPERTY
1. All property covered by the Amended and Restated Forest Management Licence
Agreement between the Province of Manitoba and Repap Manitoba dated as of
May 4, 1989 (the "FMA") for which Repap Manitoba has harvesting rights
subject to the provisions of the FMA in return for Crown dues on timber
volumes and the Crown dues stipulated in the FMA.
2. Lease of office space in Thompson, Manitoba.
3. Lease of office space in Swan River, Manitoba.
21
<PAGE> 54
4. Lease of office space in Wabowden, Manitoba.
5. Leases of land from the Town of The Pas at The Pas airport for:
(a) two parking stalls, expiring November 1, 1997;
(b) one airplane hanger, expiring September 30, 2001; and
(c) 2400 square metres of space used for air monitoring equipment,
expiring November 30, 2000.
6. Lease of office space in the Cranberry Portage area of Manitoba legally
described as Parcel B, Plan 28831 PLTO in S 1/2 and NW 1/4 31-64-26 WPM
C. LEASES/SUBLEASES FROM REPAP MANITOBA
1. Parcel 10 in Part A above is leased to R. Staple.
D. ASBESTOS
There is asbestos in the buildings located on the Real Property comprising
the mill site, which is to be dealt with in the manner provided for under the
Reclamation Agreement between Manfor Ltd. and The Province of Manitoba dated May
4, 1989.
SCHEDULE 3.1(r) TO A SHARE PURCHASE AGREEMENT MADE BETWEEN REPAP
ENTERPRISES INC. AND TOLKO INDUSTRIES LTD., AS OF THE 18TH DAY OF JULY, 1997.
PERSONAL PROPERTY
A. MOBILE EQUIPMENT
1. See list of mobile equipment consisting of the attached nine pages dated
97/05/06.
2. Cars used by Derek W. Betts and Ronald W. Staple are leased by Repap
Manitoba.
B. COMPUTER-RELATED EQUIPMENT
See attached list of computer equipment consisting of the attached one
page.
C. OPERATING AND FIXED ASSETS
1. See the computer generated list of lumber operating assets dated May 7,
1997 and the list of other operating assets dated April 30, 1997 each under
document number 10.20 of the due diligence documents previously provided to
the Buyer.
2. Airport hangar located at The Pas airport together with all related air
monitoring equipment.
D. LEASED EQUIPMENT
See list of leased equipment consisting of the attached one page.
E. NON-BUSINESS ASSETS
1. Recovery Boiler -- written down value of $2,000,000 million located in:
(a) Sweden with respect to pressure parts at annual storage costs of
$197,000 US; and
(b) the Philippines with respect to structural steel at annual storage
costs of $102,000 US.
2. Chemical Preparation Equipment -- written down value of $2,300,000 million
located in:
(a) Manitoba at the mill site with respect to most parts;
(b) Thunder Bay with respect to stock towers at annual storage costs of
$12,000 Cdn.; and
(c) Montreal with respect to nine titanium pockets for the chlorine
dioxide towers at annual storage costs of $46,700 Cdn.
SCHEDULE 3.1(v) TO A SHARE PURCHASE AGREEMENT MADE BETWEEN REPAP
ENTERPRISES INC. AND TOLKO INDUSTRIES LTD. AS OF THE 18TH DAY OF JULY, 1997.
22
<PAGE> 55
CONSIGNMENT INVENTORY
1. The memorandum dated July 8, 1997 consisting of the attached three pages.
SCHEDULE 3.1(bb) TO A SHARE PURCHASE AGREEMENT MADE BETWEEN REPAP
ENTERPRISES INC. AND TOLKO INDUSTRIES LTD. AS OF THE 18TH DAY OF JULY, 1997.
TAX MATTERS
A. EXCISE TAX ACT REGISTRATION
Repap Manitoba Inc.'s registration number is 896107059RT.
SCHEDULE 3.1(dd) TO A SHARE PURCHASE AGREEMENT MADE BETWEEN REPAP
ENTERPRISES INC. AND TOLKO INDUSTRIES LTD. AS OF THE 18TH DAY OF JULY, 1997.
UNDEPRECIATED CAPITAL COST
1. See the table consisting of the attached one page.
SCHEDULE 3.1(gg) TO A SHARE PURCHASE AGREEMENT MADE BETWEEN REPAP
ENTERPRISES INC. AND TOLKO INDUSTRIES LTD. AS OF THE 18TH DAY OF JULY, 1997.
CONTRACTS
A. MATERIAL CONTRACTS
1. The SPADA.
2. Amended and Restated Forest Management Licence Agreement between Her
Majesty the Queen, in Right of the Province of Manitoba, represented by the
Minister of Natural Resources and Repap Manitoba dated as of May 4, 1989.
3. Reclamation Agreement between Her Majesty the Queen in Right of the
Province of Manitoba and Manfor Ltd. dated May 4, 1989 as amended by letter
dated November 29, 1990 from Manitoba Environment to Repap Manitoba.
4. Standing Purchase Order No. P9715 with Canadian Territorial Helicopters
Inc. for helicopter support services for the period May 14, 1996 to
December 31, 1998 dated June 6, 1996.
5. Purchase Order No. W111766 with Pineland Forest Nursery, Hadashville, MB
for supply of seedling dated June 1, 1996 for the period from June 24, 1996
to June 1, 2000.
6. Kraft Paper Supply Contracts, copies of which will be provided to the Buyer
prior to Closing and, the substantial terms of which were disclosed prior
to the date for the close of bids.
7. Agreement between Future Forest Products Ltd. and Manitoba Forestry
Resources Ltd. dated August 14, 1984 as amended by letter agreement dated
March 14, 1986 and agreed to on March 21, 1986 for the sale of paper in
Canada and the United States.
8. Agreement between George Harrison Ltd. and Repap Manitoba dated December
13, 1995 for the sale of paper in the United Kingdom and the Republic of
Ireland.
B. DEFICIENCIES
See Part B of Schedule 3.1(g)
SCHEDULE 3.1(hh) TO A SHARE PURCHASE AGREEMENT MADE BETWEEN REPAP
ENTERPRISES INC. AND TOLKO INDUSTRIES LTD. AS OF THE 18TH DAY OF JULY, 1997.
ENVIRONMENTAL MATTERS
1. See the attached list consisting of five pages of environmental capital
expenditures to comply and maintain compliance with Environmental Laws.
2. Repap Manitoba has applied for a Water Rights Licence from the Manitoba
Department of Natural Resources regarding the diversion of water from the
Saskatchewan River which is pending.
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<PAGE> 56
3. The Reclamation Agreement between Manfor Ltd. and The Province of Manitoba
dated May 4, 1989 discloses potential deficiencies in compliance with
applicable Environmental Laws and the obligations to bring the potential
deficiencies into compliance with applicable Environmental Laws.
SCHEDULE 3.1(ii) TO A SHARE PURCHASE AGREEMENT MADE BETWEEN REPAP
ENTERPRISES INC. AND TOLKO INDUSTRIES LTD. AS OF THE 18TH DAY OF JULY, 1997.
LICENCES
A. ENVIRONMENTAL PERMITS
1. Licence No. 1278 issued July 12, 1989 for operation of sequencing batch
reactor sewage treatment facility.
2. Licence No. 1339, issued January 26, 1990 for regulated discharge of
effluent from kraft paper mill.
3. Licence No. 1684 55, Stage 5 Licence, issued December 20, 1996 for timber
harvesting.
4. Waste Disposal Ground Operating Permit No. 5-057 Rev. 1, issued by Ministry
of Environment on January 28, 1993 for operation of Class 2 waste disposal
ground facility.
5. Manitoba Environment -- Petroleum Storage tank, site code #12552.
6. Manitoba Environment -- hazardous waste generator registration number Gen
1000-337.
7. Environment Canada -- PCB site #300-3966
B. ELEVATOR PERMITS
8. Permit No. F02095 for Power Group Elevator, Serial No. 012104.
9. Permit No. F022094 for Pulp Group Elevator, Serial No. 012104.
C. STEAM AND PRESSURE PLANTS ACT
10. Fifty-Four (54) equipment Certificates have issued with respect to boilers
and pressure vessels located at the mill.
D. NATURAL RESOURCES
11. Amended and Restated Forest Management Licence Agreement dated as of May 4,
1989 between the Province of Manitoba and Repap Manitoba.
12. Licence To Operate a Sawmill No. 1653 issued by the Director of Forestry,
Manitoba Natural Resources on June 18, 1997.
13. Licence for Water Rights on the Saskatchewan River has been applied for by
Repap Manitoba but has not yet issued.
E. MISCELLANEOUS
14. Radiostope Licence No. 06-12338-98 issued by the Atomic Energy Control Board
on August 13, 1996 for the possession, importation and use of radioactive
prescribed substances.
15. Radio Station Licences issued by Industry Canada as follows:
<TABLE>
<S> <C> <C> <C>
2320403756 2320460052 2322873410 2322873412
2322873414 2322873416 2322873418 2320403748
2320460053 2320678172 2320784575 2320784577
2322560827 2322900730 2323050943 2323050945
2323231792 2323231794 2323231796 2323301062
2323302638 2323302640 2323846868 2322900777
2323033120 2323033129 2323050946 2323269075
2323306113 2323325354 2323385149
</TABLE>
SCHEDULE 3.1(jj) TO A SHARE PURCHASE AGREEMENT MADE BETWEEN REPAP
ENTERPRISES INC. AND TOLKO INDUSTRIES LTD., AS OF THE 18TH DAY OF JULY, 1997.
24
<PAGE> 57
INSURANCE
A. INSURANCE
<TABLE>
<S> <C> <C>
1. Coverage: A Comprehensive All Risks
Policy No.: 80-6-01087
Insurer: Canadian Industrial Risks Insurers
2. Coverage: Boilers and Machinery
Policy No.: MBM 0826425
Insurer: (MOAC) The Continental Insurance Company
3. Coverage: Composite policy
Policy No.: RMD 96-008
Insurer: American Home Assurance Company
4. Coverage: Excess Difference in Conditions
Policy No.: RMD 96-007
Insurer: Various subscribing insurers
5. Coverage: Crime Insurance
Policy No.: 81218357
Insurer: Chubb Insurance Company of Canada
6. Coverage: Comprehensive General Liability
Policy No.: CGL 025871
Insurer: Cigna Insurance Company of Canada
7. Coverage: Automobile Insurance
Policy No.: AF 990343
Insurer: Zurich Insurance Company
8. Coverage: Umbrella Liability -- Primary
Policy No.: XBC 599664
Insurer: Cigna Insurance Company of Canada
9. Coverage: First Excess Liability
Policy No.: 7907-83-08
Insurer: Chubb Insurance Company of Canada
10. Coverage: Second Excess Liability
Policy No.: CN0115988
Insurer: Royal Insurance Company
11. Coverage: Non-Owned Aircraft Liability
Policy No.: 400AC5103
Insurer: Canadian Aviation Insurance Managers Ltd.
12. Coverage: Aviation General Liability
Policy No.: SGL-2-4375
Insurer: Canadian Aviation Insurance Managers Ltd.
13. Coverage: Directors & Officers Insurance and Company Reimbursement
Policy No.: 4490668
Insurer: American Home Assurance Company
Coverage: First Excess -- Directors & Officers Insurance and Company
14. Reimbursement.
Policy No.: DO-016543
Insurer: Encon Insurance Managers Inc.
Coverage: Second Excess -- Directors & Officers Insurance and Company
15. Reimbursement.
Policy No.: 350527
Insurer: London Guarantee Insurance Company
</TABLE>
25
<PAGE> 58
<TABLE>
<S> <C> <C>
Coverage: Third Excess -- Directors & Officers Insurance and Company
16. Reimbursement.
Policy No.: 4490669
Insurer: American Home Assurance Company
17. Coverage: Hull & Machinery including Protection & Indemnity
Policy No.: JP92/MP/431
Insurer: M.O.A.C. (The Continental Insurance Company of Canada)
Coverage: Primary Wharfingers/Safe Berth-Primary Charterers Legal
18. Liability
Policy No.: JP94/MP/445
Insurer: M.O.A.C. (The Continental Insurance Company of Canada)
19. Coverage: First Excess -- Multi-marine Liability
Policy No.: 7820592
Insurer: Marine Underwriters Canada Limited/Boreal Insurance Inc.
20. Coverage: Second Excess -- Multi-marine Liability
Policy No.: MLI 109399
Insurer: M.O.A.C. (The Continental Insurance Company of Canada)
21. Coverage: Third Excess Multi-marine Liability
Policy No.: 388FA8519
Insurer: St. Paul Fire & Marine Insurance
22. Coverage: Fourth Excess Multi-marine Liability
Policy No.: MLI 0110880
Insurer: M.O.A.C. (The Continental Insurance Co. of Canada)
23. Coverage: Fifth Excess Multi-marine Liability
Policy No.: MW1B71030132035
Insurer: Liberty Mutual Insurance Company
24. Coverage: Marine Cargo Insurance
Policy No.: LC9403965
Insurer: Institute Lloyd's Underwriters
</TABLE>
- ---------------
NOTE: All insurance policies name Repap Enterprises Inc. as the insured
together with its subsidiaries and affiliates or similar language.
B. CLAIMS
1. Repap Manitoba made a claim in respect of the power boiler which was
settled for approximately $775,000.00.
2. Repap Manitoba made a claim in 1993 regarding the boiler feeder water
contamination which has not yet been settled. The claim is for
approximately $500,000.00 in physical damage and $350,000.00 for business
interruption.
C. INSURER RECOMMENDATIONS
See attached report consisting of the attached 18 pages.
26
<PAGE> 1
- --------------------------------------------------------------------------------
EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
BETWEEN
REPAP ENTERPRISES INC.
AND
CONSOLIDATED PAPERS, INC.
DATED AS OF AUGUST 8, 1997
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
DEFINITIONS
Section 1.1 Specific Definitions........................................ 2
Section 1.2 Other Terms................................................. 11
Section 1.3 Other Definitional Provisions............................... 11
ARTICLE II
PURCHASE AND SALE OF SHARES
Section 2.1 Purchase and Sale of Shares................................. 12
Section 2.2 Closing; Delivery and Payment............................... 12
Section 2.3 Adjustment to Purchase Price................................ 13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF REPAP
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
ARTICLE V
TAX MATTERS
Section 5.1 Tax Sharing................................................. 20
Section 5.2 Tax Indemnification......................................... 20
Section 5.3 Tax Returns................................................. 21
Section 5.4 Contest Provisions.......................................... 24
Section 5.5 Information to Be Provided by Buyer......................... 25
Section 5.6 Information to Be Provided by Repap......................... 26
Section 5.7 Assistance and Cooperation.................................. 26
Section 5.8 Post-Closing Actions Which May Affect Repap's Liability for 27
Taxes.......................................................
Section 5.9 Savings and Costs to Buyer Resulting from Adjustments to Tax 28
Returns for Periods Prior to Closing........................
Section 5.10 Survival of Obligations..................................... 31
ARTICLE VI
CERTAIN COVENANTS AND AGREEMENTS
OF REPAP AND BUYER
Section 6.1 Access and Information...................................... 31
Section 6.2 Registrations, Filings and Consents......................... 34
Section 6.3 Operation of Business....................................... 35
Section 6.4 Continued Employment; Employee Benefit Plans................ 41
Section 6.5 Retention of Books and Records.............................. 43
Section 6.6 Closing Date Financial Information.......................... 44
Section 6.7 Notification of Certain Matters............................. 44
Section 6.8 Non-Solicitation of Employees............................... 45
Section 6.9 Further Assurances.......................................... 46
Section 6.10 Stockholders Meeting........................................ 46
Section 6.11 Certain Interests After Closing Date........................ 46
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.1 Conditions to Obligations of Buyer.......................... 47
Section 7.2 Conditions to Obligations of Repap.......................... 50
Section 7.3 Conditions to Obligations of Buyer and Repap................ 51
ARTICLE VIII
TERMINATION
Section 8.1 Termination................................................. 52
Section 8.2 Effect of Termination....................................... 54
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
Section 9.1 Survival of Representations, Warranties, Covenants and 56
Agreements; Knowledge of Breach.............................
Section 9.2 Indemnification............................................. 58
Section 9.3 Method of Asserting Claims, etc............................. 60
ARTICLE X
MISCELLANEOUS
Section 10.1 Amendment and Modification; Waiver.......................... 63
Section 10.2 Return of Information....................................... 64
Section 10.3 Expenses.................................................... 64
Section 10.4 Public Disclosure........................................... 65
Section 10.5 Assignment.................................................. 65
Section 10.6 Entire Agreement............................................ 66
Section 10.7 Fulfillment of Obligations.................................. 66
Section 10.8 Parties in Interest; No Third Party Beneficiaries........... 66
Section 10.9 Schedules................................................... 66
Section 10.10 Counterparts................................................ 67
Section 10.11 Section Headings............................................ 67
Section 10.12 Notices..................................................... 67
Section 10.13 GOVERNING LAW; SUBMISSION TO JURISDICTION; SELECTION OF 68
FORUM.......................................................
Section 10.14 Severability................................................ 70
ANNEXES
Representations of Repap Annex A.............................................. 72
Representations of Buyer Annex B.............................................. 93
</TABLE>
SCHEDULES
STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of August 8, 1997,
between REPAP ENTERPRISES INC., a corporation incorporated under the laws of
Canada ("Repap"), and CONSOLIDATED PAPERS, INC., a Wisconsin corporation
("Buyer").
W I T N E S S E T H :
WHEREAS, Repap owns all of the issued and outstanding shares of capital
stock of Repap USA, Inc., a Wisconsin corporation ("Repap USA");
WHEREAS, Repap, George S. Petty Management Ltd. ("GSP"), Skeena Cellulose,
Inc. ("Skeena") and Repap USA own all of the issued and outstanding capital
stock of Repap Wisconsin, Inc., a Wisconsin corporation ("Repap Wisconsin");
WHEREAS, Repap USA owns all of the issued and outstanding capital stock of
Repap Sales Corp., a New York corporation ("Repap Sales");
WHEREAS, Repap desires to sell and transfer to Buyer, and Buyer desires to
purchase from Repap, all of the issued and outstanding capital stock of Repap
USA (consisting of 1,395 shares of common stock, without par value (the "Common
Shares")), as more specifically provided herein;
WHEREAS, Repap will acquire from GSP, Skeena and Repap Sales prior to
Closing, all of the issued and outstanding shares of preferred stock of all
classes of Repap Wisconsin, consisting of 5,758.2 shares of Class I, no par
value, 103.65 shares of Class II, no par value, 539.94 shares of Class III, no
par value, and 483.25 shares of Class IV, no par value (collectively, the "Repap
Wisconsin Preferred Shares" and together with the Common Shares, the "Shares");
and
WHEREAS, Repap desires to sell and transfer to Buyer, and Buyer desires to
purchase from Repap, all of the Repap Wisconsin Preferred Shares, as more
specifically described herein;
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
contained herein, and subject to and on the terms and conditions herein set
forth, the parties hereto agree as follows:
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ARTICLE I
DEFINITIONS
Section 1.1 SPECIFIC DEFINITIONS. As used in this Agreement, the following
terms shall have the meanings set forth or as referenced below:
"ACQUISITION AGREEMENT" shall have the meaning set forth in Section 8.2(d).
"ACQUISITION PROPOSAL" shall have the meaning set forth in Section 6.3(k).
"ACQUISITION TRANSACTION" shall have the meaning set forth in Section 8.2(d).
"AFFILIATE", as applied to any Person, means any other Person directly or
indirectly controlling, controlled by or under common control with that
Person.
"AGREEMENT" shall mean this Agreement and all Annexes and Schedules hereto.
"ANTITRUST DIVISION" shall mean the Antitrust Division of the United States
Department of Justice.
"BALANCE SHEET" shall have the meaning set forth in Section 3.6 of Annex A.
"BUSINESS" shall mean the manufacture, distribution and sale of coated paper by
Repap USA or any of its Subsidiaries from facilities located in Kimberly,
Wisconsin and regional US sales offices and distribution centers.
"BUSINESS DAY" shall mean any day other than a Saturday, a Sunday or a day on
which banks in New York City, New York are authorized or obligated by law
or executive order to close.
"BUYER" shall have the meaning set forth in the Preamble.
"CAPITAL EXPENDITURES" shall have the meaning set forth in Section 2.3(a).
"CLAIM NOTICE" shall have the meaning set forth in Section 9.3.
"CLOSING" shall have the meaning set forth in Section 2.2(a).
"CLOSING DATE" shall have the meaning set forth in Section 2.2(a).
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMON SHARES" shall have the meaning set forth in the Preamble.
"COMPETITION ACT" shall mean the Competition Act (Canada).
"COMPETITION DIRECTOR" shall mean the Director of Investigation and Research
under the Competition Act.
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section 6.1(d).
"CONFIDENTIALITY AGREEMENT" shall have the meaning set forth in Section 6.1(c).
"CONTINUING AFFILIATE" shall mean an Affiliate of Repap other than Repap USA and
the Subsidiaries.
"CONTROL" of a Person shall mean the power, direct or indirect, to direct or
cause the direction of the management and policies of such Person whether
by contract or otherwise; the terms "controlling" and "controlled" shall
have meanings correlative to the foregoing.
"DAMAGE THRESHOLD" shall have the meaning set forth in Section 9.1(a).
"DEBT" shall have the meaning set forth in Section 2.3(a).
"DEDUCTIBLE" shall have the meaning set forth in Section 9.1.
"DISCLOSURE DOCUMENTS" shall have the meaning set forth in Section 3.6 of Annex
A.
"EMPLOYEES" means all employees of Repap USA and the Subsidiaries who were
employed on the Closing Date.
"ENCUMBRANCES" shall have the meaning set forth in Section 3.2 of Annex A.
"ENVIRONMENTAL LAW" means any law, regulation, code, license, permit, order,
judgment, decree or injunction relating to the protection of the
environment (including air, water, soil and natural resources) or the use,
storage, handling, release or disposal of any hazardous or toxic substance
as in effect on the date hereof.
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"ERISA" shall have the meaning set forth in Section 3.12 of Annex A.
"ERISA AFFILIATE" shall have the meaning set forth in Section 3.12 of Annex A.
"ERISA AFFILIATE PLAN" shall have the meaning set forth in Section 3.12 of Annex
A.
"ERISA PLAN" shall have the meaning set forth in Section 3.12 of Annex A.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"FINANCIAL INFORMATION" shall have the meaning set forth in Section 3.6 of Annex
A.
"FINANCIAL STATEMENTS" shall have the meaning set forth in Section 3.6 of Annex
A.
"FTC" shall mean the Federal Trade Commission.
"GAAP" shall mean U.S. generally accepted accounting principles consistently
applied.
"GSP" shall have the meaning set forth in the Preamble.
"HAZARDOUS SUBSTANCE" means any substance listed, defined, designated or
classified as hazardous, toxic or radioactive under any applicable
Environmental Law, including petroleum and any derivative or by-products
thereof.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 9.2.
"INDEMNIFYING PARTY" shall have the meaning set forth in Section 9.2.
"INTELLECTUAL PROPERTY" shall have the meaning set forth in Section 3.31 of
Annex A.
"INTERIM FINANCIAL INFORMATION" shall have the meaning set forth in Section 3.6
of Annex A.
"IRS" shall mean the United States Internal Revenue Service.
"KNOWLEDGE OF REPAP" shall mean the knowledge of each of Repap, Repap USA and
Repap Wisconsin.
"LIABILITIES" shall have the meaning set forth in Section 3.7 of Annex A.
"LISTED EMPLOYEES" shall have the meaning set forth in Section 6.4(c).
"LOSSES" shall have the meaning set forth in Section 9.2(a).
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on the Business,
assets, financial condition or results of operations of Repap USA and the
Subsidiaries, taken as a whole.
"MAXIMUM AMOUNT" shall have the meaning set forth in Section 9.1.
"MULTIEMPLOYER PLAN" shall have the meaning set forth in Section 3.12 of Annex
A.
"NOTICE PERIOD" shall have the meaning set forth in Section 9.3.
"OFFER" shall have the meaning set forth in Section 8.2(d).
"PERMITTED ENCUMBRANCES" shall mean any mechanics', workmen's, repairmen's,
warehousemen's, carriers' or other like liens and encumbrances (i) arising
in the ordinary and usual course of business consistent with past practice
or being contested in good faith by appropriate proceedings, (ii) not in
excess of $100,000 in the aggregate, (iii) necessarily incurred in
connection with a repair or capital expense to continue operations or (iv)
as contemplated by this Agreement.
"PERSON" shall mean any individual, corporation, partnership, limited liability
company, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, governmental or regulatory body or other
entity.
"PLAN" shall have the meaning set forth in Section 3.12 of Annex A.
"PRE-CLOSING TAX PERIOD" shall have the meaning set forth in Section 5.2(b).
"PURCHASE PRICE" shall have the meaning set forth in Section 2.1. "Repap" shall
have the meaning set forth in the Preamble.
"REPAP GROUP" shall mean any "affiliated group" (as defined in Section 1504(a)
of the Code without regard to the limitations contained in Section 1504(b)
of the Code) that includes Repap USA and its Subsidiaries.
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"REPAP SALES" shall have the meaning set forth in the Preamble.
"REPAP WISCONSIN" shall have the meaning set forth in the Preamble.
"REPAP WISCONSIN PREFERRED SHARES" shall have the meaning set forth in the
Preamble.
"REPAP USA" shall have the meaning set forth in the Preamble.
"REPORT" shall have the meaning set forth in Section 6.2(a).
"REQUISITE VOTE" shall mean the affirmative vote in favor of the transactions
contemplated by this Agreement by the requisite number of votes cast by
Repap shareholders entitled to vote thereon at a meeting, including any
adjournments thereof, convened pursuant to Section 6.10 of this Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SEVERANCE PLANS" shall have the meaning set forth in Section 6.4.
"SHARES" shall have the meaning set forth in the Preamble.
"SKEENA" shall have the meaning set forth in the Preamble.
"STANDBY LOAN AGREEMENT" shall mean the standby loan agreement made as of August
1, 1996 by and among Repap Enterprises Inc., as borrower, TD Capital Group
Limited, The Toronto-Dominion Bank and The Royal Bank of Canada, as
lenders, and TD Capital Group Limited, as agent, as amended, supplemented
or restated from time to time.
"STATEMENT OF CAPITAL EXPENDITURES" shall have the meaning set forth in Section
2.3(c).
"STATEMENT OF CONSOLIDATED NET WORKING CAPITAL" shall have the meaning set forth
in Section 2.3(c).
"STATEMENT OF DEBT" shall have the meaning set forth in Section 2.3(c).
"SUBSIDIAR[Y][IES]" shall have the meaning set forth in Section 3.3 of Annex A.
"TAX PACKAGE" shall have the meaning set forth in Section 5.5.
"TAX RETURNS" shall mean all federal, state, local or foreign tax returns, tax
reports, and declarations of estimated tax, including without limitation
consolidated federal income tax returns of Repap Group.
"TAXES" shall mean all federal, state, local or foreign income, gross receipts,
windfall or excess profits, severance, property, production, sales, use,
license, excise, franchise, employment, withholding or similar taxes,
together with any interest, additions or penalties with respect thereto
and any interest in respect of such additions or penalties.
"THIRD PARTY CLAIM NOTICE" shall have the meaning set forth in Section 9.3.
"WORKING CAPITAL" shall have the meaning set forth in Section 2.3.
"WWF" shall mean WWF Paper Corporation.
SECTION I.2 OTHER TERMS. Other terms may be defined elsewhere in the text of
this Agreement and, unless otherwise indicated, shall have such meaning
indicated throughout this Agreement.
SECTION I.3 OTHER DEFINITIONAL PROVISIONS.
(a) 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.
(b) The terms defined in the singular shall have a comparable meaning
when used in the plural, and vice versa.
(c) The terms "dollars" and "$" shall mean United States Dollars.
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ARTICLE II
PURCHASE AND SALE OF SHARES
Section II.1 PURCHASE AND SALE OF SHARES. Buyer agrees to purchase from Repap,
and Repap agrees to sell to Buyer, the Shares, for an aggregate purchase price
in cash of $227.4 million (the "Purchase Price"). The Purchase Price shall be
adjusted as set forth in Section 2.3.
Section II.2 CLOSING; DELIVERY AND PAYMENT.
(a) The closing (the "Closing") shall take place at the offices of
Sullivan & Cromwell, 125 Broad Street, New York, New York 10004 at
10:00 A.M. local time, five business days following the latest to
occur of: (i) obtaining shareholder approval of the transactions
contemplated by this Agreement pursuant to Section 6.10, (ii) the
expiration of the waiting period under the HSR Act including any
extensions thereof, and (iii) the Competition Act Director or any
person authorized to exercise the powers and perform the duties of
the Competition Act Director shall have issued a certificate under
Section 102(l) of the Competition Act to the effect that she is
satisfied that she would not have sufficient grounds on which to
apply to the Competition Tribunal established pursuant to the
Competition Act under Section 92 of the Competition Act in respect of
the transactions contemplated by this Agreement or the appropriate
time period specified in Section 123 of the Competition Act shall
have expired or the Competition Act Director shall have indicated in
writing that she does not intend to take any action under Section 92
of the Competition Act whether before or after the completion of the
transactions contemplated by this Agreement, which could materially
interfere with or detrimentally affect the transactions contemplated
by this Agreement, or at such other time and place as the parties
hereto may mutually agree. The date on which the Closing occurs is
called the "Closing Date."
(b) On the Closing Date, Repap shall deliver to Buyer certificates
representing the Shares duly endorsed and in form for transfer to
Buyer.
(c) On the Closing Date, Buyer shall pay or deliver to Repap the
Purchase Price in immediately available funds to an account
designated by Repap not less than two Business Days prior to the
Closing.
Section II.3 ADJUSTMENT TO PURCHASE PRICE.
(a) The Purchase Price shall be:
(i) increased by the amount, if any, by which $4.9 million exceeds
the amount of any final settlement paid by Repap Wisconsin prior
to the Closing Date to fully discharge its obligations to
Wisconsin Electric Power Company as described in Note 11 to the
Consolidated Financial Statements of Repap Wisconsin in the
Annual Report on Form 10-K for the fiscal year ended December
31, 1996, of Repap Wisconsin, which is attached as part of
Schedule 3.6 to this Agreement;
(ii) increased by the amount the Working Capital as of the Closing
Date exceeds $70.4 million, or decreased by the amount the
Working Capital as of the Closing Date is less than $70.4
million, as the case may be;
(iii) (A) if the outstanding long-term indebtedness plus the amount
of the liability under FASB 106 of Repap USA and its
Subsidiaries as of the Closing Date and calculated as set forth
on Schedule 2.3(a)(iii) (collectively, the "Debt") is less than
$454.6 million, increased by an amount equal to the difference
between $454.6 million and the Debt, or (B) if the Debt is
greater than $454.6 million, decreased by an amount equal to the
difference between the Debt and $454.6 million; and
(iv) increased by the amount of (A) capital expenditures incurred
and paid or accrued by Repap USA and the Subsidiaries from March
31, 1997 through the Closing Date and set forth on Schedule
2.3(a)(iv), (B) capital expenditures incurred and paid or
accrued by Repap USA and the Subsidiaries through the Closing
Date pursuant to Section 6.3(g) hereof and (C) capital
expenditures incurred and paid by Repap USA and the Subsidiaries
through the Closing Date other than as provided in subclause
(iv)(A) or (iv)(B) and agreed to by
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Buyer in writing (such agreement not to be unreasonably
withheld) (collectively, the "Capital Expenditures").
(b) As used in this Agreement, "Working Capital" means current assets
less current liabilities as reflected on the Statement of
Consolidated Net Working Capital plus the amount, if any, paid to the
Listed Employees prior to the Closing Date pursuant to Section
6.4(c). For purposes of such calculation, current assets shall be the
sum of cash, marketable securities, net accounts receivable
(including any affiliate accounts receivable), prepaid expenses and
net inventories of Repap USA and the Subsidiaries. Current
liabilities shall be the sum of obligations (including any affiliate
accounts payable), debts, prepayments and accruals whose liquidation
is reasonably expected to require the use of current assets or the
creation of current liabilities (including any affiliate accounts
payable) of Repap USA and the Subsidiaries but shall not include
accruals from January 1, 1997 through the Closing Date for Repap
Wisconsin's supplemental pension plan to the extent that Repap fully
funds such supplemental pension plan on or prior to Closing. All of
the foregoing calculations shall be made in conformity with GAAP.
(c) For purposes of this Agreement, "Statement of Consolidated Net
Working Capital" means the audited calculation of the Working Capital
of Repap USA and the Subsidiaries, on a consolidated basis, as of the
Closing Date from which the calculation of the adjustment to the
Purchase Price of the Shares will be made in accordance with Section
2.3(a)(i) hereof.
(d) Within sixty (60) days following the Closing Date, Repap shall
prepare and deliver to Buyer (i) the Statement of Consolidated Net
Working Capital, which shall be audited by Repap's auditors,
including a review and assessment of accounts receivable as of the
Closing Date, an inventory of work in process, pulp and raw
materials, and finished goods taken by Repap as of the Closing Date
and a review of the liabilities as of the Closing Date, each
determined in accordance with GAAP and performed in accordance with
procedures of Repap's auditors in the ordinary and usual course of
business consistent with past practice, (ii) a calculation of the
amount of Debt outstanding as of the Closing Date (the "Statement of
Debt") and (iii) a calculation of the amount of Capital Expenditures
from March 31, 1997 through the Closing Date (the "Statement of
Capital Expenditures").
During the preparation of the Statement of Consolidated Net Working
Capital, the Statement of Debt and the Statement of Capital
Expenditures and the period of any review or dispute as provided in
this Section 2.3, Buyer shall, and shall cause Repap USA and the
Subsidiaries to, (1) provide Repap and Repap's authorized
representatives with full access to the books, records, facilities
and employees of Repap USA and the Subsidiaries, and (2) cooperate
fully with Repap and Repap's authorized representatives, including
the provision on a timely basis of all necessary or useful
information. The taking of inventory may be observed by Buyer and
Buyer's auditors. To the extent possible, Repap will provide Buyer
with a preliminary draft of the Statement of Consolidated Net Working
Capital, the Statement of Debt and the Statement of Capital
Expenditures. Buyer and Repap will in good faith attempt to resolve
any disputes with respect to such calculation before the final
Statement of Consolidated Net Working Capital, Statement of Debt and
Statement of Capital Expenditures are rendered.
Buyer may review the Statement of Consolidated Net Working Capital,
Statement of Debt and Statement of Capital Expenditures and Repap
shall make available the work papers of Repap's auditors to Buyer and
its accountants and Buyer and its accountants may make inquiries of
representatives of Repap and its auditors. Buyer shall give written
notice to Repap of any objection to the Statement of Consolidated Net
Working Capital, Statement of Debt and Statement of Capital
Expenditures within thirty (30) days after Buyer's receipt thereof.
The notice shall specify in reasonable detail the items in the
Statement of Consolidated Net Working Capital, Statement of Debt and
Statement of Capital Expenditures to which Buyer objects and shall
provide a summary of Buyer's reasons for such objections.
Any dispute between Buyer and Repap with respect to the Statement of
Consolidated Net Working Capital, Statement of Debt and Statement of
Capital Expenditures which is not resolved within fifteen (15)
Business Days after receipt by Repap of the written notice from Buyer
shall be referred
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for decision to an independent accounting firm chosen from the "Big
Six" accounting firms who shall cause an audit partner who is not
engaged in providing services to Repap or Buyer or any of their
affiliates to decide the dispute within thirty (30) days of such
referral. The decision by the audit partner shall be final and
binding on Repap and Buyer. The cost of retaining the audit partner
with respect to resolving disputes as to the Statement of
Consolidated Net Working Capital, Statement of Debt and Statement of
Capital Expenditures shall be borne by Repap and Buyer equally.
(e) Following delivery of the Statement of Consolidated Net Working
Capital, Statement of Debt and Statement of Capital Expenditures, any
balance due to Repap or refund due to Buyer pursuant to the
adjustments set forth in Section 2.3(a) shall be paid within ten (10)
days of such delivery (unless there is an objection under Section
2.3(d), in which case the amount not in dispute shall be paid within
ten (10) days of such delivery, and the balance in dispute shall be
paid within ten (10) days of the resolution of such objection)
together with interest on such amount from the Closing Date at the 90
day LIBOR rate, in immediately available funds to an account
designated by Repap or Buyer, as the case may be, at least two
Business Days before the payment is due.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF REPAP
Repap represents and warrants to Buyer as of the date hereof and as of the
Closing Date (except that representations and warranties that are made as of a
specific date need be true only as of such date) as provided in Annex A hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Repap as of the date hereof and as of the
Closing Date (except that representations and warranties that are made as of a
specific date need be true only as of such date) as provided in Annex B hereto.
ARTICLE V
TAX MATTERS
Section V.1 TAX SHARING. Any and all tax sharing agreements and
arrangements shall be canceled as between Repap and the Continuing Affiliates,
on the one hand, and Repap USA and its Subsidiaries, on the other hand, and no
further payments shall be made by Repap USA or any of its Subsidiaries to Repap
or its Continuing Affiliates, or by Repap or its Continuing Affiliates to Repap
USA or its Subsidiaries, pursuant thereto.
Section V.2 TAX INDEMNIFICATION.
(a) Buyer and Repap agree that no election shall be made under Section
338(h)(10) of the Code or under any similar provisions of state or
foreign law with respect to the purchase of the Shares.
(b) Repap hereby agrees to indemnify Buyer and hold it harmless from (i)
all liability for Taxes imposed on Repap USA and its Subsidiaries for
any taxable year or period ending on or before the Closing Date and,
in the case of any taxable year or period beginning before and ending
after the Closing Date, the portion of such period ending on and
including the Closing Date (the "Pre-Closing Tax Period"), and (ii)
all liability for Taxes imposed on the Repap Group, other than Repap
USA and its Subsidiaries, except to the extent that, with respect to
either clause (i) or (ii), such Taxes are taken into account as a
liability on the Balance Sheet. Repap shall be entitled to all
refunds of such Taxes, except to the extent such Taxes are taken into
account on the Balance Sheet.
(c) Buyer hereby agrees to indemnify Repap and its Continuing Affiliates
and hold them harmless from all liability for Taxes imposed on Repap
USA and its Subsidiaries for any taxable year or period beginning
after the Closing Date and, in the case of any taxable year or period
beginning before and ending after the Closing Date, the portion of
such period beginning after the Closing Date.
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(d) Whenever it is necessary to determine liability for Taxes for a
portion of a taxable year or period beginning before and ending after
the Closing Date, the determination shall be made assuming that there
was a closing of the books at the close of the Closing Date, except
that Taxes (other than Taxes measured by net income or gains),
exemptions, allowances or deductions that are calculated on an annual
basis shall be apportioned on a time basis.
Section V.3 TAX RETURNS.
(a) Repap shall, based upon the Tax Package, prepare all Tax Returns
that are required to be filed by or with respect to Repap USA and its
Subsidiaries for taxable years or periods ending on or before the
Closing Date which have not been filed on or before the Closing Date.
Drafts of such Tax Returns in a form suitable for filing shall be
submitted to Buyer for review and approval not less than thirty (30)
days prior to their due date (including any extensions thereof).
Buyer shall notify Repap of any changes that it proposes to make to
such draft Tax Returns not less than twenty (20) days before filing
and shall discuss such changes with Repap prior to filing the Tax
Returns. Final decisions as to the form and content of such Tax
Returns shall be with Buyer, subject to the consent of Repap which
consent shall not be unreasonably withheld; provided, however, that
the usable net operating loss carryovers from periods ending on or
before September 30, 1996 reported on such Tax Returns will be
subject to the mutual agreement of Buyer and Repap. Buyer shall file
or cause to be filed when due all such Tax Returns. Repap shall pay
Buyer the Taxes for which Repap is liable pursuant to Section 5.2(b)
but which are payable with Tax Returns to be filed by Buyer pursuant
to the previous sentence within 10 days prior to the due date for the
filing of such Tax Returns.
(b) Buyer shall file or cause to be filed when due all Tax Returns that
are required to be filed by or with respect to Repap USA and its
Subsidiaries for taxable years or periods ending after the Closing
Date and shall remit any Taxes due in respect of such Tax Returns.
Repap shall pay Buyer the Taxes for which Repap is liable pursuant to
Section 5.2(b) but which are payable with Tax Returns to be filed by
Buyer pursuant to the previous sentence within 10 days prior to the
due date for the filing of such Tax Returns.
(c) In the event that the U.S. federal income tax return filed by Buyer
on behalf of Repap USA and Subsidiaries for the taxable period ending
on the Closing Date reports usable net operating loss carryovers
(excluding any net operating loss carryovers attributable to Nitec
Paper Corporation) from periods ending on or before September 30,
1996, of less than $114.1 million (without regard to whether such net
operating loss carryovers are used in such Tax Returns or any
subsequent Tax Returns) or in the event that such amount is reduced
upon audit by the IRS, Repap shall pay to Buyer an amount equal to
twenty-nine percent (29%) of the difference between $114.1 million
and the amount of such usable net operating loss carryovers
(excluding any net operating loss carryovers attributable to Nitec
Paper Corporation) reported on such return.
(d) In the event that the U.S. federal income tax return filed by Buyer
on behalf of Repap USA and the Subsidiaries for the taxable period
ending on the Closing Date reports usable net operating loss
carryovers (excluding any net operating loss carryovers attributable
to Nitec Paper Corporation) from periods ending on or before
September 30, 1996, of greater than $114.1 million (without regard to
whether such net operating loss carryovers are used in such Tax
Returns or any subsequent Tax Returns) or in the event that such
amount is increased upon audit by the IRS, Buyer shall pay to Repap
an amount equal to twenty-nine percent (29%) of the difference
between the amount of such usable net operating loss carryovers
(excluding any net operating loss carryovers attributable to Nitec
Paper Corporation) reported on such return and $114.1 million.
Section V.4 CONTEST PROVISIONS. Buyer shall promptly notify Repap in
writing upon receipt by Buyer or any of its Affiliates (including Repap USA or
any of its Affiliates) of notice of any pending or threatened federal, state,
local or foreign income or franchise tax examinations, inquiries or audits or
assessments which may materially affect the tax liabilities of Repap USA or its
Subsidiaries for which Repap may be required to indemnify Buyer pursuant to
Sections 5.2(b) or 5.9(c) (provided that failure to give this notice shall not
affect Buyer's right to indemnification hereunder unless such failure is
prejudicial to Repap), or which may affect any tax liability or refund claim of
Repap. Repap shall be entitled to participate at its expense in the defense of
any claims for Taxes or
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any other proposed adjustments which may be the subject of indemnification by
Repap pursuant to Section 5.2(b) or 5.9(c), and, with the written consent of
Buyer, at its sole expense, may assume the entire defense of such claims or
proposed adjustments. Notwithstanding the foregoing, Repap shall not be entitled
to settle, either administratively or after the commencement of litigation, any
claim for Taxes which would adversely affect the liability for Taxes of the
Buyer, Repap USA or its Subsidiaries for any period after the Closing Date to
any extent (including, but not limited to, the imposition of income tax
deficiencies, the reduction of asset basis or cost adjustments, the lengthening
of any amortization or depreciation periods, the denial of amortization or
depreciation deductions, or the reduction of loss or credit carry forwards)
without the prior written consent of Buyer. Such consent shall not be
unreasonably withheld.
Neither Buyer, Repap USA nor its Subsidiaries may agree to settle any
claim for Taxes or other proposed adjustments which may be the subject of
indemnification by Repap under Sections 5.2(b) or 5.9(c) without the prior
written consent of Repap, which consent shall not be unreasonably withheld.
Section V.5 INFORMATION TO BE PROVIDED BY BUYER. With respect to the taxable
year of Repap USA within which the Closing Date occurs, Buyer shall promptly
cause Repap USA to prepare and provide to Repap a package of tax information
materials (the "Tax Package"), which shall be completed in accordance with past
practice including past practice as to providing the information, schedules and
work papers and as to the method of computation of separate taxable income or
other relevant measure of income of Repap USA. Buyer shall cause the Tax Package
for the portion of the taxable period ending on the Closing Date to be delivered
to Repap within one hundred twenty (120) days after the Closing Date.
Section V.6 INFORMATION TO BE PROVIDED BY REPAP. At the Closing, Repap shall
provide to Buyer copies of all Tax Returns filed by or on behalf of Repap USA
and the Subsidiaries that are relevant for purposes of establishing the amount
of the net operating loss and credit carryovers of Repap USA and the
Subsidiaries for federal and Wisconsin income tax purposes as of the Closing
Date. In addition, at Closing, Repap shall provide to Buyer copies of all
workpapers used in the preparation of such Tax Returns.
Section V.7 ASSISTANCE AND COOPERATION. After the Closing Date, each of Repap
and Buyer shall:
(i) assist (and cause their respective affiliates to assist) the other
party in preparing any Tax Returns or reports which such other party
is responsible for preparing and filing in accordance with this
Article V;
(ii) cooperate fully in preparing for any examinations, inquiries or
audits of, or disputes with taxing authorities regarding, any Tax
Returns of Repap USA or its Subsidiaries or any tax refund claims
filed by Repap;
(iii) make available to the other and to any taxing authority as
reasonably requested all information, records and documents relating
to Taxes of Repap, Repap USA or its Subsidiaries;
(iv) provide timely notice to the other in writing of any pending or
threatened tax examinations, inquiries or audits or assessments of
Repap USA or its Subsidiaries for taxable periods for which the other
may have a liability under this Article V; and
(v) furnish the other with copies of all correspondence received from
any taxing authority in connection with any tax examination, inquiry
or audit or information request with respect to any such taxable
period referred to in subsection (iv).
Section V.8 POST-CLOSING ACTIONS WHICH MAY AFFECT REPAP'S LIABILITY FOR
TAXES. Except to the extent required by law, neither Buyer, Repap USA, its
Subsidiaries, nor their Affiliates shall, without the prior written consent of
Repap, which shall not be unreasonably withheld, (i) amend any Tax Return filed
by, or with respect to, Repap USA or any of its Subsidiaries for any taxable
period, or portion thereof, beginning before the Closing Date, or (ii) carryback
any net operating loss, capital loss, excess foreign tax credit or other similar
losses, deductions or credits derived with respect to any period beginning after
the Closing Date to any taxable year, or portion thereof, of Repap USA or any of
its Subsidiaries ending on or before the Closing Date. Such consent shall not be
unreasonably withheld and shall not be necessary to the extent that such amended
returns or carrybacks do not affect Repap's liability for Taxes.
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Section V.9 SAVINGS AND COSTS TO BUYER RESULTING FROM ADJUSTMENTS TO TAX
RETURNS FOR PERIODS PRIOR TO CLOSING.
(a) If, after the Closing, an adjustment required by a taxing authority
in any item reflected on a Tax Return of Repap USA or any of its
Subsidiaries relating to any taxable period, or portion thereof,
ending on or before the Closing Date results in a Tax benefit
(including any deduction, credit, net operating loss or similar loss
or deduction) becoming available to Buyer or any of its Affiliates
(including Repap USA and any of its Subsidiaries) with respect to any
taxable period beginning after the Closing, Buyer agrees to
recognize, and to cause its Affiliates to recognize, any such
adjustment on its or their Tax Returns and to claim to the fullest
extent possible all deductions and credits available as a result.
Buyer shall pay to Repap an amount equal to the estimated net
decrease in the Tax liability of Buyer and its Affiliates as a result
of the Tax benefit becoming available. The estimated net decrease in
the Tax liability of Buyer and its Affiliates shall be determined by
multiplying any increase in deductions, net operating losses or other
similar items by twenty-nine percent (29%) and any increase in
credits by zero percent (0%).
(b) If, after the Closing, an adjustment required by a taxing authority
in any item reflected on a Tax Return of Repap USA or any of its
Subsidiaries relating to any taxable period, or portion thereof,
ending after the Closing Date results in a Tax benefit (including any
deduction, credit, net operating loss or similar loss or deduction)
becoming available to Repap or any of its Continuing Affiliates with
respect to any taxable period, or portion thereof ending on or before
the Closing, Repap agrees to recognize, and to cause its Continuing
Affiliates to recognize, any such adjustment on its or their Tax
Returns and to claim to the fullest extent possible all deductions
and credits available as a result. Repap shall pay to Buyer an amount
equal to the net decrease in the Tax liability of Repap and its
Continuing Affiliates as a result of claiming any such deduction or
credit (as compared to the Taxes they otherwise would have paid) at
the time such decrease is realized (whether by paying less Taxes or
receiving a refund). For purposes of determining the amount of any
such decrease in Taxes paid, any deductions or credits otherwise
available to Repap or its Continuing Affiliates shall be deemed to be
used prior to the deductions or credits resulting from such
adjustment.
(c) If, after the Closing, an adjustment required by a taxing authority
in any item reflected on a Tax Return of Repap USA or any of its
Subsidiaries relating to any taxable period, or portion thereof,
ending on or before the Closing Date results in loss or reduction in
a Tax benefit (including the loss or reduction of any deduction,
credit, net operating loss, or similar loss or deduction) otherwise
available to Repap USA or any of its Subsidiaries or to Buyer or any
of its Affiliates with respect to any taxable period beginning after
the Closing, Repap shall pay to Buyer an amount equal to the
estimated net increase in the Tax liability of Buyer and its
Affiliates as a result of the loss or reduction of such Tax benefit
at the time such adjustment by the taxing authority becomes final.
The estimated net increase in the Tax liability of Buyer and its
Affiliates shall be determined by multiplying any loss or reduction
in deductions, net operating losses or other similar items by
twenty-nine percent (29%) and any loss or reduction in credits by
zero percent (0%).
Section V.10 SURVIVAL OF OBLIGATIONS. The obligations of the parties set
forth in this Article V shall be unconditional and absolute and shall remain in
effect without limitation as to time.
ARTICLE VI
CERTAIN COVENANTS AND AGREEMENTS OF REPAP AND BUYER
Section VI.1 ACCESS AND INFORMATION.
(a) Repap shall permit Buyer and its representatives after the date of
execution of this Agreement to have reasonable access, dur-ing
regular business hours and upon reasonable advance notice, to the
real property owned or leased by Repap USA and the Subsidiaries and
to the officers, key employees, customers, suppliers and parties to
material contracts of Repap USA and the Subsidiaries, subject to
Repap's reasonable rules and regulations, and shall furnish, or cause
to be furnished, to Buyer any financial and operating data and other
information that is available with respect to the Business and
properties of Repap USA and the Subsidiaries as may be reasonably
necessary for Buyer and Repap
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to obtain any third party action, consent or approval required
hereunder or as Buyer shall from time to time otherwise reasonably
request; provided that the foregoing shall not require Repap to
permit, prior to Closing, any inspection, or to disclose any
information, that (a) relates to its proprietary coating formulas and
its groundwood customers or (b) in its reasonable judgment would
result in the disclosure of any trade secrets of third parties or
violate any of Repap's, Repap USA's or any of the Subsidiaries'
obligations with respect to confidentiality if Repap shall have used
its reasonable best efforts to obtain the consent of such third party
to such inspection or disclosure.
(b) In the event of the termination of this Agreement, Buyer at its own
expense shall promptly deliver (without retaining any copies thereof)
to Repap, or (at Repap's option) confirm in writing to Repap that it
has destroyed all Confidential Information furnished to Buyer or its
representatives by Repap, Repap USA, the Subsidiaries or any of their
respective agents, employees or representatives as a result hereof or
in connection herewith, whether so obtained before or after the
execution hereof, and all analyses, compilations, forecasts, studies
or other documents prepared by Buyer or its representatives which
contain or reflect any such Confidential Information. Buyer shall at
all times prior to the Closing Date, and in the event of termination
of this Agreement, cause any Confidential Information so obtained to
be kept confidential and will not use, or permit the use of, such
information in its business or in any other manner or for any other
purpose except as contemplated hereby and except as required by law.
(c) All Confidential Information provided or obtained pursuant to clause
(a) above shall be held by Buyer in accordance with and subject to
the terms of the confidentiality agreement, dated September 24, 1996,
between Buyer and Repap (the "Confidentiality Agreement"). At
Closing, the Confidentiality Agreement shall terminate and shall be
of no further force and effect except as provided therein.
(d) As used in this Agreement, "Confidential Information" means
confidential business information regarding Repap, Repap USA or the
Subsidiaries, including customer lists and files, prices and costs,
Business and financial records, information relating to personnel
contracts and offices and positions held, stock ownership,
liabilities, litigation and the terms of this Agreement and any
written analysis or other document reflecting such information that
such party prepares. However, "Confidential Information" shall not
include:
(i) any information already in the possession of Buyer prior to
September 24, 1996, or information available to Buyer from
public records or from other sources in accordance with law;
(ii) any information that is in the public domain or subsequently
enters the public domain otherwise than through disclosure by
Buyer or any of Buyer's representatives;
(iii) any information that is capable of being independently
developed by or on behalf of Buyer without reference to the
Confidential Information; or
(iv) any information that is acquired from a third party not known
by Buyer after reasonable inquiry to be providing such
information in breach of a confidentiality obligation to Repap,
Repap USA or the Subsidiaries.
(e) Repap agrees that, at Closing, Repap will assign to Buyer all rights
of Repap in connection with the Confidential Information of Repap USA
and the Subsidiaries and will deliver to Buyer copies of any written
agreements and documents relating thereto.
Section VI.2 REGISTRATIONS, FILINGS AND CONSENTS. Repap and Buyer will
cooperate and use their respective reasonable best efforts to fulfill the
conditions precedent to the other party's obligations hereunder, including but
not limited to, securing as promptly as practicable all consents, approvals,
waivers and authorizations required, necessary or desirable in connection with
the transactions contemplated hereby. Buyer and Repap will promptly file
documentary materials required by the HSR Act, the Competition Act,
Environmental Laws and each of the other items listed in Section 3.4 of Annex A
and Section 4.2 of Annex B and promptly file any additional information
requested as soon as practicable after receipt of request thereof; provided that
each party shall duly file with the FTC and the Antitrust Division the
notification and report form (the "Report") required under the HSR Act, or an
application for an advanced ruling certificate or a comparable report required
under the Competition Act with respect to the sale and purchase of the Shares no
later than three Business Days after the date hereof.
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Section VI.3 OPERATION OF BUSINESS. During the period commencing on the
date hereof and continuing until the Closing Date, unless Buyer shall otherwise
agree in writing (such agreement not to be unreasonably withheld) or as
otherwise expressly contemplated or permitted by this Agreement, Repap agrees
that it will cause:
(a) Repap USA and the Subsidiaries to carry on their Businesses in the
regular and ordinary course (in substantially the same manner as
heretofore conducted) and use their best efforts to preserve intact
their Businesses, organizations, employees, customers, suppliers and
goodwill;
(b) Repap USA and the Subsidiaries not to subdivide, consolidate,
redeem, purchase or otherwise acquire or reclassify any of their
outstanding shares of any class of capital stock, declare any
dividends on or make other distributions (whether in cash, stock or
property or any combination thereof) in respect of their shares of
any class of capital stock;
(c) Repap USA and the Subsidiaries not to amend their articles or
by-laws or similar organizational documents;
(d) Repap USA and the Subsidiaries not to issue, authorize or propose or
commit to the issuance of (whether through the issuance or granting
of options, warrants, commitments, subscriptions, rights to purchase
or otherwise), or, directly or indirectly, through an Affiliate or
otherwise, purchase or propose the purchase of, any shares in their
capital of any class or securities convertible into or exchangeable
for, or rights, warrants or options to acquire, any such shares or
other convertible or exchangeable securities;
(e) Repap USA and the Subsidiaries not to merge or consolidate with or
into any other Person;
(f) Repap USA and the Subsidiaries not to sell, lease, transfer,
mortgage, hypothecate or otherwise dispose of any of their assets or
properties, real, personal or mixed, moveable or immoveable, that are
material, individually or in the aggregate, to the Business, assets,
financial condition or results of operations of Repap USA and the
Subsidiaries or Buyer and its subsidiaries, as the case may be, taken
as a whole;
(g) Repap USA and the Subsidiaries not to (i) incur indebtedness for
money borrowed in excess of $250,000, or assume, guarantee, endorse
or otherwise become liable or responsible for the obligations of any
other Person in excess of such amount, or issue or sell any debt
securities (it being understood that such prohibition shall not
otherwise prevent or hinder the drawing of funds pursuant to lease
arrangements or credit facilities established and available as of the
date hereof); (ii) approve any new capital expenditures in excess of
$100,000 individually and $1,000,000 in the aggregate except for
those listed on Schedule 2.3(a)(iv); (iii) dispose of or incur,
create or assume any Encumbrance on any individual capital asset of
Repap USA or the Subsidiaries if the greater of the book value and
the fair market value of such capital asset exceeds $250,000 other
than Permitted Encumbrances; and (iv) enter into a contract,
agreement, commitment or arrangement with respect to any of the
foregoing;
(h) Repap USA and the Subsidiaries to grant to any officer of Repap USA
or the Subsidiaries any increase in compensation or in severance or
termination pay, or enter into new or amend existing agreements
respecting employment (including benefits) with any officer or
employee of Repap USA or the Subsidiaries, except as may be required
under employment or termination agreements in effect on the date
hereof or as may be required by law;
(i) Repap USA and the Subsidiaries to maintain inventories of raw
materials and finished goods at current levels, except for sales and
purchases in the ordinary course of business, and maintain the
properties of the Business in good repair, order and condition,
reasonable wear and tear excepted;
(j) Repap USA and the Subsidiaries not to amend or terminate any
material agreement;
(k) Repap USA and the Subsidiaries not take any action to seek,
encourage, solicit or support any inquiry, proposal, expression of
interest or offer from any other Person or entity with respect to an
acquisition, combination or similar transaction involving the Shares,
any Subsidiary, the Businesses of Repap USA and the Subsidiaries or
substantially all of the assets or securities related thereto (any
such inquiry, proposal, expression of interest or offer being
hereinafter referred to as an "Acquisition Proposal"), and Repap will
promptly inform Buyer of the existence of any such Acquisition
Proposal
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and shall not without the written consent of Buyer furnish any
information to or participate in any discussions or negotiations with
any other Person or entity regarding the same; provided, however,
that nothing contained in this Agreement shall prevent Repap or its
Subsidiaries from (A) providing information in response to a request
therefor in connection with an Acquisition Proposal by any such
Person or entity if the Board of Directors receives from such Person
or entity so requesting such information an executed confidentiality
agreement on terms substantially similar to those contained in the
Confidentiality Agreement; (B) engaging in any negotiations or
discussions with respect to an Acquisition Proposal with any such
Person or entity; or (C) terminating this Agreement in the context of
a competing Acquisition Proposal if and only to the extent that, in
each such case referred to in clause (A), (B) or (C) above, the Board
of Directors of Repap determines in good faith after consultation
with outside legal counsel that such action is necessary in order for
its directors to comply with their respective fiduciary duties under
applicable law;
(l) Repap USA or its Subsidiaries not to enter or agree to enter into
any agreement, except as otherwise set forth in this Agreement,
pursuant to which Repap or any Subsidiary would be obligated to
expend, or entitled to receive, more than $100,000 in any 12 month
period or which Repap USA or its Subsidiaries, upon cancellation by
Repap USA or the Subsidiaries upon less than three (3) months'
notice, are required to incur or fund additional expenditures,
penalties or increased costs;
(m) Repap USA and the Subsidiaries not to renew or enter into any leases
for sales offices; and
(n) Repap USA and the Subsidiaries to enter into any transaction or
perform any act which might interfere or be inconsistent with the
successful completion of the transactions contemplated by this
Agreement or which would render inaccurate any of the representations
and warranties set forth herein if such representations and
warranties were made at a date subsequent to such transaction or act
and all references to the date hereof were to such later date.
From the date hereof through the Closing, Repap shall confer on a regular
and frequent basis with one or more designated representatives of Buyer to
report material operational matters and the general status of ongoing operations
of the Businesses of Repap USA and the Subsidiaries.
Repap shall promptly notify Buyer of any material change in the financial
condition, results of operations, properties or Businesses of Repap USA or any
Subsidiary or prospects of the Businesses of Repap USA and the Subsidiaries, and
shall keep Buyer fully informed of such events and permit Buyer's
representatives to participate in all discussions relating thereto.
Section VI.4 CONTINUED EMPLOYMENT; EMPLOYEE BENEFIT PLANS.
(a) Buyer shall cause Repap USA and the Subsidiaries to, maintain for a
period of at least one year after the Closing Date the Plans
disclosed on Schedule 3.12 as in effect for the Employees on the
Closing Date, provided that, at Closing, each and every Plan subject
to the funding requirements of Section 412 of the Code has assets
sufficient to cover the applicable Plan liabilities for active,
former and retired employees, on a fully funded basis as actuarially
determined using the actuarial assumptions in effect for the Plan
year including the Closing Date; provided further, however, that,
notwithstanding the foregoing, the Severance Plans maintained by
Repap USA or any of the Subsidiaries as of the Closing Date shall
remain in effect without any modification adverse to the participants
thereunder for at least one year after the Closing Date, and any
employee whose employment is terminated and who is otherwise eligible
for severance benefits pursuant to the Severance Plans shall be
entitled to severance benefits based upon base pay and employment
position at levels at least equal to those applicable as of the
Closing Date (other than on account of any reduction in position
voluntarily agreed to in writing by any such employee). For purposes
of this Agreement, the "Severance Plans" shall mean the severance
plans of Repap USA and the Subsidiaries designated in writing by
Repap and consented to by Buyer, which consent shall not be
unreasonably withheld.
(b) Repap agrees that, prior to Closing, it will be solely liable for
obligations to the Employees under any benefit plans not maintained
by Repap USA or a Subsidiary. Effective as of the Closing Date, (i)
the Employees shall cease to participate in the employee benefit
plans of Repap or any of its Affiliates
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other than Repap USA or a Subsidiary and (ii) Repap shall cause the
Employees to be fully vested in their accounts under any such benefit
plan.
(c) Repap agrees that, prior to Closing, it will cause Repap USA and the
Subsidiaries, as applicable, to terminate certain employees as
provided by Buyer to Repap prior to Closing (the "Listed Employees");
provided, however, that Buyer acknowledges that Repap USA and the
Subsidiaries remain liable for any amounts paid to the Listed
Employees pursuant to such termination under the Severance Plans,
except for Listed Employees who, following such termination, are
employed by Repap or any Affiliate of Repap.
Buyer agrees that it shall indemnify, defend and hold harmless the Repap
Indemnified Parties from and against any Losses imposed upon the Repap
Indemnified Parties directly or indirectly relating to or arising out of the
termination of employment of the Listed Employees in violation of law,
including, but not limited to, wrongful discharge, Title VII of the Civil Rights
Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment
Act, ERISA, the Worker Adjustment and Retraining Notification Act (each as
amended from time to time) or similar federal, state or local laws.
(d) The Employees shall be given credit for all service with Repap,
Repap USA or any of its Subsidiaries (or service credited by Repap,
Repap USA or any of its Subsidiaries) for purposes of eligibility,
vesting and the satisfaction of any waiting periods (but not for
purposes of benefit accruals) under any employee benefit plan or
arrangement of Buyer in which they participate following the Closing
Date.
Section VI.5 RETENTION OF BOOKS AND RECORDS. Buyer shall cause Repap USA
and the Subsidiaries to retain, until all applicable tax statutes of limitations
(including periods of waiver) have expired, all books, records and other
documents pertaining to Repap USA and the Subsidiaries in existence on the
Closing Date for a period of at least five (5) years from the date hereof and to
make the same available after the Closing Date for inspection and copying by
Repap or its agents at Repap's expense, during regular business hours and upon
reasonable request and upon reasonable advance notice. After the expiration of
such period, no such books and records shall be destroyed by Buyer without first
advising the tax director or other appropriate officer of Repap in writing
detailing the contents thereof and giving Repap at least 30 days to obtain
possession thereof.
Section VI.6 CLOSING DATE FINANCIAL INFORMATION. For a period of one
year from and after the Closing Date, to the extent reasonably necessary for
Repap or its Continuing Affiliates to prepare consolidated financial statements
or any governmental permits, licenses or required filings and to comply with
reporting obligations in respect thereof, upon the written request of Repap,
Repap USA and the Subsidiaries will provide, and Buyer shall use its best
efforts to cause Repap USA and the Subsidiaries to provide, to Repap and its
accountants within 20 Business Days of such request with such computer support,
access to employees and Buyer's accountants and financial information of Repap
USA or the Subsidiaries as of the Closing Date as Repap may reasonably request.
Section VI.7 NOTIFICATION OF CERTAIN MATTERS. Until the Closing Date,
each of Buyer and Repap shall promptly notify the other if any of the
representations and warranties made by it and contained in this Agreement ceases
to be true, accurate and complete in any material respect and of any failure to
comply in any material respect with any of its obligations under this Agreement.
Notification of any breach of representation or warranty or failure to comply
with any obligations shall not constitute or be deemed a waiver of any of the
conditions set forth in Article VII or prejudice the rights of the parties
pursuant to Article VII hereof not to consummate the transactions contemplated
by this Agreement.
Section VI.8 NON-SOLICITATION OF EMPLOYEES. Repap agrees that, for a
period of one (1) year following the Closing Date, neither Repap nor any
Continuing Affiliate shall solicit the employment of any Person, other than as
agreed by the parties, it knows to be an employee of Repap USA or any of its
Subsidiaries or employ any Person it knows to be such an employee (other than
any hourly worker or any Employee who serves in a clerical function) without the
prior written consent of Buyer; provided, however, that (i) general
solicitations of employment published in a journal, newspaper or other
publication of general circulation and not specifically directed towards such
employees shall not be deemed to constitute solicitation for purposes of this
Section 6.8 and (ii) Repap, its Continuing Affiliates and representatives shall
not be prohibited from employing any such person who contacts them on his or her
own initiative and without any solicitation by Repap, its Continuing Affiliates
and representatives.
Section VI.9 FURTHER ASSURANCES. At any time after the Closing Date,
Repap and Buyer shall promptly, and Buyer shall cause Repap USA or any
Subsidiary promptly to, execute, acknowledge and deliver any other
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assurances or documents reasonably requested by Buyer or Repap, as the case may
be, and necessary for Buyer or Repap, as the case may be, to satisfy its
obligations hereunder or obtain the benefits contemplated hereby.
Section VI.10 STOCKHOLDERS MEETING. Repap shall take, in accordance with
its certificate of incorporation and by-laws, all action necessary to convene a
meeting of holders of shares of Common Stock of Repap as promptly as practicable
after the date hereof to consider and vote upon the approval of the transactions
contemplated by this Agreement. Subject to fiduciary obligations under
applicable law, the Board of Directors of Repap shall recommend such approval
and shall take all lawful action to solicit such approval.
Section VI.11 CERTAIN INTERESTS AFTER CLOSING DATE. Buyer shall cause
Repap Sales to continue to do business with WWF at a volume consistent with past
practice on Buyer's standard terms and conditions with its customers for a
period of two years beginning on the Closing Date. Buyer shall give Repap and
WWF at least six months prior written notice of its intent to terminate such
relationship; provided, however, that no such notice shall be given prior to
eighteen (18) months following the Closing Date; and, provided further, that
such relationship may be immediately terminated if WWF fails to comply with any
of its payment obligations to Repap Sales.
ARTICLE VII
CONDITIONS TO CLOSING
Section VII.1 CONDITIONS TO OBLIGATIONS OF BUYER. The obligation of
Buyer to consummate the transactions contemplated by this Agreement shall be
subject to the satisfaction or waiver by Buyer in writing on or prior to the
Closing Date of each of the following conditions:
(a) Each of the representations and warranties of Repap contained in
this Agreement which refers to a Material Adverse Effect or otherwise
makes reference to a concept of materiality shall be true when made
and as of the Closing Date, and each of the other representations and
warranties of Repap contained in this Agreement shall be true and
correct when made and as of the Closing Date, with the same effect as
though such representations and warranties had been made on and as of
the Closing Date (except (i) representations and warranties that are
made as of a specific date need be true, or true in all material
respects, as the case may be, only as of such date and (ii) as
expressly permitted by this Agreement to be changed between the date
of this Agreement and the Closing Date); each of the covenants and
agreements of Repap to be performed on or prior to the Closing Date
shall have been duly performed; and Buyer shall have received at the
Closing certificates to that effect dated as of the Closing Date and
executed on behalf of Repap by its President or any of its Vice
Presidents and its Secretary or any of its Assistant Secretaries.
(b) Buyer shall have received from Repap: (i) an opinion of Stikeman
Elliott, Canadian outside counsel to Repap, dated as of the Closing
Date, substantially in the form set forth in Schedule 7.1(b) hereof,
(ii) an opinion of Foley & Lardner, U.S. outside counsel to Repap,
dated as of the Closing Date, in a form mutually acceptable to Repap
and Buyer and (iii) an opinion of Sullivan & Cromwell, U.S. outside
counsel to Repap, dated as of the Closing Date, in a form mutually
acceptable to Repap and Buyer.
(c) Repap shall have delivered to Buyer resignations of all directors of
Repap USA and the Subsidiaries and all officers of Repap USA and the
Subsidiaries.
(d) Repap shall acquire from GSP and Skeena prior to Closing, all of the
Repap Wisconsin Preferred Shares.
(e) Repap USA shall not (i) hold any interest in WWF, (ii) hold any
investment in the preferred stock of Repap; (iii) hold any investment
in the preferred stock of Skeena; and (iv) hold any interest in any
of Nitec Paper Corp., Nitec International Sales Corp. and
Nitec/Midtec Sales Inc.
(f) Except for a $4.5 million net receivable from Repap New Brunswick
Inc., which shall be paid to Repap Sales in 12 monthly installments
of equal amounts over one year with the first such installment
payable on the Closing Date, neither Repap USA nor any Subsidiary
shall have any outstanding accounts receivable from, or accounts
payable to, Repap or any Repap Affiliate, and Repap USA and the
Subsidiaries shall have terminated all agreements and arrangements
with Repap and the Repap Affiliates except as specifically provided
herein and except as set forth in Schedule 7.1(f) hereto.
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(g) Repap shall have caused the pledge to TD Capital Group Limited to be
released with respect to the capital stock of Repap USA and the
Subsidiaries.
(h) Buyer shall have received an affidavit of an officer of Repap sworn
to under penalties of perjury and dated the Closing Date, in form and
substance satisfactory to counsel for Buyer, that, as of that date,
an interest in Repap USA does not constitute a "U.S. real property
interest" within the meaning of Section 897 of the Internal Revenue
Code.
(i) George S. Petty shall have entered into an agreement with Buyer to
vote his shares of common stock of Repap at the meeting of
stockholders of Repap contemplated in Section 6.10 to approve the
transactions contemplated by this Agreement.
Section VII.2 CONDITIONS TO OBLIGATIONS OF REPAP. The obligation of
Repap to consummate the transactions contemplated by this Agreement shall be
subject to the satisfaction or waiver by Repap in writing on or prior to the
Closing Date of each of the following conditions:
(a) Each of the representations and warranties of Buyer contained in
this Agreement qualified by a concept of materiality shall be true
when made and as of the Closing Date, and each of the other
representations and warranties of Buyer contained in this Agreement
shall be true and correct when made and as of the Closing Date, with
the same effect as though such representations and warranties had
been made on and as of the Closing Date (except (i) representations
and warranties that are made as of a specific date need be true, or
true in all material respects, as the case may be, only as of such
date and (ii) as expressly permitted by this Agreement to change
between the date of this Agreement and the Closing Date); each of the
covenants and agreements of Buyer to be performed on or prior to the
Closing Date shall have been duly performed; and Repap shall have
received at the Closing certificates to that effect dated as of the
Closing Date and executed on behalf of Buyer by its President or any
of its Vice Presidents and its Secretary or any of its Assistant
Secretaries.
(b) Repap shall have received from McDermott, Will & Emery, as counsel
for Buyer, an opinion, dated as of the Closing Date, in a form mutually
acceptable to Repap and Buyer.
Section VII.3 CONDITIONS TO OBLIGATIONS OF BUYER AND REPAP. The
obligations of the parties to consummate the transactions contemplated by this
Agreement shall be subject to the satisfaction or waiver by both parties on or
prior to the Closing Date of the following conditions:
(a) Each party shall have duly filed with the FTC and the Antitrust
Division the Report required under the HSR Act with respect to the
sale and purchase of the Shares and the waiting period required by
the HSR Act, and any extensions thereof obtained by request or other
action of the FTC and/or the Antitrust Division shall have expired or
been earlier terminated by the FTC and the Antitrust Division.
(b) No court or governmental authority of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute,
rule, regulation or non-appealable judgment, decree, injunction or
other order which is in effect on the Closing Date and prohibits the
consummation of the Closing.
(c) The agreements set forth in Schedule 7.1(f) shall have been entered
into and be in full force and effect.
(d) The transactions contemplated by this Agreement shall have been duly
approved by the Requisite Vote of the shareholders of Repap.
(e) The Competition Act Director or any person authorized to exercise
the powers and perform the duties of the Competition Act Director
shall have issued a certificate under section 102(l) of the
Competition Act to the effect that she is satisfied that she would
not have sufficient grounds on which to apply to the Competition
Tribunal established pursuant to the Competition Act under Section 92
of the Competition Act in respect of the transactions contemplated by
this Agreement or the appropriate time period specified in Section
123 of the Competition Act shall have expired or the Competition Act
Director shall have indicated in writing that she does not intend to
take any action under Section 92 of the Competition Act whether
before or after the completion of the transactions contemplated by
this Agreement.
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ARTICLE VIII
TERMINATION
Section VIII.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing:
(a) by agreement of Buyer and Repap;
(b) by either Buyer or Repap, by giving written notice of such
termination to the other party, if (x) any condition to the
terminating party's obligations hereunder has not been satisfied or
waived and (y) the Closing shall not have occurred on or prior to the
later of (i) September 30, 1997 and (ii) the expiration of the
waiting period under the HSR Act including any extensions thereof;
provided that the terminating party is not in material breach of its
obligations under this Agreement;
(c) by either Buyer or Repap, by giving written notice of such
termination to the other party, if (x) each condition thereto shall
have been satisfied or waived and (y) the Closing shall not have
occurred on or prior to the later of (i) September 30, 1997 and (ii)
the expiration of the waiting period under the HSR Act including any
extensions thereof; provided that the terminating party is not in
material breach of its obligations under this Agreement;
(d) by either Buyer or Repap if there shall be in effect any law or
regulation that prohibits the consummation of the Closing or if
consummation of the Closing would violate any non-appealable final
order, decree or judgment of any court or governmental body having
competent jurisdiction;
(e) by Repap if the Closing shall not have occurred on or prior to 10
Business Days following the satisfaction of all the conditions to
Closing set forth in Sections 7.1 and 7.3 hereof as a result of any
action or inaction by Buyer;
(f) by Buyer if the Closing shall not have occurred on or prior to 10
Business Days following the satisfaction of all the conditions to
Closing set forth in Sections 7.2 and 7.3 hereof as a result of any
action or inaction by Repap;
(g) by Buyer if Repap's Board of Directors fails to recommend that such
stockholders approve the sale of the Shares to Buyer; or
(h) by Repap, as set forth in Section 6.3(k).
Section VIII.2 EFFECT OF TERMINATION.
(a) In the event of the termination of this Agreement in accordance with
Section 8.1 hereof, this Agreement shall thereafter become void and
have no effect, and no party hereto shall have any liability to the
other party hereto or their respective Affiliates, directors,
officers or employees, except for the obligations of the parties
hereto contained in this Section 8.2 and in Sections 6.1(b), 6.1(c),
10.2 and 10.4 hereof, and except that nothing herein will relieve any
party from liability for any breach of this Agreement prior to such
termination.
(b) In the event that either (A) Repap's Board of Directors fails to
recommend that such stockholders approve the sale of the Shares to
Buyer and this Agreement is terminated pursuant to Section 8.1, or
(B) this Agreement is terminated pursuant to Section 8.1, and at any
time prior to September 30, 1998, Repap, Repap USA or any Affiliate
thereof enters into an agreement, agreement in principle, letter of
intent or similar understanding with respect to, or consummates, an
Acquisition Proposal, then Repap, Repap USA and Repap Sales shall
promptly (but in no event later than five days after the date of such
termination or the occurrence of such event as the case may be) pay,
on a joint and several basis, to Buyer a termination fee of $25.0
million payable by wire transfer of same day funds.
(c) In addition to (b) above, in the event that the approval of the
stockholders of Repap shall not have been obtained prior to September
30, 1997 and Buyer shall have terminated this Agreement pursuant to
Section 8.1, then Repap, Repap USA and Repap Sales shall pay, on a
joint and several basis, to Buyer on the business day following such
termination, a fee of $10.0 million payable by wire transfer of same
day funds. In the event that Buyer thereafter acquires the Business
from Repap on terms substantially similar to those contained herein
prior to September 30, 1998, the price paid by Buyer shall be
increased by the $10.0 million received by Buyer pursuant to this
section.
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(d) In no event shall Repap, Repap USA and Repap Sales be required to
pay, in the aggregate, more than $35.0 million pursuant to Sections
8.2(b) and (c) to this Agreement.
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
Section IX.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS; KNOWLEDGE OF BREACH.
(a) Notwithstanding any otherwise applicable statute of limitations, the
representations and warranties included or provided for herein shall
survive the Closing until two (2) years after the Closing Date;
provided, however, that any representation, warranty, covenant or
agreement contained in Sections 3.14 and 3.18 of Annex A hereto,
Sections 4.4 and 4.6 of Annex B hereto, and Article V hereof shall
survive the Closing until the expiration of the applicable statute of
limitations (including any waivers or extensions thereof) with
respect to such matters; provided further, that no limitation shall
apply to claims alleging fraud on the part of a party hereto. The
covenants and other agreements contained in this Agreement shall
survive the Closing until the date or dates specified therein or the
expiration of the applicable statute of limitations (including any
waivers or extensions thereof) with respect to such matters,
whichever is later. Except with respect to the representations,
warranties, covenants and agreements contained in Sections 3.18 and
4.4 and Article V hereof, in no event shall Buyer be liable to Repap
or Repap be liable to Buyer, as the case may be, for any breach of
the representations, warranties, covenants and agreements included or
provided for herein or in any schedule or certificate or other
document delivered pursuant to this Agreement, unless and until all
claims for which damages are recoverable hereunder by Buyer or Repap,
as the case may be, exceed $1,000,000 (the "Deductible"), in which
case Buyer or Repap, as the case may be, shall be entitled to recover
on the amount of such claims in excess of the Deductible; provided,
however, that the maximum liability of Buyer or Repap, as the case
may be, for claims and damages shall be $75,000,000 (assuming an
aggregate of $76,000,000 of indemnifiable claims) (the "Maximum
Amount"); provided, further, that exclusively for purposes of this
Article IX, in determining whether there is a breach of, or action or
state of facts inconsistent with, any representation or warranty, the
terms "material", "materiality" and "Material Adverse Effect", when
applied to such representation and warranty, shall mean damages in
excess of $150,000 (the "Damage Threshold") for each individual
proven claim (or group of claims arising from the same event,
condition or course of conduct) for which indemnification is being
sought (whether or not such claim is being made against the
Deductible). For this purpose, if the relevant representation and
warranty contains a material, materiality or Material Adverse Effect
standard in the aggregate, the Damage Threshold shall similarly apply
in the aggregate.
(b) No party hereto shall be deemed to have breached any representation,
warranty, covenant or agreement if (i) such party shall have notified
the other parties hereto in writing, at least five days prior to the
Closing Date, of the breach of, or inaccuracy in, or of any facts or
circumstances constituting or resulting in the breach of or
inaccuracy in, such representation, warranty, covenant or agreement,
specifically referring to the provisions of this Agreement so
breached or rendered inaccurate, and (ii) such other party has
permitted the Closing to occur and, for purposes of this Agreement,
is thereby deemed to have waived such breach or inaccuracy; provided,
however, that a disclosure pursuant to this Section 9.1(b) shall not
prejudice the rights of the parties pursuant to Article VII hereof
not to consummate the transactions contemplated by this Agreement.
Section IX.2 INDEMNIFICATION.
(a) For a period commencing on the Closing Date and ending, as the case
may be, upon the expiration of the periods specified in Section
9.1(a) hereof, Repap on the one hand, or Buyer, on the other hand
(the "Indemnifying Party"), shall, subject to the limitations set
forth in Sections 9.1(a) and 9.1(b) hereof, indemnify respectively
Buyer, on the one hand, or Repap, on the other hand, as the case may
be (the "Indemnified Party"), against and in respect of all losses,
damages, liabilities, costs and expenses (including reasonable
attorneys' fees and expenses incurred in investigating, preparing or
defending any claims covered hereby) (collectively, "Losses")
sustained or incurred arising out of
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any breaches of the Indemnifying Party's representations, warranties,
covenants and agreements set forth in this Agreement (other than
representations, warranties, covenants and agreements set forth in
Article V, as to which the indemnification provisions set forth in
Article V shall govern). Any payments pursuant to this Section 9.2 or
Article V shall be treated as an adjustment to the Purchase Price for
all Tax purposes.
(b) Repap releases and waives any right of indemnity and contribution
from Repap USA and the Subsidiaries.
(c) The indemnity provided herein as it relates to this Agreement and
the transactions contemplated by this Agreement shall be the sole and
exclusive remedy of the parties hereto, their Affiliates, successors
and assigns with respect to any and all claims for losses, damages,
liabilities, costs and expenses sustained or incurred arising out of
this Agreement and the transactions contemplated by this Agreement,
except for the right of the parties hereto to seek specific
performance of the obligations set forth in Article II and Sections
6.4 and 6.8 of this Agreement and, except for any other remedies
available to Repap or Buyer, as the case may be, based upon fraud.
Section IX.3 METHOD OF ASSERTING CLAIMS, ETC. All claims for
indemnification by any Indemnified Party hereunder shall be asserted and
resolved as set forth in this Section 9.3 except for claims pursuant to Article
V hereof (as to which the provisions of Article V shall be applicable). In the
event that any written claim or demand for which an Indemnifying Party would be
liable to any Indemnified Party hereunder is asserted against or sought to be
collected from any Indemnified Party by a third party, such Indemnified Party
shall promptly, but in no event more than 30 Business Days following such
Indemnified Party's actual receipt of such claim or demand, notify the
Indemnifying Party of such claim or demand and the amount or the estimated
amount thereof to the extent then feasible (which estimate shall not in any
manner prejudice the right of the Indemnified Party to indemnification to the
fullest extent provided hereunder) (the "Third Party Claim Notice") and in the
event that an Indemnified Party shall assert a claim for indemnity under this
Article IX, not including a third party claim, the Indemnified Party shall
notify the Indemnifying Party promptly following its discovery of the facts or
circumstances giving rise thereto (together with a Third Party Claim Notice, a
"Claim Notice"); provided, that no such notice need be provided to an
Indemnifying Party if the Deductible has not been exceeded and will not be
exceeded by such claim or demand; and provided, further, that the failure to
notify on the part of the Indemnified Party in the manner set forth herein shall
not foreclose any rights otherwise available to such Indemnified Party
hereunder, except to the extent that the Indemnifying Party is prejudiced by
such failure to notify. The Indemnifying Party shall have 30 days from the
personal delivery or mailing of the Third Party Claim Notice (except that such a
period shall be decreased to a time 10 days before a scheduled appearance date
in a litigated matter) (the "Notice Period") to notify the Indemnified Party (i)
whether or not the Indemnifying Party disputes the liability of the Indemnifying
Party to the Indemnified Party hereunder with respect to such claim or demand
and (ii) whether or not it desires to defend the Indemnified Party against such
claim or demand, which it shall not be entitled to do until the Deductible is
exceeded. All costs and expenses incurred by the Indemnifying Party in defending
such claim or demand shall be a liability of, and shall be paid by, the
Indemnifying Party; provided, however, that the amount of such costs and
expenses incurred by the Indemnifying Party shall be separate and apart from,
and shall not be included in, the Maximum Amount. In the event that the
Indemnifying Party notifies the Indemnified Party within the Notice Period that
it desires to defend the Indemnified Party against such claim or demand, which
it shall not be entitled to do until the Deductible is exceeded and except as
hereinafter provided, the Indemnifying Party shall have the right to defend the
Indemnified Party by appropriate proceedings and by counsel reasonably
acceptable to the Indemnified Party. If any Indemnified Party desires to
participate in, but not control, any such defense or settlement it may do so at
its sole cost and expense. The Indemnified Party shall not settle a claim or
demand without the consent of the Indemnifying Party. The Indemnifying Party
shall not, without the prior written consent of the Indemnified Party, settle,
compromise or offer to settle or compromise any such claim or demand on a basis
which would result in the imposition of a consent order, injunction or decree
which would restrict the future activity or conduct of, or which would otherwise
have a material adverse effect on, the Indemnified Party or any subsidiary or
Affiliate thereof. If the Indemnifying Party elects not to defend the
Indemnified Party against such claim or demand, whether by not giving the
Indemnified Party timely notice as provided above or otherwise, then the amount
of any such claim or demand, or, if the same be contested by the Indemnified
Party, then that portion of any such claim or demand as to which such defense is
unsuccessful (and all reasonable costs and expenses pertaining to such defense)
shall be the liability of the Indemnifying Party hereunder, subject to the
limitations set forth in Section 9.1 hereof. To the extent the
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Indemnifying Party shall control or participate in the defense or settlement of
any third party claim or demand, the Indemnified Party will give to the
Indemnifying Party and its counsel reasonable access to all business records and
other documents relevant to such defense or settlement, and shall permit them to
consult with the employees and counsel of the Indemnified Party. The Indemnified
Party shall use its best efforts in the defense of all such claims, and in
connection therewith shall be entitled to reimbursement by the Indemnifying
Party of expenses directly related to efforts undertaken at the specific request
of the Indemnifying Party.
ARTICLE X
MISCELLANEOUS
Section X.1 AMENDMENT AND MODIFICATION; WAIVER. This Agreement may only
be amended or modified in writing, signed by Repap and Buyer, at any time prior
to the Closing with respect to any of the terms contained herein. At any time
prior to the Closing either Repap or Buyer may (i) extend the time for the
performance of any of the obligations or other acts of the other party hereto,
(ii) waive any inaccuracies in the representations and warranties of the other
party contained herein or in any document delivered pursuant hereto, and (iii)
waive compliance with any of the agreements or conditions of the other party
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid if set forth in an instrument in writing
signed by the party granting such extension or waiver.
Section X.2 RETURN OF INFORMATION. If for any reason whatsoever the sale
and purchase of the Shares pursuant to this Agreement is not consummated, Buyer
shall promptly return to Repap or Repap USA all books, records and documents of
Repap, Repap USA or any Subsidiary (including all copies, if any, thereof)
furnished by Repap, Repap USA, any Subsidiary or any of their respective agents,
employees or representatives, and shall not use or disclose the Confidential
Information contained in such books, records or documents for any purpose or
make such Confidential Information available to any other entity or person.
Section X.3 EXPENSES. Except as otherwise expressly provided in this
Agreement, whether or not the transactions contemplated by this Agreement are
consummated, the parties shall bear their own respective expenses (including,
but not limited to, all compensation and expenses of counsel, financial
advisors, consultants, actuaries and independent accountants) incurred in
connection with this Agreement and the transactions contemplated hereby.
Section X.4 PUBLIC DISCLOSURE. Each of the parties to this Agreement
hereby agrees with the other parties hereto that, except as may be required to
comply with the requirements of applicable law or the rules and regulations of
the stock exchanges upon which the securities of the parties or their Affiliates
are listed, no press release or similar public announcement or communication
will be made or caused to be made concerning the execution or performance of
this Agreement unless specifically approved in advance by all parties hereto;
provided, however, that to the extent that either party to this Agreement is
required by law or the rules and regulations of any stock exchange upon which
the securities of one of the parties or its Affiliates is listed to make such a
public disclosure, such public disclosure shall only be made after prior
consultation with the other party to this Agreement.
Section X.5 ASSIGNMENT. No party to this Agreement may assign any of its
rights or obligations under this Agreement without the prior written consent of
the other party hereto.
Section X.6 ENTIRE AGREEMENT. This Agreement (including all Annexes and
Schedules hereto) contains the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, oral or written, with respect to such matters, except for the
Confidentiality Agreement which will remain in full force and effect for the
term provided for therein.
Section X.7 FULFILLMENT OF OBLIGATIONS. Any obligation of any party to
any other party under this Agreement, which obligation is performed, satisfied
or fulfilled by an Affiliate of such party, shall be deemed to have been
performed, satisfied or fulfilled by such party.
Section X.8 PARTIES IN INTEREST; NO THIRD PARTY BENEFICIARIES. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns. Nothing in this
Agreement, express or implied, is intended to confer upon any Person other than
Buyer, Repap, or their successors or permitted assigns, any rights or remedies
under or by reason of this Agreement.
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Section X.9 SCHEDULES. The inclusion of any matter in any schedule to
this Agreement shall be deemed to be an inclusion for all purposes of this
Agreement, including each representation and warranty to which it may relate,
but inclusion therein shall expressly not be deemed to constitute an admission
by Repap, or otherwise imply, that any such matter is material or creates a
measure for materiality for the purposes of this Agreement; provided, however,
that any disclosure made in the Disclosure Documents shall not be deemed to be
an inclusion in a schedule except as specifically stated.
Section X.10 COUNTERPARTS. This Agreement and any amendments hereto may
be executed in one or more counterparts, each of which shall be deemed to be an
original by the parties executing such counterpart, but all of which shall be
considered one and the same instrument.
Section X.11 SECTION HEADINGS. The section and paragraph headings and
table of contents contained in this Agreement are for reference purposes only
and shall not in any way affect the meaning or interpretation of this Agreement.
Section X.12 NOTICES. All notices hereunder shall be deemed given if in
writing and delivered personally, by express delivery service or sent by
facsimile (confirmation requested), to the parties at the following addresses
(or at such other addresses as shall be specified by like notice):
(a) if to Repap, to:
Repap Enterprises Inc.
1250 Rene-Levesque Blvd. West
Suite 3800
Montreal, Quebec
H3B 4Y3 Canada
Attention: Terry W. McBride, Esq.
Vice President and General Counsel
Fax: (514) 846-1328
With a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Andrew D. Soussloff, Esq.
Fax: (212) 558-3588
(b) if to Buyer, to: Consolidated Papers, Inc.
231 First Avenue North
Wisconsin Rapids, Wisconsin 54495
Attention: Carl H. Wartman, Esq.
General Counsel and Secretary
Fax: (715) 422-3203
With a copy to:
McDermott, Will & Emery
227 West Monroe Street
Chicago, Illinois 60606
Attention: Robert A. Schreck, Jr., P.C.
Fax: (312) 984-3669
Any notice given by delivery shall be effective when received. Any notice
given by facsimile shall be effective when the appropriate facsimile answerback
is received.
Section X.13 GOVERNING LAW; SUBMISSION TO JURISDICTION; SELECTION OF
FORUM. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF WISCONSIN WITHOUT REFERENCE TO THE CHOICE OF LAW
PRINCIPLES THEREOF. EACH PARTY HERETO AGREES THAT IT SHALL BRING ANY ACTION OR
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PROCEEDING IN RESPECT OF ANY CLAIM ARISING OUT OF OR RELATED TO THIS AGREEMENT
OR THE TRANSACTIONS CONTAINED IN OR CONTEMPLATED BY THIS AGREEMENT, WHETHER IN
TORT OR CONTRACT OR AT LAW OR IN EQUITY, EXCLUSIVELY IN THE UNITED STATES
DISTRICT COURT FOR THE EASTERN DISTRICT OF WISCONSIN (THE "CHOSEN COURT") AND
(I) IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE CHOSEN COURT, (II)
WAIVES ANY OBJECTION TO LAYING VENUE IN ANY SUCH ACTION OR PROCEEDING IN THE
CHOSEN COURT, (III) WAIVES ANY OBJECTION THAT THE CHOSEN COURT IS AN
INCONVENIENT FORUM OR DOES NOT HAVE JURISDICTION OVER ANY PARTY HERETO AND (IV)
AGREES THAT SERVICE OF PROCESS UPON SUCH PARTY IN ANY SUCH ACTION OR PROCEEDING
SHALL BE EFFECTIVE IF NOTICE IS GIVEN IN ACCORDANCE WITH SECTION 10.12 OF THIS
AGREEMENT. REPAP IRREVOCABLY DESIGNATES F&L CORP. AS ITS AGENT AND
ATTORNEY-IN-FACT FOR THE ACCEPTANCE OF SERVICE OF PROCESS AND MAKING AN
APPEARANCE ON ITS BEHALF IN ANY SUCH CLAIM OR PROCEEDING AND TAKING ALL SUCH
ACTS AS MAY BE NECESSARY OR APPROPRIATE IN ORDER TO CONFER JURISDICTION OVER IT
UPON THE CHOSEN COURT AND REPAP STIPULATES THAT SUCH CONSENT AND APPOINTMENT IS
IRREVOCABLE AND COUPLED WITH AN INTEREST.
Section X.14 SEVERABILITY. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or entity
or any circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other persons, entities or circumstances shall not be affected by
such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
IN WITNESS WHEREOF, this Agreement has been signed on behalf of each of
the parties hereto as of the date first written above.
REPAP ENTERPRISES INC.
By:
Name:
Title:
By:
Name:
Title:
CONSOLIDATED PAPERS, INC.
By:
Name:
Title:
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ANNEX A
3.1 INCORPORATION AND QUALIFICATION
Repap is a corporation duly incorporated and validly subsisting under the
laws of Canada. Each of Repap USA and the Subsidiaries has been duly
incorporated, is validly existing and is in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its Business
as now being conducted and is duly registered, licensed or qualified to carry on
business in each jurisdiction in which the nature of the Business as now being
conducted by it or the property owned or leased by it makes such registration,
licensing or qualification necessary, unless the failure to be so registered or
qualified would not have a Material Adverse Effect. Schedule 3.1 sets forth each
state or other jurisdiction in which each of Repap USA and the Subsidiaries is
licensed or qualified to do business. Repap has delivered to Buyer an accurate,
correct and complete copy of its charter and by-laws and each agreement, trust,
proxy or other arrangement among its stockholders.
3.2 CAPITALIZATION
(a) The authorized capital stock of Repap USA consists of 9,000 shares
of common stock, without par value, of which the Shares are the only
issued and outstanding shares of capital stock of Repap USA. The
Shares are duly authorized, validly issued, fully paid and
non-assessable and are owned of record and beneficially by Repap.
Repap has good and valid title to the Shares and, upon consummation
of the transactions contemplated in this Agreement, shall have
transferred such title to the Shares to Buyer pursuant to the terms
of this Agreement, free and clear of any liens, charges, pledges,
security interests, adverse claims or other encumbrances including,
but not limited to, the pledge to TD Capital Group Limited made
pursuant to the Standby Loan Agreement which will be released prior
to Closing (collectively, "Encumbrances"). There are not now, and at
the Closing Date there will not be, any outstanding options, warrants
or rights to purchase or acquire, or securities convertible into or
exchangeable for, any shares in the share capital of Repap USA and
there are no contracts, commitments, agreements, understandings,
arrangements, restrictions, warrants, preemptive rights, or
outstanding subscription, convertible or exchangeable security, other
than the Standby Loan Agreement, which require Repap USA to issue,
sell or deliver any shares of its capital stock.
(b) The authorized capital stock of Repap Wisconsin consists of 300
shares of common stock, without par value, of which 105 shares of
common stock are issued and outstanding (the "Repap Wisconsin Common
Shares"), and 8,700 shares of preferred stock of which the Repap
Wisconsin Preferred Shares are the only shares of preferred stock
issued and outstanding. The Repap Wisconsin Common Shares and the
Repap Wisconsin Preferred Shares shall be referred to collectively as
the "Wisconsin Shares." The Wisconsin Shares are the only shares of
capital stock of Repap Wisconsin issued and outstanding. The
Wisconsin Shares are duly authorized, validly issued, fully paid and
non-assessable and, at Closing, will be owned of record and
beneficially by Repap or Repap USA. At Closing, Repap and Repap USA,
collectively, will have good and valid title to all the Wisconsin
Shares free and clear of all Encumbrances, including, but not limited
to, the pledge to TD Capital Group Limited made pursuant to the
Standby Loan Agreement which will be released prior to Closing. There
are not now, and at the Closing Date there will not be, any
outstanding options, warrants or rights to purchase or acquire, or
securities convertible into or exchangeable for, any shares in the
share capital of Repap Wisconsin and there are no contracts,
commitments, agreements, understandings, arrangements, restrictions,
warrants, preemptive rights, or out-standing subscription,
convertible or exchangeable security, other than the Standby Loan
Agreement, which require Repap Wisconsin to issue, sell or deliver
any shares of its capital stock.
As of the date hereof, Repap Wisconsin has outstanding $250 million in aggregate
principal amount of 9 1/4% First Priority Senior Secured Notes Due 2002 (the
"First Priority Notes") and $150 million in aggregate principal amount of 9 7/8%
Second Priority Senior Secured Notes Due 2006 (the "Second Priority Notes," and
together with the First Priority Notes, the "Priority Notes"), $23 million of
which Second Priority Notes were held by Repap Wisconsin.
(c) The authorized capital stock of Repap Sales consists of 200 shares
of common stock, without par value, of which 200 shares (the "Sales
Shares") are issued and outstanding. The Sales Shares are the
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only shares of capital stock of Repap Sales issued and outstanding.
The Sales Shares are duly authorized, validly issued, fully paid and
non-assessable and are owned of record and beneficially by Repap USA.
Repap USA has good and valid title to the Sales Shares free and clear
of all Encumbrances, except for the pledge to Ferrostaal AG which
will be released prior to Closing. There are not now, and at the
Closing Date there will not be, any outstanding options, warrants or
rights to purchase or acquire, or securities convertible into or
exchangeable for, any shares in the share capital of Repap Sales and
there are no contracts, commitments, agreements, understandings,
arrangements, restrictions, warrants, preemptive rights, or
outstanding subscription, convertible or exchangeable security, other
than the Standby Loan Agreement, which require Repap Sales to issue,
sell or deliver any shares of its capital stock.
3.3 SUBSIDIARIES
Except for Repap Sales and Repap Wisconsin (each a "Subsidiary," and,
collectively, the "Subsidiaries"), there is no corporation, association, limited
liability company, partnership, joint venture or other entity which is
controlled directly or indirectly by Repap USA or which Repap USA or any of the
Subsidiaries owns any stock or has any equity investment or other interest in
(other than WWF). At the Closing Date, the shares of capital stock of each
Subsidiary will be owned 100% by Repap USA (except for those Repap Wisconsin
Preferred Shares owned by Repap) free and clear of all Encumbrances, other than
such Encumbrances on the shares of the Subsidiaries referred to in the Standby
Loan Agreement or in favor of Ferrostaal AG, or such restrictions on transfer as
are contained in the constituting documents of the Subsidiaries; all such
capital stock is duly authorized, validly issued, fully paid and nonassessable
and such shares are the only shares of capital stock of such Subsidiaries issued
and outstanding. There are not now, and at the Closing Date there will not be,
any outstanding subscriptions, options, warrants, calls, commitments or
agreements calling for, or any preemptive rights in respect of, the issuance of
any shares in the capital of the Subsidiaries.
3.4 AUTHORITY; FILINGS, CONSENTS AND APPROVALS
Repap has the corporate power and authority to enter into this Agreement
and, subject to the receipt of the approvals, consents and authorizations
contemplated in this Agreement, to carry out the transactions contemplated
hereby. This Agreement has been, and the documents to be delivered at Closing
will be, duly authorized, executed and delivered by Repap and constitutes a
legal, valid and binding obligation of Repap, enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles, and no other proceedings on
the part of Repap are necessary to authorize this Agreement and the consummation
of the transactions contemplated hereby.
Except as set forth in Schedule 3.4 or as required by the HSR Act, the
execution, delivery and performance of this Agreement will not require Repap,
Repap USA or any of the Subsidiaries to obtain any consent, waiver,
authorization or approval of, or make any filing with or give notice to, any
Person, except for such consents, waivers, authorizations or approvals which the
failure to obtain would not be reasonably likely to have a Material Adverse
Effect or would not prohibit or materially delay Repap's ability to perform its
obligations under this Agreement.
3.5 ABSENCE OF CHANGES
Except for the transactions contemplated hereby or as set forth in the
Financial Statements or Disclosure Documents or on Schedule 3.5, since June 30,
1997, (i) there has not been any material change in the financial condition,
assets, liabilities, personnel or Business of Repap USA or any Subsidiary, or in
their relationships with suppliers, customers, distributors, lenders, lessors or
others, except changes in the ordinary course of business, (ii) Repap USA and
the Subsidiaries have not declared or paid any dividends or made any
distribution of their properties or assets to shareholders, and (iii) Repap USA
and the Subsidiaries have not entered into any agreement to dispose of any of
their assets or incurred any indebtedness other than in the ordinary course of
business.
3.6 FINANCIAL STATEMENTS; DISCLOSURE DOCUMENTS
Attached hereto as Schedule 3.6(a) is a copy of (a) the unaudited
consolidated balance sheet of Repap USA and the Subsidiaries as of December 31,
1996 and the consolidated statements of operations, stockholder's equity and
cash flows for the fiscal years ended December 31, 1995 and December 31, 1996
(collectively, with the
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notes thereto, the "Financial Information") and (b) a copy of the unaudited
consolidated balance sheet (the "Balance Sheet") of Repap USA and the
Subsidiaries as of June 30, 1997 and the related consolidated statements of
operations, stockholder's equity and cash flows for the six months then ended
(collectively, with the notes thereto, the "Interim Financial Information"). The
Financial Information and the Interim Financial Information (together, the
"Financial Statements") have been prepared in accordance with GAAP (except as
may be noted therein) and present fairly, in all material respects, the
consolidated financial position of Repap USA and the Subsidiaries as of December
31, 1996 and June 30, 1997, respectively, and the consolidated statements of
operations, stockholder's equity and cash flows of Repap USA and its
Subsidiaries for the fiscal years ended December 31, 1995 and December 31, 1996
and the six months ended June 30, 1997, respectively, subject, in the case of
the Interim Financial Information, to normal year-end adjustments.
Repap Wisconsin has filed all required documents with the SEC since
February 2, 1994. As of their respective dates, Repap Wisconsin's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996, and Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1997 (the "Disclosure
Documents") complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and, at the respective
times they were filed, none of the Disclosure Documents contained any 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, in light of the
circumstances under which they were made, not misleading. The financial
statements (including, in each case, any notes there) of Repap Wisconsin
included in the Disclosure Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
GAAP (except, in the case of the unaudited statements, as permitted by Form 10-Q
of the SEC) applied on a consistent basis during the periods involved (except as
may be indicated therein or in the notes thereto) and fairly presented in all
material respects the financial position of Repap Wisconsin as at the respective
dates thereof and the results of its operations and its cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments and to any other adjustments described therein).
Except as disclosed in the Disclosure Documents or as required by GAAP, each of
Repap USA and Repap Wisconsin has not, since December 31, 1996, made any change
in the accounting practices or policies applied in the preparation of financial
statements.
3.7 ABSENCE OF UNDISCLOSED LIABILITIES
Except as reflected in the Financial Statements of Repap USA and except as
set forth in the Disclosure Documents, neither Repap USA nor any of the
Subsidiaries has any liabilities or obligations of any nature, whether absolute
or contingent, accrued or unaccrued, liquidated or unliquidated, due or to
become due, including any liability for Taxes (collectively, "Liabilities"),
which, either individually or in the aggregate, are material to Repap USA and
the Subsidiaries taken as a whole, in excess of the Liabilities reflected or
reserved against in the Financial Statements, except those incurred in the
ordinary course of business and consistent with past practice since December 31,
1996.
3.8 NO CONFLICT
Subject to the receipt of the regulatory approvals referred to in this
Agreement or the approvals set forth on Schedule 3.4 and Schedule 3.8, the
execution and delivery of this Agreement by Repap does not, and the performance
of this Agreement by Repap and the consummation by it of the transactions
contemplated by this Agreement shall not:
(a) conflict with or violate the articles or by-laws or equivalent
organizational documents of Repap, Repap USA or any of the
Subsidiaries;
(b) conflict with or violate any law, rule, regulation, permit, order,
judgment or decree applicable to Repap, Repap USA or any of the
Subsidiaries or by which any of their respective properties is bound
or affected, the conflict with which or violation of which would have
a Material Adverse Effect or would prohibit or materially delay
Repap's ability to perform its obligations under this Agreement; or
(c) 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 rights of termination, amendment, acceleration
or cancellation of, or result in the creation of an Encumbrance on
any of the properties or assets of Repap, Repap USA or any of the
Subsidiaries pursuant to, any note, bond, mortgage, indenture,
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contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Repap, Repap USA or any of the
Subsidiaries is a party or by which Repap, Repap USA or any of the
Subsidiaries or any of their respective properties is bound or
affected, which, in any such case, would have a Material Adverse
Effect or would prohibit or materially delay Repap's ability to
perform its obligations under this Agreement.
3.9 COMPLIANCE
Except as disclosed in the Disclosure Documents or as otherwise disclosed
herein and in Schedule 3.9 and except for any conflicts, defaults or violations
which would not, individually or in the aggregate (taking into account the
impact of any cross-defaults), have a Material Adverse Effect, neither Repap USA
nor any of the Subsidiaries is in conflict with, or in default (including
cross-defaults) or violation of, (i) its articles or by-laws or equivalent
organizational documents, (ii) any law, rule, regulation, order, permit,
judgment or decree applicable to Repap USA or any of the Subsidiaries or by
which any one of their respective properties is bound or affected or (iii) any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Repap USA or any of the
Subsidiaries is a party or by which Repap USA or any of the Subsidiaries or any
of their respective properties is bound or affected.
3.10 LITIGATION
Except as disclosed in the Disclosure Documents or Schedule 3.10, there
are no claims, actions, proceedings, suits, investigations or reviews pending
or, to the Knowledge of Repap, threatened in writing against Repap USA or any of
the Subsidiaries or any of their properties before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, that, individually or in the aggregate, would have a Material Adverse
Effect. As at the date hereof, neither Repap USA nor any of the Subsidiaries nor
any of their properties is subject to any judgment, order or decree which has or
will have a Material Adverse Effect, except as disclosed in the Disclosure
Documents or Schedule 3.10.
3.11 LABOR AND EMPLOYMENT RELATIONS
Except as disclosed in the Disclosure Documents or in writing by Repap,
neither Repap USA nor any of the Subsidiaries is a party to any written
agreement or arrangement providing for severance or termination payments or any
compensation in excess of $25,000 to any director, officer or employee as a
result of the transactions contemplated by this Agreement or any written
employment agreement with any of its directors, officers and employees. Except
as disclosed in writing by Repap, neither Repap USA nor any Subsidiary is a
party to or bound by any material labor agreement or collective bargaining
agreement respecting its employees, nor is there pending, or to the Knowledge of
Repap threatened, any strike, walkout or other work stoppage or any union
organizing effort by or respecting the employees.
Except as disclosed in writing by Repap, Repap does not have any pending
complaint filed with the National Labor Relations Board or any other
governmental agency alleging unfair labor practices, human rights violations,
employment discrimination charges, or the like against Repap USA or any of the
Subsidiaries which would have a Material Adverse Effect and, to the Knowledge of
Repap, there are no existing facts which might result in any such complaint or
charge. Each of Repap USA and each Subsidiary has complied in all material
respects with all laws, rules and regulations relating to the employment of
labor, including provisions related to wages, hours, equal opportunity,
occupational health and safety, collective bargaining and the payment of social
security and other employment taxes. There are no controversies pending or, to
the Knowledge of Repap, threatened, involving any group of employees, except
individual grievances under any collective bargaining agreement which, in the
aggregate, are not material.
3.12 BENEFIT PLANS
(a) Except as disclosed in Schedule 3.12, (i) there are no pension,
retirement, profit sharing, bonus, savings, deferred compensation,
stock option, purchase or appreciation, group insurance or other
employee benefit plans, programs or arrangements or fringe benefits
maintained or contributed to by Repap USA or any of the Subsidiaries
(each such plan, program or arrangement, a "Plan"), (ii) there are no
actions, claims, or other proceedings pending or, to the Knowledge of
Repap, threatened with respect to the Plans, (iii) no promise or
commitment to increase benefits under the
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Plans has been made except as required by law, (iv) no event has
occurred which could subject any person or fund to any tax or penalty
in connection with the Plans, where the effect of such action or
failure to comply under (ii) through (iv) above would, individually
or in the aggregate, have a Material Adverse Effect. Repap has
provided Buyer with complete and accurate copies of all the Plans.
(b) Except as disclosed in the Disclosure Documents or in Schedule 3.12,
none of the Plans is subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"). With respect to each Plan
that is subject to ERISA (an "ERISA Plan") and, to the extent
specified, any ERISA Affiliate Plan (i) if such ERISA Plan is
intended to be qualified under Section 401(a) of the Code, such ERISA
Plan has been determined by the IRS to be so qualified or a
determination letter request will be filed for such Plan within the
remedial amendment period for such Plan; (ii) such ERISA Plan has
complied (in form and in operation) in all material respects with
ERISA, and all other applicable laws; (iii) no accumulated funding
deficiency, as defined in Section 302 of ERISA and Section 412 of the
Code, whether or not waived, exists with respect to such Plan or any
ERISA Affiliate Plan; (iv) with respect to each single employer ERISA
Plan and ERISA Affiliate Plan subject to Title IV of ERISA, as of the
last day of the most recent plan year ended prior to the date hereof,
the actuarially determined present value of all "benefit liabilities"
(as defined under Section 4001(a)(16) of ERISA) under such Plan,
determined on the basis of the actuarial assumptions in effect for
such plan year, did not exceed the then current value of the assets
of such Plan; and (v) none of Repap USA, the Subsidiaries or any
ERISA Affiliate has incurred or expects to incur any liability to the
United States Pension Benefit Guaranty Corporation or any withdrawal
liability under Title IV of ERISA with respect to any "Multiemployer
Plan" (as defined below), where the effect of such event, condition,
action or failure to act under (i) through (v) above would be
reasonably expected to have a Material Adverse Effect. Except as
disclosed in the Disclosure Documents or in Schedule 3.12, neither
Repap USA nor any Subsidiary maintains or contributes to any employee
welfare benefit plan (as defined in Section 3(1) of ERISA) which is
subject to ERISA and which provides medical benefits to employees
after termination of employment other than as required by Section 601
of ERISA or other applicable law.
(c) Neither Repap, Repap USA nor any ERISA Affiliate maintains or
contributes to any defined benefit pension plan subject to the
funding requirements of Section 412 of the Code, or covered under
Section 4021(a) of ERISA.
For purposes of the preceding paragraphs, "ERISA Affiliate" means (a) any
corporation which is a member of the same controlled group of corporations,
within the meaning of Section 414(b) of the Code, as Repap USA or any of the
Subsidiaries, or (b) any partnership or trade or business (whether or not
incorporated) under common control, within the meaning of Section 414(c) of the
Code, with Repap USA or any of the Subsidiaries; and "Multiemployer Plan" means
any Plan that is a "multiemployer plan" (as defined in Section 4001(a)(3) of
ERISA). "ERISA Affiliate Plan" means any single employer plan subject to Title
IV or Section 302 of ERISA maintained or contributed to by an ERISA Affiliate.
3.13 PROPERTY
Each of Repap USA and the Subsidiaries has good title to all of its
respective properties and assets (real and personal, tangible and intangible,
including leasehold interests) including all the properties and assets reflected
in the balance sheets forming part of the Financial Statements of Repap USA,
except as indicated in the notes thereto, together with all additions thereto
and less all dispositions thereof in the ordinary course of its businesses, in
each case subject to no Encumbrance except for Permitted Encumbrances and as is
reflected in the balance sheets forming part of the Financial Statements of
Repap USA, except where the failure to have such title, individually or in the
aggregate, would not be reasonably likely to have a Material Adverse Effect. To
the Knowledge of Repap, it is not aware of any need to make any material changes
or modifications to any equipment necessary to enable the Business to continue
as it has in the past.
3.14 TAX MATTERS
Except as reflected in the Financial Statements or Disclosure Documents or
as would not be reasonably likely to have a Material Adverse Effect, (i) to the
Knowledge of Repap, all Tax Returns required to be filed prior to
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the Closing Date with respect to Repap USA and the Subsidiaries have been duly
filed, (ii) to the Knowledge of Repap, all such Returns are correct and
complete, (iii) all Taxes shown to be due on such Tax Returns have been paid in
full, (iv) no deficiencies for any Taxes with respect to such Tax Returns have
been asserted, (v) to the Knowledge of Repap, no other Taxes are payable by
Repap USA and the Subsidiaries with respect to items or periods covered by such
Tax Returns (whether or not shown or reportable on such Tax Returns), (vi) no
waivers of statutes of limitation have been given or requested with respect to
any Taxes with respect to such Tax Returns, (vii) there are no audits in
process, pending or threatened with respect to such Tax Returns, (viii) to the
Knowledge of Repap, Repap USA and the Subsidiaries have withheld and paid over
all Taxes required to have been withheld and paid over, and complied with all
information reporting and backup withholding requirements, and (ix) there are no
liens on any of the assets of Repap USA with respect to Taxes, other than liens
for Taxes not yet due and payable or for Taxes that are contesting in good faith
through appropriate proceedings and for which appropriate reserves have been
established.
3.15 CONTRACTS
Except as set forth in the Disclosure Documents or the Financial
Statements or Schedule 3.15 and except for contracts entered into by Buyer or
caused by Buyer to be entered into by Repap USA or any Subsidiary in connection
with this Agreement and the transactions contemplated hereby, neither Repap USA
nor any Subsidiary is a party to, or bound by, any contract of any kind which is
to be performed or as to which Repap USA or any Subsidiary may have any right or
obligation after the Closing Date other than contracts (i) which have been
entered into in the ordinary and usual course of business consistent with past
practice and (ii) pursuant to which Repap USA or the Subsidiary, as the case may
be, is or would be obligated to expend, or entitled to receive, less than
$250,000 in any 12-month period or which is subject to cancellation by Repap USA
or the Subsidiary, as the case may be, upon less than three (3) months' notice,
without incurring any expenditure and without penalty or increased cost. All
contracts to which Repap USA or any Subsidiary is a party constitute valid and
binding obligations of Repap USA or any Subsidiary, as the case may be,
enforceable against Repap USA or any Subsidiary, as the case may be, in
accordance with their respective terms (subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles) and in full force and effect, except for such contracts the
invalidity or unenforceability of which alone or in the aggregate would not be
reasonably likely to have a Material Adverse Effect. Except as set forth in
Schedule 3.9, there is not any pending or, to the Knowledge of Repap, threatened
cancellation, existing default, or event under any such contract which, after
notice or lapse of time, or both, would constitute a default, except for such
pending or threatened cancellations, existing defaults or events which, alone or
in the aggregate, would not be reasonably likely to have a Material Adverse
Effect.
3.16 LICENSES, ETC.
Repap USA and each Subsidiary owns, possesses, or has obtained and is in
compliance with, all governmental licenses, permits, certificates, consents,
orders, grants and other authorizations (the "Licenses and Permits") necessary
to conduct its Businesses as now conducted, the failure to own, possess, obtain
or be in compliance with which would have a Material Adverse Effect, all of
which are listed on Schedule 3.16. The Licenses and Permits are valid and in
full force and effect and there are not pending, or, to the Knowledge of Repap,
threatened, any proceedings which could result in the termination, revocation,
limitation or impairment of any License or Permit. No violations have been
recorded in respect of any Licenses and Permits, and to the Knowledge of Repap
there is no meritorious basis for any such recordation.
3.17 ENVIRONMENTAL MATTERS
Except as disclosed in the Disclosure Documents or in Schedule 3.17, or as
would not have a Material Adverse Effect, each of Repap USA and the
Subsidiaries: (i) is in substantial compliance with applicable Environmental
Laws; (ii) has not received any written notices from any governmental entity
alleging the violation of, or any claim or liability under, any applicable
Environmental Law; (iii) is not the subject of any court order, administrative
order or decree arising under any Environmental Law; (iv) has obtained all
environmental permits which are required in order to carry on their respective
Businesses and operations as presently conducted under all applicable
Environmental Laws, where noncompliance or failure to obtain the same would
have, individually or in the aggregate, a Material Adverse Effect; (v) is not a
subject to any compliance schedules or other limitations in such environmental
permits, other than permit expiration dates, which will become effective in the
future and which
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will restrict or prevent operation of the Businesses as presently conducted; and
(vi) has not to the best Knowledge of Repap spilled, released, disposed of or
discharged any hazardous substances onto property currently or previously owned
by Repap USA or the Subsidiaries which spill, release, disposal or discharge has
not been previously remediated to the extent required under the applicable
Environmental Laws. Neither Repap USA nor the Subsidiaries has at any time given
any written undertakings with respect to remedying any breach of Environmental
Laws which have not been duly performed in accordance with the terms of such
undertakings, which breach would have a Material Adverse Effect. Except as
disclosed in the Disclosure Documents or in Schedule 3.17, to the best of
Knowledge of Repap no condition or environmental contamination exists on the
property owned by Repap USA or the Subsidiaries which would cause or require
Repap USA or its Subsidiaries to investigate and/or take remedial actions under
any applicable Environmental Laws to address such conditions of contamination.
Schedule 3.17(a) sets forth all treatment, storage or disposal facilities
utilized by Repap USA or the Subsidiaries for the treatment, storage or disposal
of any hazardous substances generated by the operations or activities of Repap
USA or the Subsidiaries.
3.18 BROKERS AND FINDERS
Other than Dillon, Read & Co. Inc. and TD Securities Inc., Repap, Repap
USA and the Subsidiaries have not employed any broker, finder, consultant or
intermediary in connection with the transactions contemplated by this Agreement
who would be entitled to a broker's, finder's or similar fee or commission in
connection therewith or upon the consummation thereof, or if the Closing does
not occur. Repap agrees to bear all costs it incurs, including fees and expenses
of Dillon, Read & Co. Inc. and TD Securities Inc., in connection with the
transactions contemplated by this Agreement unless otherwise expressly provided
herein and Repap USA and the Subsidiaries shall not have any liability with
respect to Dillon, Read & Co. Inc. and TD Securities Inc.
3.19 BOOKS AND RECORDS
The corporate records and minute books of Repap USA and the Subsidiaries
have been and are maintained in all material respects in accordance with
applicable laws.
3.20 TRANSACTIONS WITH AFFILIATES
Since December 31, 1996, there has not been any dividend or other
distribution of assets by Repap USA or any Subsidiary. Except as set forth in
Schedule 3.20, no Repap Affiliate:
(a) owns, directly or indirectly, any debt, equity or other interest or
investment in any corporation, association or other entity which is a
competitor, lessor, lessee, customer, supplier, distribution sales
agent or advertiser of Repap USA or any Subsidiary;
(b) has any cause of action or other claim whatsoever against or owes
any material amount to, or is owed any material amount by, Repap USA
or any Subsidiary, except for accrued vacation pay, employee benefits
and similar matters and except for those claims arising from existing
contracts in the ordinary course of business;
(c) has any interest in or owns any property or right used in the
conduct of the Businesses of Repap USA or any of the Subsidiaries
except for those interests arising in the ordinary course of
business;
(d) has lent or advanced any money to, or borrowed any money from, or
guaranteed or otherwise become liable for any indebtedness or other
obligations of, or acquired any capital stock, obligations or
securities of, any Subsidiary except for such transactions arising in
the ordinary course of business;
(e) is a party to any contract, lease, agreement, arrangement or
commitment used in the Business except for such transactions arising
in the ordinary course of business; or
(f) received from or furnished to the Business any goods or services
(with or without consideration) since December 31, 1996 except for
such trans-actions arising in the ordinary course of business.
The term "Repap Affiliate" shall mean any officer, director or stockholder
of Repap, or any of the Repap USA Group or any corporation (other than WWF),
partnership, trust or other entity in which Repap, or any of the Repap USA Group
or any such officer, director or stockholder has a five percent (5%) or greater
interest or is a director, officer, partner or trustee. The term Repap Affiliate
shall also include any entity which controls, or is controlled by, or is under
common control with any of the individuals or entities described in the
preceding sentence.
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3.21 INVENTORY
All inventories reflected on the Financial Statements are, and on the
Statement of Consolidated Net Working Capital will be, in all material respects,
(a) properly valued at the lower of cost or market value on a first-in,
first-out basis (or, in the case of work-in-process and finished goods, on an
average cost basis) in accordance with GAAP; (b) of good and merchantable
quality and contain no material amounts, except for job-lot that are produced in
the ordinary course of business, that are not salable and usable for the
purposes intended in the ordinary course of business and meet the current
standards and specifications of the Businesses of Repap USA and the
Subsidiaries; (c) in conformity with warranties customarily given to purchasers
of like products; and (d) at levels adequate and not excessive in relation to
the circumstances of the Businesses of Repap USA and the Subsidiaries and in
accordance with past inventory stocking practices. All inventories disposed of
subsequent to December 31, 1996, except for such dispositions that do not have a
material effect on Repap USA, have been disposed of only in the ordinary course
of business and at prices and under terms that are normal and consistent with
past practice.
3.22 INSURANCE
Schedule 3.22 sets forth an accurate, correct and complete list and
summary description (including the name of the insurer, coverage, premium and
expiration date) of all binders, policies of insurance, sell insurance programs
or fidelity bonds ("Insurance") maintained by Repap USA or a Subsidiary or in
which Repap USA or a Subsidiary is a named insured. All Insurance has been
issued by financially sound insurance companies under valid and enforceable
policies or binders for the benefit of Repap USA or a Subsidiary, and all such
policies or binders are in such types and in full force and effect and are in
amounts and for risks, casualties and contingencies customarily insured against
by enterprises in operations similar to the Businesses of Repap USA and the
Subsidiaries. There are no pending or asserted claims against any Insurance as
to which any insurer has denied liability, and there are no claims under any
Insurance that have been disallowed or improperly filed. Schedule 3.22 sets
forth the claims experience for the last two full fiscal years and the interim
period through the date hereof with respect to Repap USA and the Subsidiaries
(both insured and self-insured). No notice of cancellation or nonrenewal with
respect to, or material increase of premium for, any insurance has been received
by Repap USA or any Subsidiary. Repap has no Knowledge of any facts or the
occurrence of any event which (i) reasonably might form the basis of any claim
against Repap USA or any Subsidiary relating to the conduct or operations of
their Business and which will materially increase the insurance premiums payable
under any insurance or (ii) otherwise will materially increase the insurance
premiums payable under any insurance.
3.23 CUSTOMERS AND SUPPLIERS
(a) All sales contracts and orders with customers and suppliers were
entered into by or on behalf of Repap USA or any Subsidiary and were
entered into in the ordinary course of business for usual quantities
and at normal prices. Schedule 3.23 sets forth an accurate, correct
and complete list of the ten largest customers and ten largest
suppliers of Repap USA and of each Subsidiary, determined on the
basis of revenues from items sold (with respect to customers) or
costs of items purchased (with respect to suppliers) for each of the
fiscal year ended December 31, 1996 and the six-month period ended
June 30, 1997. To the Knowledge of Repap, no customer or supplier
will cease to do business with Repap USA or any Subsidiary after, or
as a result of, the consummation of any transactions contemplated
hereby or that any customer or supplier is threatened with bankruptcy
or insolvency in any manner that will reasonably likely have a
Material Adverse Effect. Neither Repap, Repap USA nor any of the
Subsidiaries knows of any fact, condition or event which would
adversely affect its relationship with any customer or supplier in
any manner that will reasonably likely have a Material Adverse
Effect. Since December 31, 1996, there has been no cancellation of
backlogged orders in material excess of the average rate of
cancellation prior to such date.
(b) Neither Repap USA, any Subsidiary, nor any of their officers or
employees, has, directly or indirectly, given or agreed to give any
rebate, gift or similar benefit to any supplier, customer,
distributor, broker, governmental employee or other Person, who was,
is or may be in a position to help or hinder the Business (or assist
in connection with any actual or proposed transaction) which could
subject Repap USA or any Subsidiary or Buyer to any damage or penalty
in any civil, criminal or governmental litigation or proceeding or
which would have a Material Adverse Effect.
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(c) Except as set forth on Schedule 3.23, (i) no Person within the last
twelve months has threatened in writing to cancel or otherwise
terminate, or to the Knowledge of Repap has threatened orally to
cancel or otherwise terminate, the relationship of such Person with
Repap USA and each Subsidiary in any manner that will reasonably
likely have a Material Adverse Effect, and (ii) no Person during the
last twelve months has decreased materially or threatened in writing
to decrease or limit materially, or, to the Knowledge of Repap,
intends to decrease or limit materially, its supplies to Repap USA or
any Subsidiary or its purchase of Repap USA's or any Subsidiary's
products or services. Except as set forth on Schedule 3.23, there is
no material purchase commitment which provides that any supplier will
be the exclusive supplier of Repap USA or any Subsidiary. There is no
material purchase commitment requiring Repap USA or any Subsidiary to
purchase the entire output of a supplier.
3.24 REAL ESTATE
(a) Schedule 3.24 sets forth an accurate legal description of all real
estate owned by Repap USA or any Subsidiary or for which Repap USA or
any Subsidiary has contracted to become the owner (the "Owned Real
Estate"), including identification of the current owner of fee simple
title thereto. The party identified as the owner on Schedule 3.24 is
the legal and equitable owner of good and marketable title in fee
simple absolute to such Owned Real Estate, including the building,
structures, spurtracks (as set forth on Schedule 3.24) and
improvements situated thereon and appartenances thereto, in each case
free and clear of all tenancies and other possessory interests,
security interests, conditional sale or other title retention
agreements, liens, encumbrances, mortgages, pledges, assessments,
easements, rights of way, covenants, restrictions, reservations,
options, rights of first refusal, defects in title, encroachments and
other burdens, except as disclosed on Schedule 3.24. Except as
disclosed on Schedule 3.24, Repap USA and the Subsidiaries are in
possession of the Owned Real Estate. All contracts, agreements,
options and undertakings affecting the Owned Real Estate are set
forth in Schedule 3.24 and are legally valid and binding and in full
force and effect, and, to the Knowledge of Repap, there are no
defaults, offsets, counterclaims or defenses thereunder, and neither
Repap USA nor any Subsidiary has received any notice that any
default, offset, counterclaim or defenses thereunder exists. Repap
has delivered or made available to Buyer correct and complete copies
of all such contracts, agreements, options and undertakings, as well
as copies of title commitments dated no less than one month prior to
the date hereof.
(b) Schedule 3.24 sets forth an accurate, correct and complete list of
all real estate leased, subleased or occupied by Repap USA or any
Subsidiary (such interests are the "Leased Real Estate" and,
collectively with the Owned Real Estate, are the "Real Estate"),
including identification of the lease or sublease (each a "Real
Estate Lease") and the parties thereto and list of contracts,
agreements, leases, subleases, options and commitments, oral or
written, affecting such Leased Real Estate or any interest therein to
which Repap USA or any Subsidiary is a party or by which any of its
interest in the Leased Real Estate is bound. Repap USA or any
Subsidiary has been in peaceable possession of the Leased Real Estate
since the commencement of the original term of such Real Estate
Lease. Repap has delivered to Buyer correct and complete copies of
each Real Estate Lease.
(c) To the Knowledge of Repap, no Real Estate is located within a flood
or lakeshore erosion hazard zone for which flood insurance is now
required under the National Flood Insurance Program. Neither the
whole nor any portion of any Real Estate has been condemned,
requisitioned or otherwise taken by any public authority, and no
notice of any such condemnation, requisition or taking has been
received. To the Knowledge of Repap, no such condemnation,
requisition or taking is threatened or contemplated. Repap has no
Knowledge of any public improvements which may result in any material
special assessments against or otherwise affect the Real Estate in
any material way.
(d) To the Knowledge of Repap, except as set forth on Schedule 3.17 or
3.24, the Real Estate is in material compliance with all applicable
zoning, building, health, fire, water, use or similar statutes,
codes, ordinances, laws, rules or regulations. To the Knowledge of
Repap, the zoning of each parcel of Real Estate permits the existing
improvements and the continuation following consummation of the
transaction contemplated hereby of the Business of Repap USA and the
Subsidiaries as presently conducted thereon. Repap USA and the
Subsidiaries have all certificates of occupancy and
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authorizations required to utilize the Real Estate. To the Knowledge
of Repap, Repap USA and the Subsidiaries have all easements and
rights necessary to conduct their Businesses, including easements for
all utilities, services, roadway, railway and other means of ingress
and egress. To the Knowledge of Repap, Repap USA and the Subsidiaries
hold such rights to off-site facilities as are necessary to ensure
compliance in all material respects with all zoning, building,
health, fire, water, use or similar statutes, codes, ordinances,
laws, rules or regulations and all such rights, to the extent held by
Repap, shall be conveyed as directed by Buyer at Closing. Except as
disclosed on Schedule 3.24, to the Knowledge of Repap, no fact or
condition exists which would result in the termination or impairment
of access to the Real Estate or discontinuation of sewer, water,
electric, gas, telephone, waste disposal or other utilities or
services in any manner that will reasonably likely have a Material
Adverse Effect. Except as disclosed on Schedule 3.24, to the
Knowledge of Repap, the facilities servicing the Real Estate are in
material compliance with all codes, laws, rules and regulations.
(e) Repap has delivered or made available to Buyer accurate, correct and
complete copies of all existing title insurance policies, title
reports, surveys and environmental audits and similar reports, if
any, with respect to each parcel of Real Estate.
3.25 PLANT AND EQUIPMENT
To the best Knowledge of Repap, all plant, structures and equipment
currently being used in the conduct of its operations are free from material
structural or mechanical deficiencies.
3.26 BANK ACCOUNTS
Schedule 3.26 sets forth a true and complete list of all banks in which
Repap USA and the Subsidiaries have an account, safe deposit box, lock box or
line of credit, and the names and titles of all persons authorized to draw
thereon or to have access thereto, and a summary description of the use thereof.
3.27 ACCOUNTS RECEIVABLE
Schedule 3.27 sets forth an accurate, correct and complete aging of all
outstanding accounts and notes receivable of each of Repap USA and the
Subsidiaries as of December 31, 1996. All outstanding accounts and notes
receivable reflected on the Financial Statements are due and valid claims
against account debtors for goods or services delivered or rendered and subject
to no defenses, offsets or counterclaims other than in the ordinary course of
business. All receivables arose in the ordinary course of business. No
receivables are subject to prior assignment, claim, lien or security interest.
The books and records of Repap USA and the Subsidiaries reflect amounts taken as
a reserve against noncollection of accounts receivable, which reserve has been
established in accordance with normal accounting policies consistently
maintained and there is no reason to believe that such reserve will not be
adequate for its purpose. As of the Closing Date, neither Repap USA nor any
Subsidiary will have incurred any liabilities to customers for discounts,
returns, promotional allowances or otherwise, except those granted in the
ordinary course of business and reflected on the Statement of Consolidated Net
Working Capital.
3.28 MOTOR VEHICLES
Schedule 3.28 sets forth an accurate and complete list of all motor
vehicles used in the Business of Repap USA and the Subsidiaries, whether owned
or leased. All such vehicles are (i) properly licensed and registered in
accordance with applicable law; (ii) insured as set forth on Schedule 3.28;
(iii) in good operating condition and repair (reasonable wear and tear
excepted); and (iv) not subject to any lien or other encumbrance, except as set
forth on Schedule 3.28.
3.29 PRODUCT WARRANTY
The books and records of Repap USA and of the Subsidiaries reflect amounts
taken as a reserve against claims and allowances for product warranties, which
reserve has been established in accordance with normal accounting policies and
there is no reason for Repap or Repap USA to believe that such reserve will not
be adequate for its purpose. As of the Closing Date, none of Repap USA or the
Subsidiaries will have incurred any unpaid liabilities to customers for such
claims and allowances, except those granted in the ordinary course of business.
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3.30 INTELLECTUAL PROPERTY
Repap has furnished to Buyer an accurate list, as set forth in Schedule
3.30, of all patents, utility patents and design patents and registrations
therefor, trademarks, trade names, trademark rights and trademark registrations,
copyrights and licenses, owned or used by Repap USA, the Subsidiaries and their
Businesses. All of the foregoing, together with all technical documentation
reflecting engineering and production data, plans, specifications, drawings,
technology, know how, trade secrets, software (whether owned or licensed),
manufacturing processes and all documentary evidence thereof relating to, are
hereafter referred collectively as the "Intellectual Property". The Intellectual
Property constitutes in all material respects all such assets, properties and
rights which are used in or necessary for the conduct of Businesses of Repap USA
and the Subsidiaries. To the Knowledge of Repap, no one is infringing upon any
rights of Repap USA or any Subsidiary, with respect to any of the Intellectual
Property. To the Knowledge of Repap, neither Repap USA nor any Subsidiary is
infringing on or otherwise acting adversely to the rights of any Person under,
or in respect to, any patents, patent rights, copyrights, licenses, trademarks,
trade names or trademark rights owned by any Person or Persons, and there is no
claim or action pending or threatened with respect thereto. Except as set forth
in Schedule 3.30, there are no royalty, commission or similar arrangements, and
no licenses, sublicenses or agreements pertaining to any of the Intellectual
Property.
3.31 NO OTHER REPRESENTATIONS OR WARRANTIES
Except for the representations and warranties contained in this Annex A,
neither Repap, Repap USA, the Subsidiaries nor any other Person makes any other
express or implied representation or warranty on behalf of Repap, Repap USA or
the Subsidiaries.
A-11
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ANNEX B
4.1 INCORPORATION AND QUALIFICATION
Buyer has been duly incorporated, is validly existing and is in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted and is duly registered,
licensed or qualified to carry on business in each jurisdiction in which the
nature of the business as now being conducted by it or the property owned or
leased by it makes such registration, licensing or qualification necessary,
unless the failure to be so registered or qualified would not have a Material
Adverse Effect on the business, assets, financial condition or results of
operations of Buyer and its subsidiaries, taken as a whole.
4.2 AUTHORITY; FILINGS, CONSENTS AND APPROVALS
Buyer has the corporate power and authority to enter into this Agreement
and, subject to the receipt of the approvals, consents and authorizations
contemplated in this Agreement, to carry out the transactions contemplated
hereby. This Agreement has been duly authorized, executed and delivered by Buyer
and constitutes a legal, valid and binding obligation of Buyer, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles, and
no other proceedings on the part of Buyer are necessary to authorize this
Agreement and the consummation of the transactions contemplated hereby.
Except as set forth in Schedule 4.2 or as required by the HSR Act or the
filing of appropriate notices with the relevant stock exchanges, material change
reports and press releases, the execution, delivery and performance of this
Agreement will not require Buyer or any of its subsidiaries to obtain any
consent, waiver, authorization or approval of, or make any filing with or give
notice to, any Person, except for such consents, waivers, authorizations or
approvals which the failure to obtain would not be reasonably likely to have a
material adverse effect on the business, assets, financial condition or results
of operations of Buyer and its subsidiaries, taken as a whole.
4.3 NO CONFLICT
Subject to the receipt of the regulatory approvals referred to in this
Agreement or disclosed in writing to Repap, the execution and delivery of this
Agreement by Buyer does not, and the performance of this Agreement by Buyer and
the consummation by it of the transactions contemplated by this Agreement shall
not:
(a) conflict with or violate the articles or by-laws or equivalent
organizational documents of Buyer;
(b) conflict with or violate any law, rule, regulation, permit, order,
judgment or decree applicable to Buyer or its subsidiaries or by
which any of their respective properties is bound or affected, the
conflict with which or violation of which would have a material
adverse effect on the business, assets, financial condition or
results of operations of Buyer and its subsidiaries taken as a whole
or would prohibit or materially delay Buyer's ability to perform its
obligations under this Agreement; or
(c) 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 rights of termination, amendment, acceleration
or cancellation of, or result in the creation of an Encumbrance on
any of the properties or assets of Buyer or any of its subsidiaries
pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or
obligation to which Buyer or any of its subsidiaries is a party or by
which Buyer or any of its subsidiaries or any of their respective
properties is bound or affected, which, in any such case, would have
a material adverse effect on the business, assets, financial
condition or results of operations of Buyer and its subsidiaries
taken as a whole or would prohibit or materially delay Buyer's
ability to perform its obligations under this Agreement.
4.4 BROKERS AND FINDERS
Other than Nesbitt Burns Inc., Buyer has not employed any broker, finder,
consultant or intermediary in connection with the transactions contemplated by
this Agreement who would be entitled to a broker's, finder's or similar fee or
commission in connection therewith or upon the consummation thereof, or if the
Closing does not occur. Buyer agrees to bear all costs it incurs, including fees
and expenses of Nesbitt Burns Inc., in connection with the transactions
contemplated by this Agreement unless otherwise expressly provided herein.
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4.5 FINANCIAL CAPABILITY
On the Closing Date, Buyer will have sufficient funds to purchase the
Shares on the terms and conditions contemplated by this Agreement.
4.6 SECURITIES ACT
Buyer is acquiring the Shares solely for the purpose of investment and not
with a view to, or for sale in connection with, any distribution thereof in
violation of the Securities Act. Buyer acknowledges that the Shares are not
registered under the Securities Act or any applicable state securities law, and
that such Shares may not be transferred or sold except pursuant to the
registration provisions of such Securities Act or pursuant to an applicable
exemption therefrom and pursuant to state securities laws and regulations as
applicable.
4.7 NO OTHER REPRESENTATIONS OR WARRANTIES
Except for the representations and warranties contained in this Annex B,
neither Buyer nor any other Person makes any other express or implied
representation or warranty on behalf of Buyer.
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EXHIBIT 3.2
CORPORATION DES ENTREPRISES REPAP INC.
REPAP ENTERPRISES CORPORATION INC.
RESOLUTION OF THE SOLE DIRECTOR
RESOLVED:
THAT the following By-Law No. 1986-1 relating to the transaction of the
business and affairs of Repap Enterprises Corporation Inc. (the
"Corporation") be and it is hereby enacted;
THAT By-Law No. XXVI of the Corporation adopted on April 9, 1980 be and
the same is hereby repealed and rescinded, with the exception of that
provision of By-Law No. XXVI by which all previous by-laws of the
Corporation, as at April 9, 1980, with the exception of by-laws Nos XXIII
and XXIV, were repealed and rescinded.
------------------------
BY-LAW NO. 1986-1
A BY-LAW RELATING GENERALLY TO THE TRANSACTION OF THE BUSINESS AND AFFAIRS OF
REPAP ENTERPRISES CORPORATION INC.
CONTENTS
<TABLE>
<S> <C>
SECTION ONE..... INTERPRETATION
SECTION TWO..... BUSINESS OF THE CORPORATION
SECTION THREE... BORROWING AND SECURITIES
SECTION FOUR.... DIRECTORS
SECTION FIVE.... COMMITTEES
SECTION SIX..... OFFICERS
SECTION SEVEN... PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
SECTION EIGHT... SHARES
SECTION NINE.... DIVIDENDS AND RIGHTS
SECTION TEN..... MEETINGS OF SHAREHOLDERS
SECTION
ELEVEN........ DIVISIONS AND DEPARTMENTS
SECTION
TWELVE........ NOTICES
SECTION
THIRTEEN...... EFFECTIVE DATE
</TABLE>
SECTION ONE
INTERPRETATION
1.01 DEFINITIONS In this By-Law of the Corporation, unless the context
otherwise requires:
"ACT" means the Canada Business Corporations Act, and any statute that may
be substituted therefor, as from time to time amended;
appoint includes "elect" and vice versa;
"ARTICLES" means the Articles of Continuance of the Corporation attached
to the Certificate of Continuance of the Corporation dated April 9, 1980,
as from time to time amended or restated;
"BOARD" means the board of directors of the Corporation;
"BY-LAWS" means this by-law and all other by-laws of the Corporation from
time to time in force and effect;
"CORPORATION" means Repap Enterprises Corporation Inc., a corporation
continued under the provisions of the Canada Business by Certificate of
Continuance dated April 9, 1980;
"MEETING OF SHAREHOLDERS" includes an annual meeting of shareholders and a
special meeting of shareholders;
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"SPECIAL MEETING OF SHAREHOLDERS" includes a meeting of any class or
classes of shareholders and a special meeting of all shareholders entitled
to vote at an annual meeting of shareholders;
"RECORDED ADDRESS" means in the case of a shareholder his address as
recorded in the securities register of the Corporation; and in the case of
joint shareholders the address appearing in the securities register in
respect of such joint holding or the first address so appearing if there
are more than one; and in the case of a director, officer, auditor or
member of a committee of the board, his latest address as recorded in the
records of the Corporation; and "signing officer" means, in relation to
any instrument, any person authorized to sign the same on behalf of the
Corporation by section 2.04 or by a resolution passed pursuant thereto.
1.02 EXPRESSIONS DEFINED IN THE ACT Save as aforesaid, words and expressions
defined in the Act have the same meanings when used herein.
1.03 INTERPRETATION Words importing the singular number include the plural
and vice versa; words importing gender include the masculine, feminine and
neuter genders; and words importing persons include individuals, bodies
corporate, partnerships, trusts and unincorporated organizations.
SECTION TWO
BUSINESS OF THE CORPORATION
2.01 REGISTERED OFFICE Until changed in accordance with the provisions of the
Act, the registered office of the Corporation shall be in the Montreal Urban
Community, in the Province of Quebec, Canada; and at such location therein as
the board may from time to time determine.
2.02 CORPORATE SEAL Until changed by the board, the corporate seal of the
Corporation shall be in the form impressed hereon.
2.03 FINANCIAL YEAR The financial year of the Corporation shall end on such
date in each year as shall be determined from time to time by resolution of the
directors.
2.04 EXECUTION OF INSTRUMENTS Deeds, transfers, assignments, contracts,
obligations, certificates and other instruments may be signed on behalf of the
Corporation by two persons, (i) one of whom holds the office of Chairman of the
Board, Managing Director, President, Vice-President or director (ii) and the
other of whom holds one of the said offices or the office of Secretary,
Treasurer, Assistant Secretary or Assistant Treasurer or any other office
created by by-law or by resolution of the board. In addition, the board may from
time to time direct the manner in which and the person or persons by whom any
particular instrument or class of instruments may or shall be signed. Any
signing officer may affix the corporate seal to any instrument requiring the
same.
2.05 BANKING ARRANGEMENTS The banking business of the Corporation including,
without limitation, the borrowing of money and the giving of security therefor,
shall be transacted with such banks, trust companies or other bodies corporate
or organizations as may from time to time be designated by or under the
authority of the board. Such banking business or any part thereof shall be
transacted under such agreements, instructions and delegations of powers as the
board may from time to time prescribe or authorize.
2.06 VOTING RIGHTS IN OTHER BODIES CORPORATE The signing officers of the
Corporation may execute and deliver proxies and arrange for the issuance of
voting certificates or other evidence of the right to exercise the voting rights
attaching to any securities held by the Corporation. Such instruments,
certificates or other evidence shall be in favor of such person or persons as
may be determined by the officers executing such proxies or arranging for the
issuance of voting certificates or such other evidence of the right to exercise
such voting rights. In addition, the board may from time to time direct the
manner in which and the person or persons by whom any particular voting rights
or class of voting rights may or shall be exercised.
SECTION THREE
BORROWING AND SECURITIES
3.01 BORROWING POWER Without limiting the borrowing powers of the Corporation
as set forth in the Act or as set forth in the Articles of the Corporation, the
board may from time to time:
(a) borrow money upon the credit of the Corporation;
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<PAGE> 3
(b) issue, reissue, sell or pledge bonds, debentures, notes or other
evidences of indebtedness or guarantee of the Corporation, whether
secured or unsecured; and
(c) charge, mortgage, hypothecate, pledge or otherwise create a security
interest in all or any currently owned or subsequently acquired real
or personal, movable or immovable property of the Corporation,
including book debts, rights, powers, franchises and undertaking, to
secure any such bonds, debentures, notes or other evidences of
indebtedness or guarantee or any other present or future indebtedness
or liability of the Corporation.
Nothing in this section limits or restricts the borrowing of money by the
Corporation on bills of exchange or promissory notes made, drawn, accepted or
endorsed by or on behalf of the Corporation.
3.02 DELEGATION The board may from time to time delegate to such one or more
of the directors and officers of the Corporation as may be designated by the
board all or any of the powers conferred on the board by section 3.01 or by the
Act to such extent and in such manner as the board shall determine at the time
of each such delegation.
SECTION FOUR
DIRECTORS
4.01 NUMBER OF DIRECTORS AND QUORUM Until changed in accordance with the
provisions of the Act, the board shall consist of a minimum of one (1) and of a
maximum of fifteen (15) directors. Subject to section 4.08, the quorum for the
transaction of business at any meeting of the board shall consist of the
majority or such greater number of directors as the board may from time to time
determine.
4.02 QUALIFICATION No person shall be qualified for election as a director:
(i) if he is less than 18 years of age, (ii) if he is of unsound mind and has
been so found by a court in Canada or elsewhere, (iii) if he is not an
individual, or (iv) if he has the status of a bankrupt. A director need not be a
shareholder of the Corporation. A majority of the directors shall be resident
Canadians. At least two directors shall not be officers or employees of the
Corporation or its affiliates.
4.03 ELECTION AND TERM The election of directors shall take place at each
annual meeting of shareholders and all the directors then in office shall retire
but, if qualified, shall be eligible for re-election. The number of directors to
be elected at any such meeting shall, if a minimum and maximum number of
directors is authorized, be the number of directors then in office unless the
directors or the shareholders otherwise determine or shall, if a fixed number of
directors is authorized, be such fixed number. The election shall be by
resolution. If an election of directors is not held at the proper time, the
incumbent directors shall continue in office until their successors are elected.
4.04 REMOVAL OF DIRECTORS Subject to the provisions of the Act, the
shareholders may, by resolution passed at a meeting specially called for such
purpose, remove any director from office and the vacancy created by such removal
may be filled at the same meeting failing which it may be filled by the
directors.
4.05 VACATION OF OFFICE A director ceases to hold office: (i) when he dies,
(ii) when he is removed from office by the shareholders, (iii) when he ceases to
be qualified for election as a director, or (iv) when his written resignation is
sent or delivered to the Corporation, or, if a time is specified in such
resignation, at the time so specified, whichever is later.
4.06 VACANCIES Subject to the provisions of the Act, -- quorum of the
board may fill a vacancy in the board, except -- vacancy resulting from an
increase in the minimum number of directors to be elected or from a failure of
the shareholders to elect the minimum number of directors. In the absence of a
quorum of the board, or if the vacancy has arisen from a failure of the
shareholders to elect the minimum number of directors to be elected, the
directors then in office shall forthwith call a special meeting of shareholders
to fill the vacancy. If such directors fail to call such meeting or if there are
no such directors then in office, any shareholder may call the meeting.
4.07 ACTION BY THE BOARD The board shall manage the business and affairs of
the Corporation. Subject to sections 4.08 and 4.09, the powers of the board may
be exercised by resolution passed at a meeting at which a quorum is present or
by resolution in writing signed by all the directors entitled to vote on that
resolution at a meeting of the board. Where there is a vacancy in the board, the
remaining directors may exercise all the powers of the board so long as a quorum
remains in office.
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4.08 CANADIAN MAJORITY The board shall not transact business at a meeting,
other than filling a vacancy in the board, unless a majority of the directors
present are resident Canadians, except where:
(a) a resident Canadian director who is unable to be present approves in
writing or by telephone or other communications facilities the
business transacted at the meeting; and
(b) a majority of resident Canadians would have been present had that
director been present at the meeting.
4.09 MEETING BY TELEPHONE If all the directors of the Corporation consent,
one or more directors may participate in a meeting of the board or of a
committee of the board by means of such telephone or other communications
facilities as permit all persons participating in the meeting to hear each
other, and any director or directors participating in such a meeting by such
means is deemed to be present at the meeting. Any such consent shall be
effective whether given before or after the meeting to which it relates and may
be given with respect to all meetings of the board and of committees of the
board.
4.10 PLACE OF MEETINGS Meetings of the board may be held at any place in or
outside Canada.
4.11 CALLING OF MEETINGS Meetings of the board shall be held from time to
time at such time and at such place as the board, the chairman of the board, the
managing director, the president or any two directors may determine.
4.12 NOTICE OF MEETING Notice of the time and place of each meeting of the
board shall be given in the manner provided in section 12.01 to each director
not less than 48 hours before the time when the meeting is to be held. A notice
of a meeting of directors need not specify the purpose of or the business to be
transacted at the meeting, except where the Act requires such purpose or
business to be specified, including, if required by the Act, any proposal to:
(a) submit to the shareholders any question or matter requiring approval
of the shareholders;
(b) fill a vacancy among the directors or in the office of auditor;
(c) issue securities;
(d) declare dividends;
(e) purchase, redeem or otherwise acquire shares issued by the
Corporation;
(f) pay a commission for the sale of shares;
(g) approve a management proxy circular;
(h) approve a take-over bid circular or directors' circular;
(i) approve any annual financial statements; or
(j) adopt, amend or repeal by-laws.
A director may in any manner waive notice of or otherwise consent to a
meeting of the board.
4.13 FIRST MEETING OF NEW BOARD Provided a quorum of directors is present,
each newly elected board may without notice hold its first meeting immediately
following the meeting of shareholders at which such board is elected.
4.14 ADJOURNED MEETING Notice of an adjourned meeting of the board is not
required if the time and place of the adjourned meeting is announced at the
original meeting.
4.15 REGULAR MEETINGS The board may appoint a day or days in any month or
months for regular meetings of the board at a place and hour to be named. A copy
of any resolution of the board fixing the place and time of such regular
meetings shall be sent to each director forthwith after being passed, but no
other notice shall be required for any such regular meeting except where the Act
requires the purpose thereof or the business to be transacted thereat to be
specified.
4.16 CHAIRMAN The chairman of any meeting of the board shall be the first
mentioned of such of the following officers as have been appointed and who is a
director and is present at the meeting: (i) Chairman of the Board, (ii) the
Managing Director, (iii) the President or (iv) a Vice-President. If no such
officer is present, the directors present shall choose one of their number to be
chairman of such meeting.
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4.17 VOTES TO GOVERN At all meetings of the board every question shall be
decided by a majority of the votes cast on the question. In case of an equality
of votes the chairman of the meeting shall be entitled to a second or casting
vote.
4.18 CONFLICT OF INTEREST A director or officer who is a party to, or who is
a director or officer of, or otherwise has a material interest in any person who
is a party to, a material contract or proposed material contract with the
Corporation shall disclose the nature and extent of his interest at the time and
in the manner provided by the Act. Any such contract or proposed contract shall
be referred to the board for approval even if such contract is one that in the
ordinary course of the Corporation's business would not require approval by the
board, and a director interested in a contract so referred to the board shall
not vote on any resolution to approve the same except as provided by the Act.
4.19 REMUNERATION AND EXPENSES The directors shall be paid such remuneration
for their services as the board may from time to time determine. The directors
shall also be entitled to be reimbursed for traveling and other expenses
properly incurred by them in attending meetings of the board or any committee
thereof. Nothing herein contained shall preclude any director from serving the
Corporation in any other capacity and receiving remuneration therefor.
SECTION FIVE
COMMITTEES
5.01 COMMITTEE OF DIRECTORS Without restriction to Section 5.03, the board
may appoint a committee of directors, however designated, and delegate to such
committee any of the powers of the board except those which pertain to items
which, under the Act, a committee of directors has no authority to exercise. A
majority of the members of such committee shall be resident Canadians.
5.02 TRANSACTION OF BUSINESS Subject to the provisions of section 4.09, the
powers of a committee of directors may be exercised by a meeting at which a
quorum is present or by resolution in writing signed by all members of such
committee who would have been entitled to vote on that resolution at a meeting
of the committee. Meetings of such committee may be held at any place in or
outside of Canada.
5.03 AUDIT COMMITTEE The board shall elect annually from among its number an
audit committee to be composed of not fewer than 3 directors of whom a majority
shall not be officers or employees of the Corporation or its affiliates. The
audit committee shall have the powers and duties provided in the Act.
5.04 PROCEDURE Unless otherwise determined by the board, each committee shall
have power to fix its quorum at not less than a majority of its members, to
elect its chairman and otherwise to regulate its procedure.
SECTION SIX
OFFICERS
6.01 APPOINTMENT The board may, from time to time appoint a Chief Executive
Officer, a Chief Operating Officer, a President, one or more Vice-Presidents (to
which title may be added words indicating seniority or function), a Secretary, a
Treasurer, a Controller and such other officers as the board may determine,
including one or more assistants to any of the officers so appointed. The board
may specify the duties of and, in accordance with this by-law and subject to the
provisions of the Act, delegate to such officer's powers to manage the business
and affairs of the Corporation. Subject to sections 6.02 and 6.04, an officer
may, but need not be, a director and one person may hold more than one office.
6.02 CHAIRMAN OF THE BOARD The board may from time to time also appoint a
Chairman of the Board who shall be a director. If appointed, the board may
assign to him any of the powers and duties that are by any provisions of this
by-law assigned to the managing director or to the president, and he shall,
subject to the provisions of the Act, have such other powers and duties as the
board may specify. During the absence or disability of the Chairman of the
Board, his duties shall be performed and his powers exercised by the managing
director, if any, or by the president.
6.03 CHIEF EXECUTIVE OFFICER The Board may from time to time appoint a Chief
Executive Officer who shall be, subject to Section 6.04 below, the Chairman of
the Board or the President.
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6.04 MANAGING DIRECTOR The board may from time to time also appoint a
Managing Director who shall be a resident Canadian and a director. If appointed,
he shall be the Chief.
Executive Officer and, subject to the authority of the board, shall have
general supervision of the business and affairs of the Corporation. Subject to
the provisions of the Act, the Managing Director shall have such other powers
and duties as the board may specify. During the absence or disability of the
President, or if no President has been appointed, the managing director shall
also have the powers and duties of that office.
6.05 PRESIDENT If appointed, the President shall be the Chief Operating
officer and, subject to the authority of the board, have general supervision of
the business of the Corporation. The President shall have such other powers and
duties as the board may specify. During the absence or disability of the
Managing Director, if a Managing Director has been appointed, the president
shall also have the powers and duties of that office.
6.06 VICE-PRESIDENT Vice-President shall have such powers and duties as the
board or the Chief Executive Officer may specify.
6.07 SECRETARY The Secretary shall attend and be the secretary of all
meetings of the board, shareholders and committees of the board and shall enter
or cause to be entered in records kept for that purpose minutes of all
proceedings thereat. The Secretary shall give or cause to be given, as and when
instructed, all notices to shareholders, directors, officers, auditors and
members of committees of the board. The Secretary shall be the custodian of the
stamp or mechanical device generally used for affixing the corporate seal of the
Corporation and of all books, papers, records, documents and instruments
belonging to the Corporation, except when some other officer or agent has been
appointed for that purpose. The Secretary shall have such other powers and
duties as the board or the Chief Executive officer may specify.
6.08 TREASURER The Treasurer shall keep proper accounting records in
compliance with the provisions of the Act and shall be responsible for the
deposit of money, the safekeeping of securities and the disbursement of the
funds of the Corporation. The Treasurer shall render to the board whenever
required an account of all his transactions as treasurer and of the financial
position of the Corporation. The Treasurer shall have such other powers and
duties as the board or the Chief Executive Officer may specify.
6.09 POWERS AND DUTIES OF OTHER OFFICERS The powers and duties of all other
officers shall be such as the terms of their engagement call for or as the board
or the Chief Executive Officer may specify. Any of the powers and duties of an
officer to whom an assistant has been appointed may be exercised and performed
by such assistant, unless the board or the Chief Executive Officer otherwise
directs.
6.10 VARIATION OF POWERS AND DUTIES The board may from time to time and
subject to the provisions of the Act, vary, add to or limit the powers and
duties of any officer.
6.11 TERM OF OFFICE The board, in its discretion, may remove any officer of
the Corporation, without prejudice to such officer's rights under any employment
contract. Otherwise each officer appointed by the board shall hold office until
his successor is appointed, or until his earlier resignation.
6.12 TERMS OF EMPLOYMENT AND REMUNERATION The terms of employment and the
remuneration of an officer appointed by the board shall be settled by the board
from time to time.
6.13 CONFLICT OF INTEREST An officer shall disclose his interest in any
material contract or proposed material contract with the Corporation in
accordance with section 4.18.
6.14 AGENTS AND ATTORNEYS The board shall have power from time to time to
appoint agents or attorneys for the Corporation in or outside Canada with such
powers of management or otherwise (including the power to sub-delegate) as may
be thought fit.
6.15 FIDELITY BONDS The board may require such officers, employees and agents
of the Corporation as the board deems advisable to furnish bonds for the
faithful discharge of their powers and duties, in such form and with such surety
as the board may from time to time determine.
SECTION SEVEN
PROTECTION OF DIRECTORS, OFFICERS AND OTHERS
7.01 LIMITATION OF LIABILITY Every director and officer of the Corporation in
exercising his powers and discharging his duties shall act honestly and in good
faith with a view to the best interests of the Corporation and
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exercise the care, diligence and skill that a reasonably prudent person would
exercise in comparable circumstances. Subject to the foregoing, no director or
officer shall be liable for the acts, receipts, neglects or defaults of any
other director or officer or employee, or for joining in any receipt or other
act for conformity, or for any loss, damage or expense happening to the
Corporation through the insufficiency or deficiency of title to any property
acquired for or on behalf of the Corporation, or for the insufficiency or
deficiency of any security in or upon which any of the monies of the Corporation
shall be invested, or for any loss or damage arising from the bankruptcy,
insolvency or tortuous acts of any person with whom any of the monies,
securities or effects of the Corporation shall be deposited, or for any loss
occasioned by any error of judgment or oversight on his part, or for any other
loss, damage or misfortune whatever which shall happen in the execution of the
duties of his office or in relation thereto; provided that nothing herein shall
relieve any director or officer from the duty to act in accordance with the
provisions of the Act and the regulations thereunder or from liability for any
breach thereof.
7.02 INDEMNITY Subject to the limitations contained in the Act, the
Corporation shall indemnify a director or officer, a former director or officer,
or a person who acts or acted at the Corporation's request as a director or
officer of a body corporate of which the Corporation is or was a shareholder or
creditor, and his heirs and legal representatives, against all costs, charges
and expenses, including an amount paid to settle an action or satisfy a
judgment, reasonably incurred by him in respect of any civil, criminal or
administrative action or proceeding to which he is made a party by reason of
being or having been a director or officer of the Corporation or such body
corporate, if
(a) he acted honestly and in good faith with a view to the best
interests of the Corporation; and
(b) in the case of a criminal or administrative action or proceeding
that is enforced by a monetary penalty, he had reasonable grounds for
believing that his conduct was lawful.
The Corporation shall also indemnify such person in such other
circumstances as the Act permits or requires.
7.03 INSURANCE The Corporation may purchase and maintain insurance for the
benefit of any person referred to in section 7.02 against such liabilities and
in such amounts as the board may from time to time determine and are permitted
by the Act.
SECTION EIGHT
SHARES
8.01 ALLOTMENT The board may from time to time allot or grant options to
purchase the whole or any part of the authorized and unissued shares of the
capital stock of the Corporation at such times and to such persons and for such
consideration as the board shall determine, provided that no share shall be
issued until it is fully paid as provided by the provisions of the Act.
8.02 COMMISSIONS The board may from time to time authorize the Corporation to
pay a reasonable commission to any person in consideration of his purchasing or
agreeing to purchase shares of the capital stock of the Corporation, whether
from the Corporation or from any other person, or procuring or agreeing to
procure purchasers for any such shares.
8.03 REGISTRATION OF TRANSFERS Subject to the provisions of the Act, no
transfer of shares shall be registered in a securities register except upon
presentation of the certificate representing such shares with an endorsement,
which complies with the provisions of the Act, made thereon or delivered
therewith, duly executed by an appropriate person as provided by the provisions
of the Act, together with such reasonable assurance that the endorsement is
genuine and effective as the board may from time to time prescribe, upon payment
of all applicable taxes and any fees prescribed by the board, upon compliance
with such restrictions on transfer, if any, as are authorized by the Articles
and upon satisfaction of any lien referred to in section 8.05.
8.04 TRANSFER AGENTS AND REGISTRARS The board may from time to time appoint
one or more agents to maintain, in respect of each class of securities of the
capital stock of the Corporation issued by it in registered form, a central
securities register and one or more branch securities registers. Such a person
may be designated as transfer agent or registrar according to his functions and
one person may be designated both registrar and transfer agent. The board may at
any time terminate such appointment.
8.05 LIEN FOR INDEBTEDNESS If the Articles provide that the Corporation shall
have a lien on shares registered in the name of a shareholder indebted to the
Corporation, such lien may be enforced, subject to any other provision of
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the Articles and to any unanimous shareholder agreement, if any, by the sale of
the shares thereby affected or by any other action, suit, remedy or proceeding
authorized or permitted by law or by equity and, pending such enforcement, the
Corporation may refuse to register a transfer of the whole or any party of such
shares.
8.06 NON-RECOGNITION OF TRUSTS Subject to the provisions of the Act, the
Corporation may treat as absolute owner of any share of its capital stock the
person in whose name the share is registered in its securities register as if
that person had full legal capacity and authority to exercise all rights of
ownership, irrespective of any indication to the contrary through knowledge or
notice or description in the Corporation's records or on the share certificate.
8.07 SHARE CERTIFICATES Every holder of one or more shares of the capital
stock of the Corporation shall be entitled, as his option, to a share
certificate, or to a non-transferable written acknowledgment of his right to
obtain a share certificate, stating the number and class or series of shares
held by him as shown on the securities register of the Corporation. Share
certificates and acknowledgments of a shareholder's right to a share
certificate, respectively, shall be in such form as the board shall from time to
time approve. Any share certificate shall be signed in accordance with section
2.04 and need not be under the corporate seal; provided that, unless the board
otherwise determines, certificates representing shares in respect of which a
transfer agent and/or registrar has been appointed shall not be valid unless
countersigned by or on behalf of such transfer agent and/or registrar. The
signature of one of the signing officers or, in the case of share certificates
which are not valid unless countersigned by or on behalf of a transfer agent
and/or registrar, the signatures of both signing officers may be printed or
mechanically reproduced in facsimile upon share certificates and every such
facsimile signature shall for all purposes be deemed to be the signature of the
officer whose signature it reproduces and shall be binding upon the Corporation.
A share certificate executed as aforesaid shall be valid notwithstanding that
one or both of the officers whose facsimile signature appears thereon no longer
holds off ice at the date of issue of the certificate.
8.08 REPLACEMENT OF SHARE CERTIFICATES The board or any officer or agent
designated by the board may in its or his discretion direct the issue of a new
share certificate in lieu of and upon cancellation of a share certificate that
has been mutilated or in substitution for a share certificate claimed to have
been lost, destroyed or wrongfully taken on payment of such reasonable fee, and
on such terms as to indemnity, reimbursement of expenses or evidence of loss and
of title as the board may from time to time prescribe, whether generally or in
any particular case.
8.09 JOINT SHAREHOLDERS If two or more persons are registered as joint
holders of any share of the capital stock of the Corporation, the Corporation
shall not be bound to issue more than one certificate in respect thereof, and
delivery of such certificate to one of such persons shall be sufficient delivery
to all of them. Any one of such persons may give effectual receipts for the
certificate issued in respect thereof or for any dividend, bonus, return of
capital or other money payable or warrant issuable in respect of such share.
8.10 DECEASED SHAREHOLDERS In the event of the death of a holder or of one of
the joint holders of any share, the Corporation shall not be required to make
any entry in its securities register in respect thereof or to make payment of
any dividends thereon except upon production of all such documents as may be
required by law and upon compliance with the reasonable requirements of the
Corporation and its transfer agents.
SECTION NINE
DIVIDENDS AND RIGHTS
9.01 DIVIDENDS Subject to the provisions of the Act, the board may from time
to time declare dividends payable to the shareholders according to their
respective rights and interest in the Corporation. Dividends may be paid in
money or property or by issuing fully paid shares of any class or series of the
capital stock of the Corporation.
9.02 DIVIDEND CHEQUES A dividend payable in cash may be paid by cheque drawn
on the Corporation's bankers or one of them to the order of each registered
holder of shares of the class or series in respect of which it has been declared
and mailed by prepaid ordinary mail to such registered holder at his recorded
address, unless such holder otherwise directs. In the case of joint holders the
cheque shall, unless such joint holders otherwise direct, be made payable to the
order of all of such joint holders and mailed to them at their recorded address
or, if more than one address, at the first of such address appearing in the
books of the Corporation. The mailing of such cheque as aforesaid, unless the
same is not paid on due presentation, shall satisfy and discharge the liability
for the dividend to the extent of the sum represented thereby plus the amount of
any tax which the Corporation is required to and does withhold.
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9.03 NON-RECEIPT OF CHEQUES In the event of non-receipt of any dividend
cheque by the person to whom it is sent as aforesaid, the Corporation shall
issue to such person a replacement cheque for a like amount on such terms as to
indemnity, reimbursement of expenses and evidence of non-receipt and of title as
the board may from time to time prescribe, whether generally or in any
particular case.
9.04 RECORD DATE FOR DIVIDENDS AND RIGHTS The board may fix in advance a
date, preceding by not more than 50 days the date for the payment of any
dividend or the date for the issue of any warrant or other evidence of the right
to subscribe for securities of the Corporation, as a record date for the
determination of the persons entitled to receive payment of such dividend or to
exercise the right to subscribe for such securities, and notice of any such
record date shall be given not less than seven days before such record date in
the manner provided by the Act. If no record date is so fixed, the record date
for the determination of the persons entitled to receive payment of any dividend
or to exercise the right to subscribe for securities of the Corporation shall be
at the close of business on the day on which the resolution relating to such
dividend or right to subscribe is passed by the board.
9.05 UNCLAIMED DIVIDENDS Subject to any applicable provision of law of public
order, any dividend unclaimed after a period of five years from the date on
which the same has been declared to be payable shall be forfeited and shall
revert to the Corporation.
SECTION TEN
MEETINGS OF SHAREHOLDERS
10.01 ANNUAL MEETINGS The annual meeting of shareholders shall be held at such
time in each year and, subject to section 10.03, at such place as the board, the
Chairman of the Board, the Managing Director or the President may from time to
time determine, for the purpose of considering the financial statements and
reports required by the Act to be placed before the annual meeting, electing
directors, appointing an auditor and for the transaction of such other business
as may properly be brought before the meeting.
10.02 SPECIAL MEETINGS The board, the Chairman of the Board, the Managing
Director or the President shall have power to call a special meeting of
shareholders at any time.
10.03 PLACE OF MEETINGS Meetings of shareholders shall be held at the
registered office of the Corporation or elsewhere in the municipality or urban
community in which the registered office is situate or, if the board shall so
determine, at some other place in Canada or, if all the shareholders entitled to
vote at the meeting so agree, at some place outside Canada.
10.04 NOTICE OF MEETINGS Notice of the time and place of each meeting of
shareholders shall be given in the manner provided in section 12.01 not less
than 21 days and nor more than 50 days before the date of the meeting, to each
director, to the auditor and to each shareholder of the Corporation whose name
appears on the list of shareholders entitled to receive notice as provided in
section 10.05. Notice of a meeting of shareholders called for any purpose other
than consideration of the financial statements and auditor's report, election of
directors and reappointment of the incumbent auditor shall state the nature of
such business in sufficient detail to permit the shareholder to form a reasoned
judgment thereon and shall state the text of any special resolution to be
submitted to the meeting. A shareholder and any other person entitled to attend
a meeting of shareholders may in any manner waive notice of or otherwise consent
to a meeting of shareholders.
10.5 LIST OF SHAREHOLDERS ENTITLED TO NOTICE For every meeting of shareholders,
the Corporation shall prepare a list of shareholders entitled to receive notice
of the meeting, arranged in alphabetical order and showing the number of shares
held by each shareholder entitled to vote at the meeting. If a record date for
the meeting is fixed pursuant to section 10.06, the shareholders listed shall be
those registered at the close of business on such record date. If no record date
is fixed, the shareholders listed shall be those registered at the close of
business on the day immediately preceding the day on which notice of the meeting
is given or, where no such notice is given, the day on which the meeting is
held. The list shall be available for examination by any shareholder during
usual business hours at the registered office of the Corporation or at the place
where its central securities register is maintained and at the meeting for which
the list was prepared. Where a separate list of shareholders has not been
prepared, the names of persons appearing in the securities register at the
requisite time as the holder of one or more shares carrying the right to vote at
such meeting shall be deemed to be a list of shareholders.
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10.06 RECORD DATE FOR NOTICE The board may fix in advance a date, preceding the
date of any meeting of shareholders by not more than 50 days and not less than
21 days, as a record date for the determination of the shareholders entitled to
receive notice of the meeting, and notice of any such record date shall be given
not less than seven days before such record date, by newspaper advertisement in
the manner provided in the Act. If no record date is so fixed, the record date
for the determination of the shareholders entitled to receive notice of the
meeting shall be at the close of business on the day immediately preceding the
day on which the notice is given or, if no notice is given, the day on which the
meeting is held.
10.07 MEETINGS WITHOUT NOTICE A meeting of shareholders may be held without
notice at any time and place permitted by the Act (i) if all the shareholders
entitled to vote there at are present in person or represented by proxy or if
those not present or represented by proxy waive notice of or otherwise consent
to such meeting being held, and (ii) if the auditors and the directors are
present or waive notice of or otherwise consent to such meeting be held; so
long, in each case, as such shareholders, auditors or directors present are not
attending for the express purpose of objecting to the transaction of any
business on the grounds that the meeting is not lawfully called. At such a
meeting any business may be transacted which the Corporation at a meeting of
shareholders may transact. If the meeting is held at a place outside Canada,
shareholders not present or represented by proxy, but who have waived notice of
or otherwise consented to such meeting, shall also be deemed to have consented
to the meeting being held at such place.
10.08 CHAIRMAN, SECRETARY AND SCRUTINEERS The chairman of any meeting of
shareholders shall be the first mentioned of such of the following officers as
have been appointed and who is present at the meeting: (i) the Chairman of the
Board, (ii) the President, (iii) the Managing Director or (iv) a Vice-President
who is a shareholder. If no such officer is present within 15 minutes from the
time fixed for holding the meeting, the persons present and entitled to vote
shall choose one of their number to be chairman. If the Secretary of the
Corporation is absent, the chairman of the meeting shall appoint some person,
who need not be a shareholder, to act as secretary of the meeting. If desired,
one or more scrutineers, who need not be shareholders, may be appointed by a
resolution or by the chairman of the meeting with the consent of the meeting.
10.09 PERSONS ENTITLED TO BE PRESENT The only persons entitled to be present at
a meeting of shareholders shall be those entitled to vote thereat, the directors
and auditor of the Corporation and others who, although not entitled to vote,
are entitled or required under any provision of the Act or the Articles or
by-laws to be present at the meeting. Any other person may be admitted only on
the invitation of the chairman of the meeting or with the consent of the
meeting.
10.10 QUORUM A quorum for the transaction of business at any meeting of
shareholders shall be 2 persons present in person, each being a shareholder
entitled to vote thereat or a duly appointed proxyholder for an absent
shareholder so entitled, and together holding or representing by proxy more than
25% of the issued and outstanding voting shares of the Corporation entitled to
vote at the meeting. If a quorum is present at the opening of any meeting of
shareholders, the shareholders present or represented by proxy may proceed with
the business of the meeting notwithstanding that a quorum is not present
throughout the meeting. If a quorum is not present within 30 minutes of the
scheduled time opening of any meeting of shareholders, the shareholders present
or represented by proxy may adjourn the meeting to a fixed time, but may not
transact any other business; at such time and place, the shareholders present in
person or represented by proxy at such adjourned meeting.
10.11 RIGHT TO VOTE Subject to the provisions of the Act as to authorized
representatives of any other body corporate or association, at any meeting of
shareholders for which the Corporation has prepared the list referred to in
section 10.05, every person who is named in such list shall be entitled to vote
the shares shown opposite his name except to the extent that, where the
Corporation has fixed a record date in respect of such meeting pursuant to
section 10.06, such person has transferred any of his shares after such record
date and the transferee, having produced properly endorsed certificates
evidencing such shares or having otherwise established that he owns such shares,
has demanded not later than two days before the meeting that his name be
included in such list. In any such case the transferee shall be entitled to vote
the transferred shares at the meeting. At any meeting of shareholders for which
the Corporation has not prepared the list referred to in section 10.05, every
person shall be entitled to vote at the meeting who at the time is entered in
the securities register as the holder of one or more shares carrying the right
to vote at such meeting.
10.12 PROXIES Every shareholder entitled to vote at a meeting of shareholders
may appoint a proxyholder, or one or more alternate proxyholders, who need not
be shareholders, to attend and act at the meeting in the manner and to
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the extent authorized and with the authority conferred by the proxy. A proxy
shall be in writing executed by the shareholder or his attorney and shall
conform with the requirements of the Act.
10.13 TIME FOR DEPOSIT OF PROXIES The board may specify in the notice calling a
meeting of shareholders a time, preceding the time of such meeting by not more
than 48 hours exclusive of Saturdays and holidays, before which time proxies to
be used at such meeting must be deposited. A proxy shall be acted upon only if,
prior to the time so specified, it shall have been deposited with the
Corporation or an agent thereof specified in such notice or, if no such time is
specified in such notice, unless it has been received by the Secretary of the
Corporation or by the chairman of the meeting or any adjournment thereof prior
to the time of voting.
10.14 JOINT SHAREHOLDERS If two or more persons hold shares jointly, any one of
them present in person or represented by proxy at a meeting of shareholders may,
in the absence of the other or others, vote the shares; but if two or more of
those persons are present in person or represented by proxy and vote, they shall
vote as one the shares jointly held by them.
10.15 VOTES TO GOVERN At any meeting of shareholders every question shall,
unless otherwise required by the Articles or by-laws or by law, be determined by
a majority of the votes cast on the question. In case of an equality of votes
either upon a show of hands or upon a poll, the chairman of the meeting shall be
entitled to a second or casting vote.
10.16 SHOW OF HANDS Subject to the provisions of the Act, any question at a
meeting of shareholders shall be decided by a show of hands unless a ballot
thereon is required or demanded as hereinafter provided. Upon a show of hands
every person who is present and entitled to vote shall have one vote. Whenever a
vote by show of hands shall have been taken upon a question, unless a ballot
thereon is so required or demanded, a declaration by the chairman of the meeting
that the vote upon the question has been carried or carried by a particular
majority or not carried and an entry to that effect in the minutes of the
meeting shall be prima facie evidence of the fact without proof of the number or
proportion of the votes recorded in favor of or against any resolution or other
proceeding in respect of the said question, and the result of the vote so taken
shall be the decision of the shareholders upon the said question.
10.17 BALLOTS On any question proposed for consideration at a meeting of
shareholders, and whether or not a show of hands has been taken thereon, any
shareholder or proxyholder entitled to vote at the meeting may require or demand
a ballot. A ballot so required or demanded shall be taken in such manner as the
chairman shall direct. A requirement or demand for a ballot may be withdrawn at
any time prior to the taking of the ballot. If a ballot is taken, each person
present shall be entitled, in respect of the shares which he is entitled to vote
at the meeting upon the question, to that number of votes provided by the Act or
the Articles, and the result of the ballot so taken shall be the decision of the
shareholders upon the said question.
10.18 ADJOURNMENT If a meeting of shareholders is adjourned for less than 30
days, it shall not be necessary to give notice of the adjourned meeting, other
than by announcement at the earliest meeting that is adjourned. If a meeting of
shareholders is adjourned by one or more adjournment for an aggregate of 30 days
or more, notice of the adjourned meeting shall be given as for an original
meeting.
10.19 RESOLUTION IN WRITING A resolution in writing signed by all the
shareholders entitled to vote on that resolution at a meeting of shareholders is
as valid as if it had been passed at a meeting of the shareholders unless a
written statement with respect to the subject matter of the resolution is
submitted by a director or the auditor in accordance with the provisions of the
Act.
SECTION ELEVEN
DIVISIONS AND DEPARTMENTS
11.01 CREATION AND CONSOLIDATION OF DIVISIONS The board may cause the business
and operations of the Corporation or any part thereof to be divided or to be
segregated into one or more divisions upon such basis, including without
limitation, character or type of operation, geographical territory, or service
rendered, as the board may consider appropriate in each case. The board may also
cause the business and operations of any such division to be further divided
into sub-units and the business and operations of any such divisions or
sub-units to be consolidated upon such basis as the board may consider
appropriate in each case.
11.02 NAME OF DIVISION Any division or its sub-units may be designated by
such name as the board may from time to time determine and may transact business
under such name, provided that the Corporation shall set out its
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name in legible character in all contracts, invoices, negotiable instruments and
orders for goods or services issued or made by or on behalf of the Corporation.
11.03 OFFICERS OF DIVISIONS From time to time the board or, if authorized by
the board, the Chief Executive Officer may appoint one or more officers for any
division, prescribe their powers and duties and settle their terms of employment
and remuneration. The board or, if authorized by the board, the Chief Executive
Officer may remove at its or his pleasure any officer so appointed, without
prejudice to such officer's rights under any employment contract. Officers of
divisions or their sub-units shall not, as such, be officers of the Corporation.
SECTION TWELVE
NOTICES
12.01 METHOD OF GIVING NOTICES Any notice (which term includes any
communication or document) to be given (which term includes sent, delivered or
served) pursuant to the provisions of the Act, the regulations thereunder, the
Articles, the by-laws or otherwise to a shareholder, director, officer, auditor
or member of a committee of the board shall be sufficiently given if delivered
personally to the person to whom it is to be given or if delivered to his
recorded address or if mailed to him at his recorded address by prepaid ordinary
or air mail or if sent to him at his recorded address by any means of prepaid
transmitted or recorded communication. A notice so delivered shall be deemed to
have been given when it is delivered personally or to the recorded address as
aforesaid; a notice so mailed shall be deemed to have been given when deposited
in a post office or public letter box; and a notice so sent by any means of
transmitted or recorded communication shall be deemed to have been given when
dispatched or delivered to the appropriate communication company or agency or
its representative for dispatch. The secretary may change or cause to be changed
the recorded address of any shareholder, director, officer, auditor or member of
a committee of the board in accordance with any information believed by him to
be reliable.
12.02 NOTICE TO JOINT SHAREHOLDERS If two or more persons are registered as
joint holders of any share, any notice shall be addressed to all of such joint
holders but notice to one of such persons shall be sufficient notice to all of
them.
12.03 COMPUTATION OF TIME In computing the date when notice must be given under
any provision requiring a specified number of days' notice of any meeting or
other event, the date of giving the notice shall be excluded and the date of the
meeting or other event shall be included.
12.04 UNDELIVERED NOTICES If any notice given to a shareholder pursuant to
section 12.01 is returned on three consecutive occasions because he cannot be
found, the Corporation shall not be required to give any further notices to such
shareholder until he informs the Corporation in writing of his new address.
12.05 OMISSIONS AND ERRORS The accidental omission to give any notice to any
shareholder, director, officer, auditor or member of a committee of the board or
the non-receipt of any notice by any such person or any error in any notice not
affecting the substance thereof shall not invalidate any action taken at any
meeting held pursuant to such notice or otherwise founded thereon.
12.06 PERSONS ENTITLED BY DEATH OR OPERATION OF LAW Every person who, by
operation of law, transfer, death of a shareholder or any other means
whatsoever, shall become entitled to any share, shall be bound by every notice
in respect of such share which shall have been duly given to the shareholder
from whom he derives his title to such share, prior to his name and address
being entered on the securities register (whether such notice was given before
or after the happening of the event upon which he became so entitled) and prior
to his furnishing to the Corporation the proof of authority or evidence of his
entitlement prescribed by the Act.
12.07 WAIVER OF NOTICE Any shareholder (or his duly appointed proxyholder),
director, officer, auditor or member of a committee of the board may at any time
waive any notice, or waive or abridge the time for any notice, required to be
given to him under any provision of the Act, the regulations thereunder, the
Articles, the by-laws or otherwise and such waiver or abridgement, whether given
before or after the meeting or other event of which notice is required to be
given, shall cure any default in the giving or in the time of such notice, as
the case may be. Any such waiver or abridgement shall be in writing except a
waiver of notice of a meeting of shareholders or of the board or of a committee
of the board which may be given in any manner.
------------------------
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The foregoing resolution and By-Law No. 1986-1 are hereby consented to and
adopted by the signature of the sole Director of Repap Enterprises Corporation
Inc., pursuant to Section 112(l) of the Canada Business Corporations Act.
ADOPTED this 22nd day of September, 1986.
George S. Petty
RESOLUTION OF THE SOLE SHAREHOLDER
The foregoing resolution and the foregoing By-Law No. 1986-1 of Repap
Enterprises Corporation Inc. (the "Corporation"), approved by the sole director
of the Corporation are hereby approved and ratified by the sole shareholder of
the Corporation pursuant to Section 136(l) of the Canada Business Corporations
Act.
ADOPTED this 22nd day of September, 1986.
REPAP INTERNATIONAL INC.
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<PAGE> 14
REPAP ENTERPRISES CORPORATION INC.
BY-LAW NO. 1986-2
A By-law respecting the borrowing of money, the issuing of securities and
the securing of liabilities.
BE IT ENACTED as a by-law of the Corporation as follows:
1. THAT the Directors of the Company may from time to time:
(a) borrow money upon the credit of the Company by obtaining loans or
advances or by way of overdraft or otherwise;
(b) issue, sell or pledge securities of the Company including bonds,
debentures, debenture stock, for such sums on such terms and at such
prices as they may deem expedient;
(c) assign, transfer, convey, hypothecate, mortgage, pledge, charge or
give security in any manner upon all or any of the real or personal,
moveable or immoveable property, rights, powers, choses in action, or
other assets, present or future, of the Company to secure any such
securities or other securities of the Company or any money borrowed
or to be borrowed or any obligations or liabilities as aforesaid or
otherwise of the Company heretofore, now or hereafter made or
incurred directly or indirectly or otherwise; and
(d) without in any way limiting the powers herein conferred upon the
Directors, give security or promises to give security, agreements,
documents and instruments in any manner or form under the Bank Act or
otherwise to secure any money borrowed or to be borrowed or any
obligations or liabilities as aforesaid or otherwise of the Company
heretofore, now or hereafter made or incurred directly or indirectly
or otherwise.
2. THAT any or all of the foregoing powers may from time to time be
delegated by the Directors to any one or more of the directors or officers
of the Company.
3. THAT this By-law shall remain in force and be binding upon the Company as
regards any person acting on the faith thereof until such person has
received written notification from the company that this By-law has been
repealed or replaced.
4. The Customer expressly requires that this document and all documents
accessory thereto be drawn up in English and the Bank, because of the
Customer's requirement and by making such documents available to the
Customer in the English language, expresses the same requirement.
The foregoing By-Law no. 1986-2 was passed by a resolution of the
directors, at a meeting held on October 14, 1986 and confirmed by the
shareholders at a meeting held on May 28, 1987.
REPAP Enterprises Corporation Inc.
BY-LAW no. 1986-2
CORPORATION DES ENTERPRISES REPAP INC.
REPAP ENTERPRISES CORPORATION INC.
WHEREAS By-Law No. 1986-1 of Repap Enterprises Corporation Inc. (the
"Corporation") is a by-law relating to the transaction of the business and
affairs of the Corporation and is to the date hereof in full force and effect
and unamended (the "General By-Law");
WHEREAS Section Six of the General By-Law, entitled "Officers" deals
generally with the appointment, powers and duties of the officers of the
Corporation;
WHEREAS the board of directors of the Corporation wish to create the office
of "Vice-Chairman of the Board" and that no such office is presently provided
for at Section Six of the General By-Law;
WHEREAS it is in the interest of the Corporation to amend Section Six of
the General By-Law in order to create the office of Vice-Chairman of the Board
and to proceed with certain other consequential amendments;
and
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<PAGE> 15
WHEREAS it is in the interest of the Corporation for the General By-Law to
be amended to provide for the restatement of by-laws from time to time.
RESOLVED:
THAT By-Law No. 1987-1 amending By-Law 1986-1 relating to the transaction
of the business and affairs of Repap Fnterprises Corporation Inc. ("By-Law No.
1987-1") be and it is hereby enacted as follows;
BY-LAW NO. 1987-1
A By-Law amending By-Law No. 1986-1 relating to the business and affairs of
Repap Enterprises Corporation Inc.
SECTION ONE
INTERPRETATION
1.01 DEFINITIONS in this By-Law No. 1987-1 of the Corporation, unless the
context otherwise requires, terms and expressions used herein shall have the
same meanings ascribed thereto in Section One of By-Laws No. 1986-1 relating to
the business and affairs of Repap Enterprises Corporation Inc. ("By-Law No.
1986-1)
SECTION TWO
AMENDMENT OF BY-LAW NO. 1986-1
2.01 OFFICE OF VICE-CHAIRMAN OF THE BOARD Section Six of By-Law No. 1986-1 is
amended by inserting immediately after the existing subsection 6.02 thereof the
following:
"6.03 VICE-CHAIRMAN OF THE BOARD The board may from time to time appoint
a Vice-Chairman of the Board who shall be a director. If appointed, the
board may assign to him any of the powers and duties that are by any
provisions of this by-law assigned to the managing director or to the
president, and he shall, subject to the provisions of the Act, have such
other powers and duties as the board may specify. During the absence or
disability of the Vice-Chairman of the Board, his duties shall be
performed and his powers exercised by the managing director, if any, or by
the president or by any person designated at that time by the board."
2.02 CONSEQUENTIAL AMENDMENTS (a) Subsection 6.01 of By-Law NO. 1986-1 is
amended by inserting immediately after the word "appoint" in the first sentence
thereof by the following: "a Chairman of the Board, a Vice-Chairman of the
Board"; (b) subsection 6.02 of By-Law No. 1986-1 is amended by deleting the word
"also" in the first sentence thereof; and (c) subsection 6.02 of By-Law No.
1986-1 is amended by deleting the last sentence thereof and by Substituting
therefor the following: "During the absence or disability of the Chairman of the
Board, his duties shall be performed and his powers exercised by the
Vice-Chairman of the Board."
2.03 ADDITIONAL CONSEQUENTIAL AMENDMENTS Section Six of ByLaw No. 1986-1 is
amended by substituting:
(a) "6.02 and 6.04" at subsection 6.01 thereof by "6.02, 6.03 and 6.05";
(b) "6.03" at subsection 6.03 thereof by "6.04";
(c) "6.04" at subsection 6.03 thereof by "6.05";
(d) "6.04" at subsection 6.04 thereof by "6.05";
(e) "6.05" at subsection 6.05 thereof by "6.06";
(f) "6.06" at subsection 6.06 thereof by "6.07";
(g) "6.07" at subsection 6.07 thereof by "6.08";
(h) "6.08" at subsection 6.08 thereof by "6.09";
(i) "6.09" at subsection 6.09 thereof by "6.10";
(j) "6.1 0" at subsection 6.10 thereof by "6.11";
(k) "6.1 1 "at subsection 6.11 thereof by "6.12";
(l) "6.1 2" at subsection 6.12 thereof by "6.13";
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<PAGE> 16
(m) "6.1 3" at subsection 6.13 thereof by "6.14";
(n) "6.1 4" at subsection 6.14 thereof by "6.15";
(o) "6.1 5" at subsection 6.15 thereof by "6.16".
SECTION THREE
RESTATEMENT OF BY-LAWS
13.01 RESTATEMENT By-Law No. 1986-1 is amended by inserting immediately after
the existing Section Twelve thereof the following:
SECTION THIRTEEN
RESTATEMENT OF BY-LAWS
13.02 RESTATEMENT OF BY-LAWS The Secretary of the Corporation may restate
by-laws of the Corporation in order to reflect amendments thereto which may from
time to time be made, and any such restatement shall, upon compliance with
subsection 13.02 hereof, constitute the by-law of the Corporation to which it
relates.
13.02 MANNER OF RESTATEMENT The restatement of by-laws of the Corporation shall
be made in the following manner by the Secretary of the Corporation:
(a) there shall be inserted at the end of any subsection of restated
by-laws which have at any time been amended, a statement in respect
of such amendment in substantially the following form: "(as amended
by By-Law No. [number of by-law]";
(b) the Secretary of the Corporation shall sign a certificate at the end
of any restated by-laws in substantially the following form: "The
restated by-laws set out above correctly set out, without substantive
change, the corresponding provisions of By-Law No. [number of
by-law], as amended by By-Law [number of by-law]"; and
(c) a copy of any restated by-laws, as signed by the Secretary of the
Corporation, shall be kept in the books of the Corporation."
13.03 CONSEQUENTIAL AMENDMENT By-Law No. 1986-1 is amended by deleting the
words "EFFECTIVE DATE" under the heading "CONTENTS" at the beginning thereof and
by substituting thereof the following: RESTATEMENT OF BY-LAWS".
SECTION FOUR
EFFECTIVE DATE AND CONFIRMATION
4.01 EFFECTIVE DATE This By-Law No. 1987-1 is effective from the date of its
adoption by the board, subject to its confirmation as described in subsection
4.02 hereof.
4.02 CONFIRMATION In accordance with and subject to the provisions of section
98 of the Act, By-Law No. 1987-1 shall be in effect until it is confirmed,
continued as amended or rejected by the shareholders of the Corporation at the
next general meeting thereof and if continued or confirmed as amended thereat,
shall continue in the form in which it was so confirmed.
The foregoing By-Law No. 1987-1 was passed by a resolution of the
directors, at a meeting held on December 21, 1987 and confirmed by the
shareholders at a meeting held on May 11, 1988.
<TABLE>
<S> <C>
George S. Petty Terry W. McBride
Chairman and Chief Executive Vice President and
Officer General Counsel, Secretary
</TABLE>
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<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED
FOREST MANAGEMENT AGREEMENT
THIS AGREEMENT made in duplicate as of the 1st day of April, 1992.
BETWEEN; HER MAJESTY THE QUEEN in right of the Province of New
Brunswick as represented by the minister of Natural
Resources and Energy, hereinafter referred to as the
"Minister"
OF THE FIRST PART
AND; MIRAMICHI PULP & PAPER INC., a Company duly
incorporated under the laws of New Brunswick, having its
head office in the Town of Newcastle in the Province of
New Brunswick, hereinafter referred to as the "Company"
OF THE SECOND PART
AND WHEREAS the Company is carrying on the business of manufacturing groundwood
pulp at its wood processing facility at Nelson-Miramichi, New Brunswick;
AND WHEREAS the Company has an historic draw of timber from the Crown Lands in
the Province;
AND WHEREAS the Minister and the Company are desirous of continuing the
company's use of timber from the Crown Lands on a sustained yield basis in
accordance with the practice of integrated management of resources within the
Crown Lands and in accordance with the provisions of the Crown Lands and Forests
Act, Chapter C-38.1, Acts of New Brunswick, 1980 (hereinafter referred to as the
"Act");
AND WHEREAS the Minister of Natural Resources and the Company entered into an
agreement dated the 24th day of March, 1982 known as the Forest Management
Agreement ("Forest Management Agreement") ;
AND WHEREAS the Minister and the Company entered into an agreement in amendment
of the Forest Management Agreement as of the 1st day of April, 1987, ("AAFMA");
AND WHEREAS the Minister, pursuant to section 31 of the Act, has completed his
review of the performance of the Company in respect of it management of Crown
Lands under License to it and has received the approval of the
Lieutenant-Governor in Council by Order-in-Council 94-484, to extend the term of
the CTL No. 3, by five years and the Minister has in a letter to the company
dated the 18th day of August, 1994, extended the term of CTL No. 3, to the last
day of March, 2017;
AND WHEREAS the Minister and the Company, arising out of the review of the
Company's performance, have agreed to amend and restate the Forest Management
Agreement as amended by the AAFMA ("FMAII);
AND WHEREAS the Minister and the Company have agreed to extend the term of the
FMA by 5 years as more particularity hereinafter provided;
AND WHEREAS the Company has revised the Industrial Plan forming a part of the
FMA as required by subsection 29(2) of the Act and the Lieutenant-Governor in
Council has, pursuant to subsection 29(3) of the Act, approved those revisions
by Order-in-council 94-484, ("Revised Industrial Plan");
AND WHEREAS the Company has completed the five year revision of the Management
Plan forming a part of the FMA pursuant to subsection 29(4) of the Act ("Revised
Management Plan");
AND WHEREAS the Company has completed a revision of the Operating Plan forming a
part of the FMA pursuant to subsection 29(5) of the Act ("Revised operating
Plan");
AND WHEREAS the Minister, pursuant to subsection 29(7) of the Act, has granted
his approval to the Revised Management Plan and the Revised Operating Plan;
AND WHEREAS the Minister and the Company have revised the Timber Berths
describing the Crown lands subject of the FMA, ("Revised Timber Berths");
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<PAGE> 2
(O1) "Agreement" means this Amended and Restated Forest Management Agreement
and any agreement supplementary to or in amendment or confirmation of this
agreement and includes Schedules "A", "B", "C", "D", "E" "F" and "G", identified
in section 15, which are incorporated into and form a part hereof;
(1) "ANNUAL ALLOWABLE HARVEST OF TIMBER" means the total volume of timber,
which the Minister has identified that may be harvested in a year on the Crown
Lands subject to this Agreement;
(1.1) "ANNUAL ALLOCATION OF TIMBER" means that portion of the annual allowable
harvest of timber allocated to the Company or to a Crown Timber Sub-licensee;
(2) "BASIC SILVICULTURE" means the silvicultural activity required to produce
the annual allowable harvest of timber identified in paragraph 12.1.
(3) "COLLATERAL RESERVATION" means the number of hectares of Crown Lands
subject to this Agreement which are associated with the operation of a wood
processing facility of a Crown Timber Sub-licensee;
(4) "COMPANY" means the party to this Agreement referred to as the party of
the Second Part heretofore and, upon issuance of the Crown Timber License
contemplated in this Agreement, includes the Company as a Crown Timber Licensee;
(4.1) "CROWN LAND EXCHANGE" means an exchange of Crown Lands approved pursuant
to section 20 of the Act;
(4.2) "CROWN TIMBER LICENSE" unless the context otherwise requires means the
"Lower Miramichi License",
(4.3) "CROWN TIMBER LICENSEE" means the holder of a Crown timber license issued
pursuant to section 28 of the Act;
(4.4) "CROWN TIMBER SUB-LICENSE" means a Crown timber sub-license issued
pursuant to section 41 of the Act;
(4.5) "CROWN TIMBER SUB-LICENSEE" means the holder of a Crown Timber Sub-license
named in paragraphs 9.1;
(5) "DELIVER" means, as a minimum requirement, that timber from a harvesting
operation on the Crown Lands subject to this Agreement is piled and ready for
pick-up on a road within or adjacent to the harvesting operation;
(6) "FOREST MANAGEMENT MANUAL" means the Forest Management Manual prepared by
the Minister and attached to and being part of this Agreement as Schedule "E",
setting out the procedures to be followed and the standards to be achieved,
where not otherwise contained in Regulations under the Act, in the management of
the Crown Lands;
(6.1) "INDUSTRIAL PLAN" means the Industrial Plan prepared pursuant to
subsection 29 (2) of the Act, referred to in paragraph 4 and attached to this
Agreement as Schedule "B";
(7) "INITIAL TERM" means the period of twenty-five years beginning on the last
day of March 1982;
(8) "INTEGRATED MANAGEMENT OF RESOURCES" means the planned use of the
renewable resources, on the Crown Lands subject to this Agreement, over
time,which recognizes the biophysical relationship of one resource to another
and places a value on each use of the resources in response to economic and
social priorities;
(9) "LICENSEE SILVICULTURE" means silvicultural treatments carried out at the
expense of a Crown Timber Licensee to increase the volume of growing timber
above the aggregate level of growing timber resulting from basic silviculture;
(9.1) "LOWER MIRAMICHI LICENSE" means crown Timber License No. 3, (Lower
Miramichi) issued to the Company pursuant to section 27 of the Act effective
March 31, 1982;
(9.2) "MANAGEMENT PLAN" means the Management Plan prepared pursuant to
subsection 29(4) of the Act, referred to in paragraph 5 and attached to this
Agreement as Schedule "C";
(9.3) "OPERATING PLAN" means the Operating Plan prepared pursuant to subsection
29(5) of the Act, referred to in paragraph 6 and attached to this Agreement as
Schedule "D";
(9.4) "PERFORMANCE EVALUATION STANDARDS" means the Performance Evaluation
Standards referred to in paragraph 7 and attached to this Agreement as Schedule
"G";
(9.5) "SECOND FIVE-YEAR PERIOD" means the period, during the term of this
Agreement, beginning with April 1, 1987 and ending with March 31, 1992;
(9.6) "SUB-LICENSEE" means Crown Timber Sub-licensee.
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<PAGE> 3
(9.7) "THIRD FIVE-YEAR PERIOD" 'means the period, during the term of this
Agreement, beginning with April 1, 1992 and ending March 31, 1997;
(9.8) "TIMBER BERTH" means a territorial division of the Crown Lands subject to
this Agreement for administrative purposes.
1.2 The terms defined in the Act and the Regulations thereunder shall, for
the purposes of this Agreement, unless otherwise specified in this Agreement,
have the meaning given to them by the Act and Regulations as each may be amended
or substituted from time to time.
1.3 The Minister and the Company agree that this Agreement is the Forest
Management Agreement referred to in Sub-section 29(1) of the Act.
2. TERM OF AGREEMENT
2.1 This Agreement commenced on the last day of March 1982 and shall expire
on the last day of March 2017 unless extended to accord with the date of expiry
of the Crown Timber License.
2.2 Every five years during the initial term of this Agreement the Minister
and the Company shall review this Agreement and may amend any term or condition
of the Agreement as is mutually agreeable, and approved by the
Lieutenant-Governor in Council.
2.3 At the end of the first five years and each fifth anniversary thereof of
this Agreement the Minister shall, upon being satisfied with the performance of
the Company, recommend to the Lieutenant-Governor in Council as provided for in
clause 31(c) of the Act, that the Lieutenant-Governor in Council approve an
extension by the Minister of the term of the license for a further five years.
3. AREA TO BE MANAGED
3.1 This Agreement applies to the management of the Crown Lands, not
otherwise subject to a lease, easement, right-of-way or encumbrance, situated
within the shaded areas outlined in red on the Plan attached to and forming part
of this Agreement, as Schedule "A", and more particularly shown and described on
Timber Berth Plan Nos. 1-15 and boundary descriptions on file in the off ice of
the Minister, containing, by estimation, a total of three hundred thousand, two
hundred and six hectares (741 798.86 acres), and identified as the Lower
Miramichi License.
3.2 The Timber Berth Plans and boundary descriptions on file in the office of
the Minister referred to in paragraph 3.1 shall be the official record of the
location of the Crown Lands which are subject to this Agreement.
4. INDUSTRIAL PLAN
4.1 The Minister and the Company agree that the Industrial Plan attached to
and forming part of this Agreement as Schedule "B", was submitted by the Company
in accordance with the instructions of the Minister, and is the Industrial Plan
referred to in sub-section 29(l) of the Act and was first approved by the
Lieutenant-Governor in Council by Order-in-Council 82-200.
4.2 Any change to an Industrial Plan requiring increased timber resources
from Crown Lands must be submitted to the Minister for approval at least three
months in advance of the anticipated change and the Minister will advise the
Company of approval or disapproval within three months of initial submission.
5. MANAGEMENT PLAN
5.1 In compliance with subsection 29(i) of the Act the Company agrees to
submit to the Minister for his approval, every five years beginning with the
last day of March, 1997 and every fifth anniversary thereof thereafter, a
revised Management Plan meeting the requirements of the Act, the Regulations and
the Forest Management Manual for the balance of the term of this Agreement for
the Crown Lands subject to this Agreement.
5.2 Upon submission by the Company and approval by the Minister, the
Management Plan, referred to in paragraph 5.1, shall be attached to and become
part of this Agreement as Schedule "C".
6. OPERATING PLAN
6.1 In compliance with subsection 29 (5) of the Act the Company agrees to
submit to the Minister for his approval, every year beginning with the lst day
of April, 1992 and every anniversary thereof thereafter, a revised
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<PAGE> 4
Operating Plan meeting the requirements of the Act, the Regulations and the
Forest Management Manual covering a period of 1 year from the date of each
approval by the Minister.
6.2 Each revision of the Operating Plan made pursuant to paragraph
6.3 which is approved by the Minister is deemed to be substituted
for the Operating Plan attached to this Agreement as Schedule "D" effective
the date of the Minister's approval and is Schedule "D".
7. FOREST MANAGEMENT MANUAL
7.1 In the management of the Crown Lands subject of this Agreement the
Company agrees to comply with the provisions of the Forest Management Manual as
amended from time to time and which is incorporated into and forms a part of
this Agreement as Schedule "E".
7.2 The Minister may amend the Forest Management Manual by mutual consent
between the Minister and the Company.
7.3 It is understood by both parties to this Agreement that, in respect to
the Crown Lands subject to this Agreement,
(a) the Company is fully responsible for the submission of the
Industrial Plan, Management Plan and Operating Plan to the Minister
and the implementation thereof, and shall provide to the Minister a
full accounting of all activities in accordance with the provisions
of the Forest Management Manual, and
(b) the Minister shall examine the plans referred to in subparagraph
7.3(a) submitted by the Company and evaluate the management
performance of the Company as provided for in and in accordance with
the Forest Management Manual and the Performance Evaluation
Standards, as amended from time to time."
7.4 The Performance Evaluation Standards shall apply during the Third
Five-Year Period and may be amended during that period only by mutual consent
between the Minister and the Company.
7.5 The Minister may amend the Performance Evaluation Standards after
consultation with all Crown Timber Licensees but such amended Performance
Evaluation Standards shall apply not sooner than the expiration of the Third
Five-Year Period.
8. CROWN TIMBER LICENSE
8.1 The Minister agrees that, upon the signing and delivery of this
Agreement, he shall, with the approval of the Lieutenant-Governor in council,
issue a Crown Timber License to the Company for the integrated management of the
Crown Lands, not otherwise subject to a lease, easement, right-of-way or
encumbrance, situated within the shaded area outlined in red on the Plan
attached as Schedule "A" to this Agreement and more particularly shown and
described on the Timber Berth Plans Nos. 1 15 and boundary description on file
in the office of the Minister, containing, by estimation, a total of three
hundred thousand, two hundred and six hectares (741 798.86 acres) and identified
as the Lower Miramichi License.
8.2 The Crown Timber License issued by the Minister to the Company shall
entitle the Company to enter upon the Crown Lands identified in the Lower
Miramichi License for the purposes of managing, protecting, harvesting and
removing the timber thereon, conducting reforestation and other forms of
silviculture, together with the integrated management of resources on or within
the Lower Miramichi License in accordance with the Act, Regulations, the Forest
Management Manual and this Agreement as each and all of them may apply.
8.3 The Company agrees that, as a Crown Timber Licensee, it will manage the
crown Lands on or within the York License in accordance with the Act,
Regulations, the Forest Management Manual and this Agreement as each and all of
them may apply.
8.4 The Company acknowledges that it was issued the Lower Miramichi License
effective March 31, 1982.
9. CROWN TIMBER SUB-LICENSE
9.1 The Minister having entered into an agreement with the following
described persons pursuant to subsection 41(i) of the Act and having obtained
the approval of the Lieutenant-Governor in Council by
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<PAGE> 5
Order-in-Council 90-597, hereby directs the Company, pursuant to subparagraph
41(4)(a) of the Act, to issue a Crown Timber Sub-license for a 5 year term
beginning with the first day of April, 1987 meeting the requirements of
subsection 41(3) of the Act, to the following described persons and the Company
agrees to implement these directions forthwith:
1. Blackville Lumber Inc.
2. Ashley Colter (1961) Ltd.
3. K & R Dickson Lumber
4. Eric Goguen & Sons Ltd.
5. Kingston Fuelwood
6. Scierie Fred Maillet
7. D. Matchett
8. Newcastle Lumber Co. Ltd.
9. Russell & Swim Limited
10. R.F. Sadler Ltd.
11. James Sparkes & Sons Ltd.
12. Stella-Jones Inc.
13. Howard Sturgeon
14. Underhill Forest Products Ltd.
15. Veneer Products of N.B. (1981) Ltd.
9.2 The Company shall, each year during the term of each Sub-license issued
pursuant to paragraph 9.1 and any extensions thereof, provide to each
Sub-licensee
(a) by delivery, or
(b) by making available for harvest, or
(c) by a combination of (a) and (b)
the volume of timber allocated to each Sub-licensee in Schedule F by species and
by class appropriate to that Sub-licensee's use.
9.3 It is understood and agreed that a Crown Timber Sub-licensee shall pay
the Company for the Crown Timber Sub-licensee's reasonable and fair share of the
costs and charges incurred by the Company pertaining to the Lower Miramichi
License
(i) in the harvesting and delivery of timber for use by the Crown
Timber Sub-licensee, and
(ii) in road construction and maintenance, and forest management and
administration and that such costs and charges shall be reasonable
and competitive in the context of the services provided by the
Company and, in the event of a dispute between the Company and a
Crown Timber Sub-licensee over the amount of or inclusion of such
costs and charges, such dispute shall be resolved by the Minister
after receiving advice from the Sub-committee of the Advisory Board.
9.4 The Company agrees that where any activity identified in paragraph 9.3 is
performed by the Sub-licensee on behalf of the Company, at the request of the
Company and pursuant to a written agreement, the Company shall reimburse the
Sub-licensee or credit to the Sub-licensee's account, the costs incurred by the
Sub-licensee in the same manner and to the same level as the Company would
charge the Sub-licensee under paragraph 9.3.
9.5 When a Crown Timber Sub-license identified in paragraph 9.1 is
relinquished by the Sub-licensee or cancelled by the Minister, the Minister
reserves the right to reallocate the allocation of timber and the Collateral
Reservation of License Land associated with the Sub-license identified in
Schedule "F" attached to and forming part of this Agreement, in whole or in part
as, in his opinion, it is necessary for the better management of the Crown Lands
and dependent wood processing facilities.
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<PAGE> 6
9.6 The Company agrees that where the Minister identifies that there are
species, classes and volumes of timber, within the Crown Lands subject to this
Agreement, not utilized nor required under the Company's Industrial Plan or by
its Crown Timber Sub-licensees for wood processing facilities in New Brunswick,
it will, at the direction of the Minister, issue a Crown Timber Sub-license to a
person for all or part of the timber so identified by the Minister.
10. RIGHTS OVER LAND
10.1 The Minister recognizes that the Company's use of the Crown Lands within
the Lower Miramichi License is primarily for the growing, tending, protecting
and harvesting of timber, but, in keeping with the policy of the integrated
management of the resources on Crown Lands, the Minister reserves all rights
related to activities on the Crown Lands not specifically given to the Company,
including by way of example but without limiting the generality:
(a) the rights of other persons to travel, hunt, fish, trap and
otherwise use the Crown Lands for recreational purposes, subject to
the necessary restriction for the purpose of preventing accidents,
fire control, protection of plantations and the seasonal protection
of forest roads, and
(b) the rights of others to conduct any work in connection with or
incidental to geological exploration and mining development.
10.2 The Company agrees that the Minister may withdraw from the Lower
Miramichi License small areas of Crown Lands for the purpose of granting,
deeding, leasing, or in any other way conveying rights in such land to other
persons, provided that the area withdrawn does not exceed 85 hectares (211
acres) in any one withdrawal, and the total of all such withdrawals does not
exceed one half of one percent (0.5%) of the area of the Lower Miramichi License
in each and every year and will not, in the aggregate during the initial term
and all extensions, exceed 5% of the area of the Lower Miramichi License as it
was on the first day of the Third Five-Year Period and any timber harvested on a
withdrawn area shall accrue to the Company except for those areas withdrawn by
the Minister and used in a Crown Land exchange.
10.3 The Minister agrees that any lands acquired as Crown Lands within or
abutting the Lower Miramichi License shall be added to the Crown Lands already
managed by the Company as a Licensee provided that the land is acquired for the
consolidation of the Crown Lands for better integrated management of resources.
10.4 The Minister shall, at his expense, establish and maintain,
(a) by legal surveys, the boundaries between the Lower Miramichi License
and freehold lands, and
(b) the boundaries between the Lower Miramichi License and other Crown
Timber Licenses.
11. ROADS AND IMPROVEMENTS
11.1 The Company shall construct and maintain forest roads on the Crown Lands
subject to this agreement as required by the operating Plan of the Company in
accordance with the standards prescribed in the Forest Management Manual.
11.2 Where the Company has been, with regard to the forest roads referred to
in 11.1, requested to grade, plow, maintain or upgrade one or more of those
roads beyond the level contemplated by that section, by a person other than the
Minister, the Company may recover the costs thereof from that person.
11.3 Where a forest road not exceeding 1.5 kilometres in length crosses lands
owned or controlled by the Company, leading to Crown Lands subject to this
Agreement, and the Minister requests it, the Company agrees
(a) to construct and maintain the portion of forest road on the
Company's land to the same standard as the forest road on such Crown
Lands, and
(b) to grant or obtain a free right of way to the Minister on behalf of
all users of the forest road and adjacent Crown Lands.
11.4 Where a forest road not exceeding 1.5 kilometres in length crosses lands
owned or controlled by the Company, leading to another crown Timber License and
the Minister requests it, the Company agrees
(a) to, at the expense of such other licensee, construct and maintain
the portion of the forest road on the Company's land to the same
standards as the forest roads on that licensee's land, and
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<PAGE> 7
(b) to grant or obtain a free right of way to the Minister on behalf of
all users of the forest road, and adjacent Crown Lands.
12. ALLOCATION AND HARVEST
12.1 The total annual allowable harvest of timber from the Lower Miramichi
License for the Third Five-Year Period is 396 835 m3 comprising
(a) 324 480 m3 of spruce, fir and jack pine combined,
(b) 25 220 m3 of red and white pine,
(c) 6 550 m3 of cedar, and
(d) 40 485 m3 of hardwood.
12.2 The annual allocation of timber is more particularly set out for the
Company and each Crown Timber Sub-Licensee in Schedule "F" to this Agreement.
12.3 The Company shall ensure that the aggregate volume of timber harvested on
the Lower Miramichi License by the Company and the Crown Timber Sub-Licensees
during the Third Five-Year Period shall not exceed 105% of the aggregate of the
five annual allowable harvests of timber for the Lower Miramichi License during
the Third Five-Year Period.
12.4 In any year during the Third Five-Year Period the actual harvest of
timber by the Company shall not exceed the aggregate of
(a) 110% of the Company's annual allocation of timber for that year, and
(b) the volume of timber available to the Company pursuant to paragraph
12.6 for that year.
12.5 In any year during the Third Five-Year Period the actual harvest of
timber by a Crown Timber Sub-Licensee shall not exceed 110% of its annual
allocation of timber for that year.
12.6 In the event a Crown Timber Sub-Licensee will not require or utilize all
of its annual allocation of timber in a year the Company may, in that year,
harvest and use the portion of that Crown Timber Sub-Licensee's annual
allocation of timber which is equal to the volume of timber by which the Crown
Timber SubLicensee's actual harvest falls short of 90% of the Crown Timber
Sub-Licensee's annual allocation of timber.
12.7 In the event the Company and the Crown Timber Sub-Licensees together
will, in a year, require or use less than 90% of the annual allowable harvest of
timber for the Lower Miramichi License in that year, the Minister may
(a) with the written agreement of the Company, in that year, and
(b) without the written agreement of the Company, in the immediate
following year,
allocate a volume of timber equal to the volume of timber by which the actual
harvest of timber falls short of 90% of the annual allowable harvest of timber.
12.8 In the event the Minister is entitled to make an allocation in the
subsequent year pursuant to paragraph 12.7 and all or any portion of that
allocation is not used in the subsequent year, the unused allocation shall not
carry over to future years unless the Minister and the Company agree in writing
to allow it to carry over to future years.
12.9 If the Company harvests a volume of timber which is less than 95% of the
Company's annual allocation of timber during the Third Five-Year Period the
shortfall in harvest shall not be a default under this Agreement if the Minister
is satisfied that such shortfall in harvest is due to conditions, including
adverse market conditions, beyond the control of the Company.
12.10 If the Minister is, pursuant to paragraph 12.9, not satisfied that the
shortfall in volume of harvest of timber is due to conditions, including adverse
market conditions, beyond the control of the Company, the Minister may reduce
the annual allocation of timber to the Company for each year of the five year
period immediately following the Third Five-Year Period.
12.11 The Minister and the Company shall review the annual allowable harvest of
timber at the end of the Third Five-Year Period and on the 5(th) anniversary
thereof thereafter and, based on such review, the Minister may amend the annual
allowable harvest of timber for the immediately following five year period."
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<PAGE> 8
13. SILVICULTURE
13.1 During the Third Five-Year Period the Company shall carry out basic
silviculture on not less than 7 950 hectares of the Lower Miramichi License
within areas approved in the operating Plan, of the kind and to the extent shown
opposite each year as follows:
(a) in 1992 1 430 hectares of planting and thinning,
(b) in 1993 800 hectares of planting and 830 hectares of thinning,
(c) in 1994 800 hectares of planting and 830 hectares of thinning,
(d) in 1995 800 hectares of planting and 830 hectares of thinning,
(e) in 1996 800 hectares of planting and 830 hectares of thinning.
13.2 The number of hectares planted and the number of hectares thinned each
year pursuant to paragraph 13.1 may be adjusted from year to year by agreement
in writing between the Minister and the Company provided the aggregate of
hectares planted and thinned each year is not reduced.
13.3 The Minister shall reimburse the Company for approved basic silvicultural
treatments to standards set out in the Forest Management Manual, at rates
authorized by the Minister.
13.4 The Company may, at its own expense, carry out licensee silviculture
approved in the Operating Plan in addition to basic silviculture and the Company
shall be the beneficiary of such silviculture.
13.5 Any increase in the annual allowable harvest of timber on Crown Lands
subject of this Agreement beyond the level specified in paragraph 12.1 which is
attributable to basic silviculture and licensee silviculture shall be available
to the Company to support a corresponding increase in production in any wood
processing facility approved in the Industrial Plan of the Company.
13.6 The Minister reserves the right to carry out additional silvicultural
treatments in addition to those approved in an Operating Plan providing it does
not interfere with the Company's silviculture and the Company has agreed that it
is not in its plan, then any increase in the annual allowable harvest of timber
attributable to such work may be allocated as the Minister deems necessary.
14. GENERAL
14.1.1 Any change in the annual allowable harvest of timber on Crown Lands
subject of this Agreement attributable to any forest management actions by the
Company (over and above those identified in paragraph 13.5) or attributed to
changes in the forest data base information shall accrue to the Company and the
Sub-licensees in the same proportion as their current annual allowable harvest
of timber for the Lower Miramichi License bears to the annual allowable harvest
of timber.
14.1.2 The Company shall protect fish and wildlife habitat and water quality on
its freehold lands in New Brunswick to the same standards as defined in the
Forest Management Manual for Crown Lands, as mutually agreed between the
Minister and the Company.
14.1.3 Annually, the Company shall report to the Minister, with respect to the
Company's freehold lands, in a scope and format mutually acceptable to the
Minister and the Company, all activities relating to
(a) access roads,
(b) harvesting of timber,
(c) silviculture,
(d) fish and wildlife habitat, and
(e) recreation.
14.2.1 The Company acknowledges the established social and commercial patterns
and the traditional sources of local forest employment in the communities
adjacent to or dependent on the management of the Crown Lands subject to this
Agreement and agrees to manage the license in such a way as to minimize the
disruption of such patterns and sources of employment to the greatest degree
practicable.
14.2.2 In accordance with the following guidelines, the Minister may from time
to time request, and the Company agrees to comply with any such request, that
independent forestry contractors or former Licensees of Crown Lands
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<PAGE> 9
covered by this Agreement, or both, be engaged to carry out harvesting,
transportation and silvicultural operations on such Crown Land in a manner
consistent with the operating Plan:
(a) the application of such requests from the Minister shall not exceed
25% in the aggregate of the annual requirements for harvesting,
transportation and silviculture as laid out in the Operating Plan,
but nothing in this section shall prevent the company from engaging
such contractors and former Licensees to carry out a greater
percentage of the work,
(b) the independent forestry contractors and former Licensees shall have
their principal places of business within the Counties in which such
Crown Lands covered by this Agreement are located, and they shall
have the experience and capability to carry out such work on a cost
competitive basis and in accordance with the Operating Plan and the
Forest Management Manual;
(c) engagement of contractors or former Licensees under this section
shall follow invitation of competitive tenders unless otherwise
approved by the Minister and the Company agrees to provide the
Minister with a copy of each tender when requested by him to do so,
(d) requests by the Minister under this section shall not be made with
regard to Crown Lands in those areas of the License where such a
request would cause unreasonable conflict with the traditional use of
company personnel in operations, or with a collective agreement with
a recognized bargaining agent, and
(e) where the Company is able to demonstrate to the satisfaction of the
Minister, with advice to him from the Advisory Board, that compliance
with his request under this section will result in a competitive
disadvantage relative to its normal wood costs, the Minister shall
modify or withdraw his request; it being understood that requests
under this clause are not intended to disadvantage the normal
competitive wood costs of Licensees and Sub-Licensees.
14.3 The Company shall not assign this Agreement without the express written
consent of the Minister which consent shall not be unreasonably withheld. The
use of contractors by the Company in the normal conduct of its business and
operations shall not be deemed to be an assignment.
14.4 The Company shall comply with and observe all the provisions and
requirements of:
(a) all Acts of the Legislature of the Province of New Brunswick in force
or enacted hereafter from time to time and as amended from time to
time, and
(b) all Regulations in force from time to time under any of the Acts
referred to in clause (a).
14.5 The Company shall keep the Minister indemnified against all claims and
demands that may be made against the Minister by reason of anything done solely
by the Company, its servants, workmen, agents and contractors on the License in
the exercise or purported exercise of its rights, powers, privileges and
obligations under this Agreement, save anything done at the express direction of
the Minister.
14.6 The Minister does not guarantee the quality or quantity of timber on the
Lower Miramichi License.
14.7 No implied contract of any kind by or on behalf of the Minister shall
arise or be construed from anything contained in this Agreement and the only
rights, powers and privileges granted to the Company are those contained in this
Agreement.
14.8 The failure of the Minister to insist in one or more instances upon the
performance by the Company of any provision of this Agreement shall not be
construed as a waiver of the future performance of any such provision and the
obligation of the Company with respect to such future performance shall continue
in full force and effect.
14.9 The Minister may, on notice to the Company, terminate this Agreement upon
the happening of the following events of default:
(a) where the Company relinquishes or forfeits its Crown Timber License,
(b) where the Company makes a general assignment for the benefit of the
Company's creditors or if a receiver is appointed on account of the
Company's insolvency or
(c) upon the breach by the Company of any term, condition, requirement,
obligation, direction or undertaking set out in this Agreement.
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<PAGE> 10
14.10 The Minister shall not act to terminate this agreement under section 14.9
until he has given notice of the default to the Company and the Company shall
have failed to rectify that default within 30 days of receipt of such notice,
except in the case of a default under clause 14.9(c) where, due to weather
conditions and normal forestry practice, it would not be possible to rectify the
default within that time, in which case, the default shall be rectified within
30 days of the first day on which weather conditions and normal forestry
practice would allow it to be rectified.
14.11 Notice to the Company hereunder may be effectively given by personal
delivery to an officer of the Company or by sending the same to the Company by
prepaid registered mail addressed to the Company
Vice-President, Woodlands
Miramichi Pulp & Paper Inc.
P.O. Box 5040
Newcastle, NB ElV 3N3
and notice to the Minister hereunder may be effectively given by personal
delivery to the Minister or by sending the same prepaid registered mail
addressed to
Minister of Natural Resources & Energy
P.O. Box 6000
Fredericton, N.B.
E3B 5Hl
and notice sent by prepaid registered mail shall be presumed to have been
received on the third (3rd) business day following the mailing thereof,
provided, however, in the case of mail disruption by work interruption, strike,
slow down, labor dispute, adverse weather, or any other force majeure event,
such presumption shall not apply and actual service or delivery shall constitute
communication of such notice. The parties hereto also agree that by either party
giving to the other not less than ten (10) days written notice of a change of
address as herein provided, such party may change its address for notice.
14.12 The parties agree that the headings used in this Agreement are inserted
for convenience of reference only and shall not be used to construe the
Agreement.
14.13 Notwithstanding paragraph 2.2, the Minister and the Company may amend any
part of or Schedule to this Agreement, except the Forest Management Manual upon
mutual consent at any time.
14.13.1 Wherever the context herein permits, words denoting the singular shall
include the plural and words denoting gender shall include the masculine,
feminine and neuter genders.
15. The Schedules to this Agreement are as follows:
(a) Schedule "A" is the Revised Plan dated April 1, 1992,
(b) Schedule "B" is the Revised Industrial Plan,
(c) Schedule "C" is the Revised Management Plan,
(d) Schedule "D" is the Revised operating Plan,
(e) Schedule "E" is the Forest Management Manual,
(f) Schedule "F" is the Revised AAHT and the Revised AAT, and
(g) Schedule "G"' is the Performance Evaluation Standards.
16(l) Schedule "A" to this Agreement is the Plan referred to in the last
paragraph of CTL No. 3.
16(2) The Timber Berths referenced in CTL No. 3 and in paragraphs 3.1, 3.2 and
8.1, of this Agreement are the Revised Timber Berths which were filed in the
office of the Minister on the 1st day of April, 1992.
17. The Minister and the Company agree that the Forest Management Agreement
as amended by the AAFMA together with certain additional amendments shall be
consolidated and restated in this Amended and Restated Forest Management
Agreement which shall be referred to herein as the Agreement or FMA.
18. This Agreement shall ensure to the benefit of and be binding upon the
Crown in right of New Brunswick, Her Heirs and Successors, and the Company, its
Successors and assigns.
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SIGNED, SEALED AND DELIVERED in the presence of:
Minister of Natural Resources and Energy
President
Miramichi Pulp & Paper Inc.
Secretary
Miramichi Pulp & Paper Inc.
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<PAGE> 12
PROVINCE OF NEW BRUNSWICK COUNTY OF YORK, S.S.
AFFIDAVIT
I, DAVID M. MACFARLANE, of the City of Fredericton in the Province of New
Brunswick, Acting Deputy Minister of the Department of Natural Resources and
Energy MAKE OATH AND SAY:
1. THAT I am the Acting Deputy Minister of Natural Resources and Energy of
the Province of New Brunswick, and as such am the proper officer having charge
of the Seal of the said Department.
2. THAT the within Instrument was executed on the day of August, 1994 by the
Honourable ALAN R. GRAHAM, Minister of Natural Resources and ENERGY for the said
Province, duly authorized thereto, in my presence, and the signature "Alan R.
Graham" is the signature of the said Alan R. Graham, Minister of Natural
Resources and Energy.
3. THAT the Seal opposite the signature of the said Alan R. Graham is the
Seal of the Minister of Natural Resources and Energy and was affixed to the said
Instrument by me, the said David M. MacFarlane, as such officer being duly
authorized thereto.
SWORN TO at the City of Fredericton in the County of York and Province of New
Brunswick, this 18TH day of August, A.D. 1994. BEFORE ME:
A Commissioner of Oaths
<TABLE>
<S> <C>
SYLVAIN LABRIE DAVID M. MACFARLANE
Commissioner of Oaths ACTING DEPUTY MINISTER OF
My Appointment Expires NATURAL RESOURCES AND ENERGY
December 31st, 1994
</TABLE>
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<PAGE> 1
EXHIBIT 10.2
AMENDED AND RESTATED
FOREST MANAGEMENT AGREEMENT
THIS AGREEMENT made in duplicate as of the lst day of April, 1992.
BETWEEN; HER MAJESTY THE QUEEN in right of the Province of New
Brunswick as represented by the Minister of Natural
Resources and Energy, hereinafter referred to as the
"Minister"
OF THE FIRST PART
AND; MIRAMICHI PULP & PAPER INC., a Company duly
incorporated under the laws of New Brunswick, having
its head office in the Town of Newcastle in the
Province of New Brunswick, hereinafter referred to as
the "Company"
OF THE SECOND PART.
AND WHEREAS the Company is carrying on the business of manufacturing kraft pulp
at its wood processing facility at Newcastle, New Brunswick;
AND WHEREAS the Company has an historic draw of timber from the Crown Lands in
the Province;
AND WHEREAS the Minister and the Company are desirous of continuing the
company's use of timber from the Crown Lands on a sustained yield basis in
accordance with the practice of integrated management of resources within the
Crown Lands and in accordance with the provisions of the Crown Lands and Forests
Act, Chapter C-38.1, Acts of New Brunswick, 1980 (hereinafter referred to as the
"Act");
AND WHEREAS the Minister and the Company entered into an agreement dated the
24th day of March, 1982, known as the Forest Management Agreement ("Forest
Management Agreement");
AND WHEREAS the Minister and the Company entered into an agreement in amendment
of the Forest Management Agreement as of the lst day of April, 1987, ("AAFMA");
AND WHEREAS the Minister, pursuant to section 31 of the Act, has completed his
review of the performance of the Company in respect of its management of Crown
Lands under license to it and has received the approval of the
Lieutenant-Governor in Council by order-in-council 94-484, to extend the term of
the CTL No. 4 by five years and the Minister has in a letter to the Company
dated the 18th day of August, 1994 extended the term of CTL No. 4 to the last
day of March, 2017;
AND WHEREAS the Minister and the Company, arising out of the review of the
Company's performance, have agreed to amend and restate the Forest Management
Agreement as amended by the AAFMA ("FMA");
AND WHEREAS the Minister and the Company have agreed to extend the term of the
FMA by 5 years as more particularity hereinafter provided;
AND WHEREAS the Company has revised the Industrial Plan forming a part of the
FMA as required by subsection 29(2) of the Act and the Lieutenant-Governor in
Council has, pursuant to subsection 29(3) of the Act, approved those revisions
by order-in-council 94-484 ("Revised Industrial Plan");
AND WHEREAS the Company has completed the five year revision of the Management
Plan forming a part of the FMA pursuant to subsection 29(4) of the Act ("Revised
Management Plan");
AND WHEREAS the Company has completed a revision of the Operating Plan forming a
part of the FMA pursuant to subsection 29(5) of the Act ("Revised operating
Plan");
AND WHEREAS the Minister, pursuant to subsection 29(7) of the Act, has granted
his approval to the Revised Management Plan and the Revised Operating Plan;
AND WHEREAS the Minister and the Company have revised the Timber Berths
describing the crown lands subject of the FMA, ("Revised Timber Berths");
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<PAGE> 2
AND WHEREAS the Company has revised the annual allowable harvest of timber
("Revised AAHT");
AND WHEREAS the Minister has, in consultation with the Company, revised the
annual allocation of timber ("Revised AAT");
AND WHEREAS the Minister and the Company have agreed to incorporate into the FMA
for the Third Five Year Period the Revised Industrial Plan, the Revised
Management Plan, the Revised Operating Plan, the Revised Timber Berths, the
Revised AAHT and the Revised AAT, all of which is more fully hereinafter set
forth;
AND WHEREAS the Minister has been authorized to enter into this Agreement by
order-in-Council 94-484;
NOW THEREFORE in consideration of the mutual promises, covenants, agreements and
other provisions contained in this agreement, the Minister and the Company
covenant and agree, each with the other, as follows:
1. INTERPRETATION
1.1 In this Agreement
(0) "ADVISORY BOARD" means the Advisory Board created pursuant to
section 69 of the Act;
(0.1) "AGREEMENT" means this Amended and Restated Forest Management
Agreement and any agreement supplementary to or in amendment or confirmation of
this agreement and includes Schedules "A", "B", "C", "D", "E", "F" and "G",
identified in Section 15, which are incorporated into and form a part hereof;
(1) "ANNUAL ALLOWABLE HARVEST OF TIMBER" means the total volume of
timber, which the Minister has identified that may be harvested in a year on the
Crown Lands subject to this Agreement;
(1.1) "ANNUAL ALLOCATION OF TIMBER" means that portion of the annual
allowable harvest of timber allocated to the Company or to a Crown Timber
Sub-licensee;
(2) "BASIC SILVICULTURE" means the silvicultural activity required to
produce the annual allowable harvest of timber identified in paragraph 12.1.
(3) "COLLATERAL RESERVATION" means the number of hectares of Crown Lands
subject to this Agreement which are associated with the operation of a wood
processing facility of a Crown Timber Sub-licensee;
(4) "COMPANY" means the party to this Agreement referred to as the party
of the Second Part heretofore and, upon issuance of the Crown Timber License
contemplated in this Agreement, includes the Company as a Crown Timber Licensee;
(4.1) "CROWN LAND EXCHANGE" means an exchange of Crown Lands approved
pursuant to section 20 of the Act;
(4.2) "CROWN TIMBER LICENSE" unless the context otherwise requires means
the "Upper Miramichi License",
(4.3) "CROWN TIMBER LICENSEE" means the holder of a Crown timber license
issued pursuant to section 28 of the Act;
(4.4) "CROWN TIMBER SUB-LICENSE" means a Crown timber sub-license issued
pursuant to section 41 of the Act;
(4.5) "CROWN TIMBER SUB-LICENSEE" means the holder of a Crown Timber
Sub-license named in paragraphs 9.1;
(5) "DELIVER" means, as a minimum requirement, that timber from a
harvesting operation on the Crown Lands subject to this Agreement is piled and
ready for pick-up on a road within or adjacent to the harvesting operation;
(6) "FOREST MANAGEMENT MANUAL" means the Forest Management Manual
prepared by the Minister and attached to and being part of this Agreement as
Schedule "E", setting out the procedures to be followed and the standards to be
achieved, where not otherwise contained in Regulations under the Act, in the
management of the Crown Lands;
(6.1) "INDUSTRIAL PLAN" means the Industrial Plan prepared pursuant to
subsection 29 (2) of the Act, referred to in paragraph 4 and attached to this
Agreement as Schedule "B";
(7) "INITIAL TERM" means the period of twenty-five years beginning on
the last day of March 1982;
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<PAGE> 3
(8) "INTEGRATED MANAGEMENT OF RESOURCES" means the planned use of the
renewable resources, on the Crown Lands subject to this Agreement, over
time,which recognizes the biophysical relationship of one resource to another
and places a value on each use of the resources in response to economic and
social priorities;
(9) "LICENSEE SILVICULTURE" means silvicultural treatments carried out
at the expense of a Crown Timber Licensee to increase the volume of growing
timber above the aggregate level of growing timber resulting from basic
silviculture;
(9.1) "UPPER MIRAMICHI LICENSE" means Crown Timber License No. 4, (Upper
Miramichi) issued to the Company pursuant to section 27 of the Act effective
March 31, 1982;
(9.2) "MANAGEMENT PLAN" means the Management Plan prepared pursuant to
subsection 29(4) of the Act, referred to in paragraph 5 and attached to this
Agreement as Schedule "C";
(9.3) "OPERATING PLAN" means the Operating Plan prepared pursuant to
subsection 29(5) of the Act, referred to in paragraph 6 and attached to this
Agreement as Schedule "D";
(9.4) "PERFORMANCE EVALUATION STANDARDS" means the Performance Evaluation
Standards referred to in paragraph 7 and attached to this Agreement as Schedule
"G";
(9.5) "SECOND FIVE-YEAR PERIOD" means the period, during the term of this
Agreement, beginning with April 1, 1987 and ending with March 31, 1992;
(9.6) "SUB-LICENSEE" means Crown Timber Sub-licensee.
(9.7) "THIRD FIVE-YEAR PERIOD" means the period, during the term of this
Agreement, beginning with April 1, 1992 and ending March 31, 1997;
(10) "TIMBER BERTH" means a territorial division of the Crown Lands
subject to this Agreement for administrative purposes.
1.2 The terms defined in the Act and the Regulations thereunder shall,
for the purposes of this Agreement, unless otherwise specified in this
Agreement, have the meaning given to them by the Act and Regulations as each may
be amended or substituted from time to time.
1.3 The Minister and the Company agree that this Agreement is the
Forest Management Agreement referred to in Sub-section 29(i) of the Act.
2. TERM OF AGREEMENT
2.1 This Agreement commenced on the last day of March 1982 and shall expire
on the last day of March 2017 unless extended to accord with the date of expiry
of the Crown Timber License.
2.2 Every five years during the initial term of this Agreement the Minister
and the Company shall review this Agreement and may amend any term or condition
of the Agreement as is mutually agreeable, and approved by the
Lieutenant-Governor in Council.
2.3 At the end of the first five years and each fifth anniversary thereof of
this Agreement the Minister shall, upon being satisfied with the performance of
the Company, recommend to the Lieutenant-Governor in Council as provided for in
clause 31(c) of the Act, that the Lieutenant-Governor in Council approve an
extension by the Minister of the term of the license for a further five years.
3. AREA TO BE MANAGED
3.1 This Agreement applies to the management of the Crown Lands, not
otherwise subject to a lease, easement, right-of-way or encumbrance, situated
within the shaded areas outlined in red on the Plan attached to and forming part
of this Agreement, as Schedule "A", and more particularly shown and described on
Timber Berth Plan Nos. 1-10 and boundary descriptions on file in the office of
the Minister, containing, by estimation, a total of 403 869 hectares (997 946.62
acres), and identified as the Upper Miramichi License.
3.2 The Timber Berth Plans and boundary descriptions on file in the office of
the Minister referred to in paragraph 3.1 shall be the official record of the
location of the Crown Lands which are subject to this Agreement.
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<PAGE> 4
4. INDUSTRIAL PLAN
4.1 The Minister and the Company agree that the Industrial Plan attached to
and forming part of this Agreement as Schedule "B" was submitted by the Company
in accordance with the instructions of the Minister, and is the Industrial Plan
referred to in sub-section 29(l) of the Act and was first approved by the
Lieutenant-Governor in Council by order-in-Council 82-200.
4.2 Any change to an Industrial Plan requiring increased timber resources
from Crown Lands must be submitted to the Minister for approval at least three
months in advance of the anticipated change and the Minister will advise the
Company of approval or disapproval within three months of initial submission.
5. MANAGEMENT PLAN
5.1 In compliance with subsection 29(1) of the Act the Company agrees to
submit to the Minister for his approval, every five years beginning with the
last day of March, 1997 and every fifth anniversary thereof thereafter, a
revised Management Plan meeting the requirements of the Act, the Regulations and
the Forest Management Manual for the balance of the term of this Agreement for
the Crown Lands subject to this Agreement.
5.2 Upon submission by the Company and approval by the Minister, the
Management Plan, referred to in paragraph 5.1, shall be attached to and become
part of this Agreement as Schedule "C".
6. OPERATING PLAN
6.1 In compliance with subsection 29 (5) of the Act the Company agrees to
submit to the Minister for his approval, every year beginning with the lst day
of April, 1992 and every anniversary thereof thereafter, a revised operating
Plan meeting the requirements of the Act, the Regulations and the Forest
Management Manual covering a period of 1 year from the date of each approval by
the Minister.
6.2 Each revision of the operating Plan made pursuant to paragraph
6.1 which is approved by the Minister is deemed to besubstituted for the
Operating Plan attached to this Agreement as Schedule "D" effective the date of
the Minister's approval and is Schedule "D".
7. FOREST MANAGEMENT MANUAL
7.1 In the management of the Crown Lands subject of this Agreement the
company agrees to comply with the provisions of the Forest Management Manual as
amended from time to time and which is incorporated into and forms a part of
this Agreement as Schedule "E".
7.2 The Minister may amend the Forest Management Manual by mutual consent
between the Minister and the Company.
7.3 It is understood by both parties to this Agreement that, in respect to
the Crown Lands subject to this Agreement,
(a) the Company is fully responsible for the submission of the
Industrial Plan, Management Plan and Operating Plan to the Minister
and the implementation thereof, and shall provide to the Minister a
full accounting of all activities in accordance with the provisions
of the Forest Management Manual, and
(b) the Minister shall examine the plans referred to in subparagraph
7.3(a) submitted by the Company and evaluate the management per
formance of the Company as provided f or in and in accordance with
the Forest Management Manual and the Performance Evaluation
Standards, as amended from time to time."
7.4 The Performance Evaluation Standards shall apply during the Third
Five-Year Period and may be amended during that period only by mutual consent
between the Minister and the Company.
7.5 The Minister may amend the Performance Evaluation Standards after
consultation with all Crown Timber Licensees but such amended Performance
Evaluation Standards shall apply not sooner than the expiration of the Third
Five-Year Period.
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<PAGE> 5
8. CROWN TIMBER LICENSE
8.1 The Minister agrees that, upon the signing and delivery of this
Agreement, he shall, with the approval of the Lieutenant-Governor in Council,
issue a Crown Timber License to the Company for the integrated management of the
Crown Lands, not otherwise subject to a lease, easement, right-of-way or
encumbrance, situated within the shaded area outlined in red on the Plan
attached as Schedule "A" to this Agreement and more particularly shown and
described on the Timber Berth Plans Nos. 1-10 and boundary description on file
in the office of the Minister, containing, by estimation, a total of 403 869
hectares (997 946.62 acres) and identified as the Upper Miramichi License.
8.2 The Crown Timber License issued by the Minister to the Company shall
entitle the Company to enter upon the Crown Lands identified in the Upper
Miramichi License f or the purposes of managing, protecting, harvesting and
removing the timber thereon, conducting reforestation and other forms of
silviculture, together with the integrated management of resources on or within
the Upper Miramichi License in accordance with the Act, Regulations, the Forest
Management Manual and this Agreement as each and all of them may apply.
8.3 The Company agrees that, as a Crown Timber Licensee, it will manage the
Crown Lands on or within the Upper Miramichi License in accordance with the Act,
Regulations, the Forest Management Manual and this Agreement as each and all of
them may apply.
8.4 The Company acknowledges that it was issued the Upper Miramichi License
effective March 31, 1982.
9. CROWN TIMBER SUB-LICENSE
9.1 The Minister having entered into an agreement with the following
described persons pursuant to subsection 41(1) of the Act and having obtained
the approval of the Lieutenant-Governor in Council by Order-in-Council 90-597,
hereby directs the Company, pursuant to subparagraph 41(4) (a) of the Act, to
issue a Crown Timber Sub-license for a 5 year term beginning with the first day
of April, 1987 meeting the requirements of subsection 41(3) of the Act, to the
following described persons and the Company agrees to implement these directions
forthwith:
1. Blackville Lumber Inc.
2. Ashley Colter (1961), Ltd.
3. Kingston Fuelwood
4. Newcastle Lumber Co. Ltd.
5. Russell & Swim Limited
6. R. F. Sadler Ltd.
7. James Sparkes & Sons Ltd.
8. Stella-Jones Inc.
9. Howard Sturgeon
10. Underhill Forest Products Ltd.
11. Veneer Products of N.B. (1981) Ltd.
9.2 The Company shall, each year during the term of each Sub-license issued
pursuant to paragraph 9.1 and any extensions thereof, provide to each
Sub-licensee
(a) by delivery, or
(b) by making available for harvest, or
(c) by a combination of (a) and (b) the volume of timber allocated to
each Sub-licensee in Schedule F by species and by class appropriate
to that Sub-licensee's use.
9.3 It is understood and agreed that a Crown Timber Sub-licensee shall pay
the Company for the Crown Timber Sub-licensee's reasonable and fair share of the
costs and charges incurred by the company pertaining to the Upper Miramichi
License
(i) in the harvesting and delivery of timber for use by the Crown
Timber Sub-licensee, and
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<PAGE> 6
(ii) in road construction and maintenance, and forest management
and administration and that such costs and charges shall be
reasonable and competitive in the context of the services
provided by the Company and, in the event of a dispute between
the Company and a Crown Timber Sub-licensee over the amount of
or inclusion of such costs and charges, such dispute shall be
resolved by the Minister after receiving advice from the
Sub-committee of the Advisory Board.
9.4 The Company agrees that where any activity identified in paragraph 9.3 is
performed by the Sub-licensee on behalf of the Company, at the request of the
Company and pursuant to a written agreement, the Company shall reimburse the
Sub-licensee or credit to the Sub-licensee's account, the costs incurred by the
Sub-licensee in the same manner and to the same level as the Company would
charge the Sub-licensee under paragraph 9.3.
9.5 When a Crown Timber Sub-license identified in paragraph 9.1 is
relinquished by the Sub-licensee or cancelled by the Minister, the Minister
reserves the right to reallocate the allocation of timber and the Collateral
Reservation of License Land associated with the Sub-license identified in
Schedule "F" attached to and forming part of this Agreement, in whole-or in part
as, in his opinion, it is necessary for the better management of the Crown Lands
and dependent wood processing facilities.
9.6 The Company agrees that where the Minister identifies that there are
species, classes and volumes of timber, within the Crown Lands subject to this
Agreement, not utilized nor required under the Company's Industrial Plan or by
its Crown Timber Sub-licensees for wood processing facilities in New Brunswick,
it will, at the direction of the Minister, issue a Crown Timber Sub-license to a
person for all or part of the timber so identified by the Minister.
10. RIGHTS OVER LAND
10.1 The Minister recognizes that the Company's use of the Crown Lands within
the Upper Miramichi License is primarily for the growing, tending, protecting
and harvesting of timber, but, in keeping with the policy of the integrated
management of the resources on Crown Lands, the Minister reserves all rights
related to activities on the Crown Lands not specifically given to the Company,
including by way of example but without limiting the generality:
(a) the rights of other persons to travel, hunt, fish, trap and
otherwise use the Crown Lands for recreational purposes, subject to
the necessary restriction for the purpose of preventing accidents,
fire control, protection of plantations and the seasonal protection
of forest roads, and
(b) the rights of others to conduct any work in connection with or
incidental to geological exploration and mining development.
10.2 The Company agrees that the Minister may withdraw from the Upper
Miramichi License small areas of Crown Lands for the purpose of granting,
deeding, leasing, or in any other way conveying rights in such land to other
persons, provided that the area withdrawn does not exceed 85 hectares (211
acres) in any one withdrawal, and the total of all such withdrawals does not
exceed one half of one percent (0.5%) of the area of the Upper Miramichi License
in each and every year and will not, in the aggregate during the initial term
and all extensions, exceed 5% of the area of the Upper Miramichi License as it
was on the first day of the Third Five-Year Period and any timber harvested on a
withdrawn area shall accrue to the Company except for those areas withdrawn by
the Minister and used in a Crown Land exchange.
10.3 The Minister agrees that any lands acquired as Crown Lands within or
abutting the Upper Miramichi License shall be added to the Crown Lands already
managed by the Company as a Licensee provided that the land is acquired for the
consolidation of the Crown Lands for better integrated management of resources.
10.4 The Minister shall, at his expense, establish and maintain,
(a) by legal surveys, the boundaries between the Upper Miramichi License
and freehold lands, and
(b) the boundaries between the Upper Miramichi License and other Crown
Timber Licenses.
11. ROADS AND IMPROVEMENTS
11.1 The Company shall construct and maintain forest roads on the Crown Lands
subject to this agreement as required by the Operating Plan of the Company in
accordance with the standards prescribed in the Forest Management Manual.
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<PAGE> 7
11.2 Where the Company has been, with regard to the forest roads referred to
in 11.1, requested to grade, plow, maintain or upgrade one or more of those
roads beyond the level contemplated by that section, by a person other than the
Minister, the Company may recover the costs thereof from that person.
11.3 Where a forest road not exceeding 1.5 kilometres in length crosses lands
owned or controlled by the Company, leading to crown Lands subject to this
Agreement, and the Minister requests it, the Company agrees
(a) to construct and maintain the portion of forest road on the
Company's land to the same standard as the forest road on such Crown
Lands, and
(b) to grant or obtain a free right of way to the Minister on behalf of
all users of the forest road and adjacent Crown Lands.
11.4 Where a forest road not exceeding 1.5 kilometres in length crosses lands
owned or controlled by the Company, leading to another Crown Timber License and
the Minister requests it, the Company agrees
(a) to, at the expense of such other licensee, construct and maintain
the portion of the forest road on the Company's land to the same
standards as the forest roads on that licensee's land, and
(b) to grant or obtain a free right of way to the Minister on behalf of
all users of the forest road, and adjacent crown Lands.
12. ALLOCATION AND HARVEST
12.1 The total annual allowable harvest of timber from the Upper Miramichi
License for the Third Five-Year Period is 677 320 M(3) comprising
(a) 616 810 M(3) of spruce, fir and jack pine combined,
(b) 11 130 M(3) of red and white pine,
(c) 2 590 M(3) of cedar, and
(d) 46 790 M(3) of hardwood.
12.2 The annual allocation of timber is more particularly set out for the
Company and each Crown Timber Sub-Licensee in Schedule "F" to this Agreement.
12.3 The Company shall ensure that the aggregate volume of timber harvested on
the Upper Miramichi License by the Company and the Crown Timber Sub-Licensees
during the Third Five-Year Period shall not exceed 105% of the aggregate of the
five annual allowable harvests of timber for the Upper Miramichi License during
the Third Five-Year Period.
12.4 In any year during the Third Five-Year Period the actual harvest of
timber by the Company shall not exceed the aggregate of
(a) 110% of the Company's annual allocation of timber for that year, and
(b) the volume of timber available to the Company pursuant to paragraph
12.6 for that year.
12.5 In any year during the Third Five-Year Period the actual harvest of
timber by a Crown Timber Sub-Licensee shall not exceed 110% of its annual
allocation of timber for that year.
12.6 In the event a Crown Timber Sub-Licensee will not require or utilize all
of its annual allocation of timber in a year the Company may, in that year,
harvest and use the portion of that Crown Timber Sub-Licensee's annual
allocation of timber which is equal to the volume of timber by which the Crown
Timber SubLicensee's actual harvest falls short of 90% of the Crown Timber
Sub-Licensee's annual allocation of timber.
12.7 In the event the Company and the Crown Timber Sub-Licensees together
will, in a year, require or use less than 90% of the annual allowable harvest of
timber for the Upper Miramichi License in that year, the Minister may
(a) with the written agreement of the Company, in that year, and
(b) without the written agreement of the Company, in the immediate
following year, allocate a volume of timber equal to the volume of
timber by which the actual harvest of timber falls short of 90% of
the annual allowable harvest of timber.
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<PAGE> 8
12.8 In the event the Minister is entitled to make an allocation in the
subsequent year pursuant to paragraph 12.7 and all or any portion of that
allocation is not used in the subsequent year, the unused allocation shall not
carry over to future years unless the Minister and the Company agree in writing
to allow it to carry over to future years.
12.9 If the Company harvests a volume of timber which is less than 95% of the
Company's annual allocation of timber during the Third Five-Year Period the
shortfall in harvest shall not be a default under this Agreement if the Minister
is satisfied that such shortfall in harvest is due to conditions, including
adverse market conditions, beyond the control of the Company.
12.10 If the Minister is, pursuant to paragraph 12.9, not satisfied that the
shortfall in volume of harvest of timber is due to conditions, including adverse
market conditions, beyond the control of the Company, the Minister may reduce
the annual allocation of timber to the Company for each year of the five year
period immediately following the Third Five-Year Period.
12.11 The Minister and the Company shall review the annual allowable harvest of
timber at the end of the Third Five-Year Period and on the 5th anniversary
thereof thereafter and, based on such review, the Minister may amend the annual
allowable harvest of timber for the immediately following five year period."
13. SILVICULTURE
13.1 During the Third Five-Year Period the Company shall carry out basic
silviculture on not less than 15 625 hectares of the Upper Miramichi License
within areas approved in the Operating Plan, of the kind and to the extent shown
opposite each year as follows:
(a) in 1992 3 125 hectares of planting and thinning,
(b) in 1993 700 hectares of planting and 2 425 hectares of thinning,
(c) in 1994 700 hectares of planting and 2 425 hectares of thinning,
(d) in 1995 700 hectares of planting and 2 425 hectares of thinning,
(e) in 1996 700 hectares of planting and 2 425 hectares of thinning.
13.2 The number of hectares planted and the number of hectares thinned each
year pursuant to paragraph 13.1 may be adjusted from year to year by agreement
in writing between the Minister and the Company provided the aggregate of
hectares planted and thinned each year is not reduced.
13.3 The Minister shall reimburse the Company for approved basic silvicultural
treatments to standards set out in the Forest Management Manual, at rates
authorized by the Minister.
13.4 The Company may, at its own expense, carry out licensee silviculture
approved in the operating plan in addition to basic silviculture and the Company
shall be the beneficiary of such silviculture.
13.5 Any increase in the annual allowable harvest of timber on Crown Lands
subject of this Agreement beyond the level specified in paragraph 12.1 which is
attributable to basic silviculture and licensee silviculture shall be available
to the Company to support a corresponding increase in production, in any wood
processing facility approved in the Industrial Plan, of the Company.
13.6 The Minister reserves the right to carry out additional silvicultural
treatments in addition to those approved in an Operating Plan providing it does
not interfere with the Company's silviculture and the Company has agreed that it
is not in its plan, then any increase in the annual allowable harvest of timber
attributable to such work may be allocated AS the Minister deems necessary.
14. GENERAL
14.1.1 Any change in the annual allowable harvest of timber on Crown Lands
subject of this Agreement attributable to any forest management actions by the
Company (over and above those identified in paragraph 13.5) or attributed to
changes in the forest data base information shall accrue to the Company and the
Sub-licensees in the same proportion as their current annual allowable harvest
of timber for the Upper Miramichi License bears to the annual allowable harvest
of timber.
14.1.2 The Company shall protect fish and wildlife habitat and water quality on
its freehold lands in Brunswick to the same standards as defined in the Forest
Management Manual for crown Lands, as mutually agreed between the Minister and
the Company.
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14.1.3 Annually, the company shall report to the Minister, with respect to the
Company's freehold lands, in a scope and format mutually acceptable to the
Minister and the Company, all activities relating to
(a) access roads,
(b) harvesting of timber,
(c) silviculture,
(d) fish and wildlife habitat, ;and
(e) recreation.
14.2.1 The Company acknowledges the established social and commercial patterns
and the traditional sources of local forest employment in the communities
adjacent to or dependent on the management of the Crown Lands subject to this
Agreement and agrees to manage the license in such a way as to minimize the
disruption of such patterns and sources of employment to the greatest degree
practicable.
14.2.2 In accordance with the following guidelines, the Minister may from time
to time request, and the Company agrees to comply with any such request, that
independent forestry contractors or former Licensees of Crown Lands covered by,
this Agreement, or both, be engaged to carry out harvesting, transportation and
silvicultural operations on such Crown Land in a manner consistent with the
operating Plan:
(a) The application of such requests from the Minister shall not exceed
25% in the aggregate of the annual requirements for harvesting,
transportation and silviculture as laid out in the Operating Plan,
but nothing in this section shall prevent the company from engaging
such contractors and former Licensees to carry out a greater
percentage of the work,
(b) the independent forestry contractors and former Licensees shall have
their principal places of business within the counties in which such
Crown Lands covered by this Agreement are located, and they shall
have the experience and capability to carry out such work or a cost
competitive basis and in accordance with the Operating Plan and the
Forest Management Manual;
(c) engagement of contractors or former Licensees under this section
shall follow invitation of competitive tenders unless otherwise
approved by the Minister and the Company agrees to provide the
Minister with a copy of each tender when requested by him to do so,
(d) requests by the Minister under this section shall not be made with
regard to Crown Lands in those areas of the License where such a
request would cause unreasonable conflict with the traditional use of
company personnel in operations, or with a collective agreement with
a recognized bargaining agent, and
(e) where the Company is able to demonstrate to the satisfaction of the
Minister, with advice to him from the Advisory Board, that compliance
with his request under this section will result in a competitive
disadvantage relative to its normal wood costs, the Minister shall
modify or withdraw his request; it being understood that requests
under this clause are not intended to disadvantage the normal
competitive wood costs of Licensees and Sub-Licensees.
(f)
14.3 The Company shall not assign this Agreement without the express written
consent of the Minister which consent shall not be unreasonably withheld. The
use of contractors by the Company in the normal conduct of its business and
operations shall not be deemed to be an assignment.
14.4 The Company shall comply with and observe all the provisions and
requirements of:
(a) all Acts of the Legislature of the Province of New Brunswick in
force or enacted hereafter from time to time and as amended from time
to time, and
(b) all Regulations in force from time to time under any of the Acts
referred to in clause (a).
14.5 The Company shall keep the Minister indemnified against all claims and
demands that may be made against the Minister by reason of anything done solely
by the Company, its servants, workmen, agents and contractors on
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<PAGE> 10
the Upper Miramichi License in the exercise or purported exercise of its rights,
powers, privileges and obligations under this Agreement, gave anything done at
the express direction of the Minister.
14.6 The Minister does not guarantee the quality or quantity of timber on the
Upper Miramichi License.
14.7 No implied contract of any kind by or on behalf of the Minister shall
arise or be construed from anything contained in this Agreement and the only
rights, powers and privileges granted to the Company are those contained in this
Agreement.
14.8 The failure of the Minister to insist in one or more instances upon the
performance by the Company of any provision of this Agreement shall not be
construed as a waiver of the future performance of any such provision and the
obligation of the Company with respect to such future performance shall continue
in full force and effect.
14.9 The Minister may, on notice to the Company, terminate this Agreement upon
the happening of the following events of default:
(a) where the Company relinquishes or forfeits its Crown Timber License,
(b) where the Company makes a general assignment for the benefit of the
Company's creditors or if a receiver is appointed on account of the
Company's insolvency or
(c) upon the breach by the Company of any term, condition, requirement,
obligation, direction or undertaking set out in this Agreement.
14.10 The Minister shall not act to terminate this agreement under section 14.9
until he has given notice of the default to the Company and the Company shall
have failed to rectify that default within 30 days of receipt of such notice,
except in the case of a default under clause 14.9(c) where, due to weather
conditions and normal forestry practice, it would not be possible to rectify the
default within that time, in which case, the default shall be rectified within
30 days of the first day on which weather conditions and normal forestry
practice would allow it to be rectified.
14.11 Notice to the Company hereunder may be effectively given by personal
delivery to an officer of the Company or by sending the same to the Company by
prepaid registered mail addressed to the Company
Miramichi Pulp & Paper Inc.
P.O. Box 5040
Newcastle, NB ElV 3N3
and notice to the Minister hereunder may be effectively given by personal
delivery to the Minister or by sending the same prepaid registered mail
addressed to
Minister of Natural Resources & Energy
P.O. Box 6000
Fredericton, NB E3B 5Hl
and notice sent by prepaid registered mail shall be presumed to have been
received on the third (3rd) business day following the mailing thereof,
provided, however, in the case of mail disruption by work interruption, strike,
slow down, labor dispute, adverse weather, or any other force, majeure event,
such presumption shall not apply and actual service or delivery shall constitute
communication of such notice. The parties hereto also agree that by either party
giving to the other not less than ten (10) days written notice of a change of
address as herein provided, such party may change its address for notice.
14.12 The parties agree that the headings used in this Agreement are inserted
for convenience of reference only and shall not be used to construe the
Agreement.
14.13 Notwithstanding paragraph 2.2, the Minister and the Company may amend any
part of or Schedule to this Agreement, except the Forest Management Manual upon
mutual consent at any time.
14.13.1 Wherever the context herein permits, words denoting the singular shall
include the plural and words denoting gender shall include the masculine,
feminine and neuter genders.
15. The schedules to this Agreement are as follows:
(a) Schedule "A" is the Revised Plan dated April 1, 1992,
(b) Schedule "B" is the Revised Industrial Plan,
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<PAGE> 11
(c) Schedule "C" is the Revised Management Plan,
(d) Schedule "D" is the Revised Operating Plan,
(e) Schedule "E" is the Forest: Management Manual,
(f) Schedule "F" is the Revised AAHT and the Revised AAt, and
(g) Schedule "G" is the Performance Evaluation Standards.
16(1) Schedule "A" to this Agreement is, the Plan referred to in the last
paragraph of CTL No. 4.
16(2) The Timber Berths referenced in CTL No. 4 and in paragraphs 3.1, 3.2 and
8.1 of this Agreement are the Revised Timber Berths, which were filed in the
office of the Minister on the 1st day of April, 1992.
17. The Minister and the Company agree that the Forest Management Agreement
as amended by the AAFMA together with certain additional amendments shall be
consolidated and restated in this Amended and Restated Forest Management
Agreement which shall be referred to herein as the Agreement or FMA.
18. This Agreement shall ensure to the 'benefit of and be binding upon the
crown in right of New Brunswick, Her Heirs and Successors, and the Company, its
Successors and assigns.
SIGNED, SEALED AND DELIVERED in the presence of:
Minister of Natural Resources and
Energy
Terry W. McBride -- Secretary
Miramichi Pulp & Paper Inc.
J. Bowersock -- President
Miramichi Pulp & Paper Inc.
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<PAGE> 12
PROVINCE OF NEW BRUNSWICK COUNTY OF YORK, S.S.
AFFIDIVIT
I, David M. MACFARLANE, of the City of Fredericton in the Province of New
Brunswick, Acting Deputy Minister of the Department of Natural Resources and
Energy MAKE OATH AND SAY:
1. THAT I am the Acting Deputy Minister of Natural Resources and Energy of
the Province of New Brunswick, and as such am the proper officer having charge
of the Seal of the said Department.
2. THAT the within Instrument: was executed on the day of August, 1994 by
the Honourable ALAN R. GRAHAM, Minister of Natural Resources and Energy for the
said Province, duly authorized thereto, in my presence, and the signature "Alan
R. Graham" is the signature of the said Alan R. Graham, Minister of Natural
Resources and Energy.
3. THAT the Seal opposite the signature of the said Alan R. Graham is the
Seal of the Minister of Natural Resources and Energy and was affixed to the said
Instrument by me, the said David M. MacFarlane, as such officer being duly
authorized thereto.
SWORN TO at the City of Fredericton in the County of York and Province of
New Brunswick, this 18th day of August, A.D. 1994. BEFORE ME:
A Commissioner of Oaths
<TABLE>
<S> <C>
SYLVAIN LABRIE DAVID M. MACFARLANE
Commissioner of Oaths ACTING DEPUTY MINISTER OF
My Appointment Expires NATURAL RESOURCES AND ENERGY
December 31st, 1994
</TABLE>
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<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT CONTRACT entered into on the 25th day of September, 1997.
BY AND BETWEEN: REPAP ENTERPRISES INC., a corporation duly incorporated
under the laws of Canada, having a place of business at
1250 Rene Levesque Boulevard West, Suite 3800, in the City
of Montreal, Province of Quebec,
(hereinafter, the "Corporation")
PARTY OF THE FIRST PART
AND: STEPHEN C. LARSON, having his address, for the
purposes of the present Agreement, at 489 Elizabeth Drive
in the City of Beaconsfield, Province of Quebec,
(Hereinafter, the "Executive")
PARTY OF THE SECOND PART
WHEREAS the Executive was hired by the Corporation on or about February 2,
1996 and held the position of Executive Vice-President, Coated Paper Division,
until on or about May 30, 1996;
WHEREAS on or about May 30, 1996, the Executive was appointed President
and Chief Operating Officer of the Corporation;
WHEREAS on or about October 16, 1996, the Executive and the Corporation
agreed on some amendments to be made to their initial employment agreement;
WHEREAS a change of control, within the meaning of the terms of the
applicable employment agreement, as amended on October 16, 1996, occurred on or
about August 1st, 1997;
WHEREAS as of on or about August 13, 1997, the Executive was appointed
Chief Executive Officer of the Corporation;
WHEREAS the Corporation and the Executive agree that, as a result of the
above, the Executive could have left and benefited from the change of control
provision of his applicable employment agreement, as amended on October 16,
1996;
WHEREAS the parties recognize that, in the circumstances, it was the
Executive's intention to leave the Corporation;
WHEREAS the Corporation agreed that the Executive's retention was critical
to the Corporation's business and the development of further shareholders'
value;
WHEREAS the parties have negotiated new terms and conditions of
employment, modifying their most recent employment agreement; and
WHEREAS the parties wish to clarify the terms and conditions covering
their employment relationship as of the date hereof;
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT, DUTIES AND ACCEPTANCE
1.1 The Corporation hereby employs the Executive to render exclusive and
full-time services to the Corporation as its President and Chief Executive
Officer, commencing on August 13, 1997.
1.2 The Executive hereby accepts such employment and agrees faithfully to
render the services described above to the best of his ability and knowledge and
to devote His full time, attention, skill and talents to the performance of his
duties hereunder in the best interests of the Corporation.
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1.3 The Executive agrees to serve during the term of his employment hereunder
as a director of the Corporation and as an officer and/or director of any
affiliates or subsidiaries of the Corporation without any compensation therefor
other than that specified in this Agreement.
2. COMPENSATION AND BENEFITS
2.1 As compensation for all services to be rendered pursuant to this
Agreement, the Corporation agrees to pay to the Executive, during his
employment, a base salary at the rate of Three Hundred and Fifty Thousand
Dollars ($350,000) plus Two Hundred Thousand Dollars ($200,000) (U.S. funds) per
year of employment, subject to potential increase pursuant to Section 2.2,
payable in equal installments in accordance with the pay periods established by
the Corporation from time to time, in arrears, less such deductions or amounts
to be withheld as shall be required by all applicable laws and regulations. For
all purposes of this Agreement, "year of employment" shall mean a twelve (12)
consecutive month period commencing on the day of the same month on which the
Executive will first become employed by the Corporation hereunder, as
conclusively determined by the records of the Corporation, and ending on the day
preceding the anniversary of such day of the month. Notwithstanding the fact
that a portion of the base salary is payable in Canadian funds and a portion is
payable in U.S. funds, the sum of the amount's payable in Canadian funds and
U.S. funds shall constitute the base salary of the Executive for all purposes of
this Agreement including, without restriction, for purposes of computation of
his pension, stock options, bonus entitlement and indemnity in the event of
termination.
2.2 The base salary referred to in Section 2.1 will be reviewed annually to
consider the possible increase thereof.
2.3 In respect of the 1997 fiscal year of the Corporation and thereafter, the
Executive shall become a member of the Corporation's Executive Bonus Plan, a
copy of which is attached hereto; the parties acknowledge that such plan is
presently under review. The Corporation agrees that during the term of his
employment hereunder, the Executive cannot be removed as a member of the
Corporation's Executive Bonus Plan.
2.4 STOCK OPTIONS.
(A) On or about February 2, 1996, the Corporation granted to the
Executive an option to purchase 500,000 common shares of the
Corporation pursuant to the Corporation's 1987 Directors, Officers
and Employees Amended Stock Option Plan at a price of $5.38 per
share, which options were scheduled to vest in five (5) equal annual
installments over the first five (5) years of employment, in arrears.
The vesting of these options was accelerated at a Board meeting held
on or about December 17, 1996 and these options have actually vested,
effective the same date.
In addition, the Executive shall be granted an option to purchase
eighteen millions (18,000,000) common shares of the Corporation
pursuant to the Corporation's 1987 Directors, Officers and Employees
Amended Stock Option Plan (hereinafter, the "1987 Plan") as will be
modified following the special meeting of the Holders of common
shares of the Corporation, of which notice was given on August 15,
1997 and which should be held on or about September 25, 1997, at an
exercise price of $0.235 per share (being the closing price at the
close of trading on August 28, 1997). These options will vest as
follows:
(i) twenty percent (20%) of the total number of common shares set
forth in this option vests immediately on August 28, 1997,
provided that no options may be exercised until the shareholders
of the Corporation approve the changes to the 1987 Plan;
(ii) a further twenty percent (20%) of the total number of common
shares set forth in this option will vest on the earlier of the
first (lst) anniversary date of the grant of these stock options
(that is, August 29, 1998); or the first trading day after the
shares of the Corporation close on ten (10) consecutive trading
days after six (6) months from the grant of the option (that is,
March 1, 1998) at a bid price in excess of $0.29375 (that is,
125% of the exercise price);
(iii) a further twenty percent (20%) of the total number of common
shares set forth in this option will vest upon the earlier of the
second (2nd) anniversary of the grant of these stock options
(that is, August 29, 1999); or the first trading day after the
shares of the Corporation close on ten (10) consecutive trading
days after the first (lst) anniversary from the grant of the
option at a bid price in excess of $0.3525 (that is, 150% of the
exercise price); and
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(iv) the balance of the total number of common shares set forth in
this option will vest upon the earlier of the third (3rd)
anniversary of the grant of the option (that is, August 29,
2000), or the first (lst) trading day after the shares of the
Corporation close on ten (10) consecutive trading days after the
second (2nd) anniversary from the grant of the option at a bid
price in excess of $0.47 (that is, 200% of the exercise price);
provided that all options shall become exercisable upon a Change
of Control of the Corporation or of Repap New Brunswick Inc.
2.5 The Executive shall be entitled to the pension benefits set forth in the
forms of the Corporation's Head Office Registered Pension Plan and Top Executive
Supplementary Pension Plan, copies of which are annexed hereto, provided that
the Corporation shall grant to the Executive credit in respect of five (5) years
past service for the purposes of both such plans; such credit shall be granted
on the basis of one (1) year of past service for each completed six (6) months
of the Executive's employment hereunder, until the earlier of five (5) years
past service being granted or termination of employment.
2.6 The Corporation will continue to hold the mortgage loan on the
Executive's residence located at 489 Elizabeth Avenue, Beaconsfield, Quebec
presently in the principal amount of $250,000, which mortgage loan shall bear no
interest (except after default, in which event interest shall be at Canadian
Imperial Bank of Commerce prime plus four, percent (4%) and shall be repayable
in fifteen (15) equal annual installments, the first such installment to be
payable on the first anniversary of the Commencement Date, subject to
acceleration of such maturity in accordance with the provisions hereof.
2.7 The Executive shall participate in the Corporation's existing health,
life, dental and other insurance plans and shall participate in the other
benefit plans generally available from time to time to other senior executives
of the Corporation. Members of the Executive's family who may reside in the
United States shall be entitled to coverage under the Corporation's U.S. dental,
health and accidental death and dismemberment insurance coverage; the parties
acknowledge that the plans providing such coverage are contributory plans and
thus will require a contribution from the Executive.
2.8 The Executive shall be reimbursed for all reasonable out-of-pocket
expenses actually and properly incurred by him in the performance of his duties
hereunder, upon presentation of expense statements, vouchers, receipts or other
such supporting documentation as the Corporation may reasonably require from
time to time.
2.9 The Executive shall be entitled to five (5) weeks of vacation during each
year of employment.
2.10 The Corporation shall provide the Executive with an automobile for his
personal and professional use, selected according to the Corporation's practice
for his level of position, the registration, insurance, operating and
maintenance costs be which shall be determined and borne in accordance with the
Corporation's automobile policy.
2.11 The Corporation shall pay the costs incurred by the Executive to join one
business club and one sport club. In the event that a share has to be purchased
and is purchased by the Corporation, it shall remain the Corporation's property.
2.12 The Executive may accept corporate directorships with the prior
authorization in writing of the Chairman of the Corporation.
3. TERMINATION
3.1 Notwithstanding anything contained herein to the contrary, it is agreed
that the Executive's employment hereunder may be terminated with or without
Cause (as defined below) and without recourse by either party against the other
with respect to such termination except as herein provided: (i) by the
Corporation at any time, by giving written notice of termination to the
Executive (the date of such notice being herein called the "NOTICE DATE") which
notice shall set forth the date upon which the Executive's employment shall
terminate as determined by the Corporation in its sole discretion (which may be
the Notice Date or any later date selected by the Corporation in its sole
discretion), or (ii) by the Executive at the expiration of thirty (30) days
after the giving of written notice of termination to the Corporation, or at the
expiration of such shorter notice period as the Corporation in its sole
discretion may require and notify to the Executive following the Corporation's
receipt of such notice from the Executive. Either the Corporation or the
Executive may give such notice of termination at any time as such party sees
fit.
For the purposes of this Agreement, the term "CAUSE" shall include, in
addition to such meaning as shall have been or shall hereafter be ascribed
to such term from time to time by the jurisprudence, a willful failure
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or refusal by the Executive to perform his customary duties or services
for the Corporation; the conviction of the Executive for a criminal act or
other offense pursuant to the provisions of the Criminal Code of Canada or
any other criminal or penal statute of any jurisdiction; a breach by the
Executive of, or a failure or refusal by the Executive to perform in any
material respect, any of the Executive's obligations under this Agreement
(including, without limitation, any of the covenants contained in Section
5 hereof); a failure or refusal by the Executive to perform his duties to
the Corporation in a loyal manner and with a view to promoting the best
interests of the Corporation; gross negligence, willful misconduct or
fraud of the Executive; or a failure or refusal by the Executive to obey
the policies of the Corporation.
3.2 If the Executive shall die during his employment, this Agreement shall
then terminate without recourse by either party against the other with respect
to such termination.
3.3 If the Executive shall become substantially incapacitated so as to
prevent him from properly and continuously performing in full his duties to the
Corporation, the Corporation may, in its sole discretion, elect to terminate his
employment at any time during the continuance of such incapacity by giving
written notice of termination to the Executive and, if the Corporation gives
such notice of termination, the Executive's employment with the Corporation
shall terminate on the date set forth in such notice, without recourse by either
party against the other with respect to such termination.
3.4 If the Executive elects to exercise his right of termination pursuant to
Section 3.1, he shall deliver concurrently with such notice his written
resignation as a director and an officer of the Corporation and all its
subsidiaries, his written release of the Corporation, its subsidiaries and their
respective shareholders, directors and officers from all claims whatsoever
except claims under Section 4 hereof and from time to time at the request of the
Corporation such other documents as the Corporation may reasonably require. If
the Corporation elects to exercise its right of termination pursuant to Sections
or 3.3, the Executive shall deliver within five (5) days of the receipt of
notice of termination of his employment, his written resignation as a director
and an officer of the Corporation and of its subsidiaries and his written
release of the Corporation, its subsidiaries and their respective shareholders,
directors and officers from all claims whatsoever except claims under Section 4
hereof and from time to time at the request of the Corporation such other
documents as the Corporation may reasonably require.
3.5 Following the giving of notice of termination by either party, the
Corporation shall be entitled to assign the Executive during the remainder (if
any) of his employment to such duties as may, in the sole discretion of the
Corporation, be useful to prepare the Corporation for the Executive's departure
and to restrict the Executive's access to confidential information.
4. PAYMENTS IN THE EVENT OF TERMINATION
4.1 In this Agreement, the expression "TERMINATION DATE" means (i) in the
case of termination by the Corporation pursuant to Sections 3.1 or 3.3 hereof,
the date of termination of the Executive's employment set forth in the written
notice of termination given by the Corporation pursuant to either of such
sections (as the case may be); (ii) in the case of termination by the Executive
pursuant to Section 3.1 hereof, the date which is thirty (30) days following the
date upon which the Executive has given notice of termination or, if the
Corporation has required a shorter notice period, the last day of such shorter
period; and (iii) in the case of termination pursuant to Section 3.2 hereof, the
date of the Executive's death.
4.2 In the event of termination of employment pursuant to Sections 3.1, 3.2
or 3.3 hereof, notwithstanding anything in this Agreement contained to the
contrary, all payments and benefits to the Executive under this Agreement and
otherwise arising from or by reason of the Executive's employment hereunder
shall cease except that:
4.2.1 the Executive's salary provided for in Section 2.1 hereof shall be pro
rated based on the number of days elapsed between (x) the last date to which
such salary was paid and (y) up to (but excluding) the Termination Date and
shall be paid to the Executive in the installments provided for in Section 2.1
hereof up to the Termination Date;
4.2.2 any amounts of bonus payable to the Executive in respect of a fiscal year
of the Corporation completed prior to the Termination Date shall be paid within
sixty (60) days following the certification of the audited financial statements
of the Corporation in respect of the prior fiscal year;
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4.2.3 the Corporation shall comply with the provisions of Section 2.8 hereof in
respect of reasonable authorized out-of-pocket expenses actually incurred prior
to the Termination Date;
4.2A however, notwithstanding the above, should the Executive give a thirty
(30) days notice of his resignation, he should be entitled to receive the
following amounts and benefits, considering that, on or about August lst, 1997,
a change of control within the meaning of the Executive's previous employment
agreement, as amended on October 16th, 1996, has occurred:
(i) an indemnity equal to the Executive's annual base salary at such
time, multiplied by 4.5;
(ii) the amounts and benefits provided for in Sections 4.2.4 (ii) and
4.2.5 (B)(i, ii, iii, iv and v);
(iii) should the Executive give a thirty (30) days notice of his
resignation, he shall be entitled, within ninety (90) days of his
termination date, to exercise his stock options which have vested as
of his termination date; however, all unvested stock options shall be
returned to the Corporation;
(iv) it is to be noted that Sections 4.2.7 and 4.3 shall apply;
4.2.4 TERMINATION WITHOUT CAUSE. If the Corporation gives notice of
termination of employment to the Executive pursuant to Section 3.1 and such
termination of employment constitutes a termination of employment without Cause
and prior to January 1, 2014, the Executive will be entitled to receive, (i) an
indemnity equal to the Executive's annual base salary at such time multiplied by
4.5, which indemnity shall be payable in a lump sum within thirty (30) days
after the Termination Date, (ii) a continuation of the Corporation's health,
accidental death and dismemberment and dental insurance plans then in existence
for a period ending on the earlier of fifty-four (54) weeks following the
Termination Date and the date when the Executive shall commence employment with
another employer and (iii) the Corporation (or its nominee) will purchase from
the Executive for a purchase price of Four Hundred Thousand Dollars ($400,000)
the immovable property owned by the Executive and located at 489 Elizabeth
Avenue, Beaconsfield, Quebec, provided that the Executive shall own such
immovable property at such time and such immovable property shall be conveyed to
the Corporation or its nominee free and clear of all liens and encumbrances of
any nature whatsoever and with good and marketable title. The said immovable
property will be conveyed with such fixtures and other improvements as are
normally conveyed in transactions of this type, and closing costs shall be
borrowed by the parties in the manner customary for sales of residential
properties in the City of Montreal. In the event that the said immovable
property is encumbered by the mortgage referred to in Section 2.6 hereof at the
time of such sale and purchase, the purchase price herein-above referred to
shall be reduced by the outstanding principal amount of such mortgage loan and
any interest accrued but unpaid thereon.
4.2.5 TERMINATION FOLLOWING CHANGE OF CONTROL.
(A) If within twenty-four (24) months following a Change of Control (as
hereinafter defined), the Corporation gives notice of termination of
employment to the Executive or the Executive gives notice of
termination of employment to the Corporation, in EACH case pursuant
to Section 3.1 and (a) such termination of employment if by the
Corporation constitutes a termination of employment without Cause and
(b) such notice of termination shall be given prior to January 1,
2014, (i) the Corporation shall pay to the Executive within thirty
(30) days following the Termination Date in a lump sum an indemnity
equal to the Executive's annual base salary at such time multiplied
by 4.5, (ii) any unvested stock options accruing for the benefit of
the Executive referred to in Section 2.4 shall, on such date, become
fully vested. If a payment is made to the Executive pursuant to this
Section 4.2.5, the Executive shall not be entitled to receive the
amount referred to in Section 4.2A or subsection (i) of Section
4.2.4, but the provisions of subsections (ii) and (iii) of Section
4.2.4 shall apply.
(B) In the event of a Change of Control, the Executive shall be entitled
to the following, in addition to the amount; and benefits provided
for in Section 4.2.5(A), and conditional upon the conditions stated
in Section 4.2.5(A):
(i) a lump sum payment equal to the present value, as of the date
of termination, of the Corporation's cost of providing coverage
for a period of fifty-four (54) months from the Change in Control
under any non-group life insurance policy on the Executive's life
in force immediately prior to the date of termination;
(ii) entitlement, for a period of fifty-four (54) months from the
Change in Control, to the Corporation's U.S. medical, disability,
dental, drug and other health benefits and thereafter, at
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the Executive's election and upon payment of all premiums
associated therewith from time to time, to continue to be
entitled to the benefits of the Corporation's U.S. medical,
disability, dental, drug and other health programs;
(iii) not later than the thirtieth (30th) day following the date of
termination, the Corporation shall transfer to the Executive, if
the Executive so elects, the automobile, if any, placed at his
disposal, at the date of termination, at no cost to the
Executive, other than such income tax as he may be required to
pay;
(iv) all legal fees and expenses incurred by the Executive in seeking
to obtain or enforce any right or benefit provided by the
Agreement;
(v) for the purposes of the Corporation's Head Office Registered
Pension Plan and Top Executives Supplementary Pension Plan, a
credit of 4.5 years past service in addition to the period of
past service that the Executive is otherwise entitled to pursuant
to Section 2.5 of the Agreement.
(C) In addition and subject to the same conditions, if, at the time of a
Change of Control, any stock options under any of the Corporation's
stock option plans which have been granted to the Executive have not
yet fully vested, the Corporation shall either (i) amend the terms of
the unvested options to enable those options to vest immediately
prior to the event causing the Change of Control, or (ii) cause, upon
the occurrence of the Change of Control, the Person who through the
Change of Control is acquiring the common shares of the Corporation
to acquire the Executive's unvested options at their fair value for
one or more of the following: (a) cash, (b) publicly traded shares
having the same attributes as the Corporation's common shares, or (c)
options (having terms not materially adversely different from the
Executive's unvested options) for publicly traded shares having the
same attributes as the Corporation's common shares.
(D) Moreover, in the event of a Change of Control and subject to the
same conditions stated in Section 4.2.5(A), the Executive shall
receive (i) a lump sum amount of Five Hundred Thousand Dollars
($500,000) (U.S. funds); and (ii) if the Change of Control is the
result of the sale or amalgamation of the Corporation at a common
share price greater than the original strike price of $0.235, or, if
the Change of Control is not a result of the sale or amalgamation of
the Corporation, then if the common shares of the Corporation have an
average weighted trading price during any twenty (20) consecutive
trading days within sixty-five (65) trading days of the occurrence of
the Change of Control greater than $0.235, the Executive shall
receive an additional amount of Two Hundred and Fifty Thousand
Dollars ($250,000) (U.S. funds).
4.2.6 the term "CHANGE OF CONTROL" as used in this Section 4 shall mean any of
the following events, occurring after the date of this Agreement:
(i) The purchase of at least twenty-five percent (25%) of the
common shares of the Corporation or of Repap New Brunswick Inc.
by a forest products industry participant; or
(ii) The purchase of at least thirty-three percent (33%) of the
common shares of the Corporation or of Repap New Brunswick Inc.
by a any other purchaser; or
(iii) during any period of two (2) consecutive years, individuals who
at the beginning of such period constituted the board of
directors of the Corporation (together with any new directors
whose election by such board of directors or whose nomination for
election BY the shareholders of the Corporation was approved by a
vote of two-thirds ( 2/3) of the directors of the Corporation
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 Corporation then in
office; or
(iv) a reduction in the common share ownership position of Silverton
International and the Paloma Group to ten percent (10%) or less
of the Corporation to a third (3rd) party, with the exclusion of
a distribution to the public via a primary or secondary offering.
4.2.7 for greater certainty, the indemnity payable to the Executive pursuant to
the provisions of Sections 4.2A, 4.2.4 or 4.2.5 shall be reduced by the amount
of any payment or the value of any benefit received or to be received by the
Executive in connection with the termination of employment or the Change of
Control otherwise than
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pursuant to the terms of this Agreement, whether such payment is pursuant to
obligations arising from contract, statute or regulation or is entirely
gratuitous. It is expressly understood and agreed that pension benefits, stock
options, sickness or disability benefits or any other-benefits then existing
which the Executive receives or becomes entitled to receive from the Corporation
as a result of employment, but which are not received in connection with the
termination of employment of the Executive or the Change of Control shall not
reduce the indemnity therein referred to. The value of any non-cash benefit or
any deferred cash payment shall be determined by the Executive's independent
auditors in accordance with such generally accepted accounting valuation
principles AS such auditors may consider appropriate.
4.2.8 On the recommendation of the Executive's financial advisors, the nature,
manner and timing of payments to be made to him pursuant to this Agreement shall
be varied in order to optimize his financial planning, such request to be agreed
to, provided the Corporation is not prejudiced.
4.3 Notwithstanding the provisions of Section 4.'e hereof, if the Executive's
engagement hereunder is terminated for Cause by the Corporation pursuant to
Section 3.1 hereof or on or after the Executive attaining his sixty-fifth (65th)
birthday, the Corporation's only obligation will be to pay the amounts referred
to in Sections 4.2.1, 4.2.2 and 4.2.3 hereof.
4.4 Any loans or other indebtedness payable by the Executive to the
Corporation .or any of its subsidiaries (including, without limitation, any
loans secured by a hypothec or mortgage on the Executive's residence) shall
become immediately due and payable on the Termination Date without any notice or
demand whatsoever and despite any term for payment which may previously have
been granted to the Executive and, if such loans or other indebtedness are not
paid in full on the Termination Date, the aggregate unpaid principal amount
thereof shall be regarded as an amount in arrears and shall henceforth bear
interest, from the Termination Date until paid in full, at a rate per annum
equal to the prime rate announced from time to time by the Canadian Imperial
Bank of Commerce plus four percent (4%). The provisions of the preceding
sentence shall not apply to the Executive's residence if the provisions of
subsection 4.2.4(ii) will apply thereto and the Corporation be thereby obliged
to purchase such residence, in which event the purchase price of such residence
shall be reduced by the amount of indebtedness secured thereby. The Corporation
is hereby authorized and directed to apply any amounts payable by it to the
Executive or his estate in reduction of any amounts payable to the Corporation
or its subsidiaries by the Executive or his estate.
5. CONFIDENTIALITY
5.1 During the period in which the Executive is employed by the Corporation
and at all times thereafter, the Executive will hold in confidence all matters
and things relating to the business of the Corporation or any of its
subsidiaries of which the Executive may acquire information during his
employment including, without limitation, all records, papers, documents,
budgets, specifications, correspondence, cost data, estimates, know-how, market
surveys, suppliers' lists and prices, manufacturers' lists and prices,
customers' lists, sales, purchasing or financial information of any kind or
description or any trade secrets (all of the foregoing being herein collectively
called the "MATERIALS") provided that the Executive shall not be required to
hold in confidence any information Disclosed by the Corporation without
restriction to the general public or information disclosed by the Executive
pursuant to a requirement of law or information which is in the public domain or
known to the industry at large; and the Executive will not, without the written
consent of the Corporation, except as may be required in the fulfillment of his
duties as a loyal employee of the Corporation, us(,- any such matter, thing or
information which might possibly be contrary to the best interests of the
Corporation or any of its subsidiaries. Without limiting the generality of the
foregoing, the Executive will not, without the written consent of the
Corporation, disclose or authorize anyone else to disclose any confidential
information or trade secrets relating to the business of the Corporation or any
of its subsidiaries, including, without limitation, any Materials (except as may
be permitted by the proviso set forth above).
5.2 The, Executive hereby acknowledges and agrees that the Corporation and
its subsidiaries have all rights to possession of, title to and ownership of all
Materials and any copies, extracts and summaries thereof and other confidential
information originating during or prior to the period in which the Executive is
employed hereunder or which may come into his possession in any way during such
period which relate to the business of the Corporation or any of its
subsidiaries, and the Executive further agrees to deliver all of the foregoing
promptly to the Corporation on the date on which he ceases to be employed
hereunder or at any other time the Corporation may request and not to
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make or permit to be made, except for the sole use and account of the
Corporation, any copies, abstracts or summaries thereof.
6. NOTICES
6.1 All notices, requests, consents and other (communications required or
permitted to be given hereunder shall be in writing and either delivered by hand
or sent by telegram, telex, telecopier or by prepaid registered mail, and shall
be deemed given when so delivered by hand or twenty-four (24) hours after the
sending by telecopier or upon receipt thereof by prepaid registered mail, as
follows:
To the Executive: 489 Elizabeth Avenue
Beaconsfield, Quebec
To the Corporation: 1250 Rene-Levesque Blvd. W.,
Suite 3800
Montreal, Quebec
Attention: The Chairman
Telecopier: (514) 846-1328
or to such other person or address as either party shall designate by notice in
writing to the other in accordance herewith. In the event of postal strike or
other mail service interruption, existing or threatened, all notices shall be
hand delivered or sent by telecopier.
7. REMEDIES
7.1 In the event the Executive shall breach any of the covenants or
agreements contained in Section 5 hereof, the Executive agrees -- that
without prejudice to any and all other rights and recourses of the
Corporation, -- the Corporation shall have the right to enforce the terms
and provisions thereof by means of compelling specific performance and/or
by means of injunction; and without limiting the generality of the
foregoing, the Executive hereby expressly consents to the granting of an
injunction by a court of competent jurisdiction for the purposes of
enforcing the provisions of Section 5 hereof. In the event this Agreement
is breached, the parties shall, except as otherwise provided herein, be
entitled to all rights and remedies available at law, save that the
Executive hereby expressly waives all of his rights and recourses at law
(including any rights and recourses under any applicable statute)
resulting from any termination of employment in compliance with the
provisions of Section 3 hereof provided that the Corporation complies with
its obligations under Section 4 hereof. For greater certainty, the
Executive hereby agrees that the payments provided for in Section 4 above
shall be the only amounts to which the Executive will be entitled as a
result of any termination of his employment and will also serve as
liquidated damages for any claim by the Executive whatsoever in connection
therewith. Furthermore, the Executive hereby gives to the Corporation a
full and final release and discharge of any claim whatsoever for salary,
employment rights, bonus, indemnity, damages and/or other forms of
monetary compensation (except any acquired rights (if any) under the
Option Plan) which he may have against the Corporation, its subsidiaries
or any of their respective shareholders, directors or officers by reason
of the termination of his employment or otherwise the whole subject to the
Corporation fulfilling its obligations to the Executive as set forth in
Section 4.
7.2 The provisions of Sections 4, 5, and 7 hereof shall survive any
expiration or termination of this Agreement.
8. GENERAL
8.1 All dollar amounts referred to herein are in lawfull currency of Canada,
except wherein specifically otherwise provided.
8.2 This Agreement shall be governed by- and construed and enforced in --
accordance with the laws of the Province of Quebec and the laws of Canada
applicable therein.
8.3 The articles and section headings herein are for convenience of reference
only and shall not affect in any way the meaning or interpretation of this
Agreement.
8.4 This Agreement and the Executive's rights and obligations hereunder may
not be assigned by the Executive. The Corporation may assign its rights together
with its obligations hereunder in connection with any merger, consolidation,
sale, transfer, liquidation or other disposition of part or all or substantially
all of its business or assets,
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provided that its obligations hereunder shall be assumed by its successors or
assigns pursuant to any of the foregoing events. The terms and conditions of
this Agreement shall be binding upon the parties hereto, their heirs, executors,
administrators, successors and legatees and shall enure to their benefit.
8.5 This Employment Contract sets out all of the terms and conditions of the
Executive's employment with the Corporation and supersedes any and all previous
agreements, whether verbal or written, express or implied, which may have been
entered into by and between the parties hereto, and any and all such other
agreements are hereby canceled and terminated in every respect.
8.6 This Agreement may be amended, modified, superseded, canceled, renewed or
extended, and the party waiving compliance hereof may waive the terms and
conditions. The failure by either party at any time or times to require
performance of any provisions hereof shall in no way affect the right at a later
time to enforce the same. No waiver by either party of the breach of any term or
covenant contained in this Agreement whether by conduct or otherwise or in
respect of any one or more instances, shall be deemed to be, or be construed as,
a further or continuing waiver of any breach, or a waiver of the breach of any
other term or covenant contained in this Agreement.
8.7 Each and every term, condition and provision of this Agreement is and
shall be severable one from the other, and in the event that any term, condition
or provision hereof is at any time declared by final judgment of a court of
competent jurisdiction to be void, invalid or unenforceable, same shall not
extend to invalidate, make void or unenforceable any other term, condition or
provision of this Agreement and such term, condition, or provision so declared
void, invalid or unenforceable shall be severed from the rest of this Agreement.
8.8 The parties hereby state their express wish that in this Agreement and
all notices in connection herewith be drafted in the English language only. Les
parties aux presentes ont exprime leur volonte expresse que cette convention et
tous les avis s'y rapportant soient rediges en langue anglaise seulement.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
REPAP ENTERPRISES INC.
Per: STEPHEN C. LARSON
Stephen C. Larson
49
<PAGE> 1
EXHIBIT 10.4
MEMORANDUM OF AGREEMENT entered into as of October 1, 1997
<TABLE>
<S> <C>
BY AND BETWEEN: REPAP ENTERPRISES INC., a company duly
incorporated under the laws of Canada, having
its principal place of business at 1250 Rene-Levesque
Boulevard West, Suite 3800, in the City and District of
Montreal, Quebec
(hereinafter "Repap")
AND: Terry W. McBride, having his address for the purposes of the
present Agreement at Montreal, Quebec,
(hereinafter the "Executive")
</TABLE>
THE PARTIES DECLARE AS FOLLOWS:
WHEREAS Repap considers the continuous maintenance of a sound and vital
management team to be essential to protecting and enhancing the best interests
of Repap and its shareholders during this process; and
WHEREAS Repap and the Executive have previously entered into a Memorandum
of Agreement dated as of June 17, 1996 (the "Prior Agreement") certain
provisions of which the parties intend to be replaced by this Agreement; and
WHEREAS a Change in Control (as defined in the Prior Agreement) has
occured and the Executive has Good Reason (as defined in the Prior Agreement) to
terminate his employment with Repap;
WHEREAS Repap recognizes that the possibility of a further Change in
Control or other circumstances may still exist and that such possibility, and
the uncertainty and questions which it may raise among Repap's management team,
may result in the departure or distraction of members thereof to the detriment
of Repap and its shareholders; and
WHEREAS Repap has therefore determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of Repap's management team to their assigned duties.
NOW, THEREFORE, THIS AGREEMENT WITNESSETH THAT, in consideration of the
mutual promises contained herein, and other good and valuable consideration the
adequacy and sufficiency of which is hereby acknowledged by the parties hereto,
it is hereby agreed by and between the parties hereto as follows:
50
<PAGE> 2
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS. For the purpose of this Agreement, or for the purposes of
any notice or communication required hereunder, the following words and
expressions shall have the following respective meanings, except where the
context dictates otherwise.
"Agreement" shall mean this agreement and all instruments supplemental
hereto or in amendment or confirmation hereof; "herein", "hereof",
"hereto", "hereunder" and similar expressions mean and refer to this
Agreement and not to any particular Article, Section, Subsection or other
subdivision; "Article", "Section", "Subsection" or other subdivision of
this Agreement means and refers to the specified Article, Section,
Subsection or other subdivision of this Agreement;
"Cause" shall mean any event or circumstance which, pursuant to applicable
law, constitutes cause for dismissal without either notice or payment in
lieu of notice:
"Change in Control" shall mean the occurrence of any of the following
events after the date hereof:
(a) the purchase of at least twenty-five percent of the outstanding
common shares of Repap or of Repap New Brunswick Inc. by a buyer who
is a forest products industry participant; or
(b) the purchase of at least thirty-three percent of the outstanding
common shares of Repap or of Repap New Brunswick Inc. by a buyer
other than a buyer who is described in sub-paragraph (a) of this
definition; or
(c) during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors of the
Corporation (together with any new directors whose election by such
board of directors or whose nomination for election by the
shareholders of the Corporation was approved by a vote of two-thirds
of the directors of the Corporation 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
Corporation then in office; or
(d) a reduction in the aggregate common share ownership of Silverton
International Fund Limited and River Road (Canada) L.C.C. to ten
percent or less through a sale to a third party other than a sale
qualified through a public secondary offering of the common shares of
Repap by Silverton International Fund Limited or Paloma Partners
L.C.C. or through a treasury offering of the common shares of Repap;
"Good Reason"shall mean, without the Executive's express consent, written
or otherwise, any of the following:
(a) assignment to the Executive of any duties inconsistent with, or a
substantial alteration in the nature or status of, his
responsibilities from those in effect as of the date hereof; or
(b) reduction by Repap in the Executive's annual salary as in effect on
the date hereof or as same may be increased from time to time; or
(c) taking of any action by Repap which reduces or would materially
reduce or fails to renew any of the benefits enjoyed by the Executive
under any of Repap's life insurance, medical, health and accident or
disability plans (collectively the "Insurance Plans"), or Repap's
pension, deferred compensation or savings plans (collectively the
"Benefit Plans") in which the Executive was participating at the time
or of any other benefits herein mentioned; or
(d) a requirement that the Executive perform his duties in a
municipality other than the municipality in which the Executive
resides at the date of this Agreement or other than Stamford,
Connecticut;
"Person" shall mean any individual or other entity possessed of juridical
personality, including, without limitation, a corporation, company,
cooperative, partnership, trust, unincorporated association, or
governmental body; and pronouns when they refer to a Person shall have a
similarly extended meaning;
"Repap" means Repap Enterprises Inc., one of the parties to this Agreement
and includes any successor to Repap that may result from a Change in
Control.
51
<PAGE> 3
1.2 GENDER. Any reference in this Agreement to any gender shall include all
genders and words used herein importing the singular number only shall include
the plural and vice versa.
1.3 HEADINGS. The insertion of headings is for convenience of reference only
and shall not affect or be utilized in the construction or interpretation
hereof.
1.4 SEVERABILITY. Any article, section, subsection or other subdivision of
this Agreement or any other provision of this Agreement which is deemed to be or
becomes, illegal, invalid or unenforceable shall be severed herefrom and shall
be ineffective to the extent of such illegality, invalidity or unenforceability
and shall not affect or impair the remaining provisions hereof which shall
remain in full force and effect.
1.5 ENTIRE AGREEMENT. This Agreement together with any instruments to be
delivered pursuant hereto constitute the entire agreement between the parties
hereto pertaining to the subject matter hereof and supersede all prior
agreements (including the Prior Agreement), understandings, negotiations, and
discussions, whether oral or written, by or among the said parties in respect of
such subject matter.
1.6 AMENDMENT. No amendment hereto shall be binding unless expressly
provided for in an instrument duly executed by the parties hereto.
1.7 WAIVER. No waiver by any party hereto, whether by conduct or otherwise,
of any of the provisions of this Agreement shall be deemed to constitute a
waiver by such party of any other provisions (whether or not similar) nor shall
such waiver constitute a continuing waiver hereof, unless otherwise expressly
provided in an instrument duly executed by the party or parties hereto to be
bound thereby.
1.8 GOVERNING LAW. This Agreement shall be governed by and interpreted and
construed in accordance with the laws of Quebec.
ARTICLE 2
TERMINATION
2.1 TERMINATION OF EMPLOYMENT. In the event that during the term of the
Executive's employment with Repap the Executive, on 30 days prior written
notice, terminates his employment or a Change in Control occurs, and the
Executive's employment is thereafter terminated:
(a) by Repap without Cause within a period of twenty-four (24) months
after the Change in Control and other than for death, disability or
voluntary retirement at normal retirement age; or
(b) by the Executive, for Good Reason, within a period of twenty-four
(24) months after the Change in Control,
the Executive shall be entitled to the benefits provided below:
(c) Base Salary -- Repap shall pay in cash as soon as practical, but no
later than thirty (30) days following the date of termination, his
full gross salary until the date of termination at the rate in effect
at the time of termination plus the amounts, if any, owed to the
Executive for bonuses declared but not paid;
(d) Indemnity -- in consideration of the Executive agreeing to continue
to be employed by Repap and in lieu of any further compensation
payments to the Executive for periods subsequent to the date of
termination, Repap shall pay to the Executive a lump sum indemnity
(the "Indemnity") equal to three times the highest of the Executive's
annual salary in the three years preceding the Change in Control, or
if there has not been a Change of Control within twenty-four months
from the date of termination then in the three years preceding the
date of termination. The Indemnity shall be paid to the Executive in
cash as soon as practical, but no later than thirty (30) days
following the date of termination;
(e) Other Termination Benefits -- the Executive shall be entitled to
receive the following payments and benefits:
(i) a lump sum payment equal to the present value, as of the date
of termination, of Repap's cost of providing coverage under any
life insurance policy on the Executive's life in force
52
<PAGE> 4
immediately prior to the date of termination for a period of
three years from the date of termination;
(ii) entitlement, for a period of three years following the date of
termination, to Repap's medical, dental, drug and other health
benefits and thereafter, at the election of the Executive and
upon payment of all premiums associated therewith from time to
time, to continue to be entitled to the benefits of Repap's
medical, dental, drug and other health programs;
(iii) not later than the thirtieth day following the date of
termination, Repap shall transfer to the Executive if the
Executive so elects the automobile, if any, placed at his
disposal, at the date of termination, at no cost to the
Executive, other than such income tax as he may be required to
pay;
(iv) all legal fees and expenses incurred by the Executive in
seeking to obtain or enforce any right or benefit provided by
this Agreement;
(v) for the purpose of the Repap Head Office Registered Pension
Plan and the Repap Head Office Top Executives Supplementary
Pension Plan a credit of two years past service in addition to
the period of past service to which the Executive is otherwise
entitled.
2.2 FINANCIAL PLANNING. Repap shall, provided it is not prejudiced and on
the recommendation of the Executive's financial advisors, vary the nature,
manner and timing of payments to be made to the Executive pursuant to this
Agreement in order to optimize the Executive's financial planning.
ARTICLE 3
COOPERATION WITH EMPLOYER AFTER TERMINATION OF THE AGREEMENT
3.1 COOPERATION. The Executive hereby undertakes, as partial consideration
for the payments to be made pursuant to section 2.1(d), to cooperate with Repap,
after the termination of this Agreement (except in the case of termination for
Cause or Good Reason), in all matters related to the conclusion of the
Executive's ongoing work or projects and to facilitate an orderly transfer of
the Executive's responsibilities or functions and duties hereunder to such other
employees as may be designated by Repap.
ARTICLE 4
CONFIDENTIALITY OF AGREEMENT
4.1 CONFIDENTIALITY. The Executive hereby agrees to keep strictly
confidential all information concerning the present Agreement.
ARTICLE 5
GENERAL
5.1 FURTHER ASSURANCES. The parties hereto hereby agree in their own name
and on behalf of, as the case may be, their respective heirs, legatees,
successors, testamentary executors and permitted assigns, to sign all documents
and to take all necessary or desirable measures to fulfill the terms and intent
of this Agreement.
5.2 NOTICE. Any offer, notice, direction or other instrument required or
permitted to be given hereunder shall be in writing and given by registered
mail, by delivery or sent by telecopier or similar telecommunications device and
addressed to the other party at the address of such party first mentioned in
this Agreement.
Any notice, direction or other instrument given as aforesaid shall be
deemed to have been effectively given and received, if by registered mail then
on the date of delivery thereof, if sent by telecopier or similar
telecommunications device on the next business day following such transmission
or, if delivered, to have been given and received on the date of such a
delivery. Any address for service may be changed by written notice given as
aforesaid.
5.3 ASSIGNMENT. Except as otherwise expressly provided for herein, this
Agreement, and the rights granted and the obligations incurred hereunder, are
not assignable, whether in whole or in part, by the Executive without the prior
written consent of Repap.
53
<PAGE> 5
IN WITNESS WHEREOF this Agreement has been executed by the parties hereto
as of the date and at the place first hereinabove mentioned.
REPAP ENTERPRISES INC.
by:
by:
Terry W. McBride
54
<PAGE> 1
EXHIBIT 10.5
MEMORANDUM OF AGREEMENT entered into as of October 1, 1997
<TABLE>
<CAPTION>
<S> <C>
BY AND BETWEEN: REPAP ENTERPRISES INC., a company duly incorporated under
the laws of Canada, having its principal place of business
at 1250 Rene-Levesque Boulevard West, Suite 3800, in the
City and District of Montreal, Quebec
(hereinafter "Repap")
AND Michelle A. Cormier, having his address for the purposes of
the present Agreement at Montreal, Quebec,
(hereinafter the "Executive")
</TABLE>
THE PARTIES DECLARE AS FOLLOWS:
WHEREAS Repap considers the continuous maintenance of a sound and vital
management team to be essential to protecting and enhancing the best interests
of Repap and its shareholders during this process; and
WHEREAS Repap and the Executive have previously entered into a Memorandum
of Agreement dated as of June 17, 1996 (the "Prior Agreement") certain
provisions of which the parties intend to be replaced by this Agreement; and
WHEREAS a Change in Control (as defined in the Prior Agreement) has
occured and the Executive has Good Reason (as defined in the Prior Agreement) to
terminate his employment with Repap;
WHEREAS Repap recognizes that the possibility of a further Change in
Control or other circumstances may still exist and that such possibility, and
the uncertainty and questions which it may raise among Repap's management team,
may result in the departure or distraction of members thereof to the detriment
of Repap and its shareholders; and
WHEREAS Repap has therefore determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of Repap's management team to their assigned duties.
NOW, THEREFORE, THIS AGREEMENT WITNESSETH THAT, in consideration of the
mutual promises contained herein, and other good and valuable consideration the
adequacy and sufficiency of which is hereby acknowledged by the parties hereto,
it is hereby agreed by and between the parties hereto as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS. For the purpose of this Agreement, or for the purposes of
any notice or communication required hereunder, the following words and
expressions shall have the following respective meanings, except where the
context dictates otherwise.
"Agreement" shall mean this agreement and all instruments supplemental
hereto or in amendment or confirmation hereof; "herein", "hereof",
"hereto", "hereunder" and similar expressions mean and refer to this
Agreement and not to any particular Article, Section, Subsection or other
subdivision; "Article", "Section", "Subsection" or other subdivision of
this Agreement means and refers to the specified Article, Section,
Subsection or other subdivision of this Agreement;
"Cause" shall mean any event or circumstance which, pursuant to applicable
law, constitutes cause for dismissal without either notice or payment in
lieu of notice:
"Change in Control"shall mean the occurrence of any of the following
events after the date hereof:
(a) the purchase of at least twenty-five percent of the outstanding
common shares of Repap or of Repap New Brunswick Inc. by a buyer who
is a forest products industry participant; or
(b) the purchase of at least thirty-three percent of the outstanding
common shares of Repap or of Repap New Brunswick Inc. by a buyer
other than a buyer who is described in sub-paragraph (a) of this
definition; or
55
<PAGE> 2
(c) during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors of the
Corporation (together with any new directors whose election by such
board of directors or whose nomination for election by the
shareholders of the Corporation was approved by a vote of two-thirds
of the directors of the Corporation 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
Corporation then in office; or
(d) a reduction in the aggregate common share ownership of Silverton
International Fund Limited and River Road (Canada) L.C.C. to ten
percent or less through a sale to a third party other than a sale
qualified through a public secondary offering of the common shares of
Repap by Silverton International Fund Limited or Paloma Partners
L.C.C. or through a treasury offering of the common shares of Repap;
"Good Reason" shall mean, without the Executive's express consent, written
or otherwise, any of the following:
(a) assignment to the Executive of any duties inconsistent with, or a
substantial alteration in the nature or status of, his
responsibilities from those in effect as of the date hereof; or
(b) reduction by Repap in the Executive's annual salary as in effect on
the date hereof or as same may be increased from time to time; or
(c) taking of any action by Repap which reduces or would materially
reduce or fails to renew any of the benefits enjoyed by the Executive
under any of Repap's life insurance, medical, health and accident or
disability plans (collectively the "Insurance Plans"), or Repap's
pension, deferred compensation or savings plans (collectively the
"Benefit Plans") in which the Executive was participating at the time
or of any other benefits herein mentioned; or
(d) a requirement that the Executive perform his duties in a
municipality other than the municipality in which the Executive
resides at the date of this Agreement or other than Stamford,
Connecticut;
"Person" shall mean any individual or other entity possessed of juridical
personality, including, without limitation, a corporation, company,
cooperative, partnership, trust, unincorporated association, or
governmental body; and pronouns when they refer to a Person shall have a
similarly extended meaning;
"Repap" means Repap Enterprises Inc., one of the parties to this Agreement
and includes any successor to Repap that may result from a Change in
Control.
1.2 GENDER. Any reference in this Agreement to any gender shall include all
genders and words used herein importing the singular number only shall
include the plural and vice versa.
1.3 HEADINGS. The insertion of headings is for convenience of reference only
and shall not affect or be utilized in the construction or interpretation
hereof.
1.4 SEVERABILITY. Any article, section, subsection or other subdivision of
this Agreement or any other provision of this Agreement which is deemed to
be or becomes, illegal, invalid or unenforceable shall be severed herefrom
and shall be ineffective to the extent of such illegality, invalidity or
unenforceability and shall not affect or impair the remaining provisions
hereof which shall remain in full force and effect.
1.5 ENTIRE AGREEMENT. This Agreement together with any instruments to be
delivered pursuant hereto constitute the entire agreement between the
parties hereto pertaining to the subject matter hereof and supersede all
prior agreements (including the Prior Agreement), understandings,
negotiations, and discussions, whether oral or written, by or among the
said parties in respect of such subject matter.
1.6 AMENDMENT. No amendment hereto shall be binding unless expressly
provided for in an instrument duly executed by the parties hereto.
1.7 WAIVER. No waiver by any party hereto, whether by conduct or otherwise,
of any of the provisions of this Agreement shall be deemed to constitute a
waiver by such party of any other provisions (whether or not similar) nor
shall such waiver constitute a continuing waiver hereof, unless otherwise
expressly provided in an instrument duly executed by the party or parties
hereto to be bound thereby.
1.8 GOVERNING LAW. This Agreement shall be governed by and interpreted and
construed in accordance with the laws of Quebec.
56
<PAGE> 3
ARTICLE 2
TERMINATION
2.1 TERMINATION OF EMPLOYMENT. In the event that during the term of the
Executive's employment with Repap the Executive, on 30 days prior written
notice, terminates her employment or a Change in Control occurs, and the
Executive's employment is thereafter terminated:
(a) by Repap without Cause within a period of twenty-four (24) months
after the Change in Control and other than for death, disability or
voluntary retirement at normal retirement age; or
(b) by the Executive, for Good Reason, within a period of twenty-four
(24) months after the Change in Control,
the Executive shall be entitled to the benefits provided below:
(c) Base Salary -- Repap shall pay in cash as soon as practical, but no
later than thirty (30) days following the date of termination, his
full gross salary until the date of termination at the rate in effect
at the time of termination plus the amounts, if any, owed to the
Executive for bonuses declared but not paid;
(d) Indemnity -- in consideration of the Executive agreeing to continue
to be employed by Repap and in lieu of any further compensation
payments to the Executive for periods subsequent to the date of
termination, Repap shall pay to the Executive a lump sum indemnity
(the "Indemnity") equal to three times the highest of the Executive's
annual salary in the three years preceding the Change in Control, or
if there has not been a Change of Control within twenty-four months
from the date of termination then in the three years preceding the
date of termination. The Indemnity shall be paid to the Executive in
cash as soon as practical, but no later than thirty (30) days
following the date of termination;
(e) Other Termination Benefits -- the Executive shall be entitled to
receive the following payments and benefits:
(i) a lump sum payment equal to the present value, as of the date
of termination, of Repap's cost of providing coverage under any
life insurance policy on the Executive's life in force
immediately prior to the date of termination for a period of
three years from the date of termination;
(ii) entitlement, for a period of three years following the date of
termination, to Repap's medical, dental, drug and other health
benefits and thereafter, at the election of the Executive and
upon payment of all premiums associated therewith from time to
time, to continue to be entitled to the benefits of Repap's
medical, dental, drug and other health programs;
(iii) not later than the thirtieth day following the date of
termination, Repap shall transfer to the Executive if the
Executive so elects the automobile, if any, placed at his
disposal, at the date of termination, at no cost to the
Executive, other than such income tax as he may be required to
pay;
(iv) all legal fees and expenses incurred by the Executive in seeking
to obtain or enforce any right or benefit provided by this
Agreement;
(v) for the purpose of the Repap Head Office Registered Pension Plan
and the Repap Head Office Top Executives Supplementary Pension
Plan a credit of two years past service in addition to the period
of past service to which the Executive is otherwise entitled.
2.2 FINANCIAL PLANNING. Repap shall, provided it is not prejudiced and on
the recommendation of the Executive's financial advisors, vary the nature,
manner and timing of payments to be made to the Executive pursuant to this
Agreement in order to optimize the Executive's financial planning.
57
<PAGE> 4
ARTICLE 3
COOPERATION WITH EMPLOYER AFTER TERMINATION OF THE AGREEMENT
3.1 COOPERATION. The Executive hereby undertakes, as partial consideration
for the payments to be made pursuant to section 2.1(d), to cooperate with Repap,
after the termination of this Agreement (except in the case of termination for
Cause or Good Reason), in all matters related to the conclusion of the
Executive's ongoing work or projects and to facilitate an orderly transfer of
the Executive's responsibilities or functions and duties hereunder to such other
employees as may be designated by Repap.
ARTICLE 4
CONFIDENTIALITY OF AGREEMENT
4.1 CONFIDENTIALITY. The Executive hereby agrees to keep strictly
confidential all information concerning the present Agreement.
ARTICLE 5
GENERAL
5.1 FURTHER ASSURANCES. The parties hereto hereby agree in their own name
and on behalf of, as the case may be, their respective heirs, legatees,
successors, testamentary executors and permitted assigns, to sign all documents
and to take all necessary or desirable measures to fulfill the terms and intent
of this Agreement.
5.2 NOTICE. Any offer, notice, direction or other instrument required or
permitted to be given hereunder shall be in writing and given by registered
mail, by delivery or sent by telecopier or similar telecommunications device and
addressed to the other party at the address of such party first mentioned in
this Agreement.
Any notice, direction or other instrument given as aforesaid shall be
deemed to have been effectively given and received, if by registered mail then
on the date of delivery thereof, if sent by telecopier or similar
telecommunications device on the next business day following such transmission
or, if delivered, to have been given and received on the date of such a
delivery. Any address for service may be changed by written notice given as
aforesaid.
5.3 ASSIGNMENT. Except as otherwise expressly provided for herein, this
Agreement, and the rights granted and the obligations incurred hereunder, are
not assignable, whether in whole or in part, by the Executive without the prior
written consent of Repap.
IN WITNESS WHEREOF this Agreement has been executed by the parties hereto as of
the date and at the place first hereinabove mentioned.
REPAP ENTERPRISES INC.
by:
by:
Michelle A. Cormier
58
<PAGE> 1
EXHIBIT 10.6
MEMORANDUM OF AGREEMENT entered into as of October 1, 1997
<TABLE>
<C> <S>
BY AND BETWEEN: REPAP MARKETING INC., a company duly incorporated under the
laws of Delaware, having its principal place of business at
Stamford, Conn. (hereinafter "RMI")
AND Neil Falco, having his address for the purposes of the
present Agreement at New Canaan, Conn., (hereinafter the
"Executive")
</TABLE>
THE PARTIES DECLARE AS FOLLOWS:
WHEREAS Repap Sales Corporation and the Executive have previously entered
into a Memorandum of Agreement dated as of June 17, 1996 (the "Prior Agreement")
certain provisions of which the parties intend to be replaced with by this
Agreement; and
WHEREAS a Change in Control (as defined in the Prior Agreement) has
occured, the Executive's employment with Repap Sales Corporation has been
terminated and the Executive has received an indemnity equal to three years of
his then current annual base salary pursuant to the Prior Agreement; and
NOW, THEREFORE, THIS AGREEMENT WITNESSETH THAT, in consideration of the
mutual promises contained herein, and other good and valuable consideration the
adequacy and sufficiency of which is hereby acknowledged by the parties hereto,
it is hereby agreed by and between the parties hereto as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS. For the purpose of this Agreement, or for the purposes of
any notice or communication required hereunder, the following words and
expressions shall have the following respective meanings, except where the
context dictates otherwise.
"Agreement" shall mean this agreement and all instruments supplemental
hereto or in amendment or confirmation hereof; "herein", "hereof",
"hereto", "hereunder" and similar expressions mean and refer to this
Agreement and not to any particular Article, Section, Subsection or other
subdivision; "Article", "Section", "Subsection" or other subdivision of
this Agreement means and refers to the specified Article, Section,
Subsection or other subdivision of this Agreement;
"Cause" shall mean any event or circumstance which, pursuant to applicable
law, constitutes cause for dismissal without either notice or payment in
lieu of notice:
"Change in Control" shall mean the occurrence of any of the following
events after the date hereof:
(a) the purchase of at least twenty-five percent of the outstanding
common shares of Repap or of Repap New Brunswick Inc. by a buyer who
is a forest products industry participant; or
(b) the purchase of at least thirty-three percent of the outstanding
common shares of Repap or of Repap New Brunswick Inc. by a buyer
other than a buyer who is described in sub-paragraph (a) of this
definition; or
(c) during any period of two consecutive years, individuals who at the
beginning of such period constituted the board of directors of the
Corporation (together with any new directors whose election by such
board of directors or whose nomination for election by the
shareholders of the Corporation was approved by a vote of two-thirds
of the directors of the Corporation 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
Corporation then in office; or
(d) a reduction in the aggregate beneficial ownership of the common
shares of Repap by Silverton International Fund Limited and Paloma
Partners L.C.C. to ten percent or less through a sale to a third
party other than a sale qualified through a public secondary offering
of the common shares of Repap by Silverton International Fund Limited
or River Road (Canada) L.C.C. or through a treasury offering of the
common shares of Repap;
59
<PAGE> 2
"Good Reason" shall mean, without the Executive's express consent, written
or otherwise, any of the following:
(a) assignment to the Executive of any duties inconsistent with, or a
substantial alteration in the nature or status of, his
responsibilities from those in effect as of the date hereof; or
(b) reduction by RMI in the Executive's annual salary as in effect on
the date hereof or as same may be increased from time to time; or
(c) taking of any action by RMI which reduces or would materially reduce
or fails to renew any of the benefits enjoyed by the Executive under
any of RMI's life insurance, medical, health and accident or
disability plans (collectively the "Insurance Plans"), or RMI's
pension, deferred compensation or savings plans (collectively the
"Benefit Plans") in which the Executive was participating at the time
or of any other benefits herein mentioned; or
(d) a requirement that the Executive perform his duties in a
municipality other than the municipality in which the Executive
resides at the date of this Agreement;
"Person" shall mean any individual or other entity possessed of juridical
personality, including, without limitation, a corporation, company,
cooperative, partnership, trust, unincorporated association, or
governmental body; and pronouns when they refer to a Person shall have a
similarly extended meaning;
"Repap" means Repap Enterprises Inc. a corporation formed under the laws of
Canada.
1.2 GENDER. Any reference in this Agreement to any gender shall include all
genders and words used herein importing the singular number only shall include
the plural and vice versa.
1.3 HEADINGS. The insertion of headings is for convenience of reference only
and shall not affect or be utilized in the construction or interpretation
hereof.
1.4 SEVERABILITY. Any article, section, subsection or other subdivision of
this Agreement or any other provision of this Agreement which is deemed to be or
becomes, illegal, invalid or unenforceable shall be severed herefrom and shall
be ineffective to the extent of such illegality, invalidity or unenforceability
and shall not affect or impair the remaining provisions hereof which shall
remain in full force and effect.
1.5 ENTIRE AGREEMENT. This Agreement together with any instruments to be
delivered pursuant hereto constitute the entire agreement between the parties
hereto pertaining to the subject matter hereof and supersede all prior
agreements (except for the Prior Employment Agreement and then only Article 14
thereof), understandings, negotiations, and discussions, whether oral or
written, by or among the said parties in respect of such subject matter.
1.6 AMENDMENT. No amendment hereto shall be binding unless expressly
provided for in an instrument duly executed by the parties hereto.
1.7 WAIVER. No waiver by any party hereto, whether by conduct or otherwise,
of any of the provisions of this Agreement shall be deemed to constitute a
waiver by such party of any other provisions (whether or not similar) nor shall
such waiver constitute a continuing waiver hereof, unless otherwise expressly
provided in an instrument duly executed by the party or parties hereto to be
bound thereby.
1.8 GOVERNING LAW. This Agreement shall be governed by and interpreted and
construed in accordance with the laws of Connecticut.
ARTICLE 2
TERMINATION BENEFITS
2.1 TERMINATION. In the event that during the term of the Executive's
employment with RMI a Change in Control occurs, and the Executive's employment
is thereafter terminated:
(a) by RMI without Cause within a period of twenty-four (24) months
after the Change in Control and other than for death, disability or
voluntary retirement at normal retirement age; or
(b) by the Executive, for Good Reason, within a period of twenty-four
(24) months after the Change in Control, the Executive shall be
entitled to the benefits provided below:
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(c) Base Salary -- RMI shall pay in cash as soon as practical, but no
later than thirty (30) days following the date of termination, his
full gross salary until the date of termination at the rate in effect
at the time of termination plus the amounts, if any, owed to the
Executive for bonuses declared but not paid;
(d) Other Termination Benefits -- the Executive shall be entitled to
receive the following payments and benefits:
(i) a lump sum payment equal to the present value, as of the date
of termination, of the cost of providing coverage for a period of
three years from the Change in Control under any life insurance
policy on the Executive's life in force immediately prior to the
date of termination;
(ii) entitlement, for a period of three years following the date of
termination, to RMI's medical, dental, drug and other health
benefits and thereafter, at the election of the Executive and
upon payment of all premiums associated therewith from time to
time, to continue to be entitled to the benefits of RMI's
medical, dental, drug and other health programs;
(iii) not later than the thirtieth day following the date of
termination, RMI shall transfer to the Executive if he so elects
the automobile, if any, placed at his disposal, at the date of
termination, at no cost to the Executive, other than such income
tax as he may be required to pay;
(iv) all legal fees and expenses incurred by the Executive in
contesting or disputing any termination or in seeking to obtain
or enforce any right or benefit provided by this Agreement.
2.2 NO FURTHER BENEFITS. The Executive hereby acknowledges receipt of an
amount equal to the indemnity required to be paid to him pursuant to section
2.1(d) of the Prior Agreement. The Executive acknowledges and agrees that if his
employment with RMI is hereafter actually or constructively terminated with or
without cause and whether or not a Good Reason exists or whether or not a Change
in Control has occurred any entitlement to severance or notice in lieu of
severance shall be reduced by the amount the Executive has acknowledged
receiving in lieu of the indemnity to which he was entitled pursuant to section
2.1(d) of the Prior Agreement.
ARTICLE 3
COOPERATION WITH EMPLOYER AFTER TERMINATION OF THE AGREEMENT
3.1 COOPERATION. The Executive hereby undertakes, after the termination of
this Agreement (except in the case of termination for Cause or Good Reason) to
cooperate with RMI in all matters related to the conclusion of the Executive's
ongoing work or projects and to facilitate an orderly transfer of the
Executive's responsibilities or functions and duties hereunder to such other
employees as may be designated by RMI.
ARTICLE 4
CONFIDENTIALITY OF AGREEMENT
4.1 CONFIDENTIALITY. The Executive hereby agrees to keep strictly
confidential all information concerning the present Agreement.
ARTICLE 5
GENERAL
5.1 FURTHER ASSURANCES. The parties hereto hereby agree in their own name
and on behalf of, as the case may be, their respective heirs, legatees,
successors, testamentary executors and permitted assigns, to sign all documents
and to take all necessary or desirable measures to fulfill the terms and intent
of this Agreement.
5.2 NOTICE. Any offer, notice, direction or other instrument required or
permitted to be given hereunder shall be in writing and given by registered
mail, by delivery or sent by telecopier or similar telecommunications device and
addressed to the other party at the address of such party first mentioned in
this Agreement.
Any notice, direction or other instrument given as aforesaid shall be
deemed to have been effectively given and received, if by registered mail then
on the date of delivery thereof, if sent by telecopier or similar
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telecommunications device on the next business day following such transmission
or, if delivered, to have been given and received on the date of such a
delivery. Any address for service may be changed by written notice given as
aforesaid.
5.3 ASSIGNMENT. Except as otherwise expressly provided for herein, this
Agreement, and the rights granted and the obligations incurred hereunder, are
not assignable, whether in whole or in part, by the Executive without the prior
written consent of RMI.
IN WITNESS WHEREOF this Agreement has been executed by the parties hereto
as of the date and at the place first hereinabove mentioned.
REPAP MARKETING INC.
by:
by:
Neil Falco
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<PAGE> 1
EXHIBIT 10.7
THE REPAP ENTERPRISES INC.
HEAD OFFICE REGISTERED PENSION PLAN
AS AT JANUARY 1, 1996
Certified a True Copy
August 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Page
SECTION 1 DEFINITIONS................................................. 1
SECTION 2 ELIGIBILITY AND MEMBERSHIP.................................. 6
2.1 Eligibility and Membership........................... 6
2.2 Enrollment Documents................................. 6
2.3 Participation........................................ 7
2.4 Information.......................................... 7
SECTION 3 CONTRIBUTIONS............................................... 8
3.1 Employees' Contributions............................. 8
3.2 Employer Contributions............................... 8
3.3 Remittance of Contributions.......................... 8
3.4 Expenses............................................. 8
3.5 Surplus Utilization.................................. 8
3.6 Return of Contributions.............................. 9
SECTION 4 AMOUNT OF PENSION........................................... 10
4.1 Normal Pension....................................... 10
4.2 Early Retirement..................................... 10
4.3 Postponed Retirement................................. 10
4.4 Additional Amounts................................... 11
4.5 Maximum Pension...................................... 11
4.6 Reduction of Benefits................................ 12
SECTION 5 FORMS OF PENSION PAYMENT.................................... 13
5.1 Normal Form for Member without a Spouse 13
5.2 Normal Form for Member with a Spouse................. 13
5.3 Level Income Option.................................. 14
5.4 Rules for Level Income Option Election............... 14
5.5 Other Optional Forms 15
SECTION 6 TERMINATION OF SERVICE...................................... 16
6.1 Vesting.............................................. 16
6.2 Immediate Pension.................................... 16
6.3 Portability.......................................... 16
6.4 Time Limits.......................................... 17
6.5 Small Value.......................................... 17
SECTION 7 DEATH BENEFITS.............................................. 18
7.1 Death in Service before Normal Retirement Date....... 18
7.2 Minimum Value........................................ 18
7.3 Death in Service after Normal Retirement Date........ 19
7.4 Death after Retirement............................... 19
7.5 Lump Sum Payment..................................... 19
7.6 Method of Payment.................................... 20
7.7 Portability.......................................... 20
SECTION 8 DISABILITY.................................................. 21
8.1 Disability........................................... 21
SECTION 9 MANAGEMENT OF FUNDS......................................... 22
9.1 The Fund............................................. 22
9.2 Purchase of Annuities................................ 22
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
SECTION 10 PENSION COMMITTEE........................................... 23
10.1 Pension Committee.................................... 23
10.2 Term of Office....................................... 24
10.3 Expenses of Pension Committee........................ 24
10.4 Annual Meeting....................................... 24
10.5 Conflict of Interest................................. 25
10.6 Powers and Duties.................................... 25
10.7 Delegation........................................... 26
10.8 Actuarial Functions.................................. 27
SECTION 11 TRANSFER PROVISIONS......................................... 28
11.1 Transfers to the Service............................. 28
11.2 Transfers from the Service........................... 28
11.3 Transfer of Assets to this Plan...................... 28
SECTION 12 AMENDMENT OR DISCONTINUANCE OF THE PLAN..................... 29
12.1 Right to Amend or Discontinue the Plan............... 29
12.2 Total or Partial Termination of the Plan............. 29
SECTION 13 GENERAL PROVISIONS.......................................... 30
13.1 Benefits Not Capable of Assignment or Seizure........ 30
13.2 Assets in the Fund................................... 30
13.3 Small Pensions....................................... 30
13.4 Marriage Breakdown................................... 30
13.5 Pensioner Becomes an Employee........................ 31
13.6 Surplus Ownership.................................... 31
13.7 Construed and Interpreted............................ 31
</TABLE>
<PAGE> 4
SECTION 1
DEFINITIONS
The following words and phrases as used herein shall, for the purposes of
this Plan and any subsequent amendment thereof, have the following meanings,
unless a different meaning is plainly indicated by the context:
1.1 "ACTUARY" means a Fellow of the Canadian Institute of Actuaries,
appointed by the Committee for the purpose of performing such duties as may be
requested by the Committee.
1.2 "BENEFICIARY" means such person or persons as the Member shall have
designated in writing to receive a lump sum payment under Section 7 where the
Member is not survived by his Spouse, or his Spouse has waived her entitlement
in accordance with Section 5.2. Such designation may be changed, subject to any
applicable laws governing the designation of beneficiaries. If the Member has
not designated any person to receive the benefits aforesaid, or the person
designated has died, such benefits shall be paid to his estate.
1.3 "BEST AVERAGE EARNINGS" means one-third of the total of the best 36
consecutive months of Earnings. If a Member becomes entitled to a pension under
the Plan after less than 36 months of Service, his Best Average Earnings shall
be 12 times his average basic monthly Earnings over the entire period of his
Service.
1.4 "BOARD OF DIRECTORS" means the Board of Directors of the Company.
1.5 "COMMITTEE" means the Pension Committee appointed to administer the Plan
as provided in Section 10.
1.6 "COMPANY" means Repap Enterprises Inc. and any company which is a
predecessor or which is a successor to Repap Enterprises Inc. and which by
consolidation, merger, amalgamation, reorganization, or otherwise assumes charge
of all or substantially all of the business and assets of Repap Enterprises Inc.
The address of the Company is 1250 Rene-Levesque Blvd. West, Suite 3800,
Montreal, Quebec H3B 4W8.
1.7 "EARLY RETIREMENT DATE" means the first day of any month within 10 years
prior to Normal Retirement Date.
1.8 "EARNINGS" means the basic salary of an Employee, excluding overtime,
bonuses or any other emoluments.
1.9 "EFFECTIVE DATE" means January 1, 1996.
1.10 "EMPLOYEE" means an employee normally residing in Canada of an Employer
who is not a member of any other registered pension plan of the Company or an
affiliate of the Company.
1.11 "EMPLOYER" means Repap Enterprises Inc., Repap International (1987)
Inc.and Alcell Technologies Inc. All these employers agree that the Plan not be
considered a multi-employer pension plan.
1.12 "EQUIVALENT ACTUARIAL VALUE" means having equivalent value when computed
on the basis of interest and mortality assumptions recommended by the Actuary
and adopted by the Committee.
1.13 "EXECUTIVE" means an Employee who is designated as an Executive by the
Employer.
1.14 "FINAL AVERAGE YMPE" means the annualized average of the YMPE in the
calendar year of retirement, termination from the Plan or death, as applicable,
and in the preceding two calendar years.
1.15 "FUND" means the fund established in order to provide for the payment of
the benefits described in this Plan.
1.16 "INCOME TAX ACT" means the Income Tax Act Statutes of Canada and its
Regulations, as amended from time to time.
1.17 "MEMBER" means an Employee, retired Employee or former Employee who has
been included in this Plan in accordance with its provisions, and who continues
to have rights or contingent rights to benefits payable hereunder.
1.18 "NORMAL RETIREMENT DATE" means the first day of the month following
attainment of age 65.
1.19 "PENSIONABLE SERVICE" means Service while participating as an active
Member in this Plan and Service prior to the Effective Date but excluding:
(1) Service before January 1, 1976;
(2) Service after December 31, 1989 but before the Effective Date which
the Employee chooses not to include;
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<PAGE> 5
(3) Service after December 31, 1989 but before the date the Executive
becomes a Member of this Plan which the Executive chooses not to
include;
(4) Service after the Normal Retirement Date; and
(5) Service prior to the Effective Date for an Employee who is a
connected person as defined in the regulations of the Income Tax Act.
1.20 "PLAN" means this Repap Enterprises Inc. Head Office Registered Pension
Plan, as amended from time to time.
1.21 "PLAN YEAR" means the period from and including the Effective Date to and
including December 31, 1996, and thereafter the calendar year.
1.22 "POSTPONED RETIREMENT DATE" means the first day of the month next
following the date subsequent to the Member's Normal Retirement Date on which
the Member retires, but in no event shall his Postponed Retirement Date be later
than the end of the Plan Year in which he attains his 71st birthday, even though
he continues to be employed by the Employer.
1.23 "SERVICE" means employment of an Employee by the Employer (including
successive employment, if any, by two or more Employers), as determined by the
Employer of the Employee and includes:
(1) service with a predecessor of the Employer;
(2) periods of authorized absence without pay up to 2 years;
(3) periods of authorized absence with pay.
Service shall include:
(4) subject to Section 8, any period up to age 65 including periods
while a Member (who was accruing benefits under the Plan upon his
disablement) is entitled to benefits under the long term disability
insurance plan of the Employer;
(5) any period while a Member is on maternity or parental leave;
(6) any period while a Member is entitled to receive benefits from the
Commission de sante et securite au travail (CSST) or similar Workers'
Compensation plans, subject to a maximum service accrual on and after
January 1, 1992 as permitted by the Income Tax Act.
Service is severed by resignation or voluntary cessation of employment by
the Employee, discharge by the Employer, failure to return to work,
cessation of the employment relationship which does not coincide with
reemployment by another Employer, death or retirement.
1.24 "SIMILAR ACT" means legislation in force in a province of Canada, other
than Quebec, which is substantially similar to the Supplemental Pension Plans
Act.
1.25 "SPOUSE" means the person of the opposite sex who, at the date the Member
commences to receive his pension or as of the day preceding the Member's death,
whichever occurs first:
(1) is married to the Member; or
(2) has been living in a conjugal relationship with an unmarried Member
for a period of not less than 3 years or for a period of not less
than one year if --
(1) at least one child is born, or to be born, of their union;
(2) they have adopted, jointly, at least one child while living
together in a conjugal relationship; or
(3) one of them has adopted at least one child who is the child of
the other, while living together in a conjugal relationship.
1.26 "SUPPLEMENTAL PENSION PLANS ACT" means the Supplemental Pension Plans Act
of Quebec and Regulations thereunder, as amended from time to time.
1.27 "VALUE" means the value calculated by the Actuary in the manner
prescribed under the Supplemental Pension Plans Act or a Similar Act, if
applicable, as of a fixed date of a pension, a deferred pension or an ancillary
pension which shall not be less than the value determined in accordance with the
"Recommendations of the Minimum Transfer Values of Pensions" issued by the
Canadian Institute of Actuaries.
2
<PAGE> 6
1.28 "YEAR'S MAXIMUM PENSIONABLE EARNINGS" ("YMPE") means the Year's Maximum
Pensionable Earnings for the year as defined in the provisions of the Canada
Pension Plan or the Quebec Pension Plan, whichever may be applicable in any
particular instance.
The masculine gender shall include the feminine and the singular number
shall include the plural unless the context clearly indicates otherwise.
The descriptive headings of the several Sections and paragraphs of this
Plan are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions of the Plan.
SECTION 2
ELIGIBILITY AND MEMBERSHIP
2.1 ELIGIBILITY AND MEMBERSHIP
(1) Each Employee other than an Executive in the Service on October 1,
1996 shall automatically become a Member of this Plan as of the later
of the Effective Date or the first of the month following their date
of employment.
(2) Each other Employee other than an Executive shall become a Member of
this Plan as a condition of employment on the first day of the month
following the date on which he has completed 3 months of employment
or, if earlier, the date on which he has earned at least 35% of the
YMPE for the year in which he was employed.
(3) Each Executive in the Service on January 1, 1996 may become a Member
of this Plan on the first day of the month following his filing with
the Committee of the completed enrollment documents. In any case, he
shall become a Member of this Plan on the first day of the month
following or coinciding with his attainment of age 60. If he has
already reached age 60 on July 1, 1996, he shall become a Member of
this Plan on the first day of the month following or coinciding with
his next birthday.
(4) Each other Executive shall become a Member of this Plan as a
condition of employment on the first day of the month following the
date on which he has completed 3 months of employment or, if earlier,
the date on which he has earned at least 35% of the YMPE for the year
in which he was employed.
2.2 ENROLLMENT DOCUMENTS
An Employee shall complete and file with the Committee the necessary
enrollment documents as determined by the Committee, and shall furnish such
further information as shall be required, including proof of age of the Employee
and, where applicable, of his Spouse and of any contingent annuitant designated
by the Employee.
2.3 PARTICIPATION
While remaining in the employ of an Employer, a Member cannot cease to
participate in the Plan. Plan membership ceases at the Member's death or
termination of employment if his benefits under this Plan are totally settled
through a lump sum transfer or a transfer described in Section 6.3.
2.4 INFORMATION
The Committee shall provide the following information to each Employer,
Member, Spouse or Beneficiary, as the case may be, in accordance with the
Supplemental Pension Plans Act:
(1) a written explanation of the terms and conditions of the Plan and
amendments thereto applicable to the Member, together with a brief
description of the Member's rights and obligations under the Plan and
the Supplemental Pension Plans Act, within 90 days of the date the
Employee becomes eligible for membership or the registration date of
the amendment;
(2) a written statement in the prescribed form annually within 6 months
after the end of the Plan Year or within 60 days after termination of
membership, retirement or death.
Upon receipt of a written request from the Member, Spouse, Beneficiary or
authorized agent of such person, the Committee shall make available within 30
days all documents and information in respect of the Plan and the
3
<PAGE> 7
Fund as is prescribed under the Supplemental Pension Plans Act for examination
at a location approved under the Supplemental Pension Plans Act.
The Committee shall conform with the prescribed periods for providing such
information as specified in a Similar Act, if applicable, for each Member
employed outside Quebec.
SECTION 3
CONTRIBUTIONS
3.1 EMPLOYEES' CONTRIBUTIONS
The Employees are not required nor permitted to contribute to the Plan.
3.2 EMPLOYER CONTRIBUTIONS
While this Plan remains in force, the Employer shall contribute to the
Fund in each Plan Year in monthly instalments in accordance with the provisions
of the Supplemental Pension Plans Act, amounts which in the aggregate are
certified by the Actuary to be necessary to provide for the pensions and other
benefits accruing to the Members for such year under Section 4.1 and shall also
contribute in each Plan Year, by equal monthly instalments throughout the Plan
Year, such additional amounts as are certified by the Actuary to be sufficient
to fund over a period of years any unfunded liabilities created by the terms of
this Plan or amendments thereto, or any solvency deficiencies revealed by
actuarial valuation. The period of years over which such additional amounts are
contributed shall not be longer than the time allowed under the provisions of
any applicable federal or provincial legislation or regulation, including
specifically the Supplemental Pension Plans Act.
3.3 REMITTANCE OF CONTRIBUTIONS
Employer contributions shall be paid into the Fund in equal monthly
payments on or before the last day of the month following the month for which a
payment is made. The Employer shall, on remitting the contributions, inform the
Committee of the reason for any significant variation in the contributions
payable into the Fund.
3.4 EXPENSES
All expenses for the operation and administration of this Plan shall be
paid out of the Fund unless paid by the Employer.
3.5 SURPLUS UTILIZATION
If the assets of the Fund are certified by the Actuary at any time to be
more than sufficient to fully cover the actuarial liability for all benefits
accrued to the Members, any excess assets may be applied to cover part or all of
the Employer's contributions in any Plan Year.
3.6 RETURN OF CONTRIBUTIONS
Amounts contributed by the Employer may be refunded at any time to the
Employer, where such action is required to avoid the revocation of registration
under the Income Tax Act, subject to all necessary regulatory approvals.
SECTION 4
AMOUNT OF PENSION
4.1 NORMAL PENSION
Each Member shall receive upon retirement on his Normal Retirement Date an
annual pension equal to 1.25% of his Best Average Earnings up to his Final
Average YMPE plus 2% of his Best Average Earnings in excess of his Final Average
YMPE multiplied by his years of Pensionable Service, with a proportionate
adjustment for a fraction of a year in completed months.
In no event will the benefit accrued in the Plan Year under this Section
4.1 result in an amount such as a pension adjustment (as defined in the Income
Tax Act), or any other adjustment determined under the Income
4
<PAGE> 8
Tax Act, being inappropriate having regard to the provisions of the Income Tax
Act and the purposes for which the amount is determined. A benefit may not
accrue after pension payments have commenced to be paid to the Member.
4.2 EARLY RETIREMENT
A Member may retire on an Early Retirement Date and receive, commencing on
an Early Retirement Date, an annual pension. The amount of such annual pension
shall be his annual pension calculated in accordance with Section 4.1 reduced by
1/3 of 1% for each full month, if any, his Early Retirement Date precedes his
60th birthday.
4.3 POSTPONED RETIREMENT
(1) A Member, who retires on his Postponed Retirement Date, shall
receive an annual pension which shall be the Equivalent Actuarial
Value of the annual pension determined in accordance with Section 4.1
and which has not commenced to be paid under subsection (b) of this
Section 4.3; such Equivalent Actuarial Value shall be determined by
the Actuary in the manner prescribed under the Supplemental Pension
Plans Act.
(2) A Member who has deferred his retirement to a date subsequent to his
Normal Retirement Date may, not more frequently than once in each
Plan Year, by notice in writing filed with the Committee, direct that
payment of all or part of his annual pension shall commence on a date
specified by him in such notice, but only to the extent required to
compensate for any reduction in Earnings from the level in effect
immediately preceding his Normal Retirement Date.
4.4 ADDITIONAL AMOUNTS
The Company may provide from time to time for the payment of additional
amounts of pension in excess of those set forth in the Plan, including
adjustments to normal pension which have commenced to be paid to retired Members
in recognition of changes in the cost of living, within such applicable federal
or provincial laws, regulations, rules and limits as may be established from
time to time.
4.5 MAXIMUM PENSION
Notwithstanding anything contained in this Section 4 to the contrary:
(1) PRE-1990 SERVICE WHEN THE MEMBER WAS NOT PARTICIPATING IN A
REGISTERED PENSION PLAN: the aggregate annual pension payable to a
Member, in respect of Service before January 1, 1990, under this Plan
and any other registered pension plan of the Employer when the Member
was not participating in a registered pension plan, on retirement,
termination of Service or discontinuance of the Plan shall not exceed
an annual amount equal to $1,150, or such higher amount as may be
permitted from time to time by the Income Tax Act, multiplied by his
years of pensionable service.
(2) POST-1989 SERVICE, AND, SERVICE PRIOR TO 1990 WHEN A MEMBER WAS
PARTICIPATING IN A REGISTERED PENSION PLAN: the aggregate annual
pension payable to a Member under this Plan and any other registered
pension plan of the Employer in respect of Service after December 31,
1989 and in respect of Service prior to 1990 when the Member was
participating in a registered pension plan, and payable in the year
in which the pension commences to be paid to the Member shall be the
lesser of:
(1) 2% of the Member's highest average indexed compensation times
the number of years of his pensionable service with the Employer;
and
(2) $1,722, or such higher amount as may be permitted from time to
time by the Income Tax Act, times the number of years of his
pensionable service with the Employer.
For the purpose of this Section 4.5, the highest average indexed
compensation of a Member is equal to 1/3 of the Member's total indexed
compensation for the 3 (not necessarily consecutive) 12-month periods of highest
indexed compensation. The total indexed compensation of a Member for any month
is the total compensation received by the Member from the Employer, adjusted to
reflect increases in the average wage as defined in the Income Tax Act.
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<PAGE> 9
The percentage reduction referred to in Section 4.2 will be applied to the
Member's pension:
(a) before the application of the above maximum pension rule, if the
Member has attained his 60th birthday; and
(b) after application of the above maximum pension rule, if the member
has not attained his 60th birthday.
Any additional annual pension resulting from an actuarial increase in
accordance with the provisions of subsection (a) of Section 4.3 shall be
excluded from the maximum pension rule.
The above maximum pension rule applies to all pension benefits payable
under this Plan, including any distribution of surplus to Members, any amount
paid out to the Member's Spouse as a result of marriage breakdown, any amount
paid upon retirement and termination of employment or termination of the Plan.
4.6 REDUCTION OF BENEFITS
The Plan may, at any time, be amended by the Company to reduce the
benefits provided under this Section 4 where such action is required to avoid
the revocation of registration of the Plan under the Income Tax Act, subject to
the prior consent of the Regie des rentes du Quebec.
SECTION 5
FORMS OF PENSION PAYMENT
5.1 NORMAL FORM FOR MEMBER WITHOUT A SPOUSE
Subject to Section 5.2, the normal form of pension payable under this Plan
shall be monthly income payable on the first of each month, commencing on the
Member's Normal Retirement Date, Early Retirement Date or Postponed Retirement
Date, as the case may be, and continuing thereafter during the lifetime of the
Member, in an amount equal to 1/12 of the annual pension as provided in Section
4, and subject to the provisions and conditions of the Plan.
5.2 NORMAL FORM FOR MEMBER WITH A SPOUSE
(1) Any Member who has a Spouse living at the time his benefits commence
will receive a joint and survivor pension as hereinafter described. A
Spouse may, before the date on which the Member's pension begins,
waive her entitlement under this automatic form of pension or revoke
such waiver, by filing with the Committee the necessary document, as
determined by the Committee, before that date. If the Member's Spouse
waives such entitlement and has not revoked her waiver, the Member
will then be permitted to elect an alternative form of pension in
accordance with the provisions of the Plan.
Under the terms of this automatic provision, after the death of the
Member, there shall be payable under this Plan to the surviving
Spouse during the Spouse's lifetime an annual pension equal to 60% of
such annual pension payable to the Member under this Plan.
(2) The normal form of pension payable to a Member with a Spouse shall
be a monthly income payable on the first of each month, commencing on
the Member's Normal Retirement Date, Early Retirement Date or
Postponed Retirement Date, as the case may be, and continuing
thereafter during the lifetime of the Member, in an amount equal to
1/12 of the annual pension described in subsection (a) of this
Section 5.2. After the death of the Member, 1/12 of the annual
pension payable to the Member's surviving Spouse under the terms of
subsection (a) of this Section 5.2 shall be payable in monthly
instalments on the first of each month during the lifetime of the
Spouse.
(3) Upon the death of a Member and his surviving Spouse, to whom a
pension was paid or payable under (a) above, no further payments
shall be made under this Plan.
5.3 LEVEL INCOME OPTION
A Member, who elects to retire on an Early Retirement Date, may elect to
receive an increased normal form of pension payable until the Member qualifies
for a benefit from the federal government and/or a provincial government under
the terms of one or more comprehensive programs of old age pensions, and a
reduced normal pension thereafter; the difference between the two amounts being
not more than the total benefit payable by the
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<PAGE> 10
federal and/or the provincial governments. The amount of this difference shall
be requested by the Member and must be agreed to by the Committee. The Member
shall provide the Committee with the information required to verify the amount
of the government benefit which he should receive. In the event of the death of
a Member on or after the due date of the first pension payment to the Member the
following shall apply:
(1) in respect of a Member whose pension was payable under Section 5.1,
no further payments are made; or
(2) in respect of a Member whose pension was payable under Section 5.2,
there shall be payable to his surviving Spouse the monthly pension
which would have been payable to the surviving Spouse under the terms
of Section 5.2 if the level income option had not been elected.
5.4 RULES FOR LEVEL INCOME OPTION ELECTION
The election of the level income option shall be subject to such rules as
the Committee may from time to time adopt for the safeguarding of the Fund and
the proper administration of the Plan, and shall be subject to the following
additional conditions:
(1) the election shall be made in writing deposited with the Committee
prior to the due date of the first pension payment to the Member;
(2) the option shall become operative on the due date of the first
pension payment to the Member; and
(3) the election may be revoked or changed provided that written notice
of such revocation or change is received by the Committee prior to
the due date of the first pension payment to the Member.
5.5 OTHER OPTIONAL FORMS
Each Member may, subject to the waiver described in subsection 5.2(a),
elect such other optional forms of pension of Equivalent Actuarial Value that
are not contrary to the provisions of any applicable federal or provincial laws,
rules, guidelines or regulations that may be or are hereafter enacted or
promulgated. However, the initial amount of pension payable to a Member with a
living Spouse at the time his pension commences may not be higher than the
amount as provided in Section 4. Election by a Member of some other optional
form of benefit shall be subject to such conditions as may be prescribed by the
Committee.
For example, a Member may elect a joint and survivor pension providing for
a reduced pension payable to the Member during his lifetime with an amount equal
to 75% or 100% of such reduced pension, as elected by the Member, continuing
after his death to his surviving Spouse or former Spouse during her lifetime.
SECTION 6
TERMINATION OF SERVICE
6.1 VESTING
If the Member terminates his Service or the Member's Service is terminated
for any reason other than retirement or death, he shall receive, commencing on
his Normal Retirement Date a deferred annuity in an amount equal to the benefit
accrued to him under Section 4.
6.2 IMMEDIATE PENSION
A former Member may elect to receive an immediate annuity in lieu of a
deferred annuity to which he is entitled under this Section 6 equal to:
(1) if the Member terminates his employment prior to his Early
Retirement Date, the Equivalent Actuarial Value of his deferred
annuity commencing on the first day of any month after he has
attained age 55; or
(2) if the Member terminates his employment on or after his Early
Retirement Date his deferred annuity reduced in accordance with
Section 4.2.
The date of commencement of such immediate annuity shall not be prior to
the first day of the month following receipt by the Committee of written
application therefor.
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6.3 PORTABILITY
(1) Subject to the provisions of the Supplemental Pension Plans Act,
where a Member terminates his employment with the Employer before age
55, he shall be entitled to transfer the Value of his benefits under
Section 6.1 to:
(1) a locked-in retirement account prescribed under the Supplemental
Pension Plans Act or, where applicable, a locked-in registered
retirement savings plan prescribed under a Similar Act;
(2) another registered pension plan, if that plan so permits;
(3) an insurance company to purchase a deferred life annuity that
will not commence before the earliest date on which the Member
would have been entitled to receive payment of pension benefits
under this Plan.
(2) The transfers set out in this Section 6.3 are subject to the
solvency requirements set out in the Supplemental Pension Plans Act.
(3) If the Value of a Member's pension exceeds such maximum amount as
may be prescribed under the Income Tax Act, the amount transferred in
accordance with subsection (a) of this Section 6.3 will not exceed
the prescribed maximum amount.
6.4 TIME LIMITS
The Member may only make an election under Section 6.3, within one of the
following time limits:
(1) within 180 days from the date he terminated his Service;
(2) subsequently, but not later than the date referred to in (c) below,
every 5 years, within 180 days from the date of expiry of every 5th
year;
(3) within 180 days from the date the Member attains an age which is 10
years before his Normal Retirement Date.
A Member employed in a province other than Quebec will be subject to the
time limits prescribed in the Similar Act applicable to him.
6.5 SMALL VALUE
The Value of any deferred annuity that a Member is entitled to transfer in
accordance with the provisions of Section 6.3 may, if the Value is less than 10%
of the YMPE for the Plan Year in which he becomes entitled thereto, be
transferred by the Committee to a prescribed plan described in Section 6.3 and
chosen by the Member or, if not, by the Committee.
The Committee shall not, however, transfer any such amount if it has been
used to purchase a pension the payment of which has begun.
SECTION 7
DEATH BENEFITS
7.1 DEATH IN SERVICE BEFORE NORMAL RETIREMENT DATE
If a Member dies in the Service before his Normal Retirement Date, the
following shall apply:
(1) Death before Early Retirement Date
If the Member would not have been entitled to receive an immediate
pension under the provisions of Section 4.2 had he ceased membership
on the date of his death, his surviving Spouse or, if the Member is
not survived by his Spouse, his Beneficiary shall receive a lump sum
payment equal to the minimum Value described in Section 7.2.
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<PAGE> 12
(2) Death on or after Early Retirement Date
If the Member would have been entitled to receive an immediate
pension under the provisions of Section 4.2 had he retired on the
date of his death:
(1) his surviving Spouse shall receive an annual pension equal to
the greater of:
- the annual pension the Spouse would have been entitled to
receive under the provisions of Section 5.1 had the payment of
the Member's pension commenced on the day preceding the death
of the Member; and
- the annual pension which can be purchased with the minimum
Value described in Section 7.2, or
(2) if the Member is not survived by his Spouse, his Beneficiary
shall receive a lump sum payment equal to the minimum Value
described in Section 7.2.
7.2 MINIMUM VALUE
The minimum Value referred to in Section 7.1 shall be equal to the Value
of:
(1) the pension which the Member would have been entitled to receive
under Section 4.2 had he retired immediately before his death;
(2) if the Member was not entitled to receive an immediate pension had
he retired before his death, his deferred pension to which he would
have been entitled under Section 6.1 had he ceased to be a Member on
the day of his death for a reason other than his death.
7.3 DEATH IN SERVICE AFTER NORMAL RETIREMENT DATE
If a Member dies while in the Service after his Normal Retirement Date and
before his Postponed Retirement Date, he shall be deemed to have retired on the
day before the date of his death and there shall be payable to his surviving
Spouse or his Beneficiary, as the case may be, the death benefit under (a) or
(b) below:
(1) Surviving Spouse
Such Member's surviving Spouse shall, unless she has waived her
entitlement in accordance with Section 5.2, receive an annual pension
during her lifetime the Value of which shall not be less than the
higher of:
(1) the Value of the annual pension the Spouse would have been
entitled to receive under Section 5.2 if payment of the postponed
pension had commenced on the day preceding the death of the
Member; and
(2) the minimum Value of the death benefit the Spouse would have
been entitled to receive under subsection (a) of Section 7.2,
taking into account that the pension is postponed.
(2) Beneficiary
If the Member is not survived by his Spouse, or she waives her
entitlement, his Beneficiary shall receive the death benefit payable
under Section 7.4, the Value of which shall not be less than the
Value described in subsection (a)(ii) of this Section 7.3.
7.4 DEATH AFTER RETIREMENT
If a Member dies after his pension has commenced, the death benefit, if
payable to such Member's Spouse or Beneficiary shall be governed by the type of
normal or optional form of benefit which the Member was receiving pursuant to
Section 5.
7.5 LUMP SUM PAYMENT
If monthly instalments of pension are to be continued, according to this
Section 7, to a deceased Member's Beneficiary, at the request of the Member
prior to his death, or following his death at the request of his Beneficiary,
the Committee may direct that the Value of all such outstanding instalments be
paid to the Beneficiary in one lump sum. If the Beneficiary is the Member's
estate, the Committee shall cause the present Value of all such outstanding
payments to be paid in one lump sum.
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Any lump sum amount payable after the death of a Member is paid as soon as
practicable after the Member's death.
7.6 METHOD OF PAYMENT
Any pension payable under this Section 7 shall be a monthly income payable
on the first day of each month commencing on the first of the month next
following the Member's death or, where applicable, his Spouse's death, and
continuing in an amount equal to 1/12 of the annual pension payable in
accordance with the provisions of this Section 7. In the case where a Member
elects an optional spousal pension, the last monthly instalment shall be due on
the first day of the month in which the surviving Spouse dies.
7.7 PORTABILITY
If a Member dies in the Service before his Normal Retirement Date, his
surviving Spouse may transfer the Value of any death benefits to which he is
entitled to a prescribed plan described in Section 6.3, subject to the
prescribed time limits set out in Section 6.4 on the basis that the Spouse makes
the election and that the time limit commences on the Member's date of death.
SECTION 8
DISABILITY
8.1 DISABILITY
A Member who is disabled, as defined hereunder, and eligible to receive
benefits under the Employer's long term disability insurance plan shall, for all
purposes of the Plan, continue to be considered a Member. Any such period of
disability, during which he is eligible to receive such benefits, up to age 65,
shall be included as Service for purposes of the Plan and his annual pension to
be credited during such period shall be determined under Section 4 on the
assumption that his Earnings in effect immediately prior to his becoming
disabled continue unchanged. If the Member shall recover, or shall be deemed to
have recovered, from his disability, and if he is not thereupon reinstated in
employment as an Employee, he shall be considered as having terminated
employment at that time and shall be entitled to the benefits provided under
Section 6.
For the purpose of this Section 8.1, disability means:
(1) a Member suffering from a physical or mental impairment so as to
prevent the performance of employment duties in which the Member was
engaged before the impairment occurred;
(2) which is certified, in writing, by a medical doctor licensed in
Canada or where the Member resides; and
(3) in respect of which the Member is eligible to receive benefits under
the Employer's long term disability program.
SECTION 9
MANAGEMENT OF FUNDS
9.1 THE FUND
The Committee shall determine the method of managing the funds of the Plan
either by investing the assets of the Fund, at its discretion, or by delegating
such responsibility to one or more persons or to an investment firm deemed
suitable by the Committee for that purpose. The Fund shall be held in the name
of the Plan and shall be invested in accordance with any applicable federal or
provincial legislation including specifically the Supplemental Pension Plans
Act.
9.2 PURCHASE OF ANNUITIES
The Committee may provide for the payment of any pension under this Plan
from the Fund or may purchase an annuity contract from an insurance company
licensed to do business in Canada with funds derived from the Fund.
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<PAGE> 14
SECTION 10
PENSION COMMITTEE
10.1 PENSION COMMITTEE
The Plan shall be administered by a Pension Committee which shall consist
of 7 members resident in Canada, 2 of whom shall be Members of the Plan and one
of whom shall be independent to the extent described in subsection (b) of this
Section 10.1.
(1) Plan Members
The two Plan Members who shall be members of the Pension Committee
shall be nominated by the Company and each such Plan Member shall
serve as member of the Pension Committee for his term of office
unless at the next annual meeting, described in Section 10.4, each
group of active Members and non-active Members shall decide whether
or not it will nominate one or two Plan Members to the Pension
Committee in the manner set out in Section 10.4.
(2) Independent
The Company shall nominate a person as an independent member of the
Pension Committee. Such person may, if the Company so decide, serve
with remuneration. The amount of remuneration, if any, shall be
determined by the Company. Such person must be neither a party to the
Plan nor a person to whom a prohibition as to the granting of loans
applies pursuant to the investment rules set out in the Supplemental
Pension Plans Act. For the purposes of this subsection (b), a person
who is a party to the Plan is an Employer or a Plan Member, or a
person who:
(1) acts on behalf of an Employer, such as a member of the Board of
Directors, a manager or an executive, or
(2) acts on behalf of Plan Members, such as an officer or representative
of the union or of the employees' association.
(3) Other Members
The Company shall nominate 4 members to the Pension Committee in
addition to those mentioned in subsections (a) and (b) of this
Section 10.1.
10.2 TERM OF OFFICE
Each individual nominated as a member of the Pension Committee shall take
office upon his acceptance thereof in writing and filed with the Company and the
Pension Committee. Subject to subsection (a) of Section 10.1, the term of office
of a member of a Pension Committee shall be 3 years. A member of the Pension
Committee whose term of office has expired shall remain in office until he is
reappointed or replaced. If a member of the Pension Committee nominated by the
Plan Members pursuant to subsection (a) of Section 10.1 becomes unable to act or
if the seat of such Plan Member on the Pension Committee becomes vacant, the
Pension Committee shall nominate a Plan Member to replace the member until the
next annual meeting is held pursuant to Section 10.4. If a member of the Pension
Committee nominated under subsection of Section 10.1 or subsection (c) of
Section 10.1 becomes unable to act, or if the seat of such member becomes
vacant, the Company shall immediately nominate a replacement.
10.3 EXPENSES OF PENSION COMMITTEE
The members of the Pension Committee shall serve as such, subject to the
provisions of subsection (b) of Section 10.1, without remuneration, but shall be
reimbursed for any necessary expenditures incurred in service on the Pension
Committee. Any such necessary expenditures and any expenses incurred by the
Pension Committee in administering the Plan shall be paid from the Fund, unless
any Employer, in its sole discretion, pays or reimburses the Committee or any
member thereof for such expenditures or expenses.
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10.4 ANNUAL MEETING
Within 6 months after December 31, 1996 and the end of each subsequent
Plan Year, or within any additional period which may be granted by the Regie des
rentes du Quebec, the Pension Committee shall, by a written notice, call each
Member and each Employer to a meeting held to:
(1) inform them of the amendments made to the Plan, of the entries in
the conflict of interest register and the financial position of the
Plan;
(2) enable each group of active Members and non-active Members to decide
whether or not it will nominate a member to the Pension Committee
and, if it so decides, to proceed with the nomination either in the
manner proposed by the Committee, or, if none is proposed or if the
group refuses the manner proposed, in the manner, decided by the
group, which allows the meeting to proceed with the nomination. Any
decision relating to a matter mentioned above shall be made by a
majority of the votes cast by the Members of each group which will
include votes by proxy.
The Pension Committee shall, in addition, render an account of its
administration at that annual meeting.
10.5 CONFLICT OF INTEREST
No member of the Pension Committee may exercise his powers in his own
interest or that of a third person. A member of the Pension Committee may not
place himself in a situation of conflict between his personal interest and the
duties of his office. A Plan Member who is a member of the Pension Committee
must act in the common interest, considering his own interest to be the same as
that of the other Members or beneficiaries of the Plan.
Every member of a Pension Committee must, without delay, notify the
Committee in writing of any interest he has in an enterprise that may cause his
personal interest to conflict with the duties of his office. He must also notify
the Committee in writing of any rights he may have in or may invoke against the
Fund, specifying their nature and value. However, a Plan Member who is also a
Pension Committee member does not have to give notice of his rights arising from
the Plan.
The Pension Committee shall keep a register at its office, in which every
interest or right of which it has been notified shall be recorded.
10.6 POWERS AND DUTIES
The Pension Committee shall perform such duties as are imposed upon it by
the terms of the Plan and by the provisions of the Supplemental Pension Plans
Act, and shall have such power and authority as may be necessary to administer
the Plan and to discharge its duties hereunder, including, but not limited to,
the power and authority:
(1) to interpret and construe the Plan within the limits of any
applicable legislation;
(2) to apply the eligibility and membership rules;
(3) to inform Members of an application for registration of an
amendment;
(4) to make determinations as to the rights of any person applying for
pension benefits;
(5) to determine the amount of benefits payable to any person in
accordance with the provisions of the Plan;
(6) to authorize and to make payments out of the Fund to persons
entitled to benefits under the Plan;
(7) to keep a register of conflicts of interest;
(8) to appoint an Actuary to perform such actuarial functions as may be
requested by the Pension Committee;
(9) to appoint a custodian or insurance company with which the Pension
Committee shall sign a custodian agreement or contract, as the case
may be;
(10) to adopt a written investment policy;
(11) to supply information to Members, including annual statements and
the membership termination statements;
(12) to authorize examination of documents and to make them available;
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<PAGE> 16
(13) to call each Member and each Employer to an annual meeting;
(14) to notify the Regie des rentes of any unpaid contributions within 60
days after they become due;
(15) to take or cause to be taken such action as in its judgment it shall
deem advisable or necessary to carry out the provisions of the Plan;
and
(16) to adopt such by-laws as it deems desirable for the conduct of its
affairs and for the administration of the Plan.
10.7 DELEGATION
(1) The Pension Committee may delegate all or part of its powers to any
person including the Company or be represented by a third party for a
specific act, each to perform such services and duties and have such
authority as is permitted by the instrument of delegation. When the
Pension Committee has delegated any or part of its powers to another
person, such person may delegate all or part of such powers to the
extent that he is permitted by the instrument of delegation.
(2) The Pension Committee shall, within 30 days after the date on which
a member appointed by the Plan Members takes office, re-examine the
delegation of powers to determine those that are to be maintained and
those that are to be revoked. The revocation carries with it the
revocation of each delegation made by the delegatee, if any.
10.8 ACTUARIAL FUNCTIONS
The Pension Committee shall, in consultation with the Actuary, adopt from
time to time mortality and other tables and interest rates upon which the
Equivalent Actuarial Values under the Plan will be based. The Pension Committee
shall furnish to the Actuary whom it employs all information required for the
preparation of regular actuarial valuations of the Plan, and shall receive from
the Actuary reports on such valuations and any other reports and recommendations
which may be necessary for the orderly administration of the Plan and to comply
with the Supplemental Pension Plans Act.
SECTION 11
TRANSFER PROVISIONS
11.1 TRANSFERS TO THE SERVICE
In the event that an Employee is transferred to the Service of an Employer
directly from service with an affiliate of an Employer, or from a predecessor of
an Employer, the Company shall determine on the basis of uniform rules in each
case, what portion, if any, of service prior to transfer shall be included in
Service.
11.2 TRANSFERS FROM THE SERVICE
In the event that a Member is transferred from the Service of an Employer
to the service of an affiliated company which is not participating in this Plan,
no further contributions shall be made on his behalf and no further benefits
shall accrue during his employment with such affiliated company unless the
Company specifically designates that such Employee shall continue to be a Member
of this Plan. However, the employment of such an Employee shall not be
considered as having terminated until his employment with the affiliated company
is terminated other than by transfer to another affiliated company, and for the
purposes of Section 6 his Service shall include the period of his employment by
such affiliated company.
11.3 TRANSFER OF ASSETS TO THIS PLAN
In the event that an Employee immediately prior to becoming a Member of
this Plan was a member of another pension plan of his employer, assets equal to
the Value of the pension accrued by the Member under that plan shall be
transferred to and accepted by this Plan for the purposes of providing pension
benefits under this Plan for Pensionable Service while a member of the other
pension plan. The Value of the annual pension payable under the provisions of
this Plan in respect of the Member's Pensionable Service while a member of the
other pension plan shall in no event be less than the Value so transferred.
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<PAGE> 17
SECTION 12
AMENDMENT OR DISCONTINUANCE OF THE PLAN
12.1 RIGHT TO AMEND OR DISCONTINUE THE PLAN
The Company expects and intends to maintain this Plan in force
indefinitely, but the Company necessarily reserves the right to change or
discontinue the Plan at any time. In addition, the Employer may cease to
participate in this Plan at any time. However, no amendment for any reason shall
adversely affect the pension or other benefits to which a Member had become
entitled in respect of Service prior to the date of such amendment, except in
the circumstances referred to in Section 4.6.
12.2 TOTAL OR PARTIAL TERMINATION OF THE PLAN
The Company may terminate the Plan in whole or part in accordance with the
provisions of the Supplemental Pension Plans Act for any reason at any time by
means of a written notice to the affected Members and the Regie des rentes du
Quebec. The Committee shall, within the time limits prescribed under the
Supplemental Pension Plans Act, submit a draft termination report to the Regie
des rentes and transmit to each Member, Spouse or Beneficiary affected a
statement setting out his benefits and their value as established in the
termination report, together with all prescribed information set out in the
Supplemental Pension Plans Act.
SECTION 13
GENERAL PROVISIONS
13.1 BENEFITS NOT CAPABLE OF ASSIGNMENT OR SEIZURE
Except as expressly provided herein or permitted or required by law,
pension or other benefits payable from the Fund shall not be capable of being
assigned, charged, attached, anticipated or given as securities or surrendered
and for the purposes of this provision:
(1) assignment does not include --
(1) assignment pursuant to a decree, order or judgment of a
competent tribunal or a written agreement in settlement of rights
arising as a consequence of the breakdown of a marriage or other
conjugal relationship between a Member and the Member's Spouse or
former spouse, or
(2) assignment by the legal representative of a deceased Member on
the distribution of the Member's estate, and
(2) surrender does not include a reduction in benefits to avoid the
revocation of the registration of the Plan pursuant to Section 4.6.
13.2 ASSETS IN THE FUND
Benefits under this Plan shall be payable only from the Fund and only to
the extent that there are assets in the Fund. No payment shall be made under the
Plan unless it shall have been authorized by the Committee.
13.3 SMALL PENSIONS
Where the Value of the annual pension or deferred pension payable to a
Member under this Plan is less than 4% of the YMPE for the Plan Year in which
the Member terminates his employment, retires or dies, as the case may be, the
Value of such pension or deferred pension may be paid to the Member or his
surviving Spouse.
13.4 MARRIAGE BREAKDOWN
In the event of marriage breakdown of a Member and his Spouse to the
extent that the Spouse is no longer a spouse within the meaning of Section 1.25,
the entitlement of the Spouse to any portion of the pension benefit of a Member
shall be subject to the provision of a court order or written agreement. Such an
agreement cannot, however, confer on the Spouse more than 50% of the Value of
such benefits. For that purpose, the Member and the Spouse shall be entitled to
obtain from the Committee a statement of the benefits accumulated by the Member
14
<PAGE> 18
under the Plan and the Value thereof, and any other prescribed information. The
benefits shall be transferred to the Spouse upon application in writing to the
Committee to the extent provided by the court order or written agreement.
13.5 PENSIONER BECOMES AN EMPLOYEE
Where a former Employee, who has commenced to receive a pension under this
Plan, recommences employment with an Employer, the payment of his monthly
pension shall continue and he shall not be eligible to recommence accruing
pension under Section 4.
13.6 SURPLUS OWNERSHIP
After provision has been made for the satisfaction of all liabilities of
the Plan, after its total or partial termination, any surplus assets as remain
in the Fund shall, subject to the provisions of the Supplemental Pension Plans
Act, revert to the Company. The Company shall be the exclusive owner of any
assets remaining after all liabilities of the Plan have been satisfied.
13.7 Construed and Interpreted
This Plan shall be construed and interpreted in accordance with the
provisions of the laws of the Province of Quebec.
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AMENDMENT NO. 1 TO
THE REPAP ENTERPRISES INC.
HEAD OFFICE REGISTERED PENSION PLAN
The following changes are effective January 1, 1996.
1. Section 1.8 is amended by adding the following sentence:
"Earnings include compensation as prescribed, from time to time, by the
Income Tax Act."
2. Section 1.19 is deleted and replaced by the following:
"1.19 "PENSIONABLE SERVICE" means Service in Canada while participating as
an active Member in this Plan and Service prior to the Effective Date
but excluding:
(a) Service before January 1, 1976;
(b) Service after December 31, 1989 but before the Effective Date
which the Employee chooses not to include;
(c) Service after December 31, 1989 but before the date the
Executive becomes a Member of this Plan which the Executive
chooses not to include;
(d) Service after the Normal Retirement Date; and
(e) for an Employee who is a connected person as defined in the
regulations of the Income Tax Act --
(i) Service prior to the Effective Date which the connected
person chooses not to include,
(ii) Service on or after the Effective Date which is an unpaid
leave of absence.
The first 3 years of Service outside of Canada with a
non-participating employer as defined by the Income Tax Act is
included in Pensionable Service."
3. Section 1.22 is amended by deleting the end of the sentence after the
words "he attains" and replacing it by the words "his 69th birthday, or
such other age as is designated from time to time by the Income Tax Act,
even though he continues to be employed by the Employer."
4. Section 1.23(d) is amended by replacing the word "Employer;" by the words
"Employer and is not a connected person as defined in the regulations of
the Income Tax Act."
5. Section 4.5 is amended by adding Section 4.5(c) as follows:
"(c) POST-1989 SERVICE FOR A CONNECTED PERSON:
The aggregate annual pension payable to a Member, who is a connected
person as defined in the regulations of the Income Tax Act, under
this Plan and any other registered pension plan of the Employer in
respect of Service after December 31, 1989, and payable in the year
in which the pension commences to be paid to the Member shall be the
lesser of:
(i) 2% of the sum of the Member's indexed compensation for each
year of pensionable service with the Employer, and
(ii) $1,722, or such higher amount as may be permitted from time to
time by the Income Tax Act, times the number of years of his
pensionable service with the Employer."
6. Section 8.1 is amended by adding the words "and is not a connected person
as defined in the regulations of the Income Tax Act" after the words
"during which he is eligible to receive such benefits".
CERTIFIED AS A TRUE AND COMPLETE COPY
- ------------------------------------------------------------
Date
- ------------------------------------------------------------
Secretary
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<PAGE> 20
NOTICE TO ALL THE MEMBERS OF THE REPAP ENTERPRISES INC.
HEAD OFFICE REGISTERED PENSION PLAN
A plan amendment has been submitted to the Regie des rentes du Quebec for
registration. The amendment, effective on January 1, 1996, was required by
Revenue Canada to clarify certain plan provisions in conformity with the current
provisions of the Income Tax Act. The amendment has no impact on the benefits
you may expect to receive.
A copy of the amendment is available in my office, at Head Office.
Montreal,
- ---------------------------------------1997
- ---------------------------------------
Administrator of the Pension Committee
CERTIFIED COPY OF A
RESOLUTION OF THE BOARD OF DIRECTORS
OF REPAP ENTERPRISES INC.
WHEREAS Repap Enterprises Inc. (the "Company") wishes to maintain the
registration of "The Repap Enterprises Inc. Head Office Registered Pension Plan"
(The "Plan");
WHEREAS pursuant to Section 12, the Company has the right to change the Plan at
any time;
WHEREAS the amendments are specifically requested by Revenue Canada for
compliance with the Income Tax Act and Regulations;
NOW THEREFORE, it is hereby resolved that:
1) The attached Amendment No. 1 to the Repap Enterprises Inc. Head Office
Registered Pension Plan is hereby approved and adopted.
I, Terry W. McBride, Secretary of Repap Enterprises Inc. (the "Company")
hereby certify under the corporate seal of the Company that the foregoing is a
true copy of a resolution consented to in writing by all of the Directors of the
Company as of the ____ day of __________________ 1997 and that the said
resolution continues to be in full force and effect as of the date hereof.
Dated this ____ day of __________________ 1997
---------------------------------------
Secretary
17
<PAGE> 1
EXHIBIT 10.8
THE REPAP ENTERPRISES INC.
SUPPLEMENTARY PENSION PLAN
August 1996 (REVISED)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION I Definitions................................................. 1
SECTION II Retirement Date............................................. 4
SECTION III Amount of Pension........................................... 5
SECTION IV Forms of Pension Benefits................................... 6
SECTION V Death....................................................... 7
SECTION VI Termination of Service...................................... 8
SECTION VII Disability.................................................. 9
SECTION VIII Amendment or Discontinuance of the Plan..................... 10
SECTION IX General Provisions.......................................... 11
</TABLE>
<PAGE> 3
SECTION I
DEFINITIONS
The following words and phrases as used herein shall, for the purposes of
this Plan and any subsequent amendment thereof, have the following meanings,
unless a different meaning is plainly indicated by the context:
"ACTUARY" means a Fellow of the Canadian Institute of Actuaries, appointed by
the Company for the purpose of performing such duties as may be required by
the Company.
"BASIC OFFSET PLAN" means the Repap Enterprises Inc. Head Office Registered
Pension Plan, the Repap British Columbia Inc. Retirement Plan for Salaried
Employees, the Pension Plan for Salaried Employees of Repap New Brunswick
Inc., the Repap Manitoba Salaried Pension Plan, the Pension Plan for
Salaried Employees of Repap New Brunswick Inc. and any other registered
pension plan of a Participating Employer in which the Member participated.
"BEST AVERAGE EARNINGS" means one-third of the total of the best 36 consecutive
months of Earnings. If a Member becomes entitled to a pension under the
Plan after less than 36 months of Service, his Final Average Earnings shall
be 12 times his average basic monthly Earnings over the entire period of
his Service.
"BOARD OF DIRECTORS" means the Board of Directors of Repap Enterprises Inc.
"COMPANY" means Repap Enterprises Inc. and any company which is a successor to
that company and which by consolidation, merger, amalgamation,
reorganization, or otherwise assumes charge of all or substantially all of
the business and assets of that company.
"EARNINGS" means the basic salary of a Member, excluding bonuses or any other
emoluments.
"EFFECTIVE DATE" means January 1, 1996.
"EQUIVALENT ACTUARIAL VALUE" means having equivalent value when computed on the
basis of interest and mortality assumptions recommended by the Actuary and
adopted by the Company.
"FINAL AVERAGE YMPE" means the annualized average of the YMPE in the calendar
year of retirement, termination from the Plan or death, as applicable, and
in the preceding two calendar years.
"MEMBER" means an employee normally residing in Canada of a Participating
Employer, who is not a member of another supplementary pension plan of the
Company or an affiliate and:
(a) whose Earnings on January 1, 1996 are greater than $99,375; or
(b) who has elected not to include certain years of service between
December 31, 1989 and December 31, 1995 under The Repap Enterprises Inc.
Head Office Registered Pension Plan in order to avoid a withdrawal of
some of his RRSP contributions.
"PARTICIPATING EMPLOYER" means the Company or any legal entity associated with
the Company which has been invited by the Company to participate in the
Plan in accordance with such terms as the Company shall deem appropriate
and, by resolution of its board of directors or similar body, has elected
to participate in this Plan. A Participating Employer shall cease to
participate in this Plan when it withdraws from the Plan or when the
Company terminates the participation of such Participating Employer.
As of the Effective Date, the following are Participating Employers:
- Repap Enterprises Inc.;
- Repap International (1987) Inc. (incorporated October 30, 1987);
- Repap British Columbia Inc. (acquired on July 1, 1986);
- Alcell Technologies Inc. (incorporated May 8, 1987);
- Repap New Brunswick Inc. (acquired on January 1, 1986);
- Repap Manitoba Inc. (acquired on May 1, 1989).
"PENSIONABLE SERVICE" means Service commencing on the later of the date of the
acquisition by Repap Enterprises Inc., as shown in subsection 1.11, of the
Participating Employer where the Member was working when he first
1
<PAGE> 4
started working for a Repap company; or the Member's date of hiring; or
January 1, 1986, up to a maximum of 30 years excluding Service after age
65.
"PLAN" means this Repap Enterprises Inc. Supplementary Pension Plan, as amended
from time to time.
"PLAN YEAR" means the period from January 1 to December 31.
"SERVICE" means employment of a Member with a Participating Employer including
periods, as determined by the Company, of authorized absence with or
without pay. Subject to Section VII, Service shall include any period while
a Member receives benefits under the long term disability insurance plan of
a Participating Employer up to age 65. Service is severed by voluntary
cessation of employment by the Member, discharge by a Participating
Employer, death or retirement.
"SPOUSE" means the person of the opposite sex who, at the date the Member
commences to receive his pension or as of the day preceding the Member's
death, whichever occurs first:
(a) is married to the Member; or
(b) has been living in a conjugal relationship with an unmarried Member for
a period of not less than 3 years or for a period of not less than one
year if --
(i) at least one child is born, or to be born, of their union;
(ii) they have adopted, jointly, at least one child while living
together in a conjugal relationship; or
(iii) one of them has adopted at least one child who is the child of the
other, while living together in a conjugal relationship.
However, if the Basic Offset Plan contains a definition of a Spouse which is
different from this definition, the definition of the Basic Offset Plan shall be
used.
"VALUE" means the value calculated by the Actuary as of a fixed date of a
pension or a deferred pension which shall not be less than the value
determined in accordance with the "Recommendations of the Minimum Transfer
Values of Pensions" issued by the Canadian Institute of Actuaries.
"YEAR'S MAXIMUM PENSIONABLE EARNINGS" ("YMPE") means the Year's Maximum
Pensionable Earnings for the year as defined in the provisions of the
Canada Pension Plan or the Quebec Pension Plan, whichever may be applicable
in any particular instance.
In the Plan, reference to the male gender will include the female gender and
vice versa, and references to the singular shall include the plural, and vice
versa, unless the context otherwise indicates.
SECTION II
RETIREMENT DATE
The normal retirement date of a Member for the purposes of the Plan shall
be the first day of the month following attainment of age 65. The late
retirement date of the Member shall be the first day of the month next following
his actual retirement but in no event shall his late retirement date be later
than the end of the calendar year in which he attains his 71st birthday, even
though he continues to be employed by a Participating Employer.
For the purposes of the Plan, where a Member retires at any time up to 10
years before his normal retirement date, the early retirement date of such a
Member shall be the first day of the month following his retirement, or the
first day of any subsequent month designated by the Member, but not later than
the month in which his normal retirement date occurs.
SECTION III
AMOUNT OF PENSION
Each Member who retires on his normal retirement date shall receive an
annual pension of an amount equal to 1.25% of his Best Average Earnings up to
his Final Average YMPE plus 2% of his Best Average Earnings in excess of his
Final Average YMPE multiplied by his years of Pensionable Service, with a
proportionate adjustment for a fraction of a year in completed months, but in no
event shall such annual pension on his normal retirement date be
2
<PAGE> 5
greater than 60% of his Best Average Earnings. Such annual pension shall be
reduced by the amount payable under the Basic Offset Plan in respect of the
Member's years of Pensionable Service.
No less than 30 days prior to the retirement date of a Member, or upon the
death or termination of a Member, the Controller of the Company, shall, on the
advice of the Actuary, establish the actual amount of annual pension which the
Member is entitled to receive under this Section III, or in the event of the
death of the Member, the amount his Spouse is entitled to receive according to
the terms of Section V.
A Member who retires on an earlier retirement date pursuant to subsection
2.2 of Section II shall receive an annual pension commencing on his earlier
retirement date of an amount equal to the annual pension determined in
accordance with subsection 3.1 of this Section III which will be reduced; such
reduction shall be 1/3 of 1% for each calendar month, if any, by which the date
on which his pension commences precedes his 60th birthday.
Each Member who retires on a later retirement date in accordance with
subsection 2.1 of Section II shall receive an annual pension which shall be the
Equivalent Actuarial Value of the annual pension which would have been payable
at his normal retirement date based on his Best Average Earnings and his
Pensionable Service to his normal retirement date.
The annual pensions established under subsection 3.2 of this Section III
shall be paid by the Participating Employer for whom the Pensionable Service was
rendered.
SECTION IV
FORMS OF PENSION BENEFITS
The normal form of pension payable under this Plan shall be a monthly
payment payable on the first day of each month, commencing on the Member's
normal, early or late retirement date, and continuing thereafter during the
lifetime of the Member in an amount equal to 1/12 of the annual pension
determined as provided in Section III hereof, and subject to all of the
provisions and conditions of this Plan, including specifically Section V.
The Company shall have the power to establish such optional forms of
pension of Equivalent Actuarial Value on the recommendation of the Actuary, as
may be considered by it to be appropriate, provided that such other optional
forms are not contrary to the provisions of any applicable federal or provincial
laws, rules, guidelines or regulations that may be or are hereafter enacted or
promulgated. Election by a Member of some other optional form of benefit shall
be subject to such conditions as may be prescribed by the Company, including
determination of the eligible Spouse.
For example, a Member may elect a joint and survivor pension providing for
a reduced pension payable to the Member during his lifetime with an amount equal
to 100% of such reduced pension, as elected by the Member, continuing after his
death to his surviving Spouse or former Spouse during her lifetime.
SECTION V
DEATH
If a Member dies in the Service before his normal retirement date, the
following shall apply:
(a) DEATH BEFORE EARLY RETIREMENT DATE
If the Member would not have been entitled to receive an immediate pension
under the provisions of Section 2.2 had he ceased membership on the date of his
death, his surviving Spouse or, if the Member is not survived by his Spouse, his
estate shall receive a lump sum payment equal to the Value of his deferred
pension to which he would have been entitled under Section 6.1 had he ceased to
be a Member on the date of his death for a reason other than his death;
(b) DEATH ON OR AFTER EARLY RETIREMENT DATE
If the Member would have been entitled to receive an immediate pension
under the provisions of this Plan had he retired on the date of his death:
(i) his surviving Spouse shall receive an annual pension equal to
the greater of --
- the annual pension the Spouse would have been entitled to
receive under the provisions of Section 5.2 had the payment
of the Member's pension commenced on the day preceding the
death of the Member; and
3
<PAGE> 6
- the annual pension which can be purchased with the Value of
the pension the Member would have been entitled to receive
under Section 3.3 had he retired immediately before death,
(ii) If the Member is not survived by his Spouse, his estate shall
receive a lump sum payment equal to the Value of the pension the
Member would have been entitled to receive under Section 3.3 had
he retired immediately before death.
In the event of the death of a Member who is in receipt of a pension under
Section 4.1, his surviving Spouse, if any, shall receive a pension equal to 60%
of the pension the Member was receiving at the time of his death. The Spouse's
pension is payable during her lifetime only.
In the event of the death of a Member who is in receipt of a pension under
Section 4.2, payments shall be made under this Plan as required by any
guaranteed period of payments still remaining or according to the survivor
pension elected.
SECTION VI
TERMINATION OF SERVICE
If the Member terminates his Service or the Member's Service is terminated,
at any time up to 10 years before his normal retirement date, for any reason
other than retirement, disability or death, such Member shall receive a deferred
pension payable from his normal retirement date equal to his accrued pension as
determined by the Actuary, in accordance with Section III. The Member may elect
to receive, on his early retirement date, a pension of Equivalent Actuarial
Value.
If the Member terminates his Service or the Member's Service is terminated,
after being eligible to receive a pension, for any reason other than retirement,
disability or death, such Member shall be entitled to the benefits provided
under subsections 2.2 and 3.3.
However, if the Member's Service is terminated at any time up to 10 years
before his normal retirement date and within a period of 2 years following a
change of control of the Participating Employer, such Member shall receive a
deferred pension payable in accordance with the early retirement provisions of
subsections 2.2 and 3.3.
SECTION VII
DISABILITY
DISABILITY
A Member who is disabled, as defined hereunder, and eligible to receive
benefits under the Company's long term disability insurance plan shall, for all
purposes of the Plan, continue to be considered a Member. Any such period of
disability, during which he is eligible to receive such benefits, up to age 65,
shall be included as Service for purposes of the Plan and his annual pension to
be credited during such period shall be determined under Section III on the
assumption that his Earnings in effect immediately prior to his becoming
disabled continue unchanged. If the Member shall recover, or shall be deemed to
have recovered, from his disability, and if he is not thereupon reinstated in
employment as an employee, he shall be considered as having terminated
employment at that time and shall be entitled to the benefits provided under
Section VI.
For the purpose of this Section 7.1, disability means:
(a) a Member suffering from a physical or mental impairment so as to
prevent the performance of employment duties in which the Member was
engaged before the impairment occurred;
(b) which is certified, in writing, by a medical doctor licensed in
Canada or where the Member resides; and
(c) in respect of which the Member is eligible to receive benefits under
the Participating Employer's long term disability program.
4
<PAGE> 7
SECTION VIII
AMENDMENT OR DISCONTINUANCE OF THE PLAN
The Board of Directors necessarily reserves the right to amend or
discontinue the Plan in whole or in part at any time. However, no amendment for
any reason shall adversely affect the pension or other benefits which a Member
had become entitled to in respect of Pensionable Service prior to the date of
such amendment
SECTION IX
GENERAL PROVISIONS
This Plan shall not constitute a contract of employment between the Company
and any Member or other person in the employ of the Participating Employer, nor
shall anything herein contained be deemed to give any Member or other person in
the employ of the Participating Employer any right to be retained in such
employ, or to interfere with the right of the Participating Employer to
discharge any Member or such other person at any time and to treat him without
regard to the effect which such treatment might have upon him as a Member of the
Plan.
Except as specifically provided herein, no benefit or payment or part
thereof under the Plan to any Member or eligible Spouse shall be capable of or
be subject in any manner to anticipation, surrender, commutation, alienation,
sale, transfer, assignment, pledge, encumbrance or charge, whether voluntary or
involuntary, and any attempt to so anticipate, surrender, commute, alienate,
sell, transfer, assign, pledge, encumber or charge the same shall be void, nor
shall any such benefit, payment or part thereof be in any way liable for or
subject to the debts, contracts, liabilities, engagements, faults or torts of
any person entitled to such benefit or payment. If any Member (or eligible
Spouse) is adjudicated bankrupt or purports to anticipate, surrender, commute,
alienate, sell, transfer, assign, pledge, encumber or charge any such benefit or
payment or part thereof, voluntarily or involuntarily, the Company, in its
discretion, may hold or apply or cause to be held or applied such benefit or
payment or any part thereof to or for the benefit of such Member, (or eligible
Spouse) in such manner as the Company shall direct.
In the event of bankruptcy, insolvency or winding-up of the Participating
Employer, all amounts payable to a Member, his Spouse or his estate under the
Plan shall constitute an exigible claim against the Participating Employer in
favor of such person; this claim is exigible immediately and is a lump sum equal
to the Value of the remaining payments to be made to the Member, his Spouse or
his estate under the Plan. Without limiting the generality of the foregoing,
such person shall be a creditor of the Participating Employer, within the
meaning of the Bankruptcy and Insolvency Act, having a provable claim against
the Participating Employer.
The Company shall have the sole and exclusive responsability to administer
the Plan and interpret its rules.
It is expressly understood that the obligation of a Participating Employer
is not solidary and that no provision of this Plan shall be construed as
creating a solidary obligation between the Participating Employers.
This Plan shall be construed and interpreted in accordance with the
provisions of the laws of the Province of Quebec and the laws of Canada
applicable therein.
5
<PAGE> 1
EXHIBIT 10.9
THE REPAP ENTERPRISES INC.
TOP EXECUTIVES SUPPLEMENTARY PENSION PLAN
August 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION I Definitions................................................. 1
SECTION II Retirement Date............................................. 4
SECTION III Amount of Pension........................................... 5
SECTION IV Forms of Pension Benefits................................... 6
SECTION V Death....................................................... 7
SECTION VI Termination of Service...................................... 8
SECTION VII Disability.................................................. 9
SECTION VIII Benefits for Certain Members Not Participating in the Head
Office Registered Pension Plan.............................. 10
SECTION IX Amendment or Discontinuance of the Plan..................... 11
SECTION X General Provisions.......................................... 12
APPENDIX A Pensionable Service Date.................................... 14
</TABLE>
<PAGE> 3
SECTION I
DEFINITIONS
The following words and phrases as used herein shall, for the purposes of
this Plan and any subsequent amendment thereof, have the following meanings,
unless a different meaning is plainly indicated by the context:
"ACTUARY" means a Fellow of the Canadian Institute of Actuaries, appointed by
the Company for the purpose of performing such duties as may be required by
the Company.
"BASIC OFFSET PLAN" means the Repap Enterprises Inc. Head Office Registered
Pension Plan, the Repap British Columbia Inc. Retirement Plan for Salaried
Employees, the Employer funded portion of the U.S. Top Executives' 401(k)
Plan and any registered plan of a Participating Employer in which the
executive participated.
"BEST AVERAGE EARNINGS" means one-third of the total of the best 36 consecutive
months of Earnings. If a Member becomes entitled to a pension under the
Plan after less than 36 months of Service, his Final Average Earnings shall
be 12 times his average basic monthly Earnings over the entire period of
his Service.
"BOARD OF DIRECTORS" means the Board of Directors of Repap Enterprises Inc.
"COMPANY" means Repap Enterprises Inc., and any company which is a predecessor
or which is a successor to that company and which by consolidation, merger,
amalgamation, reorganization, or otherwise assumes charge of all or
substantially all of the business and assets of that company.
"EARNINGS" means the basic salary of a Member, excluding bonuses or any other
emoluments.
"EFFECTIVE DATE" means January 1, 1996.
"EQUIVALENT ACTUARIAL VALUE" means having equivalent value when computed on the
basis of interest and mortality assumptions recommended by the Actuary and
adopted by the Company.
"FINAL AVERAGE YMPE" means the annualized average of the YMPE in the calendar
year of retirement, termination from the Plan or death, as applicable, and
in the preceding two calendar years.
"MEMBER" means an executive of a Participating Employer who has been notified in
writing of his participation in this Plan by the Company as a Member.
"PARTICIPATING EMPLOYER" means the Company or any legal entity associated with
the Company which has been invited by the Company to participate in the
Plan in accordance with such terms as the Company shall deem appropriate
and, by resolution of its board of directors or similar body, has elected
to participate in this Plan. A Participating Employer shall cease to
participate in this Plan when it withdraws from the Plan or when the
Company terminates the participation of such Participating Employer.
As of the Effective Date, the following are Participating Employers:
- Repap Enterprises Inc.;
- Repap International (1987) Inc.;
- Repap British Columbia Inc.;
- Repap Sales Corporation;
- Repap Wisconsin Inc.;
- Alcell Technologies Inc.
"PENSIONABLE SERVICE" means Service or deemed Service commencing on a Member's
pensionable service date as shown in Appendix A up to a maximum of 25 years
excluding Service after age 65.
"PLAN" means this Repap Enterprises Inc. Top Executives Supplementary Pension
Plan, as amended from time to time.
"PLAN YEAR" means the period from January 1 to December 31.
"SERVICE" means employment or deemed employment of a Member with a Participating
Employer including periods, as determined by the Company, of authorized
absence with or without pay. Subject to Section VII, Service shall include
any period while a Member receives benefits under the long term disability
insurance plan
1
<PAGE> 4
of a Participting Employer up to age 65. Service is severed by voluntary
cessation of employment by the Member, discharge by a Participating
Employer, death or retirement.
"SPOUSE" means the person of the opposite sex who, at the date the Member
commences to receive his pension or as of the day preceding the Member's
death, whichever occurs first:
(a) is married to the Member; or
(b) has been living in a conjugal relationship with an unmarried Member
for a period of not less than 3 years or for a period of not less than one
year if --
(i) at least one child is born, or to be born, of their union;
(ii) they have adopted, jointly, at least one child while living
together in a conjugal relationship; or
(iii) one of them has adopted at least one child who is the child of
the other, while living together in a conjugal relationship.
However, if the Basic Offset Plan contains a definition of a Spouse which
is different from this definition, the definition of the Basic Offset Plan shall
be used.
"VALUE" means the value calculated by the Actuary as of a fixed date of a
pension or a deferred pension which shall not be less than the value
determined in accordance with the "Recommendations of the Minimum Transfer
Values of Pensions" issued by the Canadian Institute of Actuaries.
"YEAR'S MAXIMUM PENSIONABLE EARNINGS" ("YMPE") means the Year's Maximum
Pensionable Earnings for the year as defined in the provisions of the
Canada Pension Plan or the Quebec Pension Plan, whichever may be applicable
in any particular instance.
In the Plan, reference to the male gender will include the female gender
and vice versa, and references to the singular shall include the plural, and
vice versa, unless the context otherwise indicates.
SECTION II
RETIREMENT DATE
The normal retirement date of a Member for the purposes of the Plan shall
be the first day of the month following attainment of age 65. The late
retirement date of the Member shall be the first day of the month next following
his actual retirement but in no event shall his late retirement date be later
than the end of the calendar year in which he attains his 71st birthday, even
though he continues to be employed by the Participating Employer.
For the purposes of the Plan, where a Member retires at any time up to 10
years before his normal retirement date, the early retirement date of such a
Member shall be the first day of the month following his retirement, or the
first day of any subsequent month designated by the Member, but not later than
the month in which his normal retirement date occurs.
SECTION III
AMOUNT OF PENSION
Each Member who retires on his normal retirement date shall receive an
annual pension of an amount equal to 2.25% of his Best Average Earnings up to
his Final Average YMPE plus 3% of his Best Average Earnings in excess of his
Final Average YMPE multiplied by his first 10 years of Pensionable Service plus
1.25% of his Best Average Earnings up to his Final Average YMPE plus 2% of his
Best Average Earnings in excess of his Final Average Earnings multiplied by his
next 15 years of Pensionable Service, with a proportionate adjustment for a
fraction of a year in completed months, but in no event shall such annual
pension on his normal retirement date be greater than 60% of his Best Average
Earnings. Such annual pension shall be reduced by the amount payable under the
Basic Offset Plan in respect of Pensionable Service after his pensionable
service date in Appendix A.
No less than 30 days prior to the retirement date of a Member, or upon the
death or termination of a Member, the Controller of the Company, shall, on the
advice of the Actuary, establish the actual amount of annual pension which the
Member is entitled to receive under this Section III, or in the event of the
death of the Member, the amount his Spouse is entitled to receive according to
the terms of Section V.
2
<PAGE> 5
A Member who retires on an earlier retirement date pursuant to subsection
2.2 of Section II shall receive an annual pension commencing on his earlier
retirement date of an amount equal to the annual pension determined in
accordance with subsection 3.1 of this Section III which will be reduced; such
reduction shall be 1/3 of 1% for each calendar month, if any, by which the date
on which his pension commences precedes his 60th birthday.
Each Member who retires on a later retirement date in accordance with
subsection 2.1 of Section II shall receive an annual pension which shall be the
Equivalent Actuarial Value of the annual pension. which would have been payable
at his normal retirement date based on his Best Average Earnings and his
Pensionable Service to his normal retirement date.
The annual pensions established under subsection 3.2 of this Section III
shall be paid by the Participating Employer for whom the Pensionable Service was
rendered.
SECTION IV
FORMS OF PENSION BENEFITS
The normal form of pension payable under this Plan shall be a monthly
payment payable on the first day of each month, commencing on the Member's
normal, early or late retirement date, and continuing thereafter during the
lifetime of the Member in an amount equal to 1/12 of the annual pension
determined as provided in Section III hereof, and subject to all of the
provisions and conditions of this Plan, including specifically Section V.
The Company shall have the power to establish such optional forms of
pension of Equivalent Actuarial Value on the recommendation of the Actuary, as
may be considered by it to be appropriate, provided that such other optional
forms are not contrary to the provisions of any applicable federal or provincial
laws, rules, guidelines or regulations that may be or are hereafter enacted or
promulgated. Election by a Member of some other optional form of benefit shall
be subject to such conditions as may be prescribed by the Company, including
determination of the eligible Spouse.
For example, a Member may elect a joint and survivor pension providing for a
reduced pension payable to the Member during his lifetime with an amount equal
to 100% of such reduced pension, as elected by the Member, continuing after his
death to his surviving Spouse or former Spouse during her lifetime.
SECTION V
DEATH
If a Member dies in the Service before his normal retirement date, the
following shall apply:
(a) Death Before Early Retirement Date If the Member would not have
been entitled to receive an immediate pension under the provisions of
Section 2.2 had he ceased membership on the date of his death, his
surviving Spouse or, if the Member is not survived by his Spouse, his
estate shall receive a lump sum payment equal to the Value of his
deferred pension to which he would have been entitled under Section
6.1 had he ceased to be a Member on the date of his death for a
reason other than his death;
(b) Death On or After Early Retirement Date If the Member would have
been entitled to receive an immediate pension under the provisions of
this Plan had he retired on the date of his death:
(i) his surviving Spouse shall receive an annual pension equal to
the greater of --
- the annual pension the Spouse would have been entitled to
receive under the provisions of Section 5.2 had the payment
of the Member's pension commenced on the day preceding the
death of the Member; and
- the annual pension which can be purchased with the Value of
the pension the Member would have been entitled to receive
under Section 3.3 had he retired immediately before death,
(ii) if the Member is not survived by his Spouse, his estate shall
receive a lump sum payment equal to the Value of the pension the
Member would have been entitled to receive under Section 3.3 had
he retired immediately before death.
3
<PAGE> 6
In the event of the death of a Member who is in receipt of a pension under
Section 4.1, his surviving Spouse, if any, shall receive a pension equal to 60%
of the pension the Member was receiving at the time of his death. The Spouse's
pension is payable during her lifetime only.
In the event of the death of a Member who is in receipt of a pension under
Section 4.2, payments shall be made under this Plan as required by any
guaranteed period of payments still remaining or according to the survivor
pension elected.
SECTION VI
TERMINATION OF SERVICE
If the Member terminates his Service or the Member's Service is terminated
for any reason other than retirement, disability or death, such Member shall
receive a deferred pension payable from his normal retirement date equal to his
accrued pension as determined by the Actuary, in accordance with Section III.
The Member may elect to receive, on his early retirement date, a pension of
Equivalent Actuarial Value.
If the Member terminates his Service or the Member's Service is terminated,
after being eligible to receive a pension, for any reason other than retirement,
disability or death, such Member shall be entitled to the benefits provided
under subsections 2.2 and 3.3.
However, if the Member's Service is terminated at any time up to 10 years
before his normal retirement date and within a period of 2 years following a
change of control of the Participating Employer, such Member shall receive a
deferred pension payable in accordance with the early retirement provisions of
subsections 2.2 and 3.3.
SECTION VII
DISABILITY
DISABILITY
A Member who is disabled, as defined hereunder, and eligible to receive
benefits under the Participating Employer's long term disability insurance plan
shall, for all purposes of the Plan, continue to be considered a Member. Any
such period of disability, during which he is eligible to receive such benefits,
up to age 65, shall be included as Service for purposes of the Plan and his
annual pension to be credited during such period shall be determined under
Section III on the assumption that his Earnings in effect immediately prior to
his becoming disabled continue unchanged. If the Member shall recover, or shall
be deemed to have recovered, from his disability, and if he is not thereupon
reinstated in employment as an employee, he shall be considered as having
terminated employment at that time and shall be entitled to the benefits
provided under Section VI.
For the purpose of this Section 7.1, disability means:
(a) Member suffering from a physical or mental impairment so as to
prevent the performance of employment duties in which the Member was
engaged before the impairment occurred;
(b) which is certified, in writing, by a medical doctor licensed in
Canada or where the Member resides; and
(c) in respect of which the Member is eligible to receive benefits under
the Participating Employer's long term disability program.
SECTION VIII
BENEFITS FOR CERTAIN MEMBERS NOT PARTICIPATING
IN THE HEAD OFFICE REGISTERED PENSION PLAN
The Member who is eligible to become a Member of the Repap Enterprises Inc.
Head Office Registered Pension Plan and who elects not to participate, for as
long as he is not participating in that plan, is not entitled to the retirement
benefits described in Section III.
If such a Member dies in the Service before age 65, his surviving Spouse,
or if the Member is not survived by his Spouse, his estate, shall receive a lump
sum payment equal to the value of his deferred pension to which he would have
been entitled under Section 6.1 had he ceased to be a Member on the date of his
death, for a reason
4
<PAGE> 7
other than his death, and had he participated in the Repap Enterprises Inc. Head
Office Registered Pension Plan from the same date with no pensionable service
credited under that plan prior to his death.
If such a Member is terminated for any reason other than death or
disability, he shall receive a deferred pension, payable from age 65, equal to
the pension determined by the Actuary in accordance with Section III and
calculated as if the Member had started participating in the Repap Enterprises
Inc. Head Office Registered Pension Plan from the day he terminated his Service
with no pensionable service credited under that plan prior to his date of
termination.
If such a Member is disabled, as defined in Section 7.1, for all purposes
of this Plan, he shall be considered to be participating in the Repap
Enterprises Inc. Head Office Registered Pension Plan from the date of his
disability.
SECTION IX
AMENDMENT OR DISCONTINUANCE OF THE PLAN
The Board of Directors necessarily reserves the right to amend or
discontinue the Plan in whole or in part at any time. However, no amendment for
any reason shall adversely affect the pension or other benefits to which a
Member had become entitled to in respect of Pensionable Service prior to the
date of such amendment.
SECTION X
GENERAL PROVISIONS
This Plan shall not constitute a contract of employment between the Par
ticipating Employer and any Member or other person in the employ of the
Participating Employer, nor shall anything herein contained be deemed to give
any Member or other person in the employ of the Participating Employer any right
to be retained in such employ, or to interfere with the right of the
Participating Employer to discharge any Member or such other person at any time
and to treat him without regard to the effect which such treatment might have
upon him as a Member of the Plan.
Except as specifically provided herein, no benefit or payment or part
thereof under the Plan to any Member or eligible Spouse shall be capable of or
be subject in any manner to anticipation, surrender, commutation, alienation,
sale, transfer, assignment, pledge, encumbrance or charge, whether voluntary or
involuntary, and any attempt to so anticipate, surrender, commute, alienate,
sell, transfer, assign, pledge, encumber or charge the same shall be void, nor
shall any such benefit, payment or part thereof be in any way liable for or
subject to the debts, contracts, liabilities, engagements, faults or torts of
any person entitled to such benefit or payment. If any Member (or eligible
Spouse) is adjudicated bankrupt or purports to anticipate, surrender, commute,
alienate, sell, transfer, assign, pledge, encumber or charge any such benefit or
payment or part thereof, voluntarily or involuntarily, the Company, in its
discretion, may hold or apply or cause to be held or applied such benefit or
payment or any part thereof to or for the benefit of such Member, (or eligible
Spouse) in such manner as the Company shall direct.
In the event of bankruptcy, insolvency or winding-up of the Participating
Employer, all amounts payable to a Member, his Spouse or his estate under the
Plan shall constitute an exigible claim against the Participating Employer in
favor of such person; this claim is exigible immediately and is a lump sum equal
to the Value of the remaining payments to be made to the Member, his Spouse or
his estate under the Plan. Without limiting the generality of the foregoing,
such person shall be a creditor of the Participating Employer, within the
meaning of the Bankruptcy and Insolvency Act, having a provable claim against
the Participating Employer.
The Company shall have the sole and exclusive responsibility to administer
the Plan and interpret its rules.
It is expressly understood that the obligation of a Participating Employer
is not solidary and that no provision of this Plan shall be construed as
creating a solidary obligation between the Participating Employers.
This Plan shall be construed and interpreted in accordance with the
provisions of the laws of the Province of Quebec and the laws of Canada
applicable therein.
5
<PAGE> 8
APPENDIX A
PENSIONABLE SERVICE DATE
<TABLE>
<CAPTION>
NAME DATE
- ------------------------------------------------------------ -------------------
<S> <C>
J.N. Bowersock.............................................. November 16, 1982
R. Buser.................................................... September 15, 1992
M. Cormier.................................................. January 13, 1992*
A.J. Dundas................................................. January 1, 1981
N. Falco.................................................... April 1, 1991
G. Farah.................................................... January 1, 1981
G. Fenton................................................... January 1, 1981
J.G. Kass................................................... January 1, 1981
S.C. Larson................................................. March 1, 1991
T.W. McBride................................................ February 1, 1989
I. O'Shea................................................... January 1, 1981
H.R. Papushka............................................... July 1, 1981
G.S. Petty.................................................. January 1, 1981
R.H. Sumner................................................. January 1, 1981
D.D. Veniez................................................. November 6, 1992
</TABLE>
- ---------------
* Plus service between November 30, 1987 and March 30, 1990.
6
<PAGE> 1
- --------------------------------------------------------------------------------
EXHIBIT 10.10
SHAREHOLDER PROTECTION RIGHTS PLAN AGREEMENT
DATED AS OF
FEBRUARY 8, 1994
BETWEEN
REPAP ENTERPRISES INC.
AND
MONTREAL TRUST COMPANY
AS RIGHTS AGENT
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C> <C>
ARTICLE I -- INTERPRETATION
1.1 Certain Definitions......................................... 1
1.2 Currency.................................................... 12
1.3 Headings.................................................... 12
1.4 Grandfather Provisions...................................... 12
ARTICLE 2 -- THE RIGHTS
2.1 Legend on Common Share Certificates......................... 13
2.2 Initial Exercise Price; Exercise of Rights; Detachment of 14
Rights......................................................
2.3 Adjustments to Exercise Price; Number of Rights............. 17
2.4 Date on Which Exercise is Effective......................... 21
2.5 Execution, Authentication, Delivery and Dating of Rights 22
Certificates................................................
2.6 Registration, Transfer and Exchange......................... 22
2.7 Mutilated, Destroyed, Lost and Stolen Rights Certificates... 23
2.8 Persons Deemed Owners....................................... 24
2.9 Delivery and Cancellation of Certificates................... 24
2.10 Agreement of Rights Holders................................. 24
2.11 Rights Certificate Holder not Deemed a Shareholder.......... 25
ARTICLE 3 -- FLIP-IN EVENT
3.1 Flip-in Event............................................... 25
3.2 Exchange Option............................................. 26
ARTICLE 4 -- THE RIGHTS AGENT
4.1 General..................................................... 28
4.2 Merger or Amalgamation or Change of Name of Rights Agent.... 29
4.3 Duties of Rights Agent...................................... 29
4.4 Change of Rights Agent...................................... 31
ARTICLE 5 -- MISCELLANEOUS
5.1 Redemption and Waiver....................................... 32
5.2 Expiration.................................................. 33
5.3 Issuance of New Rights Certificates......................... 33
5.4 Supplements and Amendments.................................. 34
5.5 Fractional Rights and Fractional Shares..................... 35
5.6 Rights of Action............................................ 35
5.7 Regulatory Approvals........................................ 36
5.8 Declaration as to Non-Canadian and Non-U.S. Holders......... 36
5.9 Notices..................................................... 36
5.10 Costs of Enforcement........................................ 37
5.11 Successors.................................................. 38
5.12 Benefits of this Agreement.................................. 38
5.13 Governing Law............................................... 38
5.14 Severability................................................ 38
5.15 Effective Date.............................................. 38
5.16 Determinations and Actions by the Board of Directors........ 38
5.17 Time of the Essence......................................... 39
5.18 Execution in Counterparts................................... 39
Exhibit A -- Form of Rights Certificate
</TABLE>
<PAGE> 3
SHAREHOLDER PROTECTION RIGHTS PLAN AGREEMENT
MEMORANDUM OF AGREEMENT, dated as of the 8th day of February, 1994,
between Repap Enterprises Inc., a corporation incorporated under the Canada
Business Corporations Act (the "Corporation"), and Montreal Trust Company, a
trust company incorporated under the laws of Canada (the "Rights Agent");
WHEREAS in order to implement the adoption of a shareholder protection
rights plan as established by this Agreement, the Board of Directors of the
Corporation (the "Board of Directors") has:
(a) authorized effective 5:00 p.m. (Montreal time) on February 8, 1994
the issuance of one Right (as hereinafter defined) in respect of each
Common Share (as hereinafter defined) outstanding at the Record Time
(as hereinafter defined); and
(b) authorized the issuance of one Right in respect of each Common Share
issued after the Record Time and prior to the earlier of the
Separation Time and the Expiration Time (as hereinafter defined); and
WHEREAS each Right entities the holder thereof, after the Separation Time,
to purchase securities or other assets of the Corporation pursuant to the terms
and subject to the conditions set forth herein; and
WHEREAS the Corporation desires to appoint the Rights Agent to act on
behalf of the Corporation, and the Rights Agent is willing to so act, in
connection with the issuance, transfer, exchange and replacement of Rights
Certificates (as hereinafter defined), the exercise of Rights and other matters
referred to herein;
NOW THEREFORE, in consideration of the premises and the respective
covenants and agreements set forth herein, subject to such covenants and
agreements, the parties hereby agree as follows:
ARTICLE I
INTERPRETATION
1.1 Certain Definitions
For purposes of this Agreement, the following terms have the meanings
indicated:
"ACQUIRING PERSON" shall mean, subject to Section 1.4 hereof, any Person
who, at any time after the date hereof and prior to the Expiration Time, is the
Beneficial Owner of 20 per cent or more of the outstanding Voting Shares,
specifically excluding the following Persons:
(i) the Corporation or any Subsidiary of the Corporation, any employee
benefit plan or trust for the benefit of employees of the Corporation
or any Subsidiary of the Corporation, or any Person organized,
appointed or established by the Corporation for or pursuant to the
terms of any such plan or trust and acting in such capacity; and
(ii) any Person who becomes the Beneficial Owner of [20] per cent or
more of the outstanding Voting Shares as a result of one or any
combination of (A) an acquisition or redemption by the Corporation of
Voting Shares which, by reducing the number of Voting Shares
outstanding, increases the proportionate number of Voting Shares
Beneficially Owned by such Person to [20] per cent or more of the
Voting Shares then outstanding, (B) Permitted Bid Acquisitions, or
(C) Exempt Acquisitions; provided, however, that if a Person becomes
the Beneficial Owner of 20 per cent or more of the outstanding Voting
Shares by reason of one or any combination of the operation of parts
(A), (B) or (C) above and, after so becoming, becomes the Beneficial
Owner of any additional Voting Shares other than pursuant to
Permitted Bid Acquisitions or through Exempt Acquisitions or employee
stock option or purchase plans, or as a result of a stock dividend, a
stock split or other event pursuant to which such Person receives or
acquires Voting Shares on the same pro rata basis as all other
holders of Voting Shares of the same class ("Pro Rata Acquisitions"),
then as of the date of such additional Beneficial Ownership such
Person shall become an "Acquiring Person";
"AFFILIATE" shall have the meaning ascribed to such term in Section 1(2)
of the Securities Act (Quebec);
"AGREEMENT" shall mean this shareholder protection rights plan agreement
dated as of February 8, 1994 between the Corporation and the Rights Agent, as
amended or supplemented from time to time; "hereof", "herein", "hereto" and
similar expressions mean and refer to this Agreement as a whole and not to any
particular part of this Agreement;
2
<PAGE> 4
"ANNUAL CASH DIVIDENDS" shall mean cash dividends paid in any fiscal year
of the Corporation on its Common Shares to the extent that such cash dividends
do not exceed, in the aggregate, the greatest of:
(i) 200 per cent of the aggregate amount of cash dividends declared
payable by the Corporation on its Common Shares in its immediately
preceding fiscal year;
(ii) 300 per cent of the arithmetic mean of the aggregate amounts of the
annual cash dividends declared payable by the Corporation on its
Common Shares in its three immediately preceding fiscal years; and
(iii) 100 per cent of the aggregate consolidated net income of the
Corporation, before extraordinary items, for its immediately
preceding fiscal year;
"ASSOCIATE" shall have the meaning ascribed to such term in the Securities
Act (Quebec), provided that a Fiduciary is not an Associate of a trust or trusts
for which the Fiduciary is acting as trustee or in a similar capacity and where
the Fiduciary has no investment authority (including none of the rights of
control or direction) and no beneficial interest in the securities owned by the
other person and the trust or trusts are not otherwise affiliated with or acting
jointly or in concert with the Fiduciary or each other;
A Person shall be deemed the "BENEFICIAL OWNER" of, and to have
"BENEFICIAL OWNERSHIP" of, and to "BENEFICIALLY OWN":
(i) any securities as to which such Person or any of such Person's
Affiliates or Associates is the direct or indirect beneficial owner
and for this purpose a Person shall be deemed to be a beneficial
owner of all securities (A) owned by a partnership of which the
Person is a partner, (B) owned by a trust of which the Person is a
beneficiary, (C) owned jointly or in common with others and (D) of
which the Person may be deemed to be the beneficial owner (whether or
not of record) pursuant to the provisions of the Canada Business
Corporations Act, the Securities Act (Quebec), including Sections II
1 and 1 12 thereof, or Rule 13d-3 or 13d-5 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (or pursuant to
any comparable or successor laws, regulations or rules or, if such
laws, regulations or rules shall be rescinded and there shall be no
comparable or successor laws, regulations or rules, pursuant to the
provisions of the Canada Business Corporations Act, the Securities
Act (Quebec) or Rule 13d-3 or 13d-5 under the Exchange Act as in
effect on the date of this Agreement);
(ii) any securities as to which such Person or any of such Person's
Affiliates or Associates has either or both (A) the right to acquire
(whether such right is exercisable immediately or after the lapse or
passage of time and whether or not on condition or the happening of
any contingency or otherwise) pursuant to any agreement, arrangement,
pledge or understanding, whether or not in writing (other than
customary agreements with and between underwriters and banking group
or selling group members with respect to a bona fide public offering
of securities and other than pledges of securities in the ordinary
course of business which meet all of the conditions specified in Rule
13d-3(d)(3) under the 1934 Exchange Act), or upon the exercise of any
convertible debentures, conversion right, exchange right, share
purchase right (other than the Rights), warrant or option, or
otherwise or (B) the right to vote such security (whether such right
is exercisable immediately or after the lapse or passage of time and
whether or not on condition or the happening of any contingency or
otherwise), pursuant to any proxy agreement, arrangement or
understanding (whether or not in writing) or otherwise;
(iii) any securities which are Beneficially Owned within the meaning of
clauses (i) or ii) by any other Person with which a Person or any of
its Affiliates or Associates is acting in concert or jointly on has
any proxy agreement, arrangement or understanding (whether or not in
writing) with respect to or for the purpose of acquiring, holding,
voting or disposing of any Voting Shares or acquiring, holding or
disposing of a significant portion of the property or assets of the
Corporation or any Subsidiary of the Corporation, other than (A)
customary agreements with and between underwriters and banking group
or selling group members with respect to a bona fide public offering
of securities or (B) agreements between a Fiduciary, acting as such,
and another Person, where the Fiduciary has no investment authority
(including none of the rights of control or direction) and no
beneficial interest in the securities owned by the other Person;
provided, however, that a Person shall not be deemed the "Beneficial Owner" or
to have "Beneficial Ownership" of,
3
<PAGE> 5
or to "Beneficially Own", any security:
(A) solely because such security has been deposited or tendered pursuant
to any Take-over Bid made by such Person or made by any of such
Person's Affiliates or Associates until such deposited or tendered
security has been taken up or paid for, whichever shall first occur;
or
(B) solely because such Person or any of such Person's Affiliates or
Associates has or shares the power to vote or direct the voting of
such security pursuant to a revocable proxy given in response to a
public proxy solicitation made pursuant to and in accordance with the
applicable rules and regulations under the Canada Business
Corporations Act or the Securities Act (Quebec); or
(C) solely because such Person or any of such Person's Affiliates or
Associates has or shares the power to vote or direct the voting of
such security in connection with or in order to participate in a
public proxy solicitation made or to be made pursuant to and in
accordance with the applicable rules and regulations referred to in
(B) above; or
(C) held for or pursuant to the terms of any employee stock ownership or
other employee benefit plan of the Corporation or a wholly owned
Subsidiary of the Corporation.
For purposes of this Agreement, in determining the percentage of the
outstanding Voting Shares with respect to which a Person is or is deemed to be
the Beneficial Owner, all Voting Shares as to which such Person is deemed the
Beneficial Owner shall be deemed outstanding;
"BOARD OF DIRECTORS" shall mean the board of directors of the Corporation
or any duly constituted and empowered committee thereof;
"BUSINESS DAY" shall mean any day other than a Saturday, Sunday or a day
on which banking institutions in Montreal are authorized or obligated by law or
executive order to close;
"CANADA BUSINESS CORPORATIONS ACT" shall mean the Canada Business
Corporations Act, R.S.C. 1985, c. C-44, as amended, and the regulations made
thereunder and any comparable or successor laws or regulations thereto;
"CANADIAN DOLLAR EQUIVALENT" of any amount which is expressed in United
States dollars shall mean on any day the Canadian dollar equivalent of such
amount determined by reference to the U.S.-Canadian Exchange Rate on such date;
"CLOSE OF BUSINESS" on any given date shall mean the time on such date
(or, if such date is not a Business Day, the time on the next succeeding
Business Day) at which the principal transfer office in Montreal of the transfer
agent for the Common Shares (or, after the Separation Time, the principal
transfer office in Montreal of the Rights Agent) closes to the public;
"CDN" shall mean the trade reporting and quotation system for over-the
counter trading operated by The Canadian Dealing Network Inc.;
"COMMON SHARES" shall mean the subordinate voting shares and multiple
voting shares in the capital of the Corporation and any other shares of the
Corporation into which such shares may be subdivided, consolidated, reclassified
or changed, and so on from time to time, except in the case of clauses 2.2 (a),
(d), (e) and (g) where "COMMON SHARE" shall mean the subordinate voting shares
in the capital of the Corporation and any other shares of the Corporation into
which such shares may be subdivided, consolidated, reclassified or changed, and
so on from time to time;
"CO-RIGHTS AGENTS" shall have the meaning ascribed thereto in clause
4.1(a);
"ELECTION TO EXERCISE" shall have the meaning ascribed thereto in clause
2.2(d);
"EXEMPT ACQUISITIONS" shall mean share acquisitions in respect of which
the Board of Directors has waived the application of Section 3.1 pursuant to the
provisions of clause 5.1(b) or clause 5.1(c) or which were made on or prior to
the date of this Agreement;
"EXERCISE PRICE" shall mean, as of any date, the price at which a holder
may purchase the securities issuable upon exercise of one whole Right which,
until adjustment thereof in accordance with the terms hereof and in particular
in accordance with sections 2.3 and 3.1 hereof, shall be $25;
"EXPANSION FACTOR" shall have the meaning ascribed thereto in clause
2.3(a);
4
<PAGE> 6
"EXPIRATION TIME" shall mean the earlier of:
(i) the Termination Time; or
(ii) the close of business on February 8, 1999 being the fifth year
after the date hereof;
"FIDUCIARY" shall mean a trust company registered under the trust company
legislation of Canada or any province thereof, a trust company organized under
the laws of any state of the United States, a portfolio manager registered under
the securities legislation of one or more provinces of Canada or an investment
adviser registered under the United States or any state of the United States;
"FLIP-IN EVENT" shall mean a transaction in or pursuant to which any
Person becomes an Acquiring Person;
"GRANDFATHERED PERSON", and "GRANDFATHERED BIDDER" shall have the
respective meanings ascribed thereto in Section 1.4;
"HOLDER" shall have the meaning ascribed thereto in Section 2.8;
"MARKET PRICE" per share of any securities on any date of determination
shall mean the average of the daily closing prices per share of such securities
(determined as described below) on each of the 20 consecutive Trading Days
through and including the Trading Day immediately preceding such date; provided,
however, that if an event of a type analogous to any of the events described in
Section 2.3 hereof shall have caused the closing prices used to determine the
Market Price on any Trading Days not to be fully comparable with the closing
price on such date of determination or, if the date of determination is not a
Trading Day, on the immediately preceding Trading Day, each such closing price
so used shall be appropriately adjusted in a manner analogous to the applicable
adjustment provided for in Section 2.3 hereof in order to make it fully
comparable with the closing price, on such date of determination or, if the date
of determination is not a Trading Day, on the immediately preceding Trading Day.
The closing price per share of any securities on any date shall be (i) the
closing board lot sale price or, if such price is not available, the average of
the closing-bid and asked prices, for each share as reported by the stock
exchange on which the greater number of shares has been traded on such day or if
the shares are listed only on one stock exchange at that time, that stock
exchange, or (ii) if for any reason none of such prices is available on such day
or the securities are not listed or admitted to trading on any stock exchange,
the closing board lot sale price or, if such price is not available, the average
of the closing bid and asked prices, for each share as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the securities exchange in Canada. or the United States
on which the Common Shares are primarily traded, or (iii) if for any reason none
of such prices is available on such day or the securities are not listed or
admitted to trading on a securities exchange in Canada or the United States or
on any consolidated reporting system, the last quoted price, or if not so
quoted, the average of the high bid and low asked prices for each share of such
securities in the over-the-counter market, as reported by NASDAQ or, if the
securities are not quoted on NASDAQ, as reported by CDN or such other system
then in use, or (iv) if on any such date the securities are not quoted by any
such organizations the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the securities selected in
good faith by the Board of Directors; provided however, that if on any such date
the securities are not traded in the over-the-counter market, the closing price
per share of such securities on such date shall mean the fair value per share of
securities on such date as determined in good faith by the Board of Directors,
after consultation with a nationally or internationally recognized investment
dealer or investment banker. The Market Price shall be expressed in Canadian
dollars and if initially determined in respect of any day forming part of the 20
consecutive trading day period in United States dollars, such amount shall be
translated into Canadian dollars at the Canadian Dollar Equivalent thereof.
Notwithstanding the foregoing, where the Board of Directors is satisfied that
the Market Price of securities as determined herein was affected by improper
manipulation, the Board of Directors may, acting in good faith, determine the
Market Price of securities, such determination to be based on a finding as to
the price of which a holder of securities of that class could reasonably have
expected to dispose of his securities immediately prior to the relevant date
excluding any change in price reasonably attributable to the improper
manipulation;
"NASDAQ" shall mean the National Association of Dealers, Inc. Automated
Quotation System;
"1933 SECURITIES ACT" shall mean the Securities Act of 1933 of the United
States, as amended, and the rules and regulations thereunder, and any successor
laws or regulations thereto;
5
<PAGE> 7
"1934 EXCHANGE ACT" shall mean the Securities Exchange Act of 1934 of the
United States, as amended, and the rules and regulations thereunder, and any
successor laws or regulations thereto;
"NOMINEE" shall have the meaning ascribed thereto in clause 2.2(c);
"OFFER TO ACQUIRE" shall include:
(i) an offer to purchase, or a solicitation of an offer to sell, Voting
Shares; and
(ii) an acceptance of an offer to sell Voting Shares, whether or not
such offer to sell has been solicited;
or any combination thereof, and the Person accepting an offer to sell shall be
deemed to be making an Offer to Acquire to the Person that made the offer to
sell;
"OFFEROR" shall mean a Person who has announced an intention to make or
who has made a Take-over Bid;
"OFFEROR'S SECURITIES" means Voting Shares Beneficially Owned by an
Offeror;
"PERMITTED BID" means a Take-over Bid made in compliance with, and not on
a basis which is exempt from or otherwise not subject to, the provisions of Part
XVII of the Canada Business Corporations Act and the regulations thereunder, the
provisions of Title IV of the Securities Act (Quebec) and the regulations
thereunder (or such comparable or successor laws or regulations or, if such
provisions shall be repealed and there shall be no comparable or successor laws
or regulations, pursuant to such provisions as in effect on the date of this
Agreement) and in compliance with all other applicable securities laws and
regulations, subject to any exemptions ordered or granted for purposes of
uniformity, and which also complies with the following additional provisions:
(i) the Take-over Bid is made for all Voting Shares to all holders of
record of Voting Shares wherever resident as registered on the books
of the Corporation and the time of expiry of the Take-over Bid does
not occur prior to a date which is not less than 90 days following
the Take-over Bid;
(ii) subject to clause 1.4(b) hereof, the Offeror does not at the
commencement of nor at any time during the current, of the Take-over
Bid Beneficially Own more than 5 per cent of the outstanding Voting
Shares; the Take-over Bid contains, and the take up and payment for
securities tendered or deposited is subject to, an irrevocable and
unqualified provision that no Voting Shares will be taken up or paid
for pursuant to the Take-over Bid prior to the close of business on a
date which is not less than 90 days following the date of the
Take-over Bid;
(iv) the Take-over Bid contains irrevocable and unqualified provisions
that all Voting Shares may be deposited pursuant to the Take-over Bid
at any time prior to the close of business on the date referred to in
clause (iii) hereof and that all Voting Shares deposited pursuant to
the Take-over Bid may be withdrawn at any time prior to the close of
business on a date which is not less than 90 days following the date
of the Take-over Bid;
(v) the Take-over Bid contains an irrevocable and unqualified condition,
which for greater certainty may not be waived by the Offeror, and
which may not be extended without the prior written approval of the
Corporation, that not less than 50 per cent of the then outstanding
Voting Shares, other than Offeror's Securities, must be deposited to
the Take-over Bid and not withdrawn at the close of business on the
80th day following the date of the Take-over Bid, and the Offeror
shall publicly announce and advise the Corporation forthwith and in
any event not more than one Business Day thereafter whether or not
such condition has been satisfied;
(vi) the Offeror shall provide the Rights Agent, within two Business
Days of the announcement of the Take-over Bid, with a list of all the
Offeror's Securities together with the particulars of the
registration of all such securities and an undertaking to update such
list on a daily basis during the currency of the Take-over Bid to
reflect any changes occurring or to occur in such Beneficial
Ownership, and shall continually perform such obligation;
(vii) the Offeror, or any of its Affiliates or Associates, or any Person
acting jointly or in concert with the Offeror or any of its
Affiliates or Associates in connection with the Take-over Bid, shall
not have entered into either prior to the commencement of the
Take-over Bid nor at any time during the currency thereof any
agreement, commitment or understanding, whether formal or informal,
with a Person who Beneficially Owns 20 per cent or more of the
outstanding Voting Shares with respect to the Voting Shares
Beneficially Owned by such Person; and
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(viii) the Take-over Bid is made on terms and conditions that comply with,
and which do not and will not, upon its completion, result in the
Corporation or any Subsidiary of the Corporation being in default
under, or in contravention of, any applicable laws; provided that,
for greater certainty, the Offeror shall be entitled to withdraw its
Take-over Bid at any time prior to the termination thereof should it
be otherwise entitled to do so under applicable law;
"PERMITTED BID ACQUISITIONS" shall mean share acquisitions made pursuant
to a Permitted Bid;
"PERSON" shall mean an individual, body corporate, partnership, syndicate
or other form of unincorporated association, government, government agency or
instrumentality, entity or group whether or not having legal personality and any
of the foregoing acting in any derivative, representative or fiduciary capacity;
"PRO RATA ACQUISITIONS" shall have the meaning ascribed thereto in
paragraph (ii) of the definition of "Acquiring Person" in Section 1.1;
"RECORD TIME" shall mean the close of business on February 8, 1994;
"REDEMPTION PRICE" shall have the meaning ascribed thereto in clause
5.1(a);
"RIGHT" shall mean a right to purchase a Common Share, upon the terms and
subject to the conditions set forth in this Agreement;
"RIGHTS CERTIFICATE" shall have the meaning ascribed thereto and be in the
form provided in clause 2.2(c);
"RIGHTS REGISTER" shall have the meaning ascribed thereto in clause
2.6(a);
"RIGHTS REGISTRAR" shall have the meaning ascribed thereto in clause
2.6(a);
"SECURITIES ACT (QUEBEC)" shall mean the Securities Act, R.S.Q., C.V1.1,
as amended, and the regulations thereunder, and comparable or successor laws or
regulations thereto;
"SEPARATION TIME" shall mean the close of business on the eighth Trading
Day after the earliest of (i) the Stock Acquisition Date, (ii) the date of the
commencement of or first public announcement of the intent of any Person (other
than a Person referred to in clause (i) of the definition of "Acquiring Person")
to commence a Take-over Bid (other than a Permitted Bid) and (iii) the date upon
which a Take-over Bid that is a Permitted Bid ceases to be a Permitted Bid, or
such earlier or later time as may be determined by the Board of Directors,
provided that, if any Take-over Bid referred to in clause (ii) or (iii) of this
definition expires, is cancelled, terminated or otherwise withdrawn prior to the
Separation Time, such Take-over Bid shall be deemed, for the purposes of this
definition, never to have been made;
"STOCK ACQUISITION DATE" shall mean the date of public announcement by the
Corporation that an Acquiring Person has become such;
"SUBSIDIARY" of any Person shall mean any corporation or other entity of
which a majority of the voting power or a majority of the equity interest is
Beneficially Owned by such Person;
"TAKE-OVER BID" means an Offer to Acquire Voting Shares where the Voting
Shares subject to the Offer to Acquire, together with the Offeror's Securities,
constitute in the aggregate 20 per cent or more of the outstanding Voting Shares
at the date of the Offer to Acquire;
"TERMINATION TIME" shall mean the time at which the right to exercise
Rights shall terminate pursuant to Section 3.2 or 5.1 hereof;
"TRADING DAY", when used with respect to any securities, shall mean a day
on which the principal securities exchange on which such securities are listed
or admitted to trading is open for the transaction of business or, if the
securities are not listed or admitted to trading on any securities exchange, a
Business Day;
"U.S.-CANADIAN EXCHANGE RATE" shall mean on any date:
(i) if on such date the Bank of Canada sets an average noon spot rate
of exchange for the conversion of one United States dollar into
Canadian dollars, such rate; and
(ii) in any other case, the rate for such date for the conversion of one
United States dollar into Canadian dollars which is calculated in the
manner which shall be determined by the Board of Directors from time
to time acting in good faith;
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"VOTING SHARES" shall mean the Common Shares and any other shares in the
capital of or voting interests of the Corporation entitled to vote generally in
the election of all directors; the percentage of Voting Shares Beneficially
Owned by any Person, shall, for the purposes of this Agreement, be and be deemed
to be the product determined by the formula:
100 X A
B
where
A the number of votes for the election of all directors generally
attaching to the Voting Shares Beneficially Owned by such Person, and
B the number of votes for the election of all directors generally
attaching to all outstanding Voting Shares;
provided that where any Person is deemed to Beneficially Own Unicode Voting
Shares, such Voting Shares shall be deemed to be outstanding for the Purpose of
calculating the percentage of Voting Shares Beneficially Owned by such Person.
1.2 Currency
All sums of money which are referred to in this Agreement are expressed in
lawful money of Canada, unless otherwise specified.
1.3 Headings
The division of this Agreement into Articles, Sections, clauses and
subclauses and the insertion of headings, subheadings and a table of contents
are for convenience of reference only and shall not affect the construction or
interpretation of this Agreement.
1.4 Grandfather Provisions
(a) A Person shall not be and shall not tie deemed to be an Acquiring
Person if such Person (a "Grandfathered Person") is the Beneficial
Owner of 20% or more of the outstanding Voting Shares as at the
Record Time; provided, however, that the exception in this clause
1.4(a) shall cease to be applicable to a Grandfathered Person who
shall after the Record Time become, pursuant to one or more
transactions or events, the Beneficial Owner of additional Voting
Shares constituting in the aggregate more than one per cent of the
outstanding Voting Shares determined as at the Record Time, other
than pursuant to Permitted Bid Acquisitions, Exempt Acquisitions or
Pro Rata Acquisitions.
(b) A Person shall not be and shall not be deemed to be an Acquiring
Person if such Person (a "Grandfathered Person Transferee") becomes
the Beneficial Owner of 20% or more of the outstanding Voting Shares
solely as a result of the acquisition of all but not less than all of
the Voting Shares Beneficially Owned immediately prior thereto by a
Grandfathered Person or a Grandfathered Person Transferee (the
"Transferor") and such Person's Beneficial Ownership of Voting Shares
after giving effect to such acquisition does not exceed the number of
Voting Shares Beneficially Owned by the Transferor and by such Person
immediately prior to such acquisition (the "Transfer Time");
provided, however, that the exception in this clause 1.4(b) shall
cease to be applicable to a Grandfathered Person Transferee who
becomes, pursuant to one or more transactions or events, the
Beneficial Owner of additional Voting Shares constituting in the
aggregate more than 1% of the outstanding Voting Shares determined as
at the Record Time, other than pursuant to Permitted Bid
Acquisitions, Exempt Acquisitions or Pro Rata Acquisitions.
(c) For the purpose of determining whether a Person is entitled to make
a Permitted Bid, the provisions of paragraph (ii) of the definition
of "Permitted Bid' in Section 1.1 shall not apply to a Person (a
"Grandfathered Bidder") who is either:
(i) a Grandfathered Person or a (Grandfathered Person Transferee
who Beneficially Owns at the time of the commencement of and at
all times while such Person's Take-over Bid remains outstanding
more than 5 % of the outstanding Voting Shares; or
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<PAGE> 10
(ii) the Beneficial Owner of more than 5 % but less than 20 % of the
outstanding Voting Shares as at the Record Time;
provided that the exceptions in this clause 1.4(c) shall cease to be
applicable to a Grandfathered Bidder (and a Take-over Bid that would
otherwise constitute a Permitted Bid shall cease to be a Permitted
Bid) if such Grandfathered Bidder shall after the Record Time (or, in
the case of a Grandfather Person Transferee only, the Transfer Time)
become, pursuant to one or more transactions or events, the
Beneficial Owner of additional Voting Shares constituting in the
aggregate more than 1 % of the outstanding Voting Shares determined
as at the Record Time, other than pursuant to Permitted Bid
Acquisitions, Exempt Acquisitions or Pro Rata Acquisitions.
(d) For greater certainty, for the purposes of this Section 1.4, a
Person shall be deemed to have become the Beneficial Owner of
additional Voting Shares if the Person becomes the Beneficial Owner
of such Voting Shares pursuant to a transaction or event and, as a
result, such Person is the Beneficial Owner of a greater number of
Voting Shares than the number of Voting Shares that such Person
Beneficially Owned immediately prior to such transaction or event.
ARTICLE 2
THE RIGHTS
2.1 Legend on Common Share Certificates
Certificates representing Common Shares which certificates are issued
after the Record Time but prior to the earlier of the Separation Time and the
Expiration Time shall also evidence one Right for each Common Share represented
thereby and shall have impressed on, printed on, written on or otherwise affixed
to them the following legend:
"Until the Separation Time (defined in the Rights Agreement referred to
below), this certificate also evidences and entitles the holder thereof to
certain rights described in a Shareholder Protection Rights Plan
Agreement, dated as of February 8, 1994, as amended (the "Rights
Agreement"), between the Repap Enterprises Inc. (the "Corporation") and
Montreal Trust Company, a copy of which is on file at the principal
executive offices of the Corporation the terms of which are incorporated
herein by reference. Under certain circumstances set out in the Rights
Agreement, the rights may be redeemed, may expire, may become null and
void (if, in certain cases, they are "Beneficially Owned" by an "Acquiring
Person") or may be evidenced by separate certificates and no longer
evidenced by this certificate. Upon written request, a copy of the Rights
Agreement will be mailed within five days to the holder of this
Certificate."
Certificates representing Common Shares that are issued and outstanding at
the Record Time shall also evidence one Right for each Common Share evidenced
thereby notwithstanding the absence of the foregoing legend until the Separation
Time.
2.2 Initial Exercise Price: Exercise of Rights: Detachment of Rights
(a) Subject to adjustment as herein set forth, each Right will entitle
the holder thereof, after the Separation Time and prior to the
Expiration Time, to purchase, for the Exercise Price, one Common
Share. Notwithstanding any other provision of this Agreement, any
Rights Beneficially Owned by the Corporation or any of its
Subsidiaries shall be void.
(b) Until the Separation Time, (i) the Rights shall not be exercisable
and no Right may be exercised, and (ii) for administrative purposes
each Right will be evidenced by the certificates for Common Shares
registered in the names of the holders thereof (which certificates
shall also be deemed to be Rights Certificates) and will be
transferable only together with, and will be transferred by a
transfer of, such Common Shares.
(c) From and after the Separation Time and prior to the Expiration Time
(i) the Rights shall be exercisable and (ii) the registration and
transfer of the Rights shall be separate from and independent of
Common Shares. Promptly following the Separation Time, the
Corporation will prepare and the Rights Agent will mail to each
holder of record of Common Shares as of the Separation Time (other
than an Acquiring Person and, in respect of any Rights Beneficially
Owned by such Acquiring Person which are not held of record by such
Acquiring Person, the holder of record of such Rights
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<PAGE> 11
(a "Nominee"), at such holder's address as shown by the records of
the Corporation (the Corporation hereby agreeing to furnish copies of
such records to the Rights Agent for this purpose), (x) a Rights
Certificate in substantially the form of Exhibit A hereto
appropriately completed, representing the number of Rights' held by
such holder at the Separation Time and having such marks of
identification or designation and such legends, summaries or
endorsements printed thereon as the Corporation may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or
as may be required to comply with any law, rule, regulation or
judicial or administrative order or with any rule or regulation made
pursuant thereto or with any rules or regulation of any
self-regulatory organization, stock exchange or quotation system on
which the Rights may from time to time be listed or traded, or to
conform to usage, and (y) a disclosure statement describing the
rights, provided that a Nominee shall be sent the materials provided
for in (x) and (y) in respect of all Common Shares held of record by
it which are not Beneficially Owned by an Acquiring Person.
(d) Rights may be exercised in whole or in part on any Business Day
after the Separation Time and prior to the Expiration Time by
submitting to the Rights Agent, at its principal stock transfer
office in the City of Montreal, or the principal stock transfer
office of the Rights Agent in the cities designated from time to time
for that purpose by the Corporation, the Rights Certificate
evidencing such Rights with an election to exercise such Rights (an
"Election to Exercise") substantially in the form attached to the
Rights Certificate duly completed, accompanied by payment by
certified cheque, banker's draft or money order payable to the order
of the Corporation of a sum equal to the Exercise Price multiplied by
the number of Rights being exercised and a sum sufficient to cover
any transfer tax or charge which may be payable in respect of any
transfer involved in the transfer or delivery of Rights Certificates
or the issuance or delivery of certificates for Common Shares in a
name other than that of the holder of the Rights being exercised.
(e) Upon receipt of a Rights Certificate, which is accompanied by (x) a
completed Election to Exercise that does not indicate that such Right
is null and void as provided by clause 2.2(a) or 3.1(b) and (y)
payment as set forth in clause 2.2(d), the Rights Agent (unless
otherwise instructed by the Corporation as a result of the
Corporation being of the opinion that such Right is null and void as
provided in clause 2.2(a) or 3.l(b) or that it would be inappropriate
to issue such Right where the circumstances of clause 3.2 shall
apply) will thereupon promptly:
(i) requisition from a transfer agent for the Common Shares
certificates representing the number of such Common Shares to be
purchased (the Corporation hereby irrevocably authorizing its
transfer agents to comply with all such requisitions); and
(ii) after receipt of such certificates, deliver the same to or
upon the order of the registered holder of such Rights
Certificate, registered in such name or names as may be
designated by such holder.
(f) In case the holder of any Rights shall exercise less than all the
Rights evidenced by such holder's Rights Certificate, a new Rights
Certificate evidencing the Rights remaining unexercised will be
issued by the Rights Agent to such holder or to such holder's duly
authorized assigns.
(g) The Corporation covenants and agrees that it will:
(i) take all such action as may be necessary and within its power
to ensure that all securities delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such
securities (subject to payment of the Exercise Price), be duly
and validly authorized, executed, issued and delivered and fully
paid and nonassessable;
(ii) take all such action as may be necessary and within its power
to comply with the requirements of the Canada Business
Corporations Act, the Securities Act (Quebec), the securities
laws or comparable legislation of each of the provinces of
Canada and the 1933 Securities Act and the 1934 Exchange Act and
any other applicable law, rule or regulation applicable to the
issuance and delivery of the Rights Certificates and the
issuance of any securities upon exercise of Rights;
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(iii) use reasonable efforts to cause all securities issued upon
exercise of Rights to be listed upon issuance on the principal
exchanges on which the Common Shares were traded prior to the
Stock Acquisition Date;
(iv) cause to be reserved and kept available out of its authorized
and unissued Common Shares, the number of Common Shares that, as
provided in this Agreement, will from time to time be sufficient
to permit the exercise in full of all outstanding Rights;
(v) pay when due and payable any and all Canadian and, if applicable,
United States, federal, provincial and state transfer taxes and
charges (not including any income or capital gain taxes of the holder
or exercising holder or any liability of the Corporation to withhold
tax) which may be payable in respect of the original issuance or
delivery of the Rights Certificates, provided that the Corporation
shall not be required to pay any transfer tax or charge which may be
payable in respect of any transfer involved in the transfer or
delivery of Rights Certificates or the issuance or delivery of
certificates for securities in a name other than that of the holder
of the Rights being transferred or exercised; and
(vi) after the Separation Time, except as permitted by Section 5.1 or
Section 5.4 hereof, not take (or permit any Subsidiary to take) any
action if at the time such action is taken it is reasonably
foreseeable that such action will diminish substantially or otherwise
eliminate the benefits intended to be afforded by the Rights.
2.3 Adjustments to Exercise Price: Number of Rights
The Exercise Price, the number and kind of securities subject to purchase
upon exercise of each Right and the number of Rights outstanding are subject to
adjustment from time to time as provided in this Section 2.3.
(a) In the event the Corporation shall, at any time after the date of
this Agreement (i) declare or pay a dividend on its Common Shares
payable in Common Shares (or other capital, stock or securities
exchangeable for or convertible into or giving a right to acquire its
Common Shares or other capital stock) other than pursuant to any
optional stock dividend program and other than a dividend payable in
Common Shares in lieu of annual cash dividends, (ii) subdivide or
change the outstanding Common Shares into a greater number of Common
Shares, (iii) combine or change the outstanding Common Shares into a
smaller number of Common Shares or (iv) issue any Common Shares (or
other securities exchangeable for or convertible into or giving a
right to acquire Common Shares or other securities) in respect of, in
lieu of or in exchange for existing Common Shares except as otherwise
provided in this Section 2.3, the Exercise Price and the number of
Rights outstanding, or, if the payment or effective date therefor
shall occur after the Separation Time, the securities purchasable
upon exercise of Rights shall be adjusted as of the payment or
effective date in the manner set forth below. If the Exercise Price
and number of Rights outstanding are to be adjusted, (x) the Exercise
Price in effect after such adjustment will be equal to the Exercise
Price in effect immediately prior to such adjustment divided by the
number of Common Shares (or other capital stock) (the "Expansion
Factor") that a holder of one Common Share immediately prior to such
dividend, subdivision, change, combination or issuance would hold
thereafter as a result thereof and (y) each Right held prior to such
adjustment will become that number of Rights equal to the Expansion
Factor, and the adjusted number of Rights will be deemed to be
distributed among the Common Shares with respect to which the
original Rights were associated (if they remain outstanding) and the
shares issued in respect of such dividend, subdivision, change,
combination or issuance, so that each such Common Share (or other
capital stock) will have exactly one Right associated with it. If the
securities purchasable upon exercise of Rights are to be adjusted,
the securities purchasable upon exercise of each Right after such
adjustment will be the securities that a holder of the securities
purchasable upon exercise of one Right immediately prior to such
dividend, subdivision, change, combination or issuance would hold
thereafter as a result thereof. If after the Record Time and prior to
the Expiration Time the Corporation shall issue any shares of capital
stock other than Common Shares in a transaction of a type described
in the first sentence of this clause 2.3(a), shares of such capital
stock shall be treated herein as nearly equivalent to Common Shares
as may be practicable and appropriate under the circumstances and the
Corporation and the Rights Agent agree to amend this Agreement in
order to effect, and the Corporation will not
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consolidate with, amalgamate with or into or enter into an
arrangement with, any other Person unless such Person agrees to be
bound by the terms of an amendment effecting, such treatment:
In the event the Corporation shall at any time after the Record Time
and prior to the Separation Time issue any Common Shares otherwise
than in a transaction referred to in the preceding paragraph, each
such Common Share so issued shall automatically have one new Right
associated with it, which Right shall be evidenced by the certificate
representing such share.
(b) In the event the Corporation shall at any time after the Record Time
and prior to the Expiration Time fix a record date for the issuance
of rights, options or warrants to all or substantially all of the
holders of Common Shares entitling them (for a period expiring within
45 calendar days after such record date) to subscribe for or purchase
Common Shares (or securities convertible into or exchangeable for or
carrying a right to purchase Common Shares) at a price per Common
Share (or, if a security convertible into or exchangeable for or
carrying a right to purchase or subscribe for Common Shares having a
conversion, exchange or exercise price, including the price required
to be paid to purchase such convertible or exchangeable security or
right per share) of less than 90% of the Market Price per Common
Share on such record date, the Exercise Price to be in effect after
such record date shall be determined by multiplying the Exercise
Price in effect immediately prior to such record date by a fraction,
the numerator of which shall be the number of Common Shares
outstanding on such record date plus the number of Common Shares that
the aggregate offering price of the total number of Common Shares so
to be offered (and/or the aggregate initial conversion, exchange or
exercise price of the convertible or exchangeable securities or
rights so to be offered, including the price required to be paid to
purchase such convertible or exchangeable securities or rights) would
purchase at such Market Price per Common Share, and the denominator
of which shall be the number of Common Shares outstanding on such
record date plus the number of additional Common Shares to be offered
for subscription or purchase (or into which the convertible or
exchangeable securities or rights so to be offered are initially
convertible, exchangeable or exercisable). In case such subscription
price may be paid by delivery of consideration, part or all of which
may be in a form other than cash, the value of such consideration
shall be, as determined in good faith by the Board of Directors,
whose determination shall be described in a statement filed with the
Rights Agent and shall be binding on the Rights Agent and the holders
of the Rights. Such adjustment shall be made successively whenever
such a record date is fixed, and in the event that such rights or
warrants are not so issued, the Exercise Price shall be adjusted to
be the Exercise Price which would then be in effect if such record
date had not been fixed.
For purposes of this Agreement, the granting of the right to purchase
Common Shares (whether from treasury shares or otherwise) pursuant to
any dividend or interest reinvestment plan and/or any Common Share
purchase plan providing for the reinvestment of dividends or interest
payable on securities of the Corporation and/or the investment of
periodic optional payments and/or employee benefit, stock option or
similar plans (so long as such right to purchase is in no case
evidenced by the delivery of rights or warrants) shall not be deemed
to constitute an issue of rights, options or warrants by the
Corporation; provided, however, that, in the case of any dividend or
interest reinvestment plan, the right to purchase Common Shares is at
a price per share of not less than 90 percent of the current market
price per share (determined as provided in such plans) of the Common
Shares.
(c) In the event the Corporation shall at any time after the Record Time
and prior to the Expiration Time fix a record date for a distribution
to all or substantially all of the holders of Common Shares
(including any such distribution made in connection with a merger or
amalgamation in which the Corporation is the continuing corporation)
of evidences of indebtedness, cash (other than annua1 cash
dividends), assets (including securities, but except a dividend
described in subclause 2.3(a)(i) above), or rights, options or
warrants (excluding those referred to in clause 2.3(b) hereof, the
Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately
prior to such record date by a fraction, the numerator of which shall
be the Market Price per Common Share on such record date, less the
fair market value (as determined in good faith by the Board of
Directors, whose determination shall be described in a statement
filed with the Rights Agent) of the portion of the cash, assets or
evidences of indebtedness so to be
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<PAGE> 14
distributed or of such rights or warrants applicable to a Common
Share and the denominator of which shall be such Market Price per
Common Share. Such adjustments shall be made successively whenever
such a record date is fixed, and in the event that such distribution
is not so made, the Exercise Price shall be adjusted to be the
Exercise Price which would have been in effect if such record date
had not been fixed.
(d) Notwithstanding anything herein to the contrary, no adjustment in
the Exercise Price shall be required unless such adjustment would
require an increase or decrease of at least one percent in the
Exercise Price; provided, however, that any adjustments which by
reason of this clause 2.3(d) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 2.3 shall be made to the nearest
cent or to the nearest hundredth of a share. Notwithstanding the
first sentence of this clause 2.3(d), any adjustment required by this
Section 2.3 shall be made no later than the earlier of (i) three
years from the date of the transaction which mandates such adjustment
or (ii) the Termination Date.
(e) In the event the Corporation shall at any time after the Record Time
and prior to the Separation Time issue any shares of capital stock
(other than Common Shares), or rights or warrants to subscribe for or
purchase any such capital stock, or securities convertible into or
exchangeable for any such capital stock, in a transaction referred to
in clause (a)(i) or (a)(iv) above, or if the Corporation shall take
any other action (other than the issue of Common Shares) which might
have a negative effect on the holders of Rights, then, unless the B4)
and of Directors acting in good faith determines that the adjustments
contemplated by clauses (a), (b) and (c) above in connection with
such transaction will appropriately protect the interests of the
holders of Rights, the Corporation will determine what other
adjustments to the Exercise Price, number of Rights and/or securities
purchasable upon exercise of Rights would be appropriate and,
notwithstanding clauses (a), (b) and (c) above, such adjustments,
rather than the adjustments contemplated by clauses (a), (b) and (c)
above, shall be made. The Corporation and the Rights Agent shall
amend this Agreement as appropriate to provide for such adjustments.
(f) Each Right originally issued by the Corporation subsequent to any
adjustment made to the Exercise Price hereunder shall evidence the
right to purchase, at the adjusted Exercise Price, the number of
Common Shares purchasable from time to time hereunder upon exercise
of a Right immediately prior to such issue, all subject to further
adjustment as provided herein.
(g) Irrespective of any adjustment or change in the Exercise Price or
the number of Common Shares issuable upon the exercise of the Rights,
the Rights Certificates theretofore and thereafter issued may
continue to express the Exercise Price per Common Share and the
number of Common Shares which were expressed in the initial Rights
Certificates issued hereunder.
(h) In any case in which this Section 2.3 shall require that an
adjustment in the Exercise Price be made effective as of a record
date for a specified event, the Corporation may elect to defer until
the occurrence of such event the issuance to the holder of any Right
exercised after such record date the number of Common Shares and
other securities of the Corporation, if any, issuable upon such
exercise over and above the number of Common Shares and other
securities of the Corporation, if any, issuable upon such exercise on
the basis of the Exercise Price in effect prior to such adjustment;
provided, however, that the Corporation shall deliver to such holder
an appropriate instrument evidencing such holder's right to receive
such additional shares (fractional or otherwise) or securities upon
the occurrence of the event requiring such adjustment.
(i) Notwithstanding anything in this Section 2.3 to the contrary, the
Corporation shall be entitled to make such reductions in the Exercise
Price, in addition to those adjustments expressly required by this
Section 2.3, as and to the extent that in their good faith judgment
the Board of Directors shall determine to be advisable in order that
any (i) consolidation or subdivision of the Common Shares, (ii)
issuance wholly or in part for cash of Common Shares or securities
that by their terms are convertible into or exchangeable for Common
Shares, (iii) stock dividends or (iv) issuance of rights, options or
warrants referred to in this Section 2.3, hereafter made by the
Corporation to holders of its Common Shares, shall not be taxable to
such shareholders.
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In any case in which this Section 2.3 shall require any adjustment, the
Corporation shall deliver to the Rights Agent a certificate duly executed
by an officer of the Corporation describing such adjustment, in addition
to any other statement or document required by this Section 2.3.
2.4 Date on Which Exercise is Effective
Each Person in whose name any certificate for Common Shares or other
securities, if applicable, is issued upon the exercise of Rights shall for all
purposes be deemed to have become the holder of record of the Common Shares or
other securities, if applicable, represented thereby on, and such certificate
shall be dated, the date upon which the Rights Certificate evidencing such
Rights was duly surrendered (together with a duly completed Election to
Exercise) and payment of the Exercise Price for such Rights (and any applicable
transfer taxes and other governmental charges payable by the exercising holder
hereunder) was made; provided, however, that if the date of such surrender and
payment is a date upon which the relevant transfer books of the Corporation are
closed, such Person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the relevant transfer books of the Corporation are open.
2.5 Execution on, Delivery and Dating of Rights Certificates
(a) The Rights Certificates shall be executed on behalf of the
Corporation by its Chairman, President or any of its Vice Presidents
and by its Secretary or one of its Assistant Secretaries. The
signature and attestation of any of these officers on the Rights
Certificates may be manual or facsimile. Rights Certificates bearing
the manual or facsimile signatures of individuals who were at any
time the proper officers of the Corporation shall bind the
Corporation, notwithstanding that such individuals or any of them
have ceased to hold such offices prior to the countersignature and
delivery of such Rights Certificates.
(b) Promptly after the Corporation learns of the Separation Time, the
Corporation will notify the Rights Agent of such Separation Time and
will deliver Rights Certificates executed by the Corporation to the
Rights Agent for countersignature, and the Rights Agent shall
manually countersign and send such Rights Certificates to the holders
of the Rights pursuant to clause 2.2(c) hereof. No Rights Certificate
shall be valid for any purpose until countersigned by the Rights
Agent as aforesaid.
(c) Each Rights Certificate shall be dated the date of countersignature
thereof.
2.6 Registration of Transfer and Exchange
(a) The Corporation will cause to be kept a register (the "Rights
Register") in which, subject to such reasonable regulations as it may
prescribe, the Corporation will provide for the registration and
transfer of Rights. The Rights Agent is hereby appointed registrar
for the Rights (the "Rights Registrar") for the purpose of
maintaining the Rights Register for the Corporation and registering
Rights and transfers of Rights as herein provided and the Rights
Agent hereby accepts such appointment. In the event that the Rights
Agent shall cease to be the Rights Registrar, the Rights Agent will
have the right to examine the Rights Register at all reasonable
times.
After the Separation Time and prior to the Expiration Time, upon surrender
for registration of transfer or exchange of any Rights Certificate, and
subject to the provisions of clause 2.6(c) below, the Corporation will
execute, and the Rights Agent will manually countersign and deliver, in
the name of the holder or the designated transferee or transferees, as
required pursuant to the holder's instructions, one or more new Rights
certificates evidencing the same aggregate number of Rights as did the
Rights Certificates so surrendered.
(b) All Rights issued upon any registration of transfer or exchange of
Rights Certificates shall be the valid obligations of the
Corporation, and such Rights shall be entitled to the same benefits
under this Agreement as the Rights surrendered upon such registration
of transfer or exchange.
(c) Every Rights Certificate surrendered for registration of transfer or
exchange shall be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Corporation or the
Rights Agent, as the case may be, duly executed by the holder thereof
or such holder's attorney duly authorized in writing. As a condition
to the issuance of any new Rights Certificate under this Section 2.6,
the Corporation may require the payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in relation
thereto and any other expenses (including the fees and expenses of
the Rights Agent) connected therewith.
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2.7 Mutilated, Destroyed, Lost and Stolen Rights Certificates
(a) If any mutilated Rights Certificate is surrendered to the Rights
Agent prior to the Expiration Time, the Corporation shall execute and
the Rights Agent shall countersign and deliver in exchange therefor a
new Rights Certificate evidencing the same number of Rights as did
the Rights Certificate so surrendered.
(b) If there shall be delivered to the Corporation and the Rights Agent
prior to the Expiration Time (i) evidence to their reasonable
satisfaction of the destruction, loss or theft of any Rights
Certificate and (ii) such security or indemnity as may be reasonably
required by them to save each of them and any of their agents
harmless, then, in the absence of notice to the Corporation or the
Rights Agent that such Rights Certificate has been acquired by a bona
fide purchaser, the Corporation shall execute and upon the
Corporation's request the Rights Agent shall countersign and deliver,
in lieu of any such destroyed, lost or stolen Rights Certificate, a
new Rights Certificate evidencing the same number of Rights as did
the Rights Certificate so destroyed, lost or stolen.
(c) As a condition to the issuance of any new Rights Certificate under
this Section 2.7, the Corporation may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto and any other expenses (including the
fees and expenses of the Rights Agent) connected therewith.
(d) Every new Rights Certificate issued pursuant to this Section 2.7 in
lieu of any destroyed, lost or stolen Rights Certificate shall
evidence the contractual obligation of the Corporation whether or not
the destroyed, lost or stolen Rights Certificate shall be at any time
enforceable by anyone, and shall be entitled to all the benefits of
this Agreement equally and proportionately with any and all other
Rights duly issued by the Corporation.
2.8 Persons Deemed Owners
The Corporation, the Rights Agent and any agent of the Corporation or the
Rights Agent may deem and treat the Person in whose name a Rights Certificate
(or, prior to the Separation Time, the associated Common Share certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby for
all purposes whatsoever. As used in this Agreement, unless the context otherwise
requires, the term "holder" of any Rights shall mean the registered holder of
such Rights (or, prior to the Separation Time, the associated Common Share
certificate).
2.9 Delivery and Cancellation of Certificates
All Rights Certificates surrendered, upon exercise or for redemption,
registration of transfer or exchange shall, if surrendered to any Person other
than the Rights Agent, be delivered to the Rights Agent and, in any case, shall
be promptly cancelled by the Rights Agent. The Corporation may at any time
deliver to the Rights Agent for cancellation any Rights Certificates previously
countersigned and delivered hereunder which the Corporation may have acquired in
any manner whatsoever, and all Rights Certificates so delivered shall be
promptly cancelled by the Rights Agent. No Rights Certificate shall be
countersigned in lieu of or in exchange for any Rights Certificates cancelled as
provided in this Section 2.9, except as expressly permitted by this Agreement.
The Rights Agent shall destroy all cancelled Rights Certificates and deliver a
certificate of destruction to the Corporation.
2.10 Agreement of Rights Holders
Every holder of Rights, by accepting the same, consents and agrees with
the Corporation and the Rights Agent and with every other holder of Rights:
(a) to be bound by and subject to the provisions of this Agreement, as
amended from time to time in accordance with the terms hereof, in
respect of all Rights held;
(b) that prior to the Separation Time, each Right will be transferable
only together with, and will be transferred by a transfer of, the
Common Share certificate representing such Right;
(c) that prior to due presentment of a Rights Certificate (or, prior to
the Separation Time, the associated Common Share certificate) for
registration of transfer, the Corporation, the Rights Agent and any
agent of the Corporation or the Rights Agent may, deem and treat the
Person in whose name the Rights Certificate (or, prior to the
Separation Time, the associated Common Share certificate)
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<PAGE> 17
is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or
writing on such Rights Certificate or the associated Common Share
certificate made by anyone other than the Corporation or the Rights
Agent) for all purposes whatsoever, and neither the Corporation nor
the Rights Agent shall be affected by any notice to the contrary;
(d) that such holder of Rights has waived his right to receive any
fractional Rights or any fractional shares or other securities upon
exercise of a Right (except as provided herein); and
(e) that without the approval of any holder of Rights and upon the sole
authority of the Board of Directors acting in good faith this
Agreement may be supplemented or amended from time to time pursuant
to and as provided herein.
2.11 Rights Certificate Holder not Deemed a Shareholder
No holder, as such, of any Rights or Rights Certificate shall be entitled
to vote, receive dividends or be deemed for any purpose whatsoever the holder of
any Common Share or any other share or security of the Corporation which may at
any time be issuable on the exercise of the Rights represented thereby, nor
shall anything contained herein or in any Rights Certificate be construed or
deemed or confer upon the holder of any Right or Rights Certificate, as such,
any of the rights, titles, benefits or privileges of a holder of Common Shares
or any other shares or securities of the Corporation or any right to vote at any
meeting of shareholders of the Corporation whether for the election of Directors
or otherwise or upon any matter submitted to holders of shares of the
Corporation at any meeting thereof, or to give or withhold consent to any action
of the Corporation, or to receive notice of any meeting or other action
affecting any holder of Common Shares or any other shares or securities of the
Corporation except as expressly provided herein, or to receive dividends,
distributions or subscription rights, or otherwise, until the Right or Rights
evidenced by Rights Certificates shall have been duly exercised in accordance
with the terms and provisions hereof.
ARTICLE 3
FLIP-IN EVENT
3.1 Flip-in Event
(a) Subject to clause 3.1(b), Section 3.2, clause 5.1(b), clause 5.1(c)
and the second sentence of clause 2.2(a), in the event that prior to
the Expiration Time a Flip-in Event shall occur, each Right shall
constitute, effective on and after the Stock Acquisition Date, the
right to purchase from the Corporation, upon payment of the Exercise
Price and otherwise exercising such Right in accordance with the
terms hereof, that number of Common Shares as shall equal the result
obtained by (i) multiplying the then current Exercise Price by the
number of Common Shares for which each Right is exercisable
immediately prior to the Stock Acquisition Date and dividing that
product by (ii) 50 per cent of the Market Price on the Stock
Acquisition Date of the Common Shares (such Right to be appropriately
adjusted in a manner analogous to the applicable adjustment provided
for in Section 2.3 in the event that after the Stock Acquisition Date
an event of a type analogous to any of the events described in
Section 2.3 shall have occurred).
(b) Notwithstanding anything in this Agreement to the contrary, upon the
occurrence of any Flip-in Event, any Rights that are Beneficially
Owned by (i) an Acquiring Person (or any Affiliate or Associate of an
Acquiring Person or any Person acting jointly or in concert with an
Acquiring Person or any Affiliate or Associate of an Acquiring
Person) or (ii) a transferee of Rights, directly or indirectly, of an
Acquiring Person (or of any Affiliate or Associate of an Acquiring
Person or of any Person acting jointly or in concert with an
Acquiring Person or any Associate or Affiliate of an Acquiring
Person) who becomes a transferee concurrently with or subsequent to
the Acquiring Person becoming such shall become null and void without
any further action, and any holder of such Rights (including
transferees) shall not have any rights whatsoever to exercise such
Rights under any provision of this Agreement and shall not have
thereafter any other rights whatsoever with respect to such Rights,
whether under any provision of this Agreement or otherwise.
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(c) From and after the Separation Time, the Corporation shall do all
such acts and things as shall be necessary and within its power to
ensure compliance with the provisions of this Section 3.1, including
without limitation, all such acts and things as may be required to
satisfy the requirements of the Canada Business Corporations Act, the
Securities Act (Quebec), the securities laws or comparable
legislation in each of the provinces of Canada, the 1933 Securities
Act and the 1934 Exchange Act and the rules of the stock exchangers)
where the Common Shares are listed at such time in respect of the
issue of Common Shares upon the exercise of Rights in accordance with
this Agreement.
3.2 Exchange Option
(a) In the event that the Board of Directors acting in good faith shall
determine that conditions exist which would eliminate or otherwise
materially diminish in any respect the benefits intended to be
afforded to the holders of Rights pursuant to this Agreement, the
Board of Directors, at its option, at any time after a Flip-in Event
has occurred, may authorize the Corporation to issue or deliver in
respect of each Right which is not void pursuant to the second
sentence of clause 2.2(a) or clause 3.1 (b), either (i) in return for
the Exercise Price and the Right, debt or equity securities or assets
of the Corporation (or a combination thereof) having a value equal to
twice the Exercise Price, or (ii) in return for the Right, subject to
any amounts that may be required to be paid under applicable law,
debt or equity securities or- assets of the Corporation (or a
combination thereof) having a value equal to the value of the Right,
in full and final settlement of all rights attaching to the Rights,
where in either case the value of such debt or equity securities or
assets (or a combination thereto and, in the case of an issue of debt
or equity securities or assets (or a combination thereof) pursuant to
(ii), the value of the Right shall be determined by the Board of
Directors who may rely upon the advice of a nationally or
internationally recognized firm of investment dealers or investment
bankers selected by the Board of Directors.
(b) If the Board of Directors authorizes the exchange of debt or equity
securities or assets of the Corporation (or a combination thereof)
for Rights pursuant to clause 3.2(a), without any further action or
notice the right to exercise the Rights will terminate and the only
right thereafter of a holder of Rights shall be to receive the debt
or equity securities or assets of the Corporation (or a combination
thereof) in accordance with the exchange formula authorized by the
Board of Directors. Within 10 Business Days after the Board of
Directors has authorized an exchange for Rights pursuant to clause
3.2(a), the Corporation shall give notice of such exchange to the
holders of such Rights by mailing such notice to all such holders at
their last addresses as they appear upon the register of Rights
holders maintained by the Rights Agent. Each such notice of exchange
will state the method by which the exchange of debt or equity
securities or assets of the Corporation (or a combination thereof)
for Rights will be effected.
(c) In the event that there shall not be sufficient securities
authorized but unissued to permit the exchange in full of such Rights
pursuant to this Section 3.2, the Corporation shall take all such
action as may be necessary and within its power to authorize
additional securities for issuance upon the exchange of Rights.
(d) The Corporation shall not be required to issue fractions of
securities or to distribute certificates evidencing fractional
securities. In lieu of issuing such fractional securities, there
shall be paid to the registered holders of Rights to whom such
fractional securities would otherwise be issuable an amount in cash
equal to the same friction of the Market Price of a whole security.
Alternatively, fractional shares may, at the election of the
Corporation, be evidenced by scrip certificates.
ARTICLE 4
THE RIGHTS AGENT
4.1 General
(a) The Corporation hereby appoints the Rights Agent to act as agent for
the Corporation in accordance with the terms and conditions hereof,
and the Rights Agent hereby accepts such appointment. The Corporation
may from time to time appoint such Co-Rights Agents ("Co-Rights
Agents") as it may deem necessary or desirable. In the event the
Corporation appoints one or more Co-Rights Agents,
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the respective duties of the Rights Agent and Co-Rights Agents shall
be as the Corporation may determine. The Corporation also agrees to
indemnify the Rights Agent for, and to hold it harmless against, any
loss, liability, or expense, incurred without negligence, bad faith
or willful misconduct on the part of the Rights Agent, for anything
done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and
expenses of defending against any claim of liability, which right to
indemnification will survive the termination of this Agreement.
The Corporation agrees to pay to the Rights Agent reasonable compensation
for all services rendered by it hereunder and, from time to time, on
demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder.
(b) The Rights Agent shall be protected and shall incur no liability for
or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon
any certificate for Voting Shares or Common Shares or any Rights
Certificate or certificate for other securities of the Corporation,
instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or
acknowledged, by the proper Person or Persons.
4.2 Merger or Amalgamation or Change of Name of Rights Agent
(a) Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or amalgamated or with which it may be
consolidated, or any corporation resulting from any merger,
amalgamation, statutory arrangement or consolidation to which the
Rights Agent or any successor Rights Agent is a party, or any
corporation succeeding to the shareholder or stockholder services
business of the Rights Agent or any successor Rights Agent, will be
the successor to the Rights Agent under this Agreement without the
execution or filing of any paper or any further act on the part of
any of the parties hereto, provided that such corporation would be
eligible for appointment as a successor Rights Agent under the
provisions of Section 4.4 hereof. In case at the time such successor
Rights Agent succeeds to the agency created by this Agreement any of
the Rights Certificates have been countersigned but not delivered,
any such successor Rights Agent may adopt the countersignature of the
predecessor Rights Agent and deliver such Rights Certificates so
countersigned; and in case at that time any of the Rights
Certificates have not been countersigned, any successor Rights Agent
may countersign such Rights Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights
Agent; and in all such cases such Rights Certificates will have the
full force provided in the Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent is changed and at
such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Rights Certificates
so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, the Rights Agent may
countersign such Rights Certificates either in its prior name or in
its changed name; and in all such cases such Right Certificates shall
have the full force provided in the Right Certificates and in this
Agreement.
4.3 Duties of Rights Agent
The Rights Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, by all of which the
Corporation and the holders of Rights Certificates, by their acceptance thereof,
shall be bound:
(a) the Rights Agent may consult with legal counsel (who may be legal
counsel for the Corporation) and the opinion of such counsel will be
full and complete authorization and protection to the Rights Agent as
to any action taken or omitted by it in good faith and in accordance
with such opinion;
(b) whenever in the performance of its duties under this Agreement the
Rights Agent deems it necessary or desirable that any fact or matter
be proved or established by the Corporation prior to taking or
suffering any action hereunder, such fact or matter (unless other
evidence in respect thereof be herein
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specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by a Person believed by the
Rights Agent to be the Chairman of the Board, the President or any
Vice President of the Corporation and delivered to the Rights Agent;
and such certificate will be full authorization to the Rights Agent
for any action taken or suffered in good faith by it under the
provisions of this Agreement in reliance upon such certificate;
(c) the Rights Agent will be liable hereunder only for its own
negligence, bad faith or willful misconduct;
(d) the Rights Agent will not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the
certificates for Voting Shares or Common Shares or the Rights
Certificates (except its countersignature thereof) or be required to
verify the same, but all such statements and recitals are and will be
deemed to have been made by the Corporation only;
(e) the Rights Agent will not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof
(except the due authorization, execution and delivery hereof by the
Rights Agent) or in respect of the validity or execution of any
Common Share certificate or Rights Certificate (except its
countersignature thereof); nor will it be responsible for any breach
by the Corporation of any covenant or condition contained in this
Agreement or in any Rights Certificate; nor will it be responsible
for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to clause 3.1(b) hereof) or any
adjustment required under the provisions of Section 2.3 hereof or
responsible for the manner, method or amount of any such adjustment
or the ascertaining of the existence of facts that would require any
such adjustment (except with respect to the exercise of Rights after
receipt of the certificate contemplated by Section 2.3 describing any
such adjustment); nor will it by any act hereunder be deemed to make
any representation or warranty as to the authorization of any Common
Shares to be issued pursuant to this Agreement or any Rights or as to
whether any Common Shares will, when issued, be duly and validly
authorized, executed, issued and delivered and fully paid and
non-assessable;
(f) the Corporation agrees that it will perform, execute, acknowledge
and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances
as may reasonably be required by the Rights Agent for the carrying
out or performing by the Rights Agent of the provisions of this
Agreement;
(g) the Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder
from any Person believed by the Rights Agent to be the Chairman of
the Board, the President, any Vice President, or the Treasurer or the
Controller of the Corporation, and to apply to such Persons for
advice or instructions in connection with its duties, and it shall
not be liable for any action taken or suffered by it in good faith in
accordance with instructions of any such Person;
(h) the Rights Agent and any shareholder or stockholder, director,
officer or employee of the Rights Agent may buy, sell or deal in
Common Shares, Rights or other securities of the Corporation or
become pecuniarily interested in any transaction in which the
Corporation may be interested, or contract with or lend money to the
Corporation or otherwise act as fully and freely as though it were
not Rights Agent under this Agreement. Nothing herein shall preclude
the Rights Agent from acting in any other capacity for the
Corporation or for any other legal entity; and
(i) the Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either
itself or by or through its attorneys or agents, and the Rights Agent
will not be answerable or accountable for any act, default, neglect
or misconduct of any such attorneys or agents or for any loss to the
Corporation resulting from any such act, default, neglect or
misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
4.4 Change of Rights Agent
The Rights Agent may resign and be discharged from its duties under this
Agreement upon 90 days' notice (or such lesser notice as is acceptable to the
Corporation) in writing mailed to the Corporation and to each transfer agent of
Common Shares by registered or certified mail, and to the holders of the Rights
in accordance with Section 5.9. The Corporation may remove the Rights Agent upon
30 days' notice in writing, mailed to the Rights Agent and to each transfer
agent of the Common Shares by registered or certified mail, and to the holders
of the
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Rights in accordance with Section 5.9. If the Rights Agent should resign or be
removed or otherwise become incapable of acting, the Corporation will appoint a
successor to the Rights Agent. If the Corporation fails to make such appointment
within a period of 30 days after such removal or after it has been notified in
writing of such resignation or incapacity by the resigning or incapacitated
Rights Agent or by the; holder of any Rights (which holder shall, with such
notice, submit such holder's Rights, Certificate for inspection by the
Corporation), then the holder of any Rights may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights
Agent, whether appointed by the Corporation or by such a court, shall be a
corporation incorporated under the laws of Canada or a province thereof
authorized to carry on the business of a trust company. After appointment, the
successor Rights Agent will be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Corporation will file notice thereof in writing with the predecessor Rights
Agent and each transfer agent of the Common Shares, and mail a notice thereof in
writing to the holders of the Rights. Failure to give any notice provided for in
this Section 4.4, however, or any defect therein, shall not affect the legality
or validity of the resignation or removal of the Rights Agent or the appointment
of the successor Rights Agent, as the case may be.
ARTICLE 5
MISCELLANEOUS
5.1 Redemption and Waiver
(a) The Board of Directors may, at its option, at any time prior to the
Separation Time, elect to redeem all but not less than all of the
then outstanding Rights at a redemption price of $0.0001 per Right
appropriately adjusted in a manner analogous to the applicable
adjustment provided for in Section 2.3 in the event that an event of
the type analogous to any of the events described in Section 2.3
shall have occurred (such redemption price being herein referred to
as the "Redemption Price"). The redemption of the Rights by the Board
of Directors may be made effective at such time, on such basis and
with such conditions as the Board of Directors in its sole discretion
may establish.
(b) The Board of Directors may until the Separation Time determine, upon
prior written notice delivered to the Rights Agent, to waive the
application of Section 3.1 to any particular Flip-in Event.
(c) The Board of Directors may prior to the Separation Time waive the
application of Section 3.1 to any particular Flip-in Event, provided
that both of the following conditions are satisfied:
(i) the Board of Directors has determined that the Acquiring Person
became an Acquiring Person by inadvertence and without any intent
or knowledge that he would become an Acquiring Person; and
(ii) such Acquiring Person has reduced his Beneficial Ownership of
Voting Shares such that at the time of waiver pursuant to this
clause he is no longer an Acquiring Person.
(d) The Board of Directors shall, without further formality, be deemed
to have elected to redeem the Rights at the Redemption Price on the
date of expiry of a Permitted Bid, provided that the Offeror takes up
and pays for the Voting Shares pursuant to the terms and conditions
of the Permitted Bid.
(e) If the Board of Directors elects to redeem the Rights, the right to
exercise the Rights will thereupon, without further action and
without notice, terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price.
(f) Within 10 days after the Board of Directors electing to redeem the
Rights, the Corporation shall give notice of redemption to the
holders of the then outstanding Rights by mailing such notice to all
such holders at their last address as they appear upon the registry
books of the Rights Agent or, prior to the Separation Time, on the
registry books of the transfer agent for the Common Shares. Any
notice which is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice. Each such
notice of redemption will state the method by which the payment of
the Redemption Price will be made. The Corporation shall not be
required to make any payment of
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the Redemption Price to a holder of Rights if any such payment is
less than $10. The Corporation may not redeem, acquire or purchase
for value any Rights at any time in any manner other than that
specifically set forth in this Section 5. 1, or other than in
connection with the purchase of Common Shares prior to the Separation
Time.
5.2 Expiration
No Person shall have any rights whatsoever pursuant to or arising out of
this Agreement or in respect of any Right after the Expiration Time, except the
Rights Agent as specified in clause 4. 1 (a) of this Agreement.
5.3 Issuance of New Rights Certificates
Notwithstanding any of the provisions of this Agreement or of the Rights
to the contrary, the Corporation may, at its option, issue new Rights
Certificates evidencing Rights in such form as may be approved by the Board of
Directors to reflect any adjustment or change in the number or kind or class of
securities purchasable upon exercise of Rights made in accordance with the
provisions of this Agreement.
5.4 Supplements and Amendments
(a) Subject to prior written approval of the Montreal Exchange and The
Toronto Stock Exchange, the Corporation may from time to time
supplement or amend this Agreement without the approval of any
holders of Rights:
(i) to make any changes which the Board of Directors acting in good
faith may deem necessary or desirable, provided that no such
supplement or amendment made on or after the Separation Time
shall materially adversely affect the interests of the holders of
Rights generally and provided further that no supplement or
amendment shall be made to the provisions of Article 4 except
with the written concurrence of the Rights Agent to such
supplement or amendment; or
(ii) in order to cure any ambiguity or to correct or supplement any
provision contained herein which may be inconsistent with any
other provisions herein or otherwise defective.
(b) The Corporation may, with the consent of the holders of Rights
obtained as set forth below, at any time after the Separation Time,
amend, vary or rescind any of the provisions of this Agreement and
the Rights (whether or not such action would materially adversely
affect the interests of the holders of Rights generally). Such
consent shall be deemed to have been given and be binding upon all
holders of Rights if such action is authorized by the affirmative
votes of the holders of Rights present or represented at and entitled
to be voted at a meeting of the holders and representing 50 per cent
plus one of the votes cast in respect thereof. For the purposes
hereof, each outstanding Right (other than Rights which are void
pursuant to the provisions hereof) shall be entitled to one vote, and
the procedures for the calling, holding and conduct of the meeting
shall be those, as nearly as may be, which are provided in the
Corporation's by-laws with respect to meetings of its shareholders.
(c) Any supplement or amendment to this Agreement made by the Board of
Directors pursuant to subclause (a)(i) in connection with the
definitions of "Acquiring Person", "Exercise Price", "Expiration
Time", "Flip-in Event", "Grandfathered Person" or "Permitted Bid"
shall, if made prior to the Separation Time, be submitted to the
shareholders of the Corporation at the next meeting of shareholders
and the shareholders may, by ordinary resolution, confirm or reject
such supplement or amendment; if made at or after the Separation Time
such supplement or amendment shall be submitted to the holders of the
Rights at a meeting to be called for on a date not later than
immediately following the next meeting of shareholders and the
holders of Rights may, by ordinary resolution (on the same basis as
described in clause (b) hereof), confirm or reject such supplement or
amendment. A supplement or amendment to this Agreement made by the
Board of Directors as contemplated by the previous sentence shall be
effective from the date of the relevant resolution of the Board of
Director; until it is confirmed or rejected or until it ceases to be
effective (as described in the next following sentence) and, where
the supplement or amendment is confirmed, it continues in effect in
the form in which it was so confirmed. If such supplement or
amendment to this Agreement made by the Board of Directors is
rejected by the shareholders or holders of Rights or is not submitted
to the shareholders or holders of Rights as required, then such
supplement or amendment shall cease to be effective from and after
the termination of the meeting at which it was rejected or to
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which it should have been but was not submitted, or from and after
the last date on which a meeting of holders of Rights should have
been but was not held, and no subsequent resolution of the Board of
Directors to supplement or amend the Agreement to substantially the
same effect shall be effective until confirmed by the shareholders or
holders of Rights, as the case may be.
5.5 Fractional Rights and Fractional Shares
(a) Subject to clause 3.2(d) in respect of circumstances referred to in
clause 3.2(a), the Corporation shall not be required to issue
fractions of Rights or to distribute Rights Certificates which
evidence fractional Rights and no amount shall be paid to the
registered holders of the Rights Certificates with regard to which
such fractional Rights would otherwise be issuable.
(b) The Corporation shall not be required to issue fractions of Common
Shares upon exercise of the Right, or to distribute certificates
which evidence fractional Common Shares. Fractions of Common Shares
may, at the election of the Corporation, be evidenced by scrip
certificates. In lieu of issuing fractional Common Shares, the
Corporation may pay to the registered holders of Rights Certificates,
at the time such Rights are exercised as herein provided, an amount
in cash equal to the same fraction of the Market Price of one Common
Share.
5.6 Rights of Action
Subject to the terms of this Agreement, all rights of action in respect of
this Agreement, other than rights of action vested solely in the Rights Agent,
are vested in the respective registered holders of the Rights; and any
registered holder of any Rights, without the consent of the Rights Agent or of
the registered holder of any other Rights, may, on such holder's own behalf and
for such holder's own benefit, enforce, and may institute and maintain any suit,
action or proceeding against the Corporation to enforce such holder's right to
exercise such holder's Rights in the manner provided in such holder's Rights
Certificate and in this Agreement. Without limiting the foregoing or any
remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and will be entitled to specific performance of the
obligations under, and injunctive relief against actual or threatened violations
of the obligations of any Person subject to, this Agreement.
5.7 Regulatory Approvals
Any obligation of the Corporation or action or event contemplated by this
Agreement shall be subject to the receipt of any requisite approval or consent
from any governmental or regulatory authority.
5.8 Declaration as to Non-Canadian and Non-U.S. Holders
If in the opinion of the Board of Directors (who may rely upon the advice
of counsel) any action or event contemplated by this Agreement would require
compliance with the securities laws or comparable legislation of a jurisdiction
outside Canada and the United States of America, the Board of Directors acting
in good faith may take such actions as it may deem appropriate to ensure that
such compliance is not required, including without limitation establishing
procedures for the issuance to a Canadian resident Fiduciary of Rights or
securities issuable on exercise of Rights, the holding thereof in trust for the
Persons entitled thereto (but reserving to the Fiduciary or to the Fiduciary and
the Corporation, as the Corporation may determine, absolute discretion with
respect thereto) and the sale thereof and remittance of the proceeds of such
sale, if any, to the persons entitled thereto. In no event shall the Corporation
or the Rights Agent be required to issue or deliver Rights or securities
issuable on exercise of Rights to persons who are citizens, residents or
nationals of any jurisdiction other than Canada and any province or territory
thereof and the United States of America in which such issue or delivery would
be unlawful without registration of the relevant Persons or securities for such
purposes.
22
<PAGE> 24
5.9 Notices
Notices or demands authorized or required by this Agreement to be given or
made by the Rights Agent or by the holder of any Rights to or on the Corporation
shall be sufficiently given or made if delivered or sent by first class mail,
postage prepaid, by telecopier or by other similar means of telecommunications
addressed (until another address is filed in writing with the Rights Agent) as
follows:
REPAP ENTERPRISES INC.
1250 Rene-Levesque Blvd., West
Suite 3800
Montreal, Quebec
H3B 4W8
Telephone: (514) 846-1316
Telecopier: (514) 846-1313
Attention: President and Chief Executive Officer
Any notice or demand authorized or required by this Agreement to be given
or made by the Corporation or by the holder of any Rights to or on the Rights
Agent shall be sufficiently given or made if delivered or sent by first-class
mail, postage prepaid, by telecopier or by other similar means of
telecommunications addressed (until another address is filed in writing with the
Corporation) as follows:
Montreal Trust Company
1800 McGill College Avenue
7th Floor
Montreal, Quebec
H3A 3K9
Telephone: (514) 982-7000
Telecopier: (514) 982-7580
Attention: Manager, Stock Transfer Services
Notices or demands authorized or required by this Agreement to be given or
made by the Corporation or the Rights Agent to or on the holder of any Rights
shall be sufficiently given or made if delivered or sent by first-class mail,
postage prepaid, by telecopier or by other similar means of telecommunications
addressed to such holder at the address of such holder as it appears upon the
registry books of the Rights Agent or, prior to the Separation Time, on the
registry books of the Corporation for its Common Shares. Any notice which is
mailed or sent in the manner herein provided shall be deemed given, whether or
not the holder receives the notice.
5.10 Costs of Enforcement
The Corporation agrees that if the Corporation fails to fulfill any of its
obligations pursuant to this Agreement, then the Corporation will reimburse the
holder of any Rights for the costs and expenses (including legal fees) incurred
by such holder to enforce his rights pursuant thereto in any action, suit or
proceeding in which a court of competent jurisdiction in a final non-appealable
judgment has rendered judgment in favor of the holder.
5.11 Successors
All the covenants and provisions of this Agreement by or for the benefit
of the Corporation or the Rights Agent shall bind and inure to the benefit of
their respective successors and assigns hereunder.
5.12 Benefits of this Agreement
Nothing in this Agreement shall be construed to give to any Person other
than the Corporation, the Rights Agent and the holders of the Rights any legal
or equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Corporation, the Rights Agent
and the holders of the Rights.
5.13 Governing Law
This Agreement and each Right issued hereunder shall be deemed to be a
contract made under the laws of the Province of Quebec and for all purposes
shall be governed by and construed in accordance with the laws of such Province
applicable to contracts to be made and performed entirely within such Province.
23
<PAGE> 25
5.14 Severability
If any Section, clause, term or provision hereof or the application
thereof to any circumstance or any right hereunder shall, in any jurisdiction
and to any extent, be invalid or unenforceable, such Section, clause, term or
provision or such right shall be ineffective only as to such jurisdiction and to
the extent of such invalidity or unenforceability in such jurisdiction without
invalidating or rendering unenforceable or ineffective the remaining Sections,
clauses, terms and provisions hereof or rights hereunder in such jurisdiction or
the application of such Section, clause, term or provision or rights hereunder
in any other jurisdiction or to circumstances other than those as to which it is
specifically held invalid or unenforceable.
5.15 Effective Date
This Agreement is effective and in full force and effect in accordance
with its terms from the date hereof.
5.16 Determinations and Actions by the Board of Directors
The Board of Directors shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board of Directors or the Corporation, or as may be necessary or
advisable in the administration of this Agreement, including, without
limitation, the right and power to (i) interpret the provisions of this
Agreement, (ii) make the public announcement referred to under "Stock
Acquisition Date" in section 1.1 hereof and (iii) make all determinations deemed
necessary or advisable for the administration of this Agreement (including a
determination to redeem or not to redeem the Rights or to amend the Agreement).
All such actions, calculations, interpretations and determinations (including,
for purposes of clause (y) below, all omissions with respect to the foregoing)
which are done or made by the Board of Directors, in good faith, shall (x) be
final, conclusive and binding on the Corporation, the Right, Agent, the holders
of the Rights Certificates (including Rights which are void pursuant to the
provisions hereof) and all other parties, and (y) not subject the Board of
Directors or any director of the Corporation to any liability to the holders of
the Rights Certificates (including Rights which are void pursuant to the
provisions hereof).
5.17 Time of the Essence
Time shall be of the essence in this Agreement.
5.18 Execution In Counterparts
This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
REPAP ENTERPRISES INC.
By:
By:
MONTREAL TRUST COMPANY
By:
By:
24
<PAGE> 26
EXHIBIT "A"
Form of Rights Certificate
Certificate No.
THE RIGHTS ARE SUBJECT TO TERMINATION, AT THE OPTION OF THE CORPORATION, ON THE
TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED
IN SECTION 3.1(b) OF THE RIGHTS AGREEMENT), RIGHTS BENEFICIALLY OWNED BY AN
ACQUIRING PERSON OR TRANSFEREE OF AN ACQUIRING PERSON OR ITS AFFILIATES OR
ASSOCIATES (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) MAY BECOME VOID.
25
<PAGE> 27
RIGHTS CERTIFICATE
This certifies that, or
registered assigns, is the registered holder of the number of Rights set forth
above, each of which entitles the registered holder thereof, subject to the
terms, provisions and conditions of the Shareholder Protection Rights Plan
Agreement dated as of the 8th day of February, 1994 (the "Rights Agreement")
between Repap Enterprises Inc., a corporation duly incorporated under the Canada
Business Corporations Act (the "Corporation") and Montreal Trust Company, a
trust company incorporated under the laws of Canada (the "Rights Agent") (which
term shall include any successor Rights Agent under the Rights Agreement, as
amended, to purchase from the Corporation at any time after the Separation Time
(as such term is defined in the Rights Agreement) and prior to the Expiration
Time (as such terms is defined in the Rights Agreement), one fully paid common
share of the Corporation (a "Common Share") at the Exercise Price referred to
below, upon presentation and surrender of this Rights Certificate with the Form
of Election to Exercise duly executed and submitted to the Rights Agent at its
principal office in the city of Montreal. The Exercise Price shall initially be
$25 (Cdn.) per Right and shall be subject to adjustment in certain events as
provided in the Rights Agreement.
In certain circumstances described in the Rights Agreement, each Right
evidenced hereby may entitle the registered holder thereof to purchase or
receive assets, debt securities or shares in the capital stock of the
Corporation other than Common Shares or more or less than one Common Share (or a
combination thereof), all as provided in the Rights Agreement.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities thereunder of the
Rights Agent, the. Corporation and the holders of the Rights Certificates.
Copies of the Rights Agreement are on file at the registered office of the
Corporation.
This Rights Certificate, with or without other Rights Certificates, upon
surrender at any of the offices of the Rights Agent designated for such purpose,
may be exchanged for another Rights Certificate or Rights Certificates of like
tenor and date evidencing an aggregate number of Rights equal to the aggregate
number of Rights evidenced by the Rights Certificate or Rights Certificates
surrendered. If this Rights Certificate shall be exercised in part, the
registered holder shall be entitled to receive, upon surrender hereof, another
Rights Certificate or Rights Certificates for the number of whole, Rights not
exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be terminated by the Corporation under certain
circumstances at its option.
No holder of this Rights Certificate, as such, shall be entitled to vote
or receive dividends or be deemed for any purpose the holder of Common Shares or
of any other securities which may at any time be issuable upon the exercise
hereof, nor shall anything contained in the Rights Agreement or herein be
construed to confer upon the holder hereof, as such, any of the rights of a
shareholder of the Corporation or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting shareholders (except as provided in the
Rights Agreement), or to receive dividends or subscription rights, or otherwise,
until the Rights evidenced by this Rights Certificate shall have been exercised
as provided in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Corporation.
REPAP ENTERPRISES INC.
Date:
By:
Title:
By:
Title:
26
<PAGE> 28
Countersigned:
MONTREAL TRUST COMPANY
By
Authorized Signature
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer
the Rights Certificates.)
FOR VALUE RECEIVED hereby sells, assigns and transfers unto
(Please print name and address of transferee) this
Rights Certificate, together with all right, tide and interest therein, and does
hereby irrevocably constitute and appoint
, as attorney, to transfer the within Rights Certificate
on the books of the within-named Corporation, with full power of substitution.
Dated:
Signature Guaranteed:
Signature
(Signature must correspond to name as
written upon the face of this Rights
Certificate in every particular,
without alteration or enlargement or
any change whatsoever)
Signature must be guaranteed by a member firm of a recognized stock
exchange in Canada, a registered national securities exchange in the United
States, a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in Canada or
the United States.
(To be completed if true)
The undersigned hereby represents, for the benefit of all holders of
Rights and Common Shares, that the Rights evidenced by this Rights Certificate
are not, and, to the knowledge of the undersigned, have never been, Beneficially
Owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in
the Rights Agreement).
Signature
[To be attached to each Rights Certificate]
FORM OF ELECTION TO EXERCISE
TO: REPAP ENTERPRISES INC.
The undersigned hereby irrevocably elects to exercise whole Rights
represented by the attached Rights Certificate to PURCHASE the Common Shares or
other securities, if applicable, issuable upon the exercise of such Rights and
requests that certificates for such securities be issued in the name of:
27
<PAGE> 29
Address:
Social Insurance, Social Security
or Other Taxpayer Identification Number
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
Address:
Social Insurance, Social Security
or Other Taxpayer Identification Number
Dated:
Signature Guaranteed:
Signature
(Signature must correspond to name as
written upon the face of this Rights
Certificate in every particular,
without alteration or enlargement or
any change whatsoever)
Signature must be guaranteed by a member firm of a recognized stock
exchange in Canada, a registered national securities exchange in the United
States, a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in Canada or
the United States.
(To be completed if true)
The undersigned hereby represents, for the benefit of all holders of
Rights and Common Shares, that the Rights evidenced by this Rights Certificate
are not, and, to the knowledge of the undersigned, have never been, Beneficially
Owned by an Acquiring Person or an Affiliate or Associate thereof (as defined in
the Rights Agreement).
Signature
28
<PAGE> 30
NOTICE
In the event the certification set forth above in the Forms of Assignment
and Election is not completed, the Corporation will deem the Beneficial Owner of
the Rights evidenced by this Rights Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement). No Rights
Certificates shall be issued in exchange for a Rights Certificate owned or
deemed to have been owned by an Acquiring Person or an Affiliate or Associate
thereof Rights or to amend the Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
of Directors, in good faith, shall (x) be final, conclusive and binding on the
Corporation, the Rights Agent, the holders of the Rights Certificates (including
Rights which are void pursuant to the provisions hereof) and all other parties,
and (y) not subject the Board of Directors or any director of the Corporation to
any liability to the holders of the Rights Certificates (including Rights which
are void pursuant to the provisions hereof).
5.17 Time of the Essence
Time shall be of the essence in this Agreement.
5.18 Execution In Counterparts
This Agreement may be executed in any number of counterparts and each of
such counterparts shall for all purposes be deemed to be original, and all such
counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
REPAP ENTERPRISES INC.
MONTREAL TRUST COMPANY
By:
By:
By:
By:
29
<PAGE> 31
AMENDMENT TO THE SHAREHOLDER PROTECTION RIGHTS PLAN AGREEMENT
DATED AS OF FEBRUARY 8, 1994 BETWEEN REPAP ENTERPRISES INC. AND
MONTREAL TRUST COMPANY
1 Paragraph 5.1 (b) of the Shareholder Protection Rights Plan Agreement
dated as of February 8, 1994 between Repap Enterprises Inc. ("Repap") and
Montreal Trust Company as Rights Agent (the "Plan") is hereby amended to
read as follows:
(b) The Board of Directors may until the occurrence of any particular
Flip-in Event determine, upon prior written notice delivered to the
Rights Agent, to waive the application of Section 3.1 to such Flip-in
Event."
2. All other provisions of the Plan continue in full force and effect
unamended.
3. This amendment shall be governed by and construed in accordance with the
laws of the Province of Quebec and the laws of Canada applicable therein.
Dated as of July 31, 1996
REPAP ENTERPRISES INC.
PER:
George S. Petty -- Chairman
PER:
Terry W. McBride -- Secretary
MONTREAL TRUST COMPANY
PER:
Ronald Bourdon -- Senior Manager
PER:
Steve Gilbert -- Account Manager
30
<PAGE> 1
EXHIBIT 10.11
REPAP ENTERPRISES INC.
1987 DIRECTORS, OFFICERS AND EMPLOYEES AMENDED STOCK OPTION PLAN
(THIRD AMENDMENT -- 25 SEPTEMBER 1997)
PART 1
PURPOSE AND PARTICIPANTS
1.01 PURPOSE. The purpose of the Repap Enterprises Inc. 1987 Directors,
Officers and Employees Stock Option Plan (the "Plan") is to provide an incentive
to, and serve to supplement the income of, certain Designated Participants, as
herein defined, of Repap Enterprises Inc. (the "Corporation") and its affiliates
by providing them with the opportunity to acquire a proprietary interest in the
Corporation through the grant of options ("Options") to purchase common shares
("Common Shares") of the Corporation, on the terms and conditions set forth in
the Plan.
1.02 DESIGNATED PARTICIPANTS. Designated Participants entitled to participate
in the Plan shall be those directors, officers or employees of the Corporation
or any of its affiliates (as defined in section 2(2) of the Canada Business
Corporations Act, as the same may be amended or replaced from time to time), who
are designated solely by a committee of two or more directors (the "1987 Stock
Option Committee"), in its absolute discretion, each of whom is appointed by the
board of directors of the Corporation (the "board of directors") and, during the
one year period prior to the appointment, who qualifies as a "disinterested
person" within the meaning of Rule 16b-3 under the United States Securities
Exchange Act of 1934 or any successor rule or regulation. A Designated
Participant shall also include a person who becomes a director, officer or
employee of the Corporation or of one of its affiliates within 30 days after his
designation as such by the 1987 Stock Option Committee.
Notwithstanding the foregoing, the 1987 Stock Option Committee shall not
designate an insider as a Designated Participant if the effect of that
designation could result, together with all of the Corporation's previously
established share compensation arrangements, at any time, in (i) the number of
Common Shares reserved for issuance to insiders exceeding 10% of the outstanding
issue; (ii) the issuance to insiders, within a one-year period, of a number of
shares exceeding 10% of the outstanding issue; or (iii) the issuance to any one
insider and such insider's associates, within a one-year period, of a number of
Common Shares exceeding 5% of the outstanding issue. For the purposes of the
Plan, the terms "insider", "outstanding issue" and "share compensation
arrangements" shall have the meaning attributed to them respectively by the
Revised Policy on listed Company Share Incentive Arrangements of The Toronto
Stock Exchange dated March 22, 1994, as amended from time to time.
PART 2
TERMS RELATING TO THE PLAN
2.01 SHARES. Subject to Section 2.08 of the Plan, the aggregate number of
Common Shares that may be purchased pursuant to Options granted under the Plan
shall not exceed in the aggregate 73,246,000 Common Shares. In the event that
Options granted under the Plan are surrendered, terminate or expire without
being exercised, in whole or in part, new Options may be subsequently granted by
the 1987 Stock Option Committee, covering the Common Shares not purchased under
the such lapsed Options.
2.02 PARTICIPANTS. The participants in the Plan will be Designated
Participants.
2.03 NUMBER AND PRICE OF OPTIONED COMMON SHARES.
(a) The number of Common Shares subject to an Option granted to a
Designated Participant and, subject to subsection 2.03(c) of the
Plan, the price at which the Option may be exercised (the "Option
Price") shall be determined by resolution of the 1987 Stock Option
Committee, in its absolute discretion.
(b) The total number of Common Shares reserved for issuance under
Options and under any other employee stock option plans, options for
services and employee stock purchase plans of the
31
<PAGE> 2
Corporation, for any one person shall not exceed five per cent (5%)
of the outstanding Common Shares, from time to time; but this
limitation shall not affect any outstanding options or the right of
any person to exercise any such options granted pursuant to the terms
of this Plan or any other plan of the Corporation.
(c) In no event shall the Option Price be less than the market price of
the Common Shares at the time of the grant of the Option. The market
price at the time of grant of an Option shall be the closing price of
the Common Shares on The Toronto Stock Exchange on the trading day on
The Toronto Stock Exchange preceding the day of the grant of that
Option.
(d) If, as and when any Common Shares have been duly purchased and paid
for in cash under the terms of an Option granted under this Plan and
in accordance with the terms of the Option, those Common Shares shall
be conclusively deemed allotted and issued, at that time, as fully
paid and non-assessable Common Shares at the price paid therefor.
2.04 CONSIDERATION, OPTION PERIOD AND PAYMENT. The term of the Option granted
hereunder (the "Option Period") shall be the period commencing on the day which
is the first business day immediately following the date of the grant and
terminating at 5 p.m. (Montreal time) on the tenth anniversary of the date of
the grant, except as the same may be reduced with respect to any Option as
provided in Sections 2.06 or 2.07 of the Plan covering cessation as a director,
officer or employee of the Corporation or any affiliates, as the case may be, or
death of the Designated Participant.
Unless otherwise determined by the board of directors, options may be
exercised (in each case to the nearest full share) at any time and from time to
time during the Option Period, in whole or in part, only after the end of the
first year from the date the Option is granted, as follows:
(a) After the end of the first year of the Option Period, the Designated
Participant may purchase up to 20% of the total number of Common
Shares set forth in his Option.
(b) After the end of the second year of the Option Period, the
Designated Participant may purchase an additional 20% of the total
number of Common Shares set forth in his Option plus any Common
Shares not purchased in accordance with Subsection 2.04(a) of the
Plan.
(c) After the end of the third year of the Option Period, the Designated
Participant may purchase an additional 20% of the total number of
Common Shares set forth in his Option plus any Common Shares not
purchased in accordance with Subsections 2.04 (a) and 2.04(b) of the
Plan.
(d) After the end of the fourth year of the Option Period, the
Designated Participant may purchase an additional 20% of the total
number of Common Shares set forth in his Option plus any Common
Shares not purchased in accordance with Subsections 2.04(a), 2.04(b)
and 2.04(c) of the Plan.
(e) After the end of the fifth year of the Option Period, the Designated
Participant may purchase any Common Shares set forth in his Option
which have not previously been purchased in accordance with
Subsections 2.04(a), 2.04(b), 2.04(c) and 2.04(d) of the Plan.
The board of directors may prescribe the date or dates upon which Options
may become exercisable and may establish any criteria which must be met in order
for all or any Options to become exercisable.
Except as set forth in Sections 2.06 and 2.07 of this Plan, no Option may
be exercised unless the Designated Participant is at the time of such exercise a
director, officer or employee of the Corporation or of one of its affiliates and
shall have been a director, officer or employee continuously since the grant of
his Option, subject to Section 1.02 of the Plan.
The exercise of any Option will be contingent upon receipt by the
Corporation (i) of a duly signed written notice of exercise substantially in the
form attached as Schedule A, specifying the number of Common Shares with respect
to which the Option is being exercised and (ii) a certified cheque or bank draft
for the full purchase price of Common Shares with respect to which the Option is
exercised. No Designated Participant or his legal representatives will be, or
will be deemed to be, a holder of any Common Shares subject to an Option under
this Plan, unless and until certificates for such Common Shares are issued to
him or them under the terms of the Plan.
A Designated Participant shall have no right whatsoever as a shareholder
of the Corporation in respect of any of the Common Shares covered by his Option
(including any right to receive dividends or other distributions
32
<PAGE> 3
therefrom or thereunder) other than in respect of optioned Common Shares in
respect of which the Designated Participant shall have exercised his Option to
purchase under this Plan and which the optionee shall have actually taken up and
paid for in full.
(f) Each Option shall be subject to the requirement that if at any time
the 1987 Stock Option Committee shall determine that the listing,
registration or qualification of the Common Shares subject thereto
upon any securities exchange or under any applicable securities law
or the consent or approval of any governmental or regulatory body is
necessary or desirable in connection with the issue or purchase of
the Common Shares subject thereto, then no such Option may be
exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the 1987 Stock
Option Committee.
2.05 TRANSFERABILITY. The Option granted pursuant to the Plan shall not be
transferable otherwise than by will or by the laws of descent and distribution
and during the lifetime of a holder of an Option shall be exercisable only by
him.
2.06 CEASING TO BE A DIRECTOR, OFFICER OR EMPLOYEE. If a Designated
Participant shall cease to be a director, officer or employee of the Corporation
and its affiliates for any reason other than death, retirement at normal
retirement age or any other reason acceptable to the Corporation (as determined
by the 1987 Stock Option Committee), he may, but only during the Option Period
or until 5:00 p.m. (Montreal time) on the 90th day following the date on which
he ceased to be a director, officer or employee, whichever first occurs,
exercise his Option to the extent that he was entitled to exercise it at the
date of such cessation. Upon the expiration of such period, the Option
previously granted under this Plan to said Designated Participant shall ipso
facto cease and terminate and be of no further force or effect whatsoever,
except only to the extent of the number of Common Shares then duly purchased and
paid for.
Nothing contained in the Plan, nor in any Option granted pursuant to the
Plan, shall as such confer upon a Designated Participant any right with respect
to continuance as a director, officer or employee of the Corporation or one of
its affiliates.
2.07 DEATH OF DESIGNATED PARTICIPANT. In the event of the death of a
Designated Participant, the Option previously granted to him shall be
exercisable only during the Option Period or until 5:00 p.m. (Montreal time) on
the 180th day following the date of death of said Designated Participant,
whichever occurs first, and then only:
(a) by the person or persons to whom the Designated Participant's rights
under the Option shall pass by the Designated Participant's will or
the laws of descent and distribution; and
(b) if and to the extent that he was entitled to exercise the Option at
the date of his death.
Upon the expiration of such period, the Option previously granted under
this Plan to the said Designated Participant shall ipso facto cease and
terminate and be of no further force or effect whatsoever, except only to the
extent of the number of Common Shares then duly purchased and paid for.
2.08 ADJUSTMENT IN COMMON SHARES SUBJECT TO THE PLAN.
(a) In the event of any subdivision or redivision of the Common Shares
of the Corporation into a greater number of Common Shares at any time
after the date of this Plan and prior to the expiry time of the
Option held by any Designated Participant, the Corporation shall
deliver to such Designated Participant at the time of any subsequent
exercise of his Option in accordance with the terms hereof, in lieu
of the number of Common Shares to which he was theretofore entitled
upon such exercise, but for the same aggregate consideration payable
therefor, such number of Common Shares as such Designated Participant
would have held as a result of such subdivision or redivision if on
the record date thereof the Designated Participant had been the
registered holder of the number of Common Shares to which he was
theretofore entitled upon such exercise.
(b) In the event of any consolidation of the Common Shares of the
Corporation into a lesser number of Common Shares at any time after
the date of this Plan and prior to the expiry time of an Option held
by any Designated Participant, the Corporation shall deliver to such
Designated Participant at the time of any subsequent exercise of his
Option in accordance with the terms hereof, in lieu of the number of
Common Shares to which he was therefore entitled upon such exercise,
but for the same aggregate consideration payable theretofor, such
number of Common Shares as such Designated
33
<PAGE> 4
Participant would have held as a result of such consolidation if on
the record date thereof the Designated Participant had been the
registered holder of the number of Common Shares to which he was
theretofore entitled upon such exercise.
(c) If at any time prior to the expiry time of the Option held by a
Designated Participant the Common Shares of the Corporation shall be
reclassified, reorganized or otherwise changed, otherwise than as
specified in Subsections 2.08 (a) and (b) of the Plan or, subject to
amendment or discontinuance of this Plan pursuant to its terms and
conditions, the Corporation shall consolidate, merge or amalgamate
with or into another corporation (the corporation resulting or
continuing from such consolidation, merger or amalgamation being
herein called the "Successor Corporation"), the Designated
Participant shall be entitled to receive upon the subsequent exercise
of his Option in accordance with the terms hereof and shall accept in
lieu of the number of Common Shares then subscribed for, but for the
same aggregate consideration payable therefor, the aggregate number
of shares of the appropriate class and other securities of the
Corporation or the Successor Corporation (as the case may be) and
other consideration from the Corporation or the Successor Corporation
(as the case may be) that the Designated Participant would have been
entitled to receive as a result of such reclassification,
reorganization or other change of shares or, as a result of such
consolidation, merger or amalgamation, if on the record date of such
reclassification, reorganization or other change of shares or the
effective date of such consolidation, merger or amalgamation, as the
case may be, he had been the registered holder of the number of
Common Shares to which he was immediately theretofore entitled upon
such exercise.
(d) Any fractional Common Shares or other shares resulting from any
adjustment under Section 2.08 (a), (b) or (c) of the Plan shall be
eliminated.
PART 3
GENERAL
3.01 EXERCISE OF OPTIONS. No benefits or rights accruing to any Designated
Participant in accordance with the terms and conditions of the Plan shall be
transferrable unless specifically provided herein. During the lifetime of a
Designated Participant any benefits or rights may only be exercised by the
Designated Participant.
3.02 RECORD KEEPING. The Corporation shall maintain a register in which shall
be recorded: (i) the name and address of each Designated Participant, (ii) the
number of Options granted to a Designated Participant, (iii) the number of
Common Shares under Options and (iv) the number of Common Shares subscribed and
paid for pursuant to said Options.
3.03 NECESSARY APPROVALS. The obligation of the Corporation to issue and
deliver Common Shares in accordance with the Plan is subject to any approvals
which may be required from any regulatory authority or stock exchange having
jurisdiction over the securities of the Corporation. If any Common Shares cannot
be issued to any Designated Participant for whatever reason, the obligation of
the Corporation to issue such Common Shares shall terminate and any Option
exercise price paid to the Corporation will be returned to the Designated
Participant.
3.04 COMMON SHARES. As used in this Plan, "Common Shares" means Common Shares
in the capital of the Corporation, subject to Section 2.08 of the Plan.
3.05 ADMINISTRATION AND AMENDMENT OF THE PLAN.
(a) The Plan will be administered by the 1987 Stock Option Committee.
The board of directors may, from time to time, remove members from
the 1987 Stock Option Committee or add members thereto, and vacancies
in the 1987 Stock Option Committee, however caused, shall be filled
by action of the board of directors. Subject to the provisions of the
Plan, the 1987 Stock Option Committee shall have sole authority, in
its absolute discretion, to determine the time and frequency when
Options shall be granted, the terms of such Options and the number of
Common Shares for which Options shall be granted. The grant of
Options under the Plan shall be effected by execution of a stock
option agreement in the form approved by the 1987 Stock Option
Committee. The 1987 Stock Option Committee shall have the authority
to do everything necessary and appropriate to administer the Plan,
including, without limitation, interpreting the Plan and executing
all instruments, undertakings,
34
<PAGE> 5
applications and writings as they, in their absolute discretion,
consider necessary for the implementation of rules and regulations by
the 1987 Stock Option Committee for administering the Plan and from
time to time amending or rescinding such rules or regulations. Any
interpretation or construction of any provision of the Plan and any
decision or determination by the 1987 Stock Option Committee shall be
final, conclusive and binding on all optionees and their successors,
and upon all other persons claiming under or through any of them. All
administration costs of the Plan shall be paid by the Corporation.
(b) Subject to the prior approval of The Toronto Stock Exchange and any
other stock exchange on which the Common Shares are listed for
trading, the board of directors reserves the right to amend, modify
or terminate the Plan at any time if and when it is advisable in the
absolute discretion of the board of directors, except with respect to
any Options then outstanding under the Plan; provided, however, that,
without the approval of a majority of the Corporation's shareholders,
no amendment or modification may be made which would (i) materially
increase the benefits accruing to Designated Participants under the
Plan, (ii) materially increase the number of Common Shares which may
be issued under the Plan (except by operation of Section 2.08 of the
Plan) or (iii) materially modify the requirements as to eligibility
for participation in the Plan.
(c) Should changes be required in this Plan by any securities
commission, stock exchange or other governmental or regulatory body
of any jurisdiction to which this Plan or the Corporation now is or
hereafter becomes subject, such changes shall be made in this Plan as
are necessary to conform with such requirements and, if such changes
are approved by the board of directors, this Plan, as amended, shall
be filed with the records of the Corporation and shall remain in full
force and effect in its amended form.
3.06 ESCROW. Common Shares to be issued upon exercise of an Option shall be
escrowed if required by any applicable law, regulation, regulatory body or stock
exchange, and the Designated Participant shall, upon request by the Corporation,
execute an escrow agreement in form required or requested by such regulatory
body, stock exchange or the Corporation and no Common Shares shall be issued on
exercise of an Option if such escrow agreement is not entered into by the
Designated Participant.
3.07 LEGAL OPINION. Common Shares to be issued upon exercise of an Option to
a Designated Participant who is not residing in Canada shall be subject to the
receipt, by the Corporation, of a favourable legal opinion addressed to the
Corporation by a legal counsel designated by the Corporation, establishing that
all formalities, registration, consent, approval and filing required under any
applicable laws, if any, have been done or obtained in order to issue Common
Shares to such Designated Participant.
3.08 NO REPRESENTATION OR WARRANTY. The Corporation makes no representation
or warranty as to the future market value of any Common Shares issued in
accordance with the provisions of the Plan.
3.09 INTERPRETATION. The Plan will be governed by and construed in accordance
with the laws of Canada and of the Province of Quebec.
3.10 LANGUAGE. The Corporation and the Designated Participant who is a party
to a Stock Option Agreement to which this Plan is annexed state their express
wish that this Plan and all documents related thereto be drafted in the English
language only; la societe et le participant designe qui est partie B une
convention d'option B laquelle est annexe ce regime ont, par les presentes,
exprime leur volonte expresse que ce regime, de meme que tous les documents y
afferents, soient rediges en anglais seulement.
35
<PAGE> 6
SCHEDULE A
REPAP ENTERPRISES INC.
1987 DIRECTORS, OFFICERS AND EMPLOYEES STOCK OPTION PLAN
EXERCISE OF OPTION
The undersigned hereby exercises the option to purchase _________________
Common Shares in the capital of Repap Enterprises Inc. at a price per share of $
____________ granted to him by agreement dated ___________________ and tenders a
cheque therefore in the amount of $ ___________________ .
Dated this ____________ day of ____________________________
19 _______ .
_______________________________________
Signature of Designated Participant
_______________________________________
_______________________________________
_______________________________________
_______________________________________
Name and Address of Designated
Participant
36
<PAGE> 1
EXHIBIT 11.1 -- STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1997 1996 1995
--------- --------- --------
(In millions, except per share data)
<S> <C> <C> <C>
BASIC
Average Shares outstanding................................ 381.2 123.4 122.7
------ ------ -----
Earnings (loss) from continuing operations (in
millions).............................................. (137.3) (93.8) 21.7
Net Income (loss)......................................... (63.5) (492.0) 143.6
Basic earnings (loss) from continuing operations per
share.................................................. (0.36) (0.76) 0.18
Basic earnings (loss) per share........................... (0.17) (3.99) 1.17
FULLY DILUTED
Average Shares outstanding................................ 381.2 123.4 122.7
Net effect of dilutive stock options...................... -- -- 11.4
Assumed conversion of convertible debentures.............. -- -- 19.3
------ ------ -----
381.2 123.4 153.4
====== ====== =====
Earnings (loss) from continuing operations................ (137.3) (93.8) 21.7
Net Income (loss)......................................... (63.5) (492.0) 143.6
Add Interest on convertible debentures(1.)................ -- -- 23.0
Add other interest income(1).............................. -- -- 5.0
------ ------ -----
Earnings (loss) from continuing operations................ (137.3) (93.8) 26.7
------ ------ -----
Net Income (loss)......................................... (63.5) (492.0) 171.6
====== ====== =====
Fully diluted earnings (loss) from continuing operations
per share.............................................. (0.36) (0.76) 0.17
Fully diluted earnings (loss) per share................... (0.17) (3.99) 1.12
</TABLE>
- ---------------
(1) Conversion of the options and the convertible debentures is not assumed in
1997 and 1996 in the computation because its effects are antidilutive.
Conversion of the convertible debentures is not assumed in 1997 for purposes
of the Fully diluted earnings from continuing operations because its effect
is antidilutive.
37
<PAGE> 1
[REPAP LOGO]
ANNUAL REPORT 1997
[PHOTO]
REPAP ENTERPRISES INC.
<PAGE> 2
[REPAP LOGO]
REPAP ENTERPRISES INC.
Repap is an integrated North American coated groundwood paper company with total
assets of approximately $1.4 billion. Its manufacturing subsidiary, Repap New
Brunswick, Inc., is located in New Brunswick, Canada, and its marketing
subsidiary, Repap Marketing Inc., is located in Stamford, Connecticut, with
satellite sales offices in Chicago, Philadelphia and Montreal. Repap's executive
offices relocated from Montreal to Stamford in January 1998. Repap employs
approximately 1,680 people.
Repap's operations have an annual capacity of 492,000 tons of coated groundwood
paper, 235,000 metric tons ("tonnes") of northern bleached softwood kraft pulp,
123,000 tonnes of groundwood pulp and 58 million board feet of lumber.
During 1997, Repap underwent significant changes in its activities. In the first
quarter of 1997, Repap relinquished ownership of its pulp and lumber subsidiary
located in British Columbia to that subsidiary's major lenders and severed all
relationships with Skeena Cellulose Inc. (formerly Repap British Columbia Inc.)
In the third quarter of 1997, Repap completed the sale of two other
subsidiaries, Repap Manitoba Inc. and Repap USA, Inc.
The net proceeds of these sales were used mainly to repay indebtedness of
the holding company. In addition, US $130 million convertible debentures,
maturing August 1, 1997, were converted into common shares of the Company using
a market price formula. This conversion resulted in outstanding common shares
increasing from 123.4 million at December 31, 1996 to 742.5 million at December
31, 1997. The new shareholder base that evolved instituted significant changes
to management and the Board of Directors. Repap also proceeded to significantly
downsize the Company's head office, transferring essential services to its
remaining operating subsidiary, Repap New Brunswick Inc., and transferring three
remaining executives to Stamford, CT, where Repap's marketing subsidiary is
located.
Repap became a publicly traded company in December 1986. Its shares trade on the
Toronto Stock Exchange and the Montreal Exchange (symbol RPP). In December 1997,
Repap delisted its shares from trading on NASDAQ and from the Vancouver Stock
Exchange.
TABLE OF CONTENTS
2 Chairman's Remarks
5 Overview of Operations
6 Financial Review
13 Consolidated Financial
Statements
30 Summary of Selected
Financial Data
31 Price Range and Trading
Volume of Common Shares
32 Glossary
IBC Directors and Officers
PERCENTAGES OF REVENUES
[PIE CHART]
KRAFT PULP-MARKET LUMBER COATED PAPER
13% 5% 82%
Repap has approximately 9% of the North American coated groundwood paper market.
<PAGE> 3
[REPAP LOGO]
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MILLIONS OF CANADIAN DOLLARS,
EXCEPT PER SHARE DATA 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA (1)
Revenues from continuing operations $ 609.9 $ 564.0
Net sales from continuing operations 520.4 485.1
Operating profit (loss) (4.0) 41.6
Interest expense 117.9 113.0
Loss from continuing operations (122.9) (74.8)
Income (loss) from discontinued operations 73.8 (398.2)
Net loss attributable to common shareholders (63.5) (492.0)
Average US$/Cdn$ exchange rate 1.3848 1.3636
- ----------------------------------------------------------------------------------------
BALANCE SHEET DATA
- ----------------------------------------------------------------------------------------
Net fixed assets $ 1,008.7 $ 2,284.2
Total assets 1,397.9 3,303.7
Debt (2) 1,096.8 2,489.8
Shareholders' equity (deficiency) (17.3) 41.1
Year-end US$/Cdn$ exchange rate 1.4291 1.3696
- ----------------------------------------------------------------------------------------
CASH FLOW FROM CONTINUING OPERATIONS DATA (1)
- ----------------------------------------------------------------------------------------
Cash flow from operations (3) $ (34.8) $ (13.5)
Additions to fixed assets 16.2 19.3
Net additions to (reductions in) long-term debt (229.4) 105.4
Issue of share capital 157.1 --
- ----------------------------------------------------------------------------------------
PER SHARE DATA (1)
- ----------------------------------------------------------------------------------------
Earnings (loss) from
- Continuing operations, basic $ (0.36) $ (0.76)
- Discontinued operations 0.19 (3.23)
Total, basic (0.17) (3.99)
- ----------------------------------------------------------------------------------------
VOTING SHARES (THOUSANDS) (4)
- ----------------------------------------------------------------------------------------
Common shares at year-end 742,461 123,437
- ----------------------------------------------------------------------------------------
</TABLE>
1. Amounts from prior years have been restated. See Notes 1, 2 and 17 to the
Corporation's consolidated financial statements.
2. Includes long-term debt, revolving credit facilities and repayable grants.
3. Before net change in non-cash working capital.
4. On August 1, 1997 US$ 130 million convertible debentures, maturing on that
date, were converted into common shares of the Corporation at a formula price of
US$0.21 per share, being 95% of the weighted average price of the common shares
traded on the Toronto Stock Exchange for the 20 days preceding conversion date.
The total number of common shares issued on conversion was 619,023,800.
<PAGE> 4
[REPAP LOGO]
CHAIRMAN'S REMARKS TO THE SHAREHOLDERS
It has been a year of dramatic change for your Company. Dramatic actually
understates the circumstances Repap faced in 1997 and the changes required to
deal with those circumstances. Following the failed Avenor Inc. merger in the
spring of last year, Repap was forced to deal with a significant amount of debt
at the holding company maturing by July 31, 1997. Through major asset sales and
massive share dilution, Repap was able to satisfy those immediate obligations.
However, as a result of the share dilution, a new shareholder base emerged in
August of last year. Reflecting the new ownership and structure of Repap, a
number of senior executives and board members left Repap and a new, smaller
dedicated team of managers and board members assumed leadership of Repap at that
critical time.
As part of those changes I was appointed your Chairman. My first action was to
convince Steve Larson to take charge of the Company as President and Chief
Executive Officer. Steve grasped the challenge and has been instrumental in
building a small highly effective team around him, who in five short months has
completed a number of tactical and strategic moves that have put the Company
back on track for a solid recovery. Repap is still overleveraged but a
foundation has been established from which we can build with the help of
favourable markets, supportive customers and the capability of all the Repap
employees.
Repap today, in all ways, is substantially downsized from its former self. After
the relinquishment of Repap British Columbia (Skeena mill) and the sale of its
Repap USA, Repap Manitoba and Atholville mills, only the world class New
Brunswick operations remain. The pending divestiture of Alcell Technologies Inc.
will further simplify Repap. Head office has been reduced to a handful of key
employees, marketing/sales has been completely reconfigured and costs have been
dramatically cut. Mr. Larson discusses all this in further detail in his
President's Message.
The Board along with management is actively addressing the future. In the
immediate term we must explore methods to reduce the debt burden in the Company.
The current business fundamentals for coated groundwood paper are excellent and
our mill is operating at very high standards of productivity with low costs.
While the current cash flow is more than adequate to cover our ongoing operating
needs, we must find ways to reduce the principal amount of debt. A number of
avenues are being reviewed and in all cases the interest of the shareholders is
utmost in the mind of the Board and management.
I would like to thank the members of the Board for their guidance and for
serving through this difficult transition period.
The Board and senior management express their thanks to the employees of Repap
who remain more committed than ever to maintain and improve one of the most
efficient lightweight coated paper operations in the industry!
/s/William J. Anderson
William J. Anderson
Chairman of the Board
2
<PAGE> 5
[REPAP LOGO]
PRESIDENT'S MESSAGE
Following the organizational changes instituted in August 1997, your new
management team moved quickly to stabilize operations, to appropriately
reconfigure the Company to the realities of a new size and structure, and to
focus on the critical components of financial and operational performance that
begin the reconstruction of value. Initiatives executed by year-end included the
following:
REPAP ENTERPRISES INC.
The sales of Repap USA and Repap Manitoba were finalized with proceeds utilized
to retire all senior secured debt. The Atholville, New Brunswick, pulp mill was
sold in February 1998 and the sale of Alcell Technologies Inc. is pending. These
transactions effectively dispose of all holding company non-strategic
subsidiaries. Corporate employees were reduced to five from approximately
seventy, one year ago and the Montreal executive offices were closed and
combined with Repap Marketing in Stamford, CT. The result is substantive cost
reductions and efficiency improvements that will be realized in 1998.
REPAP MARKETING INC.
The sale of Repap USA necessitated a complete reconfiguration of this function.
We retained critical members of an experienced sales team with significant
benefit to our customers, and were required to recruit and train a new customer
service team, relocating the function to Stamford, CT from Kimberly, WI. Also,
transferred from Kimberly to New Brunswick were production planning,
distribution and all systems activities. Reflecting both the lower sales volumes
and the more streamlined activities required to market a coated groundwood
product, personnel were reduced to 13 compared with 80 one year earlier. Again,
as at the holding company, material savings will be realized in 1998.
REPAP NEW BRUNSWICK INC.
Throughout the turmoil of last year, the employees at the New Brunswick mill
continued to deliver steady improvement. They accomplished our $24 million
profit enhancement program and launched a new $13 million program for 1998. In
conjunction with the new Repap Marketing team, grade optimization actions have
been instituted to lower freight costs, provide longer machine runs, increase
trim and ultimately expand margins. Finally, key performance factors such as
coated paper production increased each quarter.
COATED PAPER
Tons/Day
Q4 1,247
Q3 1,208
Q2 1,180
Q1 1,129
3
<PAGE> 6
[REPAP LOGO]
The reconfiguration of our company on an operational basis is essentially
complete with personnel, systems, structure and objectives in place. It is
positioned to perform cost-effectively with additional improvement opportunities
identified.
It should be noted that the rapid execution of this transition was enhanced by
the good market conditions we've recently enjoyed. Those conditions in
lightweight coated paper remain positive and our position in this market is an
enviable one. Coated paper demand, fueled by solid North American economic
growth and the success achieved by the end use sectors of magazines, catalogs,
inserts and advertising is projected to grow strongly. Lightweight coated paper
capacity additions are modest and inventory levels remain in balance. Repap
produces a high quality product with a 9% North American share of this expanding
market. Finally, we remain uniquely distinguished as the only world class LWC
mill left on a standalone basis in a consolidating industry.
Going forward into 1998 and beyond, we have excellent assets, a cost-effective
organization and the expectation of continued market growth. We need all three,
for we do not have either a prudent or competitive financial structure. Entering
1998 with almost $1.1 billion of debt and incurring over $100 million in annual
interest costs is unacceptable, particularly in an industry historically
notorious for its volatility and cyclicality. This is our major challenge for
reconstructing value and, as identified by our Chairman, improving the balance
sheet is management's top priority for the year ahead.
/s/Stephen C. Larson
Stephen C. Larson
President and Chief Executive Officer
4
<PAGE> 7
[REPAP LOGO]
OVERVIEW OF OPERATIONS
LOCATION
REPAP NEW BRUNSWICK
Repap New Brunswick is located on the Eastern coast of Canada in Miramichi, New
Brunswick. The Company consists of an integrated lightweight coated groundwood
paper complex, operating two modern high speed coated paper machines with
492,000 tons of annual capacity, representing the highest productive capacity
per machine in North America. The Company also produces Northern bleached
softwood kraft pulp with an annual capacity of 235,000 tonnes, two-thirds of
which is used internally in the manufacture of paper, 123,000 tonnes of
groundwood pulp, used internally, and dimension lumber with an annual capacity
of 58 million board feet.
COATED PAPER PRODUCTS
Description
COATED GROUNDWOOD
- - Contains at least 10 percent mechanical pulp.
- - Typically manufactured using approximately one-third mechanical (groundwood or
wood-containing) pulp, one-third chemical pulp (including NBSKpulp), and
one-third clays and fillers.
- - Typically produced in lighter weights. Comprises grades No. 4 and 5.
End uses
- - High circulation magazines, catalogs, newspaper advertising inserts and direct
mail advertising materials.
- - Represents approximately 55 percent of total North American coated paper
consumption.
MILL DATA
- --------------------------------------------
NEW BRUNSWICK OPERATIONS
(MIRAMICHI)
- --------------------------------------------
Annual Capacity
- --------------------------------------------
Coated Paper Mill 492,000 tons
- --------------------------------------------
Kraft Pulp Mill 235,000 tonnes
- --------------------------------------------
Groundwood
Pulp Mill 123,000 tonnes
- --------------------------------------------
Sawmills 58,000 Mfbm
- --------------------------------------------
PULP PRODUCTS
Description
SOFTWOOD KRAFT PULP
- - Chemical pulp manufactured from softwood trees (evergreen, cone-bearing trees
such as pine, spruce, hemlock, and fir) which have long fibres imparting high
strength characteristics.
- - Derived from the German word for "strong", the kraft process involves cooking
wood chips in an alkaline solution for several hours to produce pulp by
chemically removing the lignin which binds the cellulose fibres together.
End uses
- - Includes tissue, specialty papers and printing and writing papers,
particularly the lighter weight grades which require superior fibre strength to
run on high-speed paper machines and printing presses.
- - Represents approximately 35 percent of global white chemical paper grade
market pulp.
FIBRE SUPPLY
- - Approximately 44% of the wood supply for the kraft and groundwood pulp mills
and sawmills is obtained from Crown Timber Licenses with the Province of New
Brunswick. The licensed areas cover 0.7 million hectares. The remaining wood is
acquired from third parties under various supply agreements.
LUMBER PRODUCTS
Description
Dimension
- - North American term for construction-grade lumber.
End uses
- - Typical product is 2"x4"s.
Capacity, Production, Shipments
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Coated Paper (000's tons)
Capacity 473 492 492 492 492
- ------------------------------------------------------------------------------------------------------------------------------------
Production 368 411 427 403 428
- ------------------------------------------------------------------------------------------------------------------------------------
Shipments 345 440 420 384 443
- ------------------------------------------------------------------------------------------------------------------------------------
NBSK Pulp (000's tonnes)
Capacity 200 215 235 235 235
- ------------------------------------------------------------------------------------------------------------------------------------
Production 194 209 221 224 235
- ------------------------------------------------------------------------------------------------------------------------------------
Shipments
Total 201 212 215 218 248
Less: Internal Use 110 126 144 136 138
Net Market 91 86 71 82 110
- ------------------------------------------------------------------------------------------------------------------------------------
Grounwood Pulp (000's tonnes)
Capacity 123 123 123 123 123
- ------------------------------------------------------------------------------------------------------------------------------------
Production (used internally) 115 112 117 116 119
- ------------------------------------------------------------------------------------------------------------------------------------
Lumber (MMFBM)
Capacity 58 58 58 58 58
- ------------------------------------------------------------------------------------------------------------------------------------
Production 57 54 49 53 57
- ------------------------------------------------------------------------------------------------------------------------------------
Shipments 63 53 47 54 58
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 8
[REPAP LOGO]
FINANCIAL REVIEW
FINANCIAL RESULTS
The Corporation's financial results are determined in accordance with accounting
principles generally accepted in Canada. These accounting principles differ in
certain respects from accounting principles generally accepted in the United
States and the accounting rules and requirements of the SEC, as described in
Note 23 to the Corporation's Consolidated Financial Statements.
The year 1997 was a turning point for Repap, with the completion of a radical
restructuring of its capital base and divestiture of three of its four operating
subsidiaries (see "Discontinued Operations" and "Liquidity and Capital
Resources" discussions hereunder).
The Company's continuing operations consist mainly of its wholly-owned
subsidiary, Repap New Brunswick Inc. This world-class coated paper complex
operates two modern paper machines with a design capacity of 492,000 tons, a
northern bleached softwood kraft pulp mill with an annual capacity of 235,000
metric tons, an integrated groundwood pulp mill with an annual capacity of
123,000 metric tons and lumber operations with an annual capacity of 58 million
board feet. The Company's other subsidiary, Repap Marketing Inc., is responsible
for the sale and customer service functions related to the marketing of coated
paper.
These continuing operations generated revenues of $609.9 million in 1997, up
eight percent over revenues of $564.0 million reported in 1996. Repap's
revenue-stream hedge accounting resulted in a $30.1 million non-cash reduction
of revenues in 1997, and a $20.2 million non-cash reduction of revenues in 1996.
Net sales (revenues less revenue hedge and sales deductions) totalled $520.4
million in 1997 compared with $485.1 million in 1996.
Repap's operating loss from continuing operations was $4.0 million in 1997
compared with an operating profit of $41.6 million in 1996, as the benefit of
higher shipments, increasing productivity, lower costs and depreciation of the
Canadian dollar compared with the US dollar were more than offset by a higher
non-cash charge for foreign-exchange hedging, substantially lower coated paper
prices, higher administrative costs due to a corporate downsizing program, and
higher depreciation and amortization charges.
Repap's net loss, after discontinued operations, was $63.5 million ($0.17 per
share) in 1997 compared with a net loss of $492.0 million ($3.99 per share) in
1996. The 1997 results included income from discontinued operations of $73.8
million, reflecting mainly the sale of Repap Manitoba and Repap USA, compared to
a net loss from discontinued operations of $398.2 million in 1996, reflecting
mainly the write-off of Repap's interest in ALCELL(R) technology related
operations and Repap British Columbia. (See Notes 2 and 17 to the Consolidated
FinancialStatements for futher details onDiscontinued Operations).
COATED PAPER
Repap's coated paper revenues increased $20.4 million (4.2 percent) to $501.6
million in 1997 compared with $481.2 million in 1996, as higher shipments and
the favorable impact of a depreciation in the value of the Canadian dollar
compared with the United States dollar more than offset substantially lower
coated paper prices. Coated paper shipments increased 15 percent to 443,000 tons
in 1997 compared with 384,000 tons in 1996, reflecting the continuing
improvement in coated paper markets. Inventories declined from 36,000 tons at
the end of 1996 to a minimal level of 18,000 tons by the end of 1997. Repap's
average coated paper transaction price fell by 11 percent to US $816 per ton in
1997 from US $920 per ton in 1996. Coated paper prices reached a low point in
the first quarter of 1997 and have been increasing gradually since then. The
average transaction price in the fourth quarter of 1997 was US $868 per ton. A
US $60 per ton price increase was implemented in January 1998.
OPERATING PROFIT (LOSS) FROM CONTINUING OPERATIONS (MILLIONS OF CANADIAN
DOLLARS)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
PAPER PULP LUMBER OTHER CONSOLIDATED
- ----------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996 1997 1996 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 501.6 $ 481.2 $ 81.4 $ 60.8 $ 26.9 $ 22.0 $ -- $ -- $ 609.9 $ 564.0
- ----------------------------------------------------------------------------------------------------------------------------
Operating profit (loss)
before depreciation
and amortization 93.1 100.6 14.1 11.2 7.3 4.2 (61.3) (33.4) 53.2 82.6
- ----------------------------------------------------------------------------------------------------------------------------
Depreciation
and amortization 44.0 33.1 8.3 6.4 1.0 0.7 3.9 0.8 57.2 41.0
- ----------------------------------------------------------------------------------------------------------------------------
Operating
profit (loss) 49.1 67.5 5.8 4.8 6.3 3.5 (65.2) (34.2) (4.0) 41.6
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 9
[REPAP LOGO]
Approximately 72 percent of Repap's coated paper production was sold in the
United States in 1997. The value of the Canadian dollar depreciated in 1997,
averaging Cdn$1.3848 per US$1 compared with an average value of Cdn$1.3636 per
US$1 in 1996, thereby increasing Repap's revenues on translation into Canadian
dollars.
Average coated paper production costs declined by $36 per ton in 1997 compared
with 1996, despite a poor operating and cost performance on the A-1 paper
machine during the first quarter of 1997. Cost per ton in the fourth quarter
were below the average cost per ton for the year 1997, reflecting a consistently
improving trend. This favorable cost performance reflects the benefits of an
ongoing cost reduction program combined with an increase in coated paper
production to 428,000 tons in 1997, up 25,000 tons over 1996.
Repap's operating profit before depreciation and amortization from coated paper
operations totalled $93.1 million, down $7.5 million from $100.6 million
realized in 1996 despite substantially lower average prices, as shipments and
production increased, costs declined and the value of the Canadian dollar
depreciated relative to the United States dollar.
North American coated groundwood paper shipments in 1997 were up over 20 percent
compared with 1996 shipments and producers appear to have been operating at
practical maximum capacity levels for some time. Repap's customers remain on
allocation and the company is sold out through the first quarter of 1998.
Very little coated groundwood capacity is scheduled to come onstream in North
America over the next few years. Coated groundwood capacity growth is projected
at a lower level than last year's survey. This year's survey shows capacity for
this grade trailing off from 1.4 percent in 1998 to 0.2 percent in the year
2000, for a net gain of 95,000 tons. Producer inventories are at low levels.
Some consumer inventory was replenished by year-end but these volumes remain in
balance and will be necessary as we move into the traditionally strong demand
period in the second and third quarters.
COATED PAPER MARKET/PRODUCT OPTIMIZATION PROGRAM IMPLEMENTED IN LATE 1997
While the continuing improvement in the coated paper market environment is
benefiting financial performance, Repap continues to focus on the factors over
which the company has control. Although coated paper prices remained unchanged,
a market/product optimization program implemented by Repap in the fourth quarter
increased margins by US $20 per ton compared with the third quarter. Some of the
initiatives undertaken to improve Repap's profitability include:
o Repap's offshore exports have been reduced. An additional 35,000 tons annually
will be sold in North American markets at higher mill net prices. Certain low
volume products have been eliminated from the product mix, which will result in
the sale of more higher margin products and in improved machine efficiencies. o
Shipping destinations are now closer to the manufacturing location thereby
reducing freight costs. o A sales incentive program targeted to the best margin
products by paper machine has been implemented. o Finally, the product mix has
been simplified from eight major products to only four, thereby improving
machine efficiencies.
The objectives of this optimization program, which are starting to be realized,
include lower freight costs, longer production runs, less waste and improved
productivity.
Modern, cost-effective equipment and an ongoing focus on costs combined with a
streamlining of product and market focus will all help Repap to achieve its
objective of reducing its reliance on factors such as markets, over which the
company has no control.
PULP
Repap's pulp revenues increased
$20.6 million (34 percent) to $81.4 million in 1997 compared with $60.8 million
in 1996, as higher shipments more than offset lower pulp prices.
Pulp shipments increased 34 percent to 110,000 metric tons in 1997 compared with
only 82,000 metric tons in 1996.
Inventories were at 15,000 metric tons at the end of 1996, and were reduced
during 1997 to a minimal level of 3,000 metric tons at the end of 1997.
Repap's average pulp transaction price fell by 1 percent to US $540 per metric
ton in 1997 from US $545 per metric ton in 1996.
Average pulp production costs declined by $22 per metric ton in 1997 compared
with 1996. This favorable cost performance reflects the benefits of the ongoing
cost reduction program combined with an increase in production to a 235,000
metric ton-record in 1997, up 11,000 metric tons over 1996.
Repap's operating margin before depreciation from pulp operations
totalled $14.1 million, up 26 percent from $11.2 million realized in 1996,
reflecting higher shipments and production as well as lower costs.
LUMBER
Lumber revenues increased by $4.9 million (22 percent) to $26.9 million in 1997
compared with $22.0 million in 1996. Repap's lumber operations are not subject
to quotas and tariffs on shipments to the United States market.
Average lumber prices increased by 13 percent to $463 per thousand foot board
measure in 1997 compared with $408 per thousand foot board measure in 1996.
Lumber shipments increased seven percent to 58 million board feet in 1997
7
<PAGE> 10
[REPAP LOGO]
compared with 54 million board feet in 1996. Repap's operating margin before
depreciation from lumber operations increased to $7.3 million in 1997, up $3.1
million from the $4.2 million realized in 1996.
SELLING, ADMINISTRATIVE AND RESEARCH EXPENSES
Selling, administrative and research expenses from continuing operations
totalled $51.0 million in 1997, up $16.1 million from expenses of $34.9 million
in 1996. The corporate downsizing completed in late 1997 increased 1997 expenses
by approximately $21.0 million. This downsizing will benefit Repap's future
financial results.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization charges from continuing operations totalled $57.2
million in 1997, up $16.2 million from $41.0 million in 1996, primarily as a
result of increasing productivity, higher amortization of foreign exchange
losses and a $4.4 million charge for accelerated depreciation of obsolete
assets.
COST REDUCTION PROGRAM
Repap realized its full operating cost reduction objective of $24.0 million in
1997; however, the financial results reflect only approximately $18.0 million
primarily due to operating difficulties on the A-1 paper machine at the
beginning of the year. These difficulties were resolved in the first quarter of
1997. It is expected that these savings will be sustained in 1998 and the
company has embarked on a further profit enhancement program with a target of
$13 million for 1998 compared with 1997. There are no assurances that the
Company will be successful in realizing the benefits of this program.
INTEREST EXPENSE
Interest expense from continuing operations totalled $117.9 million in 1997, up
$4.9 million from an expense of $113.0 million in 1996. Average interest expense
at the Repap parent company level was essentially unchanged in 1997 compared
with 1996. At the Repap New Brunswick level, most of the debt is denominated in
United States dollars. Depreciation of the Canadian dollar against the United
States dollar, which increased interest expense on translation into Canadian
dollars, was the primary reason for higher interest expenses at Repap New
Brunswick. Carrying charges on certain payables also increased interest expense.
INCOME TAXES
Generally accepted accounting principles in Canada ("Canadian GAAP") allow for
the recognition of income tax benefits on operating losses, other than timing
differences, provided that their realization can be regarded as virtually
certain.
The Company has incurred $228.6 million of accounting losses (1996: $153.7
million) on which income tax benefits of approximately $88.3 million (1996:
$58.4 million) have not been recognized in the accounts. See Note 13 to the
Consolidated Financial Statements for further details on available tax benefits.
DISCONTINUED OPERATIONS
Repap has adopted financial statement presentation applicable to discontinued
operations for its ALCELL(R)-technology related operations, for Repap British
Columbia, for Repap Manitoba and for Repap USA (see Notes 2 and 17 to the
Consolidated Financial Statements).
Repap recorded a net gain from discontinued operations of $73.8 million in 1997,
reflecting primarily the net gain on the sale of Repap USA as well as the net
gain related to the write-off of certain ALCELL-related liabilities, offset by
losses related to the disposition of Repap British Columbia and Repap Manitoba.
A net loss from discontinued operations of $398.2million in 1996 reflects the
write-off of ALCELL(R)-technology related operations and Repap British Columbia
operating losses.
Write-off of investments related to the ALCELL(R) operations resulted in $315.8
million of the loss from discontinued operations in 1996. In 1997, an amount of
$37.0 million was recorded in income from discontinued operations, reflecting a
$56.6 million gain from the write-off of repayable grants provided to fund the
development of the ALCELL(R)-technology, partially offset by the cost of
maintaining the ALCELL(R) operations for future sale. The conditions under which
the grants were repayable by Repap never materialized and they therefore no
longer represented liabilities to Repap.
Ownership of Repap British Columbia was transferred to that company's lenders in
March 1997 for a nominal amount. A loss of $115.2 million is recorded in
discontinued operations in 1997 and a loss of $103.1 million was recorded in
1996, recognizing the loss from those operations in 1996.
In August 1997, Repap Manitoba was sold. A net loss of $65.2 million was
recorded as a loss from discontinued operations in 1997. Net income from
discontinued operations related to Repap Manitoba operations was $15.2 million
in 1996.
In September 1997, Repap USA, was sold. Net income from discontinued operations
related to Repap USA totalled $217.2million, including a net gain of
$210.0million on the sale in 1997, and $5.5 million related to operations in
1996.
RESULTS OF OPERATIONS: 1996 COMPARED WITH 1995
Repap's revenues from continuing operations declined 22 percent to $564.0 in
1996 from $724.3 in 1995, reflecting primarily lower coated paper and pulp
prices as well as lower coated paper shipments.
8
<PAGE> 11
[REPAP LOGO]
Coated paper revenues fell 23 percent in 1996 to $481.2 million, reflecting
lower shipments and lower transaction prices. Coated paper shipments decreased
nine percent to 384,000 tons in 1996 from 420,000 tons in 1995. Repap's 1996
year-end coated paper inventory had increased to 36,000 tons compared with 1995
year-end inventories of only 19,000 tons; however, coated paper inventories were
down from a high of 57,000 tons in July 1996, reflecting the end of an
unprecedented liquidation of inventories held by coated paper customers.
Repap's transaction prices fell in line with industry prices for the first three
quarters of the year before stabilizing in the fourth quarter. For the year,
Repap's average coated paper prices declined US $163 per ton to US $920 per ton.
Coated paper production costs were up $38 per ton, reflecting market and
maintenance related downtime of approximately 18,000 tons.
Pulp revenues decreased by 26 percent to $60.8 million in 1996 from $82.5
million in 1995. Repap's average kraft pulp prices declined, in line with
industry prices, by US $301 per metric ton to US$555 per metric ton in 1996 from
US$856 per metric ton in 1995. Shipments of kraft pulp increased by 11,000
metric tons to 82,000 metric tons in 1996 compared with 71,000 metric tons in
1995, reflecting an industry-wide increase in purchases by pulp customers.
Kraft pulp production costs were up $17 per metric ton in 1996, reflecting
higher wood costs and market downtime of approximately five days.
Lumber revenues increased by 37 percent to $22.0 million in 1996 compared with
$16.2 million in 1995. Average lumber prices increased by 20 percent to $408 per
thousand foot board measure in 1996 compared with $341 per thousand foot board
measure in 1995. Lumber shipments increased 15 percent to 54 million board feet
in 1996 compared with 47 million board feet in 1995.
Depreciation and amortization charges declined by $10.6 million to $51.6 million
in 1996, reflecting lower amortization of deferred foreign exchange losses and
refinancing costs.
Selling, administrative and research expenses from continuing operations
totalled $34.9 million in 1996, down $10.8 million from $45.7 million in 1995.
The decrease results almost entirely from compensation adjustments made in 1995
in relation to Repap's performance-based executive compensation plan.
Interest expense from continuing operations totalled $113.0 million in 1996, up
$4.8 million over 1995. Lower effective interest rates offset higher average
borrowings resulting primarily from the Repap New Brunswick Inc. refinancing in
April 1995 and incremental borrowings under Repap's committed revolving credit
facilities during 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities from continuing operations before net changes
in non-cash working capital totalled $34.8 million in 1997 compared with cash
used of $13.5 million in 1996, reflecting significantly lower coated paper
prices in 1997. Although prices began to recover in the second half of 1997, the
improvement was not sufficient to offset the impact of low pricing during the
first half of the year. Working capital generated cash of $32.6 million during
1997, reflecting mainly a decrease in coated paper and kraft pulp inventories,
an increase in payables as well as lower receivables. In 1996, working capital
generated cash of $6.4 million reflecting an increase in payables, lower
receivables, offset partly by an increase in coated paper inventories.
Capital expenditures during 1997 totalled $16.2 million compared to $19.3
million in 1996. Capital spending related mainly to general maintenance of the
operations in both years.
Cash required for operating and investing activities for continuing operations
during 1997 was provided by a reduction in working capital and by net proceeds
remaining from the sale of assets, after repayment of certain indebtedness of
the holding company.
1997 FINANCING ACTIVITIES
In April 1997, Repap New Brunswick's secured lenders increased the maximum
borrowings under its revolving credit facility by $20 million. The maximum
borrowing under the revolving credit facility is $150 million, subject to
available borrowing base. At December 31, 1997, the amount of borrowings
outstanding under this facility totalled $97.5 million and unutilized credit
totalled $16.1 million.
In August 1996, Repap completed arrangements for a $140 million standby credit
facility of which tranche A amounting to $65 million was made available for
general corporate purposes and tranche B amounting to $75 million was used to
improve liquidity at Repap British Columbia in 1996.
Amounts owing under tranches A and B were repayable on July 31, 1997. Under the
terms of the standby loan agreement, the Corporation had an option to extend the
maturity date twice for six month periods each. In April 1997, the Corporation
completed the documentation for additional borrowings with its lenders under
tranches C and D to the standby loan agreement in the maximum amounts of $35
million and $15 million, respectively. Borrowings under tranche C were used to
cover interest and general corporate head office needs while tranche D was fully
9
<PAGE> 12
[REPAP LOGO]
drawn on May 1, 1997 and the funds placed in escrow for the benefit of Repap
British Columbia as requested by the lenders in January 1997. Borrowings under
tranches C and D were repayable on July 31, 1997. The Corporation had the right
to extend this maturity to December 15, 1997, provided, among other things, that
it had i)provided the standby lenders with satisfactory evidence that the
strategic sale process was sufficiently advanced and proceeding and ii) either
repaid the US$130 million subordinated convertible debentures maturing in August
1997 or obtained an extension of their maturity to at least January 1, 1998 in a
manner acceptable to the standby lenders.
The Corporation was unable to repay in cash or extend the US $130 million
convertible debentures maturing in August 1997, and, as such, was unable to
extend the maturity of the standby loan to December 1997.
On July 7, 1997, the Corporation received the consent of the lenders under the
Standby Loan Agreement and of Ferrostaal AG, a third party lender, to extend the
maturity of the respective amounts owed each of them from July 31, 1997 to
September 30, 1997 conditional on the signing of definitive agreements for the
sale of each of Repap Manitoba and Repap USA and the conversion to Common Shares
of the aggregate amount of principal outstanding of the US $130 million, 8.5%
Convertible Debentures due August 1, 1997.
On July 18, 1997, a Stock Purchase Agreement was entered into between the
Corporation and Tolko Industries Ltd. ("Tolko") for all of the issued and
outstanding shares in the capital of Repap Manitoba for a purchase price,
subject to adjustments, of $109 million plus working capital less debt. This
transaction closed on August 8, 1997 and provided $34.5 million of net proceeds
which the Corporation applied to reduce its long-term secured indebtedness under
the standby loan agreement. The sale of the shares to Tolko resulted in a loss
from discontinued operations of $65.2 million for the year ended December 31,
1997.
On September 25, 1997, shareholders passed a resolution approving the sale to
Consolidated Papers, Inc. ("Consolidated Papers") of all the outstanding shares
of Repap USA and all of the Preferred Stock of Repap Wisconsin for net proceeds
of U.S. $227 million, exclusive of certain assets of Repap USA. The sale of the
shares to Consolidated Papers Inc. resulted in income from discontinued
operations of $217.2 million for the year ended December 31, 1997. Proceeds were
used to repay the standby lenders and Ferrostaal AG in full.
On August 1, 1997, The Corporation proceeded to the conversion of the US $130
million convertible debentures into common shares. The number of common share
issued on conversion totalled 619,023,800 increasing the total number of
outstanding common shares at December 31, 1997 to 742,460,637 shares.
1996 FINANCING ACTIVITIES
In March 1996, Repap Wisconsin, Inc.'s ("Repap Wisconsin") revolving credit
facility was renewed, increasing availability thereunder by US $10 million to US
$70 million. In June 1996, Repap New Brunswick's revolving credit facility was
renewed, increasing availability thereunder by $26 million to $136 million (US
$100 million) and extending its maturity to April 1998. In July 1996, the
maturity under Repap Manitoba's revolving credit facility was also extended to
July 1998.
1995 FINANCING ACTIVITIES
In November 1995, Repap purchased all of its outstanding Non-Voting Preferred
Shares, Series D and E, having an aggregate book value of $121.6 million, for
$20 million. The difference between the aggregate book value and the purchase
price, a gain of $101.6 million, was credited to retained earnings and the share
certificates were cancelled.
In November 1995, a new corporation was organized to acquire, from Repap British
Columbia, the majority of the net assets of its Manitoba division. The new
corporation, Repap Manitoba, raised $65 million under the terms of a new
five-year credit agreement to finance this acquisition. Repap British Columbia
received $62 million of the $65 million raised by Repap Manitoba and used it to
retire $50 million of its outstanding first mortgage bonds and to reduce
borrowings under its revolving credit facility by $12 million.
In April 1995, Repap New Brunswick completed the issue of senior secured notes
in the aggregate amount of US $650 million. The net proceeds of Cdn. $887
million were used to refinance the majority of Repap New Brunswick's outstanding
indebtedness and to retire outstanding floating rate notes issued by Repap in
the amount of US $122.1 million. In connection with the closing of this issue,
Cdn. $41.7 million was charged to income as an unusual item, including deferred
exchange losses, deferred financing costs and early redemption premiums related
to the indebtedness repaid from the proceeds.
Other cash used in financing activities during 1995 included the early
settlement of long-term liabilities aggregating $46.6million, net of third party
partial financing of Repap's acquisition of the remaining 50 percent of Repap
Construction Inc. (formerly "Repap Ferrostaal Inc.") in the amount of
$9.3 million.
10
<PAGE> 13
[LOGO] REPAP
No dividends were declared on Repap's outstanding common shares during 1997,
1996 and 1995.
RISKS AND UNCERTAINTIES
GOING CONCERN ASSUMPTION
Maintenance capital spending for 1998 is expected to total approximately $20
million. Funding for these expenditures, along with scheduled long-term debt and
repayable grant repayments of approximately $133 million, including the
revolving credit facility, and excluding the $75 million subordinated
convertible debentures maturing in June 1998, will depend, as mentioned under
"Basis of Financial Statement Presentation and Going Concern Assumption", on a
variety of factors, some of which are beyond the Corporation's control including
being able to, among other things, i) return to profitability, ii) generate
positive cash-flow from continuing operations and iii) its ability to refinance
the revolving credit facility at its maturity. The outcome of these matters
cannot be predicted at this time.
The revolving credit facility matures in April 1998 and negotiations to renew
the facility are under way and are expected to be finalized by March 31, 1998.
The Corporation will seek an extension or a refinancing of its $75 million
subordinate convertible debentures maturing June 1998; however, the Corporation
may, at its option, repay the debentures at any time by issuing common shares
based on market prices prevailing prior to their maturity or redemption date.
(See Note 12 to the Corporation's Consolidated
Financial Statements).
On December 31, 1997, Repap New Brunswick Inc. was in default under its
revolving credit facility because it had failed to make timely payment of
certain property taxes and fees when due, and meet an interest coverage ratio.
Repap received all required waivers.
CURRENCY
The profitability level of Repap's Canadian operations is sensitive to
fluctuations in foreign exchange rates as most of their revenues are derived in
U.S. dollars. A Cdn $0.01 variation in exchange rates affects Repap's cash flow
by approximately $3.6 million. The competitiveness of Repap's operations in
world markets depends on the relative strength of the currency in the countries
of competitive producers. Repap actively hedges its foreign exchange exposure
with forward contracts of varying terms not normally exceeding one year. The
objective of the hedging program is to manage the risk of adverse cash flow due
to fluctuations in foreign currencies against the Canadian dollar. The
percentage of transaction exposure hedged is generally between 20 percent and 80
percent, after taking into account the amounts of U.S. dollars required under
Repap's revenue-stream hedging practices.
At December 31, 1997, 95 percent of Repap's consolidated borrowings of
approximately Cdn. $1.1 billion were in U.S. dollars.
Repap is naturally hedged against the exchange risk associated with holding U.S.
dollar debt. Since most of Repap's products are sold in U.S. dollars, it is
highly likely that future U.S. dollar revenue streams will be more than enough
to accommodate any U.S. dollar principal repayment as it falls due. Repap has
chosen to issue primarily U.S.-dollar-denominated debt because of this natural
hedge and to take advantage of interest rates available on
U.S.-dollar-denominated debt which have, at times, been significantly less than
corresponding rates on Canadian dollar-denominated debt.
Accordingly, effective July 1, 1992, Repap designated future U.S. dollar revenue
streams as effective hedges against currency risks related to U.S. dollar debt
borrowings. Designation of revenues as a hedge results in exchange gains and
losses on debt being deferred without amortization until repayment. At maturity,
any exchange adjustment is included with revenues, recognizing that Repap has
realized equal and offsetting exchange adjustments in the period the debt is
repaid.
Revenues in 1997 were reduced by $30.1 million as a result of the application of
this accounting method. On December 31, 1997, approximately $49.1 million of
hedged currency exchange losses remained on the balance sheet, and are expected
to reduce revenues by the following non-cash currency exchange adjustments:
REVENUE REDUCTION RESULTING FROM
NON-CASH CURRENCY ADJUSTMENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
YEAR (MILLIONS IN DOLLARS)
- --------------------------------------------------------------------------------
<S> <C>
1998 $ 5.7
1999 5.7
2000 22.4
Thereafter 15.3
- --------------------------------------------------------------------------------
Total $ 49.1
- --------------------------------------------------------------------------------
</TABLE>
In April 1995, Repap and Repap New Brunswick refinanced the majority of their
U.S. dollar long-term debt with U.S.-dollar-denominated senior secured notes
issued by Repap New Brunswick. The revenue streams which had been identified as
an effective hedge in connection with scheduled U.S. dollar principal repayments
on the old debt continue; however, to constitute an effective hedge against
accumulated exchange losses at the time of refinancing, as it remains highly
likely that such revenue streams will be earned as anticipated in the relevant
future periods.
11
<PAGE> 14
[LOGO] REPAP
Under generally accepted accounting principals in the United States ("U.S.
GAAP"), any change in the currency fluctuations is immediately recognized in
income. The total amount of the above-mentioned non-cash currency adjustments to
future revenues has already been charged to income under U.S. GAAP. Accordingly,
any reduction in revenues and income of future years resulting from these
currency adjustments under Canadian GAAP will be added back in the
reconciliation of revenues and income under U.S. GAAP. (See Note 23 to the
Corporation's Consolidated Financial Statements).
INTEREST RATES
The Corporation's variable-rate debt from continuing operations, totalling
$300million, is subject to fluctuations inCanadian, U.S. and Euro-dollar lending
rates. A 1% change in interest rates affects Repap's cash flow by approximately
$3.0million.
ENVIRONMENTAL CONCERNS
AND REGULATIONS
The forest products industry is subject to evolving environmental legislation,
regulations and standards from various levels of governments which impose
effluent and emission standards and other requirements on Repap's operations.
Future capital investments may be required to meet legislation, regulations and
standards as they evolve. In addition to regulatory pressure, market pressures
may influence product evolution. Repap's ability to continue to address changing
market needs could require additional capital investments as well as additional
investments in product and process development.
YEAR 2000
REPAP NEW BRUNSWICK INC.
Repap New Brunswick Inc. ("RNBI") started preparing a number of years ago for
Year 2000. Its strategy is to ensure that all new applications are Year 2000
compliant.
At the end of 1997, all financial, administrative, office support, mill and
geographic information, and maintenance management applications are fully
compliant with Year 2000, with the exception of the General Ledger. The General
Ledger will be brought into compliance by installing a vendor-provided upgrade
during 1998.
RNBI is currently taking steps to correct Year 2000 issues in a limited number
of situations with in-house applications for wood fiber procurement, paper order
processing, distribution, customer service and labour scheduling. This activity
will be concluded by year-end 1998.
RNBI operates a product tracking system that is not fully compliant with Year
2000. Purchased in 1985, this system is supported in-house because the vendor is
no longer in business. The system will be brought into full compliance by
in-house resources prior to mid-year 1999.
RNBI operates various purchased systems that control plant machinery.
Discussions are underway with the vendors to ensure that these systems meet Year
2000 compliance. To date, no significant issues have surfaced. Some of these
systems provide short-term data analysis. A number of these systems forward
information to the mill information system for long-term storage, reporting and
analysis. This subsequent processing is Year 2000 compliant.
RNBI operates a purchased system providing environmental monitoring that does
not meet Year 2000 compliance on a limited basis. The vendor will release an
upgrade version that is Year 2000 compliant during 1998. The Company also
operates 2 non-compliant remote tracking units for ambient air emissions.
Replacement of these older units by mid-year 1999 is under management review.
RNBI has the sources and resources necessary to correct the limited occurences
of Year 2000 non-compliance noted above by mid-year 1999.
12
<PAGE> 15
[LOGO] REPAP
MANAGEMENT'S RESPONSIBILITY
FOR CONSOLIDATED FINANCIAL REPORTING
REPAP ENTERPRISES INC.
The consolidated financial statements of Repap Enterprises Inc. are the
responsibility of management and have been approved by the Board of Directors.
This responsibility includes the selection of appropriate accounting principles
and the exercise of careful judgement in establishing reasonable estimates in
accordance with generally accepted accounting principles appropriate in the
circumstances. Financial information shown elsewhere in this annual report is
consistent with that contained in the consolidated financial statements.
Management of Repap Enterprises Inc. and its subsidiaries have developed and
maintains accounting systems and internal controls designed to provide
reasonable assurance that assets are safeguarded from loss or unauthorized use
and that the financial records are reliable for preparing the financial
statements.
The Board of Directors has appointed an Audit Committee, which consists of
three independent directors of the Corporation. The Audit Committee meets
periodically with the external auditors and management to discuss accounting
policies and practices, internal control systems, financial reporting issues,
the scope of the annual audit and other matters. This Committee makes
recommendations to the Board of Directors concerning management's selection of
external auditors. The external auditors have direct access to the Committee to
discuss the results of their audit and any recommendations they have for
improvements in internal controls, the quality of financial reporting and any
other matters of interest. The Committee reviews the Corporation's annual
consolidated financial statements before recommending them to the Board of
Directors for approval. It also reviews the Annual Information Form before it is
filed with securities regulators and stock exchanges.
These consolidated financial statements have been audited by Ernst & Young,
Chartered Accountants, on behalf of the shareholders and their report stating
the scope of their audit examination and their opinion on the consolidated
financial statements is presented hereafter.
/s/ Stephen C. Larson /s/ Michelle A. Cormier
Stephen C. Larson Michelle A. Cormier
President and Chief Executive Officer Vice President, Finance
January 21, 1998
AUDITORS' REPORT
To the Shareholders of Repap Enterprises Inc.:
We have audited the consolidated balance sheets of Repap Enterprises Inc. as
at December 31, 1997 and 1996 and the consolidated statements of operations,
deficit and changes in financial position for each of the years in the
three-year period ended December 31, 1997. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 consolidated financial statements present fairly, in all
material respects, the financial position of the Corporation as at December 31,
1997 and 1996 and the results of its operations and the changes in its financial
position for each of the years in the three-year period ended December 31, 1997
in accordance with accounting principles generally accepted in
Canada.
As discussed in Note 1 to the consolidated financial statements, the
Corporation changed its method of accounting for its appraisal increment in
1997.
Montreal, Canada
January 21, 1998, except for Note 25 which is as at February 20, 1998.
/s/ Ernst and Young
Chartered Accountants
Comments by Auditors for U.S. Readers on Canada-U.S. Reporting Difference
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Corporation's ability to continue as a going concern, such as those
described in Note 1 to the consolidated financial statements. Our report to the
shareholders dated January 21, 1998, except for Note 25 which is as at February
20, 1998, is expressed in accordance with Canadian reporting standards which do
not permit a reference to such conditions and events in the auditors' report
when these are adequately disclosed in the financial statements.
Montreal, Canada
January 21, 1998
/s/ Ernst and Young
Chartered Accountants
13
<PAGE> 16
[LOGO] REPAP
CONSOLIDATED BALANCE SHEETS (SEE NOTES 1, 2 AND 17)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
REPAP ENTERPRISES INC. (INCORPORATED UNDER THE LAWS OF CANADA)
AS AT DECEMBER 31
(MILLIONS OF CANADIAN DOLLARS) NOTES 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current:
Cash and short-term deposits $ 43.3 $ 23.5
Accounts receivable 7 79.9 212.1
Inventories 4, 7 65.9 324.0
- --------------------------------------------------------------------------------
Total current assets 189.1 559.6
- --------------------------------------------------------------------------------
Fixed assets, at cost 1, 6, 7, 15 1,408.3 3,189.2
Less accumulated depreciation 399.6 905.0
- --------------------------------------------------------------------------------
Net fixed assets 1,008.7 2,284.2
- --------------------------------------------------------------------------------
Investment tax credits recoverable 9, 13 35.5 192.4
Investments 16.2 19.9
Other assets 5 148.4 247.6
- --------------------------------------------------------------------------------
$ 1,397.9 $ 3,303.7
- --------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 17
[LOGO] REPAP
CONSOLIDATED BALANCE SHEETS (SEE NOTES 1, 2 AND 17)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
REPAP ENTERPRISES INC.
AS AT DECEMBER 31
(MILLIONS OF CANADIAN DOLLARS) NOTES 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LIABILITIES
Current:
Accounts payable and accrued liabilities $ 129.0 $ 359.3
Current portion of long-term debt and repayable grants 7, 8 75.7 55.4
Revolving credit facility 7 97.5 --
- -----------------------------------------------------------------------------------------------------
Total current liabilities 302.2 414.7
- -----------------------------------------------------------------------------------------------------
Revolving credit facilities 7 -- 309.7
Long-term debt 7 901.3 2,090.4
Repayable grants and other liabilities 8 25.6 71.2
- -----------------------------------------------------------------------------------------------------
926.9 2,471.3
- -----------------------------------------------------------------------------------------------------
CAPITAL SOURCES
Non-controlling interest 10 14.3 16.7
Investment tax credits 148.0 300.0
Grants - non-repayable 8 23.8 59.9
- -----------------------------------------------------------------------------------------------------
186.1 376.6
- -----------------------------------------------------------------------------------------------------
Shareholders' Equity (Deficiency):
Preferred shares 11 16.0 16.0
Common shares 11 640.4 483.3
Deficit (745.3) (681.8)
Other paid-in capital 12 71.7 216.3
Translation adjustment 22 (0.1) 7.3
- -----------------------------------------------------------------------------------------------------
(17.3) 41.1
- -----------------------------------------------------------------------------------------------------
$1,397.9 $3,303.7
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
On behalf of the Board:
/s/ Stephen C. Larson /s/ William J.Anderson
Stephen C. Larson William J.Anderson
Director Director
15
<PAGE> 18
[LOGO] REPAP
CONSOLIDATED STATEMENTS OF OPERATIONS (SEE NOTES 1, 2 AND 17)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
REPAP ENTERPRISES INC.
YEARS ENDED DECEMBER 31
(MILLIONS OF CANADIAN DOLLARS, EXCEPT
PER SHARE AMOUNTS) NOTES 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues from continuing operations 2, 17 $ 609.9 $ 564.0 $ 724.3
Effects of currency hedging 30.1 20.2 5.5
Sales deductions 59.4 58.7 61.5
- --------------------------------------------------------------------------------------------------------------
Net sales from continuing operations 520.4 485.1 657.3
Cost of sales excluding depreciation
and amortization 416.2 367.6 373.7
Selling, administrative and research
expenses 51.0 34.9 45.7
Depreciation and amortization 15 57.2 41.0 51.6
- --------------------------------------------------------------------------------------------------------------
Operating profit (loss) (4.0) 41.6 186.3
Interest expense 14 117.9 113.0 108.2
Miscellaneous expense (income) (1.0) 0.9 (5.4)
Unusual items 16 -- -- 41.7
- --------------------------------------------------------------------------------------------------------------
Income (loss) before the undernoted (120.9) (72.3) 41.8
Provision for income taxes 13 2.0 2.5 2.5
- --------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations (122.9) (74.8) 39.3
Income (loss) from discontinued operations 17 73.8 (398.2) 121.9
- --------------------------------------------------------------------------------------------------------------
Net income (loss) (49.1) (473.0) 161.2
Provision for accretion of other paid-in capital 14.4 19.0 17.6
- --------------------------------------------------------------------------------------------------------------
Net income (loss) attributable to common shareholders $ (63.5) $(492.0) $ 143.6
- --------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations per share
Basic $ (0.36) $ (0.76) $ 0.18
Adjusted basic $ (0.17) $ -- $ --
Fully diluted $ (0.36) $ (0.76) $ 0.17
Earnings (loss) per share
Basic $ (0.17) $ (3.99) $ 1.17
Adjusted basic $ (0.07) $ -- $ --
Fully diluted $ (0.17) $ (3.99) $ 1.12
See accompanying notes
- --------------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED STATEMENTS OF DEFICIT (SEE NOTES 1, 2 AND 17)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
REPAP ENTERPRISES INC.
YEARS ENDED DECEMBER 31
(MILLIONS OF CANADIAN DOLLARS) NOTES 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deficit, beginning of year $ (681.8) $(189.8) $ (435.0)
Net income (loss) attributable to common shareholders (63.5) (492.0) 143.6
Gain on redemption of preferred shares 11 -- -- 101.6
- --------------------------------------------------------------------------------------------------------------------
Deficit, end of year $ (745.3) $(681.8) $ (189.8)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
16
<PAGE> 19
[LOGO] Repap
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(SEE NOTES 1, 2 AND 17)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
REPAP ENTERPRISES INC.
YEARS ENDED DECEMBER 31
(MILLIONS OF CANADIAN DOLLARS) NOTES 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Income (loss) from continuing operations $(122.9) $ (74.8) $ 39.3
Add items not affecting cash:
Depreciation and amortization 57.2 41.0 51.6
Effects of currency hedging 30.1 20.2 5.5
Unusual items and other 16 0.8 0.1 39.1
- ---------------------------------------------------------------------------------------------------------
CASH FLOW BEFORE NET CHANGES IN NON-CASH
WORKING CAPITAL (34.8) (13.5) 135.5
Non-cash working capital changes 20 32.6 6.4 7.6
- ---------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS (2.2) (7.1) 143.1
- ---------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Additions to fixed assets (16.2) (19.3) (35.7)
Deferred charges and other assets (0.5) (2.8) (42.5)
- ---------------------------------------------------------------------------------------------------------
Cash used in investing activities (16.7) (22.1) (78.2)
- ---------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Additions to debt 64.3 126.1 889.2
Repayment of debt (293.7) (20.7) (838.2)
Revolving credit lines, net change (23.5) 28.1 (10.7)
Issue of share capital 11 157.1 -- 13.2
Conversion of debentures 11 (157.1) -- --
Net redemption of non-controlling interest 2, 11 -- -- (20.0)
Early redemption premiums 16 -- -- (15.2)
Others -- (37.2)
- ---------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (252.9) 133.5 (18.9)
- ---------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) DISCONTINUED
OPERATIONS: 17 291.6 (118.3) (13.9)
- ---------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 19.8 (14.0) 32.1
CASH POSITION, BEGINNING OF YEAR 23.5 37.5 5.4
- ---------------------------------------------------------------------------------------------------------
CASH POSITION, END OF YEAR $ 43.3 $ 23.5 $ 37.5
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Cash position is represented by cash and short-term deposits.
See accompanying notes
17
<PAGE> 20
[LOGO] Repap
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPAP ENTERPRISES INC.
DECEMBER 31, 1997
(MILLIONS OF CANADIAN DOLLARS UNLESS OTHERWISE INDICATED)
The consolidated financial statements of the Corporation have been prepared by
management in accordance with accounting principles generally accepted in Canada
("Canadian GAAP"). The financial statements have, in management's opinion, been
properly prepared using careful judgement within reasonable limits of
materiality and within the framework of the accounting policies summarized
hereafter.
As further described under note 23, the accounting policies followed by the
Corporation differ in certain respects from those that would have been followed
had these financial statements been prepared in conformity with accounting
principles generally accepted in the UnitedStates ("U.S. GAAP") and the
accounting principles and practicesrequired by the United States Securities and
Exchange Commission ("SEC").
NOTE 1 FINANCIAL STATEMENT PRESENTATION
DESCRIPTION OF BUSINESS
The Corporation is a North American forest products company with production
facilities located in New Brunswick, Canada. It is an integrated producer of
high quality coated groundwood paper, northern bleached softwood kraft ["NBSK"]
pulp and lumber. It manufactures paper products used for magazines, catalogues,
newspaper advertising inserts and direct mail advertising materials. The
Corporation predominantly markets its paper, pulp and lumber in North America.
It has an annual production capacity for coated groundwood paper of 492,000
tons.
The Corporation has NBSK facilities in New Brunswick with an annual capacity
of 235,000 tonnes and integrated groundwood pulp facilities with an annual
capacity of 123,000 tonnes.
The Corporation has lumber operations with an annual capacity of 58 million
board feet, which produces dimension lumber products.
BASIS OF FINANCIAL STATEMENT PRESENTATION AND GOING CONCERN
ASSUMPTION
These consolidated financial statements include the accounts of Repap
Enterprises Inc. ("Repap" or "the Corporation") and its wholly-owned
subsidiaries Repap New Brunswick Inc. ("Repap New Brunswick"), Repap Marketing
Inc. ("Repap Marketing") and Repap Technologies Inc. ("Repap Technologies").
These consolidated financial statements also include, presented as discontinued
operations, the accounts of Alcell Technologies Inc. ("Alcell"), Alcell Forest
Products Inc. ("Alcell Forest Products"), and Repap Construction Inc. ("Repap
Construction). During 1997, the Corporation disposed of Repap USA Inc. ("Repap
USA"), Repap Sales Corporation ("Repap Sales"), Repap Wisconsin, Inc. ("Repap
Wisconsin"), Repap Manitoba Inc. ("Repap Manitoba"), and Repap British Columbia
Inc. ("Repap British Columbia"). (See Notes 2 and 17).
The consolidated financial statements of the Corporation have been prepared in
accordance with generally accepted accounting principles on a going concern
basis which presumes the realization of assets and the discharge of liabilities
in the normal course of business for the foreseeable future.
The Corporation's revolving credit facility of $97.5 million matures in April
1998. Additionally, during 1996 and 1997, the Corporation's continuing
operations did not generate sufficient cash flow to cover operating costs and to
fund investments in working capital and additions to fixed assets. The
Corporation also incurred operating losses during 1997, and as at December 31,
1997, has a net deficit in shareholders' equity of $17.3 million. Repap is
currently negotiating with the lender of its revolving credit facility and is
also currently considering other financing alternatives to replace its existing
revolving credit facility. Repap has not received any indications that the
revolving credit facility will not be renewed.
The Corporation's ability to continue as a going concern is dependent upon its
ability to refinance the revolving credit facility at its maturity, achieving
profitable operations and upon generating positive cash flow from operations.
While the Corporation did achieve positive cash flow from continuing operations
during the fourth quarter of 1997, the outcome of these matters cannot be
determined with certainty at this time. These financial statements do not
include any adjustments to the amounts and classifications of assets and
liabilities that might be necessary should the Corporation be unable to continue
in business.
CHANGE IN ACCOUNTING POLICY
The Corporation has changed its accounting policy effective January 1, 1997 to
remove the appraisal increment representing the excess of appraised value of
certain fixed assets that was recorded in 1986. This change in accounting policy
has been applied retroactively. As a result, net fixed assets and the appraisal
increment have been reduced by $76.9 million (1996: $76.9 million). There is no
effect on the deficit for either year.
NOTE 2 SIGNIFICANT ACTIVITIES
DISCONTINUED OPERATIONS AND RELATED INVESTING ACTIVITIES
In July 1996, Repap engaged Dillon Read & Co. Inc. of New York and TD
Securities Inc. of Toronto as investment advisors with the mandate to explore
strategic alternatives available to Repap in maximizing shareholder value. In
December 1996, the Corporation's Board of Directors accepted an all-stock offer
from Avenor Inc. ("Avenor") for the acquisition of all of the Corporation's
outstanding shares, subject to both companies' shareholders' approval.
The financial markets did not react positively to the proposed amalgamation
between Avenor and Repap. On March 3, 1997, the proposal was amended to exclude
Repap British Columbia from the contemplated merger and to modify the share
exchange ratio.
In connection with the March 3, 1997 proposal for a revised transaction
between the Corporation and Avenor, the lenders to Repap British Columbia
("Westcoast Lenders"), Avenor, the Corporation, Repap British Columbia and
certain other affiliates of the Corporation entered into a Restructuring and
Settlement Agreement (the "Restructuring Agreement") dated March 3, 1997.
Pursuant to the Restructuring Agreement, Repap British Columbia and its
subsidiaries agreed to seek protection from their creditors by applying for an
order staying all of their creditors under the Companies' Creditors Arrangement
Act (Canada). An order granting a stay of all creditors claims against Repap
British Columbia was granted by the Supreme Court of British Columbia on March
3, 1997. As part of the Restructuring Agreement and to facilitate the completion
of the proposed amalgamation of the Corporation with a wholly-owned subsidiary
of Avenor, the Westcoast Lenders were granted an option to acquire all of the
shares of Repap British Columbia for a nominal amount. On March 26, 1997, the
shareholders of Avenor voted against the proposed merger between Avenor and
Repap. On March 27, 1997, the Westcoast Lenders exercised their right to
purchase all of the shares of Repap British Columbia. The sale of the shares of
Repap British Columbia to the Westcoast Lenders resulted in a loss from
discontinued operations of $115.2 million for the year ended December 31, 1997.
(See Note 17).
18
<PAGE> 21
[LOGO] Repap
On July 4, 1997, the Corporation agreed with the Westcoast Lenders to transfer
to the Corporation the 240,963 Class III Preferred Stock and the 180,047 Class
IV Preferred Stock in the capital of Repap Wisconsin owned by Repap British
Columbia and held by the Westcoast Lenders as security for Repap British
Columbia's indebtedness to them; to return to the Corporation the $15 million
drawdown of Tranche D under the Standby Loan Agreement; and to release the
Corporation from its $50 million guarantee of Repap British Columbia's
indebtedness. In turn, the Corporation used a portion of the proceeds of the
sale to pay the Westcoast Lenders $50 million and to cause Repap Wisconsin to
release Repap British Columbia from its obligation to deliver 32,500 air dry
metric tonnes of pulp under two pulp purchase agreements entered into between
Repap Wisconsin and Repap British Columbia during 1995.
On July 7, 1997, the Corporation received the consent of the lenders under the
Standby Loan Agreement and of Ferrostaal AG to extend the maturity of the
respective amounts owed each of them from July 31, 1997 to September 30, 1997
conditional on the signing of definitive agreements for the sale of each of
Repap Manitoba and Repap Wisconsin and the conversion to Common Shares of the
aggregate amount of principal outstanding of the US $130 million 8.5%
convertible debentures due August 1, 1997.
On July 18, 1997 a Stock Purchase Agreement was entered into between the
Corporation and Tolko Industries Ltd. ("Tolko") for all of the issued and
outstanding shares in the capital of Repap Manitoba for a purchase price,
subject to adjustments, of $109 million plus working capital less the long-term
debt and the long-term portion of a capital lease between Repap Manitoba and
GATX. This transaction closed on August 8, 1997 and provided $34.5 million of
net proceeds which the Corporation applied to reduce its long-term secured
indebtedness.
The sale of the shares to Tolko resulted in a loss from discontinued
operations of $65.2 million for the year ended December 31, 1997 (See Note 17).
On September 25, 1997, the shareholders of the Corporation passed a resolution
approving the sale to Consolidated Papers, Inc. ("Consolidated Papers") of all
the outstanding shares of Repap USA and all of the Preferred Stock of Repap
Wisconsin for net proceeds of US $227 million, exclusive of certain assets of
Repap USA. The sale of the shares to Consolidated Papers Inc. resulted in a gain
from discontinued operations of $217.2 million for the year ended December 31,
1997. (See Note 17).
In the fourth quarter of 1997, the Corporation signed a letter of intent to
sell its proprietary ALCELL(R) pulping technology for $4 million, including a $2
million cash payment and the issuance of a $2 million 7% debenture maturing 2
years from completion of the sale. The debenture will be convertible in whole at
any time prior to maturity into the acquirer's Common Shares at $1.25 per share.
FINANCING ACTIVITIES
On April 14, 1997, Repap New Brunswick's secured lenders increased the amount
of borrowings under its revolving credit facility by $20 million. Committed
revolving credit facilities from continuing operations aggregated approximately
$150 million as at December 31, 1997, subject to sufficient borrowing base. As
at December 31, 1997, $97.5 million was drawn and the borrowing base available
amounted to $16.1 million.
On August 1, 1997, the Corporation repaid its US $130 million 8.5% convertible
debentures through the issuance of 619,023,800 common shares. (See Note 11).
On September 30, 1997, the Corporation repaid amounts due under the Standby
Loan Agreement and US $64 million to Ferrostaal AG, representing payment in
full.
In August 1996, the Corporation completed arrangements for a
$140 million standby credit facility of which $75 million was used to improve
liquidity at Repap British Columbia.
In March 1996, Repap Wisconsin's revolving credit facility was renewed,
increasing availability thereunder by US $10 million to US $70 million. In June
1996, Repap New Brunswick's revolving credit facility was renewed, increasing
availability thereunder by $26 million to $136 million (US $100 million) and
extending its maturity to April 1998. In July 1996, the maturity under Repap
Manitoba's revolving credit facility was also extended to July 1998.
During 1996, Repap British Columbia's secured borrowings increased by $35.3
million, approximately $25 million of which was used to finance the acquisition,
in September 1996, of Orenda Forest Products Ltd.
In November 1995, Alcell Forest Products entered into a $39 million term loan
agreement guaranteed by the Government of New Brunswick in connection with the
construction of an electrostatic precipitator and secondary effluent treatment
facilities.
In April 1995, Repap New Brunswick completed the issue of senior secured notes
in the aggregate amount of US $650 million. The net proceeds of Cdn. $887
million were used to refinance the majority of Repap New Brunswick's outstanding
indebtedness and to retire outstanding floating rate notes issued by Repap in
the amount of US $122.1 million.
NOTE 3 SIGNIFICANT ACCOUNTING POLICIES
(a) SHORT-TERM DEPOSITS
Short-term deposits consist of term deposits with banks and other financial
institutions, renewable on a daily to weekly basis.
(b) INVESTMENTS
Investments in which the Corporation has significant influence are accounted
for on the equity basis. Other investments are accounted for at cost. As at
December 31, 1997, none of these investments had a quoted market value.
(c) INVENTORIES
Logs, chips and supplies are valued at the lower of cost, determined primarily
on a weighted average basis, and replacement cost. Coated paper, pulp and lumber
are valued at the lower of cost, determined on a weighted average basis, and net
realizable value.
(d) FIXED ASSETS AND LEASES, DEPRECIATION AND AMORTIZATION
Fixed assets are recorded at cost. Cost includes all costs associated with the
acquisition or construction of the related asset, including interest on
indebtedness and start-up costs related to assets under construction. Interest
and start-up costs are capitalized until the asset is ready for its intended
use.
Assets under construction are reflected in construction in progress until they
are ready for their intended use. Intended use is reached when certain
objectives have been met such as production operating rates, operating
efficiency parameters, development of product grades and product quality
standards.
Depreciation, which begins when construction is completed and
start-up begins, is provided over the estimated useful lives of the assets,
using straight-line and unit-of-production methods, at the rates set out below:
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Buildings straight-line over 25 to 40 years
Machinery and equipment straight-line over 20 to 35 years, and
unit-of-production over 20 to 35 years'
estimated production
Automotive and sawmill equipment straight-line over 5 to 15 years
Office equipment straight-line over 5 to 10 years
Roads straight-line over 10 to 20 years
Crown rights straight-line over 25 years
- --------------------------------------------------------------------------------
</TABLE>
Leases which transfer substantially all of the risks and rewards of ownership
are capitalized and are depreciated on the same basis as purchased fixed assets.
19
<PAGE> 22
[LOGO] REPAP
(e) INCOME TAXES AND INVESTMENT TAX CREDITS RECOVERABLE
Income taxes are accounted for on the tax allocation basis. Investment tax
credits are accounted for under the cost reduction method and are recorded as
deferred credits. Such credits are recognized in the accounts when earned and
when there is reasonable assurance of their realization. They are amortized to
income on a basis consistent with the depreciation method used for the related
fixed assets. When reasonable assurance of their realization no longer exists,
investment tax credits recoverable are charged against the related deferred
credits, to the extent such deferred credits are available, with the excess
charged to income.
The amounts recorded for income tax benefits and investment tax credits
recoverable are based on estimated future earnings. By their nature, these
estimates are subject to measurement uncertainty and the impact on the financial
statements of future periods may be material.
(f) FOREIGN CURRENCY TRANSLATION
Monetary assets and liabilities denominated in foreign currencies are
translated into Canadian dollars at rates of exchange prevailing at the
year-end. Other foreign currency transactions are translated into Canadian
dollars at rates of exchange in effect when the transactions were entered into.
Exchange gains and losses arising from the translation of unhedged monetary
assets and liabilities with terms in excess of one year are deferred and
amortized over the life of these assets and liabilities.
When a future revenue stream is hedged by a monetary liability, the revenue
amount included in the determination of net income of future periods is adjusted
as a result of the foreign currency amount being translated at the exchange rate
in effect when the revenue stream was identified as a hedge. The difference
arising due to cash received being translated at current rates is offset against
the deferred amount relating to the hedged monetary liability. The Corporation
has put into place a revenue stream hedge commencing July 1, 1992.
Other exchange gains and losses arising from the translation of foreign
currency items are included in the determination of net income for the year.
(g) OTHER ASSETS AND AMORTIZATION
Charges related to obtaining debt financing are deferred and amortized on a
straight-line basis over the duration of the financing. Other deferred costs are
deferred and amortized over the periods benefited.
Goodwill is amortized using the straight-line method over periods not
exceeding 30 years. The Corporation evaluates the carrying value of goodwill for
possible impairment on an annual basis. This evaluation considers operating
trends and other relevant factors. Based upon its most recent analysis, the
Corporation believes that no impairment of goodwill exists at December 31, 1997.
(h) GOVERNMENT GRANTS
Government grants are recorded in the accounts when there is reasonable
assurance that the Corporation has complied with, and will continue to comply
with, all conditions necessary to obtain the grants.
The non-repayable grants are deferred and amortized on the same basis as that
on which the related assets are depreciated or amortized.
(i) PENSION COSTS AND OBLIGATIONS
The projected benefit obligation is calculated using the projected benefit
method prorated on services. The transition gains, obligations and other
adjustments are amortized to income on a straight-line basis over the expected
average remaining service life of the plan participants. The plan assets are
measured at their market-related values.
The cost of the defined benefit plans reflects management's best estimates of
the pension plans' expected investment yields, salary escalations, mortality of
members, terminations and the ages at which members will retire. Accordingly,
these costs are subject to measurement uncertainty, and the impact on the
financial statements of future periods may be material.
(j) REVENUES AND NET SALES
Revenues are recognized when goods are shipped and title has passed to the
customer. In arriving at net sales, revenues are reduced by commissions,
discounts and freight.
(k) EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are calculated using the weighted average number
of voting shares outstanding during the period. Where common shares have been
issued on the conversion of debt, adjusted basic earnings (loss) per share are
calculated as though the conversion had taken place at the beginning of the
period. Fully diluted earnings (loss) per share are calculated taking into
consideration the effect of the actual and potential conversion of convertible
debentures and the exercise of stock options.
NOTE 4 INVENTORIES
<TABLE>
<CAPTION>
- ----------------------------------------------------------
DECEMBER 31 1997 1996
- ----------------------------------------------------------
<S> <C> <C>
Raw materials $ 23.1 $ 122.2
Work in process 1.0 11.0
Finished goods 19.2 141.2
Supplies 22.6 49.6
- ----------------------------------------------------------
$ 65.9 $ 324.0
- ----------------------------------------------------------
</TABLE>
Raw materials include chemicals, chips and logs used in the production of
pulp, paper and lumber. Work in process and finished goods include pulp, paper
and lumber.
NOTE 5 OTHER ASSETS
<TABLE>
<CAPTION>
DECEMBER 31 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Goodwill $ 50.1 $ 59.8
Deferred:
Foreign exchange loss 127.5 183.3
Financing charges 37.6 84.4
Pension costs and other 11.4 39.7
- --------------------------------------------------------------------------
226.6 367.2
Less accumulated amortization (78.2) (119.6)
- --------------------------------------------------------------------------
$ 148.4 $ 247.6
- --------------------------------------------------------------------------
</TABLE>
NOTE 6 FIXED ASSETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
DECEMBER 31, 1997 Gross Accumulated Net
Depreciation
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 2.9 $ -- $ 2.9
Buildings 232.4 61.3 171.1
Machinery and equipment 1,141.6 327.6 814.0
Roads 21.3 9.8 11.5
Crown rights 1.6 0.9 0.7
- --------------------------------------------------------------------------
1,399.8 399.6 1,000.2
Construction in progress 8.5 -- 8.5
- --------------------------------------------------------------------------
$1,408.3 $ 399.6 $1,008.7
- --------------------------------------------------------------------------
</TABLE>
20
<PAGE> 23
[LOGO] REPAP
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
DECEMBER 31, 1996 Gross Accumulated Net
Depreciation
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 41.8 $ -- $ 41.8
Buildings 341.8 85.1 256.7
Machinery and equipment 2,508.0 736.5 1,771.5
Roads 137.5 76.5 61.0
Crown rights 62.9 6.9 56.0
- --------------------------------------------------------------------------
3,092.0 905.0 2,187.0
Construction in progress 97.2 -- 97.2
- --------------------------------------------------------------------------
$3,189.2 $ 905.0 $2,284.2
- --------------------------------------------------------------------------
</TABLE>
NOTE 7 LONG-TERM DEBT AND REVOLVING CREDIT FACILITIES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
DECEMBER 31 1997 Maturity 1997 1996
U.S. Dollar Date
Component
in U.S. Dollars
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPAP NEW BRUNSWICK -
First priority senior secured
notes, LIBOR + 3.25% $ 150.0 2000 $ 214.4 $ 205.4
First priority senior secured
notes, 9.875% 150.0 2000 214.4 205.4
Second priority senior secured
notes, 10.625% 350.0 2005 500.2 479.4
Revolving credit facility;
LIBOR + 1.75%, CDN prime + 3.25%
U.S. prime + 1% 58.0 1998 97.5 117.3
Long-term purchase agreements,
6.85% - 12.9% -- 1998-2000 2.4 3.8
- -----------------------------------------------------------------------------------------------------------
708.0 1,028.9 1,011.3
- -----------------------------------------------------------------------------------------------------------
ALCELL FOREST PRODUCTS -
Loan bearing interest
at Canadian prime -- 1998 37.0 37.0
Other -- -- 0.2
- -----------------------------------------------------------------------------------------------------------
-- 37.0 37.2
- -----------------------------------------------------------------------------------------------------------
REPAP (PARENT COMPANY) -
Standby credit facility, bankers'
acceptance rate + 3.0% - 6.0% -- -- 119.5
Loans, LIBOR + 0.5% -- -- 87.8
Debt component of
convertible debentures
(Note 12) -- 1998 3.3 23.5
- -----------------------------------------------------------------------------------------------------------
-- 3.3 230.8
- -----------------------------------------------------------------------------------------------------------
REPAP WISCONSIN -
First priority senior secured notes,
9.25% -- -- -- 342.4
Second priority senior secured notes,
9.875% -- -- -- 173.9
Revolving credit facility,
U.S. prime + 0.75% and
LIBOR + 2% -- -- -- 64.0
- -----------------------------------------------------------------------------------------------------------
-- -- -- 580.3
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31 1997 Maturity 1997 1996
U.S. Dollar Date
Component
in U.S. Dollars
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REPAP BRITISH COLUMBIA -
Series C first mortgage bonds;
U.S. prime + 1.25% - 1.75%,
prime + 1.25% - 1.75% and
LIBOR + 2.0% - 2.5% -- -- -- 381.7
Revolving credit facility; CDN prime
+ 1%, U.S. prime + 1%, LIBOR +1.5%
and bankers' acceptance rate + 1.25% -- -- -- 99.3
Other -- -- -- 0.4
- -----------------------------------------------------------------------------------------------------------
-- -- -- 481.4
- -----------------------------------------------------------------------------------------------------------
REPAP MANITOBA -
Loan, LIBOR + 1.5% - 2% and
U.S. prime + 1% - 1.5% -- -- -- 56.2
Revolving credit facility;
prime + 0.625%, U.S.
prime + 0.625% and LIBOR + 1.25% -- -- -- 29.1
Other -- -- -- 11.9
- -----------------------------------------------------------------------------------------------------------
-- -- 97.2
- -----------------------------------------------------------------------------------------------------------
TOTAL DEBT AND REVOLVING
CREDIT FACILITIES $ 708.0 $1,069.2 $2,438.2
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The long-term debt and revolving credit facilities are classified on the
balance sheet as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
December 31 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Current portion of long-term debt 70.4 38.1
Revolving credit facility - current 97.5 --
Revolving credit facilities - long-term -- 309.7
Long-term debt 901.3 2,090.4
- ---------------------------------------------------------------------------
$1,069.2 $2,438.2
- ---------------------------------------------------------------------------
</TABLE>
As at December 31, 1997, the Canadian prime, US prime and LIBOR rates were 6%
(1996: 4.75%), 8.5% (1996: 8.25%) and 5.83% (1996: 5.64%), respectively.
The First Priority Fixed Rate Senior Secured Notes require payments of US $20
million on July 15, 1998 and US $17 million on July 15, 1999. The remaining US
$113 million is repayable on July 15, 2000.
Scheduled principal maturities of long-term debt for the next ten years, and
the revolving credit facility are as follows:
<TABLE>
<S> <C>
2002 - $ --
1998 - $ 167.8 2003 - $ --
1999 - $ 25.0 2004 - $ --
2000 - $ 376.2 2005 - $ 500.2
2001 - $ -- 2006 - $ --
</TABLE>
During 1997 and 1996, the Corporation was involved in significant financing
and refinancing activities, as described in Note 2.
Substantially all of Repap New Brunswick's assets collateralize the debt and
revolving credit facility. A significant portion of the Corporation's long-term
debt for 1997 and 1996 was denominated in USdollars. The December 31 exchange
rates used were 1.4291 for US$1.00 (1996 - $1.3696 for US $1.00).
The debt agreements restrict the incurrence of additional debt, the payment of
dividends on and redemption of Repap New Brunswick's capital stock, the
redemption of certain of Repap New Brunwick's subordinated obligations, the sale
of assets and subsidiaries' stock, certain transactions with affiliates, the
creation of liens and sales-
21
<PAGE> 24
[LOGO] REPAP
leaseback transactions. The debt agreements also prohibit certain restrictions
on distributions from subsidiaries; restrict Repap New Brunswick from merging;
and place certain limitations on asset disposition.
On December 31, 1997, Repap New Brunswick was in default with respect to its
revolving credit facility because it had failed to (i) make timely payment of
certain property taxes, and stumpage fees when due and (ii) meet an interest
coverage ratio covenant. To date, Repap New Brunswick has received all required
waivers from its revolving credit facility lenders.
NOTE 8 GRANTS
The Corporation has earned grants to December 31, 1997 in the amount of $111.5
million (1996 - $111.5 million) in respect of eligible expenditures, as defined,
which constitute the maximum amount available; $20 million of this amount is
repayable.
The repayable portion, including consumer price index adjustments, amounted to
$27.7 million as at December 31, 1997 (1996 - $27 million) and the estimated
current portion as at December 31, 1997 was $5.3 million (1996 - $17.3 million).
The repayable portion is due at varying dates under varying methods as follows:
(i) $1.5 million on March 1, 1998, plus interest at 6.5% thereon; (ii) $1.5
million on March 1, 1999, plus interest at 6.5% thereon; (iii) $10,046 on a
quarterly basis at a rate of 1% of net sales of the A-1 Coated Paper Mill for
the immediately preceding quarter; and (iv) $14.7 million is repayable in equal
monthly installments plus accrued interest at 6.75% per annum at the rate of
$1.2 million in 1998, $2 million in 1999 and 2000, $3 million in 2001 and 2002,
with the remaining balance of $3.5 million due on December 31, 2002.
During 1988, the Corporation entered into a Contribution Agreement with the
Government of Canada whereby the government agreed to contribute up to $32.5
million, of which $32 million had been received, in connection with the
construction of an ALCELL(R) plant located in Miramichi, New Brunswick.
The terms of the original Contribution Agreement called for repayment of the
grant if the Corporation, in conjunction with Alcell, failed to construct a
commercial-scale ALCELL(R) plant in New Brunswick within a specified time period
of successfully demonstrating the technology, provided certain economic
conditions prevailed, as described in the Agreement.
During 1993, Alcell entered into Research and Development Contribution
Agreements with the Government of Canada whereby the government agreed to
contribute up to $25 million towards the completion of additional development
work and feasibility studies in connection with the ALCELL(R) pulping process
and related by-products. As at September 30, 1997, $24.6 million (1996 - $24.6
million) of the contribution had been received. The terms of the original
agreement called for repayment of the contributed amounts with royalties from
the eventual commercial use of the technology.
Effective May 13, 1997, Alcell and the Corporation entered into an Amendment
agreement with the Government of Canada whereby the Research and Development
agreement and the Contribution Agreement would become repayable based on a
percentage of earnings before interest, taxes, depreciation and amortization.
Additionally, the Amendment removed all obligations and guarantees of the
Corporation and its subsidiaries, other than Alcell.
As a result of the renegotiated agreement and the decision by the Corporation
to discontinue the operations of Alcell, the grant of $56.6 million which had
been previously recorded in the Corporation's consolidated balance sheet has
been written off and accounted for as a reduction in the loss from discontinued
operations of Alcell for the year ended December 31, 1997. (See Note 17).
NOTE 9 INVESTMENT TAX CREDITS RECOVERABLE
The Corporation has available investment tax credits of $135.7 million (1996 -
$192.4 million), $35.5 million, (1996 - $192.4 million) of which are recognized
in the accounts.
The tax credits are available to reduce income taxes payable in future years
and expire as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
<S> <C>
1998 $ 8.8
1999 91.7
2000 16.2
2001 1.0
2002 3.0
2003 5.1
2004 4.5
2005 2.7
2006 1.4
2007 1.3
- --------------------------------------------------------------------------
$ 135.7
- --------------------------------------------------------------------------
</TABLE>
In accordance with Canadian generally accepted accounting principles,
investment tax credits amounting to approximately $104.1 million (1996 - nil)
were credited against the related deferred credits, with no impact on the
results of operations during 1997.
NOTE 10 NON-CONTROLLING INTEREST (SEE NOTE 25)
<TABLE>
<CAPTION>
DECEMBER 31 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Non-cumulative, redeemable preferred
shares of Alcell Forest Products $ 14.3 $ 15.0
Other -- 1.7
- --------------------------------------------------------------------------
$ 14.3 $ 16.7
- --------------------------------------------------------------------------
</TABLE>
NOTE 11 SHARE CAPITAL
AUTHORIZED -
COMMON SHARES:
- - Unlimited Common Shares carrying one vote each.
PREFERRED SHARES:
- - Unlimited Preferred Shares issuable in Series, of which 400,000 Non-Voting
Preferred Shares, Series A, 280,000 Non-Voting Preferred Shares, Series C,
316,397 Non-Voting Preferred Shares, Series D, 900,000 Non-Voting Preferred
Shares, Series E and 400,000 Non-Voting Preferred Shares, Series F were created
and issued.
- - On November 2, 1995 the Corporation purchased all of the outstanding
Non-Voting Preferred Shares, Series D and E, having an aggregate book value of
$121.6 million, for $20 million. The difference between the aggregate book value
and the purchase price, a gain of $101.6 million, was credited to retained
earnings and the share certificates were cancelled.
- - Preferred Shares, Series C have a non-cumulative annual dividend of 8% and are
redeemable by the Corporation at any time for $25 per share together with all
declared and unpaid dividends.
- - Preferred Shares, Series F have a non-cumulative annual dividend of 7%, in
priority to shares of any other class or series of the Corporation, except
Preferred Shares, Series A, are redeemable by the Corporation at any time for
$25 per share together with all declared and unpaid dividends, and rank ahead of
any other class or series of shares of the Corporation except Preferred Shares,
Series A, on dissolution or wind-up.
22
<PAGE> 25
[LOGO] REPAP
ISSUED AND OUTSTANDING -
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
DECEMBER 31 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON SHARES:
BEGINNING OF YEAR: $ 483.3 $ 483.3 $ 470.1
In 1997, 619,023,800 shares were
issued (1996: 12,360 shares)
(1995: 1,484,746 shares) 157.1 -- 13.2
- ------------------------------------------------------------------------------------------------------------------
END OF YEAR:
(1997: 742,460,637 shares)
(1996: 123,436,837 shares)
(1995: 123,424,477 shares)
$ 640.4 $ 483.3 $ 483.3
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
DECEMBER 31 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED SHARES:
PREFERRED SHARES, SERIES A -
BEGINNING OF YEAR: $ 10.0 $ 10.0 $ 10.0
Redemption and cancellation (10.0) -- --
- ------------------------------------------------------------------------------------------------------------------
END OF YEAR:
(1996 & 1995: 400,000 shares) -- 10.0 10.0
- ------------------------------------------------------------------------------------------------------------------
PREFERRED SHARES, SERIES C BEGINNING AND END OF YEAR:
(1997, 1996 & 1995: 240,000 SHARES) 6.0 6.0 6.0
- ------------------------------------------------------------------------------------------------------------------
PREFERRED SHARES, SERIES D -
BEGINNING OF YEAR: -- -- 31.6
Redemption -- -- (31.6)
- ------------------------------------------------------------------------------------------------------------------
END OF YEAR: -- -- --
- ------------------------------------------------------------------------------------------------------------------
PREFERRED SHARES, SERIES E -
BEGINNING OF YEAR: -- -- 90.0
Redemption -- -- (90.0)
- ------------------------------------------------------------------------------------------------------------------
END OF YEAR: -- -- --
- ------------------------------------------------------------------------------------------------------------------
PREFERRED SHARES, SERIES
F BEGINNING AND END OF YEAR:
(1997, 1996, & 1995: 400,000 shares) 10.0 10.0 10.0
- ------------------------------------------------------------------------------------------------------------------
DEDUCT-
PREFERRED SHARES HELD BY REPAP WISCONSIN -- (10.0) (10.0)
- ------------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED SHARES, END OF YEAR $ 16.0 $ 16.0 $ 16.0
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average number of shares
(in thousands) used in the calculation
of basic earnings (loss) per share 381,222 123,432 122,739
Basic earnings (loss) per share $ (0.17) $ (3.99) $ 1.17
Adjusted basic earnings (loss) per share (0.07) -- --
Fully diluted earnings (loss) per share $ (0.17) $ (3.99) $ 1.12
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
On August 1, 1997, 619,023,800 Common Shares were issued in connection with
the conversion of 8.5% Convertible Redeemable Subordinate Debentures. (See Note
12). During 1996, 12,360 Common Shares (1995: 1,484,746 Common Shares) were
issued in connection with the exercise of stock options for cash proceeds of
$0.05 million (1995: $13.2 million). No such Common Shares were issued during
1997.
The values assigned to the Corporation's shares for accounting purposes differ
from the corresponding amounts for legal and income tax purposes.
Certain directors, officers and employees of the Corporation have options to
purchase up to 63.2 million Common Shares from the Corporation 61 million of
which can be purchased at $0.235 per share. Under these stock option plans,
options may be granted to purchase the Corporation's Common Shares at no less
than the fair market value of the shares on the date of grant. Currently
outstanding options under the 1987 Director, Officers and Employees Amended
Stock Option Plan become exercisable from the date of the grant to three years
from the grant date and expire ten years after the grant date. Currently
outstanding options under the 1991 Salaried Employees Amended Stock Option Plan
are exercisable immediately and expire five years after the grant date.
Changes in shares under option are summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1997 1996 1995
(In Thousands of Shares)
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding - beginning of year 6,656 4,508 4,885
Granted 61,000 2,136 1,240
Exercised -- (12) (1,485)
- --------------------------------------------------------------------------
Expired or cancelled (4,491) 24 (132)
- --------------------------------------------------------------------------
Outstanding - end of year 63,165 6,656 4,508
- --------------------------------------------------------------------------
Shares under exercisable
options - end of year 63,165 6,656 1,600
- --------------------------------------------------------------------------
</TABLE>
See Note 12 for details of the conversion option for convertible debentures.
On May 26, 1994, the shareholders approved a shareholders' rights protection
plan. Under the terms of the rights plan, the rights become exercisable only
upon the occurrence of certain triggering events, such as the acquisition by an
individual or related group of 20% or more of the Corporation's outstanding
voting shares, without the approval of the Board of Directors pursuant to a
"Permitted Bid" (as described below). In such a case, each right would entitle
shareholders, other than the acquiring individual or related group, to purchase
voting shares of the Corporation, at a price equal to one-half of the then
prevailing market price.
A "Permitted Bid" is, in effect, a bid made to all shareholders for all of the
Corporation's voting shares by a person who does not own more than 5% of the
outstanding voting shares or who is a "grandfathered" bidder (including the
current holders of more than 5% of the outstanding voting shares). The bid must
not expire and no shares may be taken up and paid during a period of at least 90
days. The bid must be subject to a condition that at least 50% of the
outstanding voting shares, other than those owned by the bidder, be tendered on
or before the 80th day following the date of the bid. In addition, the bidder
must not have entered into any agreement or arrangement with any holder or
holders of 20% or more of the outstanding voting shares, with respect to the
voting shares owned by such holder or holders. Finally, a Permitted Bid must
also comply with certain provisions specified in the rights plan. The rights
expire on February 8, 1999.
On August 8, 1996, the Corporation entered, in connection with the Standby
Loan Agreement, into a warrant indenture providing for the creation and issue of
926,250 Series A Warrants, 471,250 Series B Warrants and 227,500 Series C
Warrants, which entitled the holders thereof to purchase Common Shares at the
rate of one Common Share for one Warrant. In connection with the repayment of
the Standby Loan Agreement as described in Note 2, all of the warrants were
surrendered and cancelled.
During 1989, the shareholders of the Corporation approved an Employee Share
Ownership Plan (the "Plan") available to all employees with a minimum of six
months of consecutive service. Under the terms of the Plan, the Corporation
contributed an amount equal to 30%, over a three-year period, of the amount of
contributions of each employee, net of withdrawals.
This plan was terminated in December 1996.
23
<PAGE> 26
[REPAP LOGO]
NOTE 12 CONVERTIBLE DEBENTURES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
DECEMBER 31 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
9% Convertible Redeemable
Subordinate Debentures
Liability component (Note 7) $ 3.3 $ 9.3
Equity component 71.7 65.7
- --------------------------------------------------------------------------------
$ 75.0 $ 75.0
- --------------------------------------------------------------------------------
8.5% Convertible Redeemable
Subordinate Debentures
(US $130 million)
Liability component $ -- $ 14.2
Equity component -- 150.6
- --------------------------------------------------------------------------------
$ -- $ 164.8
- --------------------------------------------------------------------------------
Total Convertible Redeemable Subordinate
Debentures are classified on the
balance sheet as follows:
Current portion of long-term
debt and repayable grants (Note 7) $ 3.3 $ 23.5
Other paid-in capital 71.7 216.3
- --------------------------------------------------------------------------------
$ 75.0 $ 239.8
- --------------------------------------------------------------------------------
</TABLE>
* The 9% Convertible Redeemable Subordinate Debentures are convertible at the
option of the holder at any time prior to June 30, 1998 or, if previously called
for redemption, prior to the date specified for redemption, into Common Shares
of the Corporation at a conversion price of $17.00 per Common Share.
The Corporation may, at its option, repay the debentures on maturity or
redemption by issuing Common Shares at a price equal to 95% of the weighted
average trading price of the shares on the Toronto Stock Exchange for thirty
consecutive trading days ending not more than five days prior to maturity, or
twenty consecutive trading days ending not more than five days prior to giving
notice of redemption.
The debentures are redeemable at 101% and 100% of the principal amount plus
accrued and unpaid interest for each of the twelve-month periods ending June 30,
1997 and 1998.
* On August 1, 1997, the Corporation repaid its US $130 million 8.5% convertible
debentures through the issuance of 619,023,800 Common Shares (See Note 11).
NOTE 13 INCOME TAXES
The following summarizes the Corporation's income tax provisions, including
elements of deferred income taxes, on earnings of its continuing operations:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES
ATTRIBUTABLE TO COMMON SHAREHOLDERS $(135.3) $ (91.3) $ 24.2
Income taxes:
Current 2.0 2.5 2.5
- ------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS ATTRIBUTABLE TO COMMON
SHAREHOLDERS $(137.3) $ (93.8) $ 21.7
- ------------------------------------------------------------------------------------------------
</TABLE>
The Corporation's effective income tax rates are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax rates 37.5% 36.3% 36.4%
Provincial income tax rates 6.1 3.8 4.3
Unrecognized income tax benefit on losses (38.5) (33.2) --
Recognized income tax benefit
from prior period losses -- -- (21.5)
Other (6.6) (9.6) (8.9)
- ----------------------------------------------------------------------------------------------------
(1.5%) (2.7%) 10.3%
- ----------------------------------------------------------------------------------------------------
</TABLE>
The Corporation and its continuing subsidiaries have incurred $228.6 million
of accounting losses (1996: $153.7 million) on which income tax benefits of
approximately $88.3 million (1996: $58.4 million) have not been recognized in
the accounts.
The Corporation and its continuing subsidiaries have available net operating
loss carryforwards for income tax purposes of approximately $246.5 million and
investment tax credits of approximately $135.7 million. These potential deferred
income tax benefits are available to be carried forward and applied against
income tax in future years and expire between 1998 and 2007.
Also, the Corporation and its continuing subsidiaries have available capital
loss carryforwards for income tax purposes of approximately $134 million on
which income tax benefits have not been recognized in the accounts.
NOTE 14 INTEREST EXPENSE
Interest expense comprises the following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest on short-term borrowings $ 2.1 $ 3.8 $ 1.2
Interest on long-term debt and
convertible debentures 115.8 109.2 107.0
- ------------------------------------------------------------------------------------------
$ 117.9 $ 113.0 $ 108.2
- ------------------------------------------------------------------------------------------
</TABLE>
NOTE 15 DEPRECIATION AND AMORTIZATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEPRECIATION AND AMORTIZATION EXPENSE
COMPRISES THE FOLLOWING:
Depreciation of fixed assets $ 48.5 $ 44.4 $ 45.3
Amortization of other assets 19.5 6.5 16.4
Amortization of investment tax credits (9.8) (9.1) (9.2)
Amortization of non-repayable
government grants (1.0) (0.8) (0.9)
- --------------------------------------------------------------------------------------------------
$ 57.2 $ 41.0 $ 51.6
- --------------------------------------------------------------------------------------------------
</TABLE>
NOTE 16 UNUSUAL ITEMS
During 1995, $41.7 million was charged to operating results in connection with
the issue by Repap New Brunswick of senior secured notes in the aggregate amount
of US $650 million, including deferred exchange losses, deferred financing costs
and early redemption premiums related to the indebtedness repaid from proceeds.
24
<PAGE> 27
[REPAP LOGO]
NOTE 17 DISCONTINUED OPERATIONS (SEE NOTE 2)
a) Repap British Columbia:
As described in Note 2, on March 3, 1997 (the "measurement date") Repap
British Columbia entered into a restructuring and settlement agreement with its
secured lenders. On March 27, 1997 (the "disposal date"), the Westcoast Lenders
exercised their right to purchase all of the shares of Repap British Columbia
for a nominal amount. The results of Repap British Columbia as well as the loss
on disposal have been reported separately as part of amounts under the caption
"Income (loss) from discontinued operations" in the statement of operations. The
results and loss on disposition are summarized as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 71.6 $ 422.2 $ 440.9
Earnings (loss) from operations
before income taxes (28.0) (104.6) 29.9
Provision for (recovery of) income taxes (0.1) (1.5) 1.5
- ---------------------------------------------------------------------------------------------------------
Income (loss) from operations (27.9) (103.1) 28.4
Loss on disposition of discontinued operations (87.3) -- --
- ---------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations $(115.2) $(103.1) $ 28.4
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The assets and liabilities of Repap British Columbia included in the
consolidated balance sheet as at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
DECEMBER 31 1996
- ------------------------------------------------------------------
<S> <C>
Assets
Working capital assets $ 145.9
Net fixed assets 415.3
Investments and other assets 101.6
- ------------------------------------------------------------------
Total Assets 662.8
- ------------------------------------------------------------------
Liabilities and capital sources
Working capital liabilities 140.4
Other liabilities 21.1
Long-term debt and revolving credit facility 481.4
Investment tax credits 3.6
- ------------------------------------------------------------------
Total liabilities and capital sources 646.5
- ------------------------------------------------------------------
Net Assets $ 16.3
- ------------------------------------------------------------------
</TABLE>
b) Alcell:
Alcell developed the proprietary ALCELL(R) pulping process and related
co-products in a small-scale demonstration facility located in Miramichi, New
Brunswick. In December 1994, Alcell Forest Products, a wholly-owned subsidiary
of Alcell, was incorporated to acquire a magnesium-bisulphite pulp mill in
Atholville, New Brunswick from a third party with a view to eventually
converting it into a pulp mill employing the ALCELL(R) process. In 1995, the
Corporation decided to commission the acquired mill using the
magnesium-bisulphite process.
In March 1996, the magnesium-bisulphite pulp mill in Atholville and the
ALCELL(R) demonstration facility in Miramichi, New Brunswick were shut down
indefinitely due to market conditions. In March 1997, management determined that
the magnesium-bisulphite pulp mill in Atholville and Alcell would be put up for
sale.
The results of Alcell have been reported separately as part of amounts under
the caption "Income (loss) from discontinued operations" in the statement of
operations. The results are summarized as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 0.1 $ 3.3 $ 0.4
Loss from operations before income taxes
and gain on settlement of government grant (15.2) (315.4) (0.4)
Gain on settlement of government grant (note 8) 56.6 -- --
Provision for income taxes 0.1 0.4 0.4
- -----------------------------------------------------------------------------------------------------------
Income (loss) from operations
before the following 41.3 (315.8) (0.8)
Provision for future losses (4.3) -- --
- -----------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations $ 37.0 $(315.8) $ (0.8)
- -----------------------------------------------------------------------------------------------------------
</TABLE>
In December 1996, a provision of $305.5 million was recorded against income on
the ALCELL(R) assets as their recovery could no longer be regarded as assured
considering the lack of adequate resources available or expected to be available
to complete the commercialization of the ALCELL(R) technology.
The assets and liabilities of Alcell included in the consolidated balance
sheets are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
DECEMBER 31 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Working capital assets $ 0.6 $ 4.6
- ---------------------------------------------------------------------------------------------
Total assets 0.6 4.6
- ---------------------------------------------------------------------------------------------
LIABILITIES AND CAPITAL SOURCES
Working capital liabilities 4.8 4.5
Long-term debt, repayable grants and other liabilities 37.0 61.8
Non-controlling interest 14.3 15.0
Non-repayable grants -- 32.6
- ---------------------------------------------------------------------------------------------
Total liabilities and capital sources 56.1 113.9
- ---------------------------------------------------------------------------------------------
Net liabilities $ (55.5) $(109.3)
- ---------------------------------------------------------------------------------------------
</TABLE>
c) Repap Manitoba:
On July 18, 1997 (the "measurement date"), a Stock Purchase Agreement was
entered into between the Corporation and Tolko for all of the issued and
outstanding shares in the capital of Repap Manitoba for a purchase price,
subject to adjustments, of $109 million plus working capital less the long-term
debt and the long-term portion of a capital lease between Repap Manitoba and
GATX. This transaction closed on August 8, 1997 (the "disposal date") and
provided $34.5 million of net proceeds.
The results of Repap Manitoba as well as the loss on disposal have been
reported separately as part of amounts under the caption "Income (loss) from
discontinued operations" in the statement of operations. The results and loss on
disposition are summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 96.0 $ 164.3 $ 167.7
Earnings before income taxes 6.0 15.7 30.9
Provision for income taxes 0.2 0.5 0.4
- --------------------------------------------------------------------------------------------------------
Income from operations 5.8 15.2 30.5
Loss on disposition of discontinued operations (71.0) -- --
- --------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations $ (65.2) $ 15.2 $ 30.5
- --------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 28
[REPAP LOGO]
The assets and liabilities of Repap Manitoba included in the consolidated
balance sheet as at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
DECEMBER 31 1996
- ------------------------------------------------------------------
<S> <C>
ASSETS
Working capital assets $ 56.0
Net fixed assets 159.8
Investments and other assets 44.1
- ------------------------------------------------------------------
Total assets 259.9
- ------------------------------------------------------------------
LIABILITIES AND CAPITAL SOURCES
Working capital liabilities 26.5
Long-term debt and revolving credit facility 97.2
Non-repayable grants 2.4
- ------------------------------------------------------------------
Total liabilities and capital sources 126.1
- ------------------------------------------------------------------
Net assets $ 133.8
- ------------------------------------------------------------------
</TABLE>
d) REPAP USA:
On September 25, 1997 (the "measurement date"), shareholders of Repap passed a
resolution approving the sale to Consolidated Papers, of all the outstanding
shares of Repap USA and all of the Preferred Stock of Repap Wisconsin exclusive
of certain assets of Repap USA. This transaction closed on September 30, 1997
(the "disposal date") and provided US $227 million of net proceeds.
The results of Repap Wisconsin as well as the gain on disposal have been
reported separately as part of amounts under the caption "Income (loss) from
discontinued operations" in the statement of operations. The results and gain on
disposition are summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 513.3 $ 581.9 $ 749.1
Earnings (loss) before income taxes 8.2 (4.0) 70.9
Provision for (recovery of) income taxes 1.0 (9.5) 7.1
- --------------------------------------------------------------------------------------------------------
Income from operations 7.2 5.5 63.8
Gain on disposition of discontinued operations 210.0 -- --
- --------------------------------------------------------------------------------------------------------
Income from discontinued operations $ 217.2 $ 5.5 $ 63.8
- --------------------------------------------------------------------------------------------------------
</TABLE>
The assets and liabilities of Repap Wisconsin included in the consolidated
balance sheet as at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
DECEMBER 31 1996
- ------------------------------------------------------------------
<S> <C>
Assets
Working capital assets $ 165.6
Net fixed assets 661.9
Investments and other assets 44.7
- ------------------------------------------------------------------
Total assets 872.2
- ------------------------------------------------------------------
Liabilities and capital sources
Working capital liabilities 72.2
Other liabilities 13.7
Long-term debt and revolving credit facility 580.3
Non-controlling interest 1.7
Investment tax credits 1.9
- ------------------------------------------------------------------
Total liabilities and capital sources 669.8
- ------------------------------------------------------------------
Net assets $ 202.4
- ------------------------------------------------------------------
</TABLE>
NOTE 18 CONTINGENCIES
The Corporation is involved in various cases of litigation. Management is of
the opinion, based on information presently available to it, that the eventual
outcome of these matters will not have a material adverse effect on the
Corporation.
NOTE 19 SEGMENTED INFORMATION:PRODUCT SEGMENTATION
FROM CONTINUING OPERATIONS
<TABLE>
<CAPTION>
1997
- ------------------------------------------------------------------------------------------------------------------------
Lumber Pulp Paper Other Consolidated
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALES
Net sales (1) $ 25.5 $ 74.7 $ 450.3 $ (30.1) $ 520.4
OPERATING PROFIT (LOSS)
Operating profit (loss)
before the following $ 7.3 $ 14.1 $ 93.1 $ (61.3) $ 53.2
Depreciation
and amortization 1.0 8.3 44.0 3.9 57.2
- ------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 6.3 $ 5.8 $ 49.1 $ (65.2) $ (4.0)
- ------------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 18.4 $ 325.8 $ 973.7 $ 80.0 $1,397.9
Fixed asset
additions (2) $ 0.7 $ 13.1 $ 2.4 $ -- $ 16.2
</TABLE>
1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Lumber Pulp Paper Other Consolidated
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALES
Net sales (1) $ 20.7 $ 56.4 $ 428.2 $ (20.2) $ 485.1
- ----------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT (LOSS)
Operating profit (loss)
before the following $ 4.2 $ 11.2 $ 100.6 $ (33.4) $ 82.6
Depreciation
and amortization 0.7 6.4 33.1 0.8 41.0
- ----------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 3.5 $ 4.8 $ 67.5 $ (34.2) $ 41.6
Identifiable assets $ 10.0 $ 333.0 $1,147.5 $ 47.9 $1,538.4
Fixed asset
additions (2) $ 0.7 $ 12.9 $ 5.7 $ -- $ 19.3
</TABLE>
1995
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Lumber Pulp Paper Other Consolidated
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALES
Net sales (1) $ 15.1 $ 78.7 $ 569.0 $ (5.5) $ 657.3
- ----------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT (LOSS)
Operating profit (loss)
before the following $ 0.8 $ 35.0 $ 236.2 $ (34.1) $ 237.9
Depreciation
and amortization 0.6 5.9 36.4 8.7 51.6
- ----------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 0.2 $ 29.1 $ 199.8 $ (42.8) $ 186.3
- ----------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 12.7 $ 373.9 $1,125.0 $ 88.0 $1,599.6
Fixed asset
additions (2) $ 0.4 $ 23.7 $ 11.6 $ -- $ 35.7
</TABLE>
(1) Net sales were reduced by $30.1 million, $20.2 million and $5.5 million in
1997, 1996 and 1995, respectively, as a result of the Corporation's method of
accounting for revenue-stream hedging.
(2) Fixed asset additions from continuing operations, excluding acquisitions.
GEOGRAPHIC SEGMENTATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES FROM CANADIAN CONTINUING
OPERATIONS BY MARKET DESTINATION:
U.S.A $ 375.6 $ 318.4 $ 439.3
Europe 11.9 33.8 24.4
Asia 2.6 6.0 8.6
Other 19.7 25.1 21.9
- ---------------------------------------------------------------------------------------------
Total export sales 409.8 383.3 494.2
Canada 110.6 101.8 163.1
- ---------------------------------------------------------------------------------------------
Total Canadian continuing operations $ 520.4 $ 485.1 $ 657.3
- ---------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 29
[REPAP LOGO]
NOTE 20 NET CHANGES IN NON-CASH WORKING CAPITAL
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Decrease in accounts receivable $ 34.8 $ 6.1 $ 11.8
Decrease (increase) in inventories 30.0 (13.7) (22.0)
Increase (decrease) in accounts payable
and accrued liabilities (32.2) 14.0 17.8
- ---------------------------------------------------------------------------------------------------
$ 32.6 $ 6.4 $ 7.6
- ---------------------------------------------------------------------------------------------------
</TABLE>
NOTE 21 PENSION PLANS
The Corporation maintains defined benefit final average pension plans which
cover certain of its employees. The periodic cost of pension benefits is
determined using the projected benefit method prorated on services.
Pursuant to certain collective agreements, the Corporation also contributes to
pension plans for the benefit of some of its employees. These pension plans are
administered by the Corporation or jointly with labour unions of which certain
of its employees are members, through representative boards of trustees. At
December 31, 1997, the Corporation has made or accrued for all required
contributions.
In addition, the Corporation maintains defined contribution plans which cover
certain of its employees.
Net periodic pension expense from continuing operations and those operations
discontinued during the current year for plans in 1997, 1996 and 1995 included
the following components:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current service cost $ 5.4 $ 5.9 $ 3.2
Interest cost on projected benefit obligation 13.9 11.9 8.7
Actual return on plan assets (13.6) (10.6) (8.8)
Net amortization and deferral 2.8 2.4 0.6
- ---------------------------------------------------------------------------------------------------------
Net periodic pension expense $ 8.5 $ 9.6 $ 3.7
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The assumptions used in the majority of the Corporation's plans at December
31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average discount rate 8.5% 8.5% 8.5%
Expected long-term rate of return on assets 8.5% 8.5% 8.5%
Expected long-term rate of increase in wages 4.0% 4.0% 4.0%
- -----------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the funded status for the Corporation's defined
benefit plans at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
Plans where Plans where Plans where Plans where
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of:
Vested and
non-vested benefit obligation $(72.8) $(48.4) $(119.5) $(37.2)
- -------------------------------------------------------------------------------------------------------------
Additional benefits based on
wage projection (5.2) (9.5) (15.2) (3.9)
- -------------------------------------------------------------------------------------------------------------
Projected benefit obligation (78.0) (57.9) (134.7) (41.1)
Plan assets at fair market value
(primarily listed stocks and bonds) 83.8 33.6 150.4 21.3
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1997 DECEMBER 31, 1996
Plans where Plans where Plans where Plans where
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Plan assets in excess of (less than)
projected benefit obligation 5.8 (24.3) 15.7 (19.8)
Unrecognized net liability (asset)
at transition (0.5) 7.3 (1.2) 11.9
Unrecognized net (gain) loss (0.8) 9.4 (12.2) (1.0)
Unrecognized prior service cost 4.9 5.4 12.8 8.4
- -------------------------------------------------------------------------------------------------------------
Pension asset included in the
consolidated balance sheets $ 9.4 $ 2.2 $15.1 $(0.5)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 22 TRANSLATION ADJUSTMENT
Exchange gains and losses arising on the translation of the financial
statements of self-sustaining foreign investments are deferred and included as a
separate component of shareholders' equity (deficiency).
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
DECEMBER 31 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Exchange gains on translation of
shareholders' equity of Repap USA $ -- $ 7.9
Exchange loss on translation of Repap British Columbia's
investment in preferred shares of Repap Wisconsin -- (0.6)
Exchange gains on translation of
shareholders' equity of Repap Marketing (0.1) --
- ------------------------------------------------------------------------------------------------
$ (0.1) $ 7.3
- ------------------------------------------------------------------------------------------------
</TABLE>
NOTE 23 GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES IN THE UNITED STATES
The consolidated financial statements have been prepared in accordance with
Canadian GAAP. The following summary sets out the material adjustments to the
Corporation's reported net income (loss) which would be made in order to conform
with U.S. GAAP and the accounting principles and practices required by the SEC:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EARNINGS ADJUSTMENTS:
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR ACCRETION OF
PAID-IN CAPITAL IN ACCORDANCE
WITH CANADIAN GAAP $(122.9) $ (74.8) $ 39.3
Adjustments (net of applicable income taxes):
Cost of early redemption of long-term debt(1) -- -- 31.8
Interest expense(5) (14.4) (19.0) (17.6)
Reversal of revenue stream hedge(3) 30.1 20.2 5.5
Unrealized gain (loss) on translation
of long-term debt(3) (32.9) (3.3) 43.6
Reversal of amortization of investment
tax credits(4) (5.1) (7.2) (4.0)
- -----------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEMS IN ACCORDANCE
WITH U.S. GAAP (145.2) (84.1) 98.6
Extraordinary items, net of related
income taxes(1) -- -- (31.8)
Income (loss) from discontinued operations
in accordance with U.S. GAAP 162.3 (310.3) 101.0
- -----------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) IN ACCORDANCE
WITH U.S. GAAP $ 17.1 $(394.4) $ 167.8
- -----------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 30
[REPAP LOGO]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Basic earnings (loss) from
continuing operations per share:
Before extraordinary items $ (0.38) $ (0.68) $ 0.80
After extraordinary items $ (0.38) $ (0.68) $ 0.54
Diluted earnings (loss) per share $ (0.38) $ (0.68) $ 0.54
Basic earnings (loss) per share:
Before extraordinary items $ 0.04 $ (3.20) $ 1.63
After extraordinary items $ 0.04 $ (3.20) $ 1.37
Diluted earnings (loss) per share $ 0.04 $ (3.20) $ 1.32
</TABLE>
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 (SFAS 128). "Earnings Per Share", which superseded APB 15, "Earnings Per
Share". FAS 128 requires a dual presentation of basic and diluted earnings per
share on the income statement for companies with complex capital structures. FAS
128 is required to be adopted for year end 1997 and earlier application is not
permitted. The adoption of FAS 128 did not have a material effect on the
Corporation's consolidated financial position or operating results.
The following summary sets out the material differences between the
Corporation's balance sheet and statement of changes in financial position
components in accordance with Canadian GAAP and U.S.GAAP:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1997 1996
IN ACCORDANCE WITH GAAP IN CANADA U.S. CANADA U.S.
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE SHEET COMPONENTS:
Investment tax credits recoverable (4),(7) 35.5 -- 192.4 --
Other assets (2),(3) 148.4 53.8 247.6 107.2
Accounts payable (5) 129.0 129.0 359.3 365.1
Long-term debt (5) 971.7 968.3 2,128.5 2,105.0
Investment tax credits (4) 148.0 146.2 300.0 156.0
Convertible debentures (5) -- 75.0 -- 253.0
Shareholders' equity (deficiency) (17.3) (217.3) 41.1 (384.2)
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------
CANADA U.S. CANADA U.S. CANADA U.S.
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF CHANGES
IN FINANCIAL POSITION
COMPONENTS:
Cash provided by (used in)
operating activities (2.2) (22.6) (7.1) (27.0) 143.1 125.9
Cash provided by (used in)
investing activities (16.7) (16.7) (22.1) (22.1) (78.2) (78.2)
Cash provided by (used in)
financing activities (252.9) (232.5) 133.5 153.4 (18.9) (1.7)
Cash provided by (used in)
discontinued operations 291.6 291.6 (118.3) (118.3) (13.9) (13.9)
Net increase (decrease)
in cash (6) 19.8 19.8 (14.0) (14.0) 32.1 32.1
- -------------------------------------------------------------------------------------------
</TABLE>
Interest paid by the Corporation amounted to $135.4 million in 1997 (1996:
$173.9 million; 1995: $162.2 million).
(1) The cost of early redemption of long-term debt is included in earnings
before income taxes, extraordinary items and non-controlling interest in
accordance with Canadian GAAP. Under U.S. GAAP, such a cost would be presented
as extraordinary items, net of related income taxes.
(2) Under Canadian GAAP, certain project development costs are deferred and
amortized over the periods benefited. Under U.S. GAAP, such costs would be
included in income as incurred. As at December 31, 1995, the cumulative amount
of such costs included in income under U.S. GAAP amounted to $89 million. In
1996, the loss from discontinued operations under Canadian GAAP included an
unusual charge of $305.5 million, as described in Note 17, which included the
amount of $89 million of deferred development costs charged to income in prior
years under U.S. GAAP. Consequently, this amount represents an income adjustment
in 1996 to reconcile to the loss from discontinued operations in accordance with
U.S. GAAP in 1996.
(3) Unrealized gains and losses arising from the translation of foreign
monetary assets or liabilities with terms in excess of one year are deferred and
amortized over the remaining life of the related debt. Where future revenue
streams have been designated as an effective hedge against foreign exchange
losses, such losses are deferred without amortization until principal repayments
fall due. U.S. GAAP does not permit revenue-stream hedging or the deferral and
amortization of foreign exchange gains and losses. Under U.S. GAAP, such gains
and losses would be included in income as they arise.
(4) Under Canadian GAAP, the Corporation may continue to recognize earned
investment tax credits in situations where investment tax credits recoverable
exceed deferred income tax credits when there is reasonable assurance of their
realization. U.S. GAAP does not permit the recognition of these investment tax
credits unless certain limitations to their recognition are removed.
(5) Under Canadian GAAP, the liability and equity components of compound
financial instruments, such as the Corporations' convertible debenture issues,
are included in long-term debt and shareholders' equity (deficiency),
respectively. Under U.S. GAAP, the convertible debentures would be presented
outside shareholders' equity (deficiency).
(6) In these financial statements, the definition of cash used in the
measurement of cash flows includes short-term borrowings. Under U.S. GAAP,
changes in short-term borrowings would be excluded from the definition of cash
and presented as financing transactions.
(7) Under U.S. GAAP the Corporation is required to account for deferred income
taxes using the liability method whereby deferred tax assets and liabilities are
measured at currently enacted tax rates and valuation allowances are required
when it is more likely than not that portions of deferred tax assets will not be
realized.
The components of the Corporation's deferred tax assets (liabilities),
including the valuation allowance, comprise the following:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Differences between net book value of
assets for accounting and income tax purposes $ (9.2) $(28.8)
Investment tax credits 21.4 84.0
Net operating losses 97.1 72.1
Net capital losses 17.6 17.6
Net Other 3.0 5.7
- --------------------------------------------------------------------------------
129.9 150.6
Valuation allowance (129.9) (150.6)
- --------------------------------------------------------------------------------
$ -- $ --
- --------------------------------------------------------------------------------
</TABLE>
During 1997, the valuation allowance decreased by $20.7 million.
(8) Under Canadian GAAP, distribution costs, which include freight, commissions
and discounts, are deducted from revenues in arriving at net sales. Under U.S.
GAAP, commission and freight expenses should not be presented as deductions from
sales but rather should be treated as expenses. If this presentation had been
adopted, net sales and operating expenses would have increased by $49.1 million
in 1997, $107.0 million in 1996, and $111.6 million in 1995. This difference in
presentation would have had no effect on operating profit (loss) and net income
(loss).
ACCOUNTING FOR STOCK-BASED COMPENSATION
SFAS 123, "Accounting for stock-Based Compensation", allows the choice of
accounting for stock-based compensation in accordance with APB 25, "Accounting
for Stock Issued to Employees", using the intrinsic
28
<PAGE> 31
[REPAP LOGO]
value approach, and providing supplementary pro forma net income and earnings
par share note disclosure calculated in accordance with SFAS 123, or using the
fair value approach established by SFAS 123. In accordance with the provisions
of SFAS 123, if the Corporation had elected to recognize compensation expense
based upon the fair value at the grant date for awards under these plans
consistent with the fair value methodology prescribed by SFAS 123, the
Corporation's net income and earnings per share would not be significantly
different from amounts currently reported using SFAS 25.
ACCOUNTING PRONOUNCEMENTS
The FASB released SFAS 130, "Reporting Comprehensive Income", in June 1997,
which will be effective for the Corporation's 1998 fiscal year. SFAS 130 will
require the Corporation to display comprehensive income items, which are
currently reported directly in equity under U.S.GAAP, in a statement of
financial performance. There is not expected to be any material effect on the
Corporation's consolidated financial position or operating results as a result
of the adoption of this pronouncement.
The FASB recently issued SFAS 131, `'Disclosures about Segments of an
Enterprise and Related Information", which will be effective for the
Corporation's 1998 fiscal year. SFAS 131 requires the disclosure of segments
based on the way that management organizes the enterprise for its own internal
purposes. This statement was developed through a joint project with the Canadian
Institute of Chartered Accountants. Accordingly, no Canadian/U.S. reporting
differences will exist. There is not expected to be any material effect on the
Corporation's consolidated financial position or operating results as a result
of the adoption of this pronouncement.
- --------------------------------------------------------------------------------
NOTE 24 FINANCIAL INSTRUMENTS
FAIR VALUE
The Corporation has determined the estimated fair values of its financial
instruments based on appropriate valuation methodologies. However, considerable
judgment is necessary to develop these estimates. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the Corporation
could realize in a current market exchange. The use of different assumptions or
methodologies may have a material effect on the estimated fair value amounts.
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument.
Short-term financial assets and liabilities are valued at their carrying
amounts as presented in the balance sheets, which are reasonable estimates of
fair value due to the relatively short period to maturity of the instruments.
On December 31, 1997, the Corporation's convertible debentures amounting to
$75 million (1996: $253.0 million) had a quoted value of $59.3 million (1996:
$243.7 million) and Repap New Brunswick's first and second priority notes
amounting to $928.9 million (1996: $890.2 million) had a quoted value of $909
million (1996: $882 million). On December 31, 1996, Repap Wisconsin's first and
second priority notes amounting to $516.3 million had a quoted value of $495.3
million.
Rates currently available to the Corporation for its other debt instruments
and revolving credit facilities with similar terms and remaining maturities are
not significantly different from the contractual interest rates disclosed in
note 7. The carrying value for the revolving credit facility is therefore a
reasonable estimate of its fair value.
CREDIT RISK
Sales to one customer, in which the Corporation has an investment in preferred
stock, were 16% of net sales during 1997, 11% of net sales during 1996, and 16%
of net sales during 1995. Accounts receivable from this customer were $11.1
million at December 31, 1997 and $9.5 million at December 31, 1996.
Additionally, accounts receivable from two customers were $8.9 and $7.7 million
at December 31, 1997, respectively, and at December 31, 1996, accounts
receivable from one customer was $16.2 million.
CURRENCY RISK FROM CONTINUING OPERATIONS
A significant proportion of the Corporation's products are sold in the United
States in U.S. dollars, while a large proportion of the Corporation's costs are
incurred in Canadian dollars. As a result, the profitability and cash flow of
the Corporation are affected by exchange rate fluctuations.
The Corporation enters into forward exchange contracts to hedge accounts
receivable and expected future revenues denominated in U.S. dollars. The table
below summarizes, by currency, the contractual amounts of the Corporation's
forward exchange contracts with one major Canadian financial institutions at
December 31.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1997 1996
NOMINAL NOMINAL
AMOUNT FORWARD UNREALIZED AMOUNT FORWARD UNREALIZED
IN FOREIGN CONTRACTS GAIN (LOSS) IN FOREIGN CONTRACTS GAIN (LOSS)
CURRENCY $ $ CURRENCY $ $
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Currency:
U.S. Dollars 109.0 $151.9 $ (3.9) 57.0 $78.1 $(0.7)
Dutch Guilders -- -- -- 0.7 0.5 --
Pounds Sterling 0.7 1.6 -- 2.3 5.4 (0.1)
Deutsche Marks 0.3 0.2 -- 1.9 1.7 --
French Francs -- -- -- 2.0 0.5 (0.1)
- -----------------------------------------------------------------------------------------
$153.7 $ (3.9) $86.2 $(0.9)
- -----------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NOTE 25 SUBSEQUENT EVENTS
On February 20, 1998, Repap concluded a Share Purchase Agreement with AV Cell
Inc. ("AV Cell"), a joint venture between Tembec Inc. and the Aditya Birla Group
of India for the sale of all of the shares of Alcell Forest Products which owns
the magnefite pulp mill located in Atholville, New Brunswick.
In conjunction with the sale of Alcell Forest Products, Repap has agreed to
settle the $37 million secured bank loan of Alcell Forest Products, guaranteed
by the Province of New Brunswick with a recourse back to Repap, with a cash
payment of $12 million. The balance of $25 million is to be satisfied with a
fifteen year $5 million 6.75% promissory note from Repap to the Province and the
transfer of the $10 million Class B shares of AV Cell to be received as part of
the purchase price.
- --------------------------------------------------------------------------------
NOTE 26 COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform to the
presentation adopted for the current year.
29
<PAGE> 32
[REPAP LOGO]
SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
REPAP ENTERPRISES INC.
MILLIONS OF CANADIAN DOLLARS,
EXCEPT PER SHARE DATA AND VOTING SHARES 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA (1)
Revenues from continuing operations $ 609.9 $ 564.0 $ 724.3 $ 528.5 $ 386.7
Net sales from continuing operations 520.4 485.1 657.3 466.7 334.1
Operating profit (loss) (4.0) 41.6 186.3 (0.6) (130.9)
Interest expense 117.9 113.0 108.2 88.4 78.2
Unusual items -- -- 41.7 -- 11.2
Income (loss) from continuing operations (122.9) (74.8) 39.3 (104.5) (172.2)
Income (loss) from discontinued operations 73.8 (398.2) 121.9 21.2 (33.9)
Net earnings (loss) attributable to common shareholders (63.5) (492.0) 143.6 (83.3) (206.1)
Average Cdn$/US$ exchange rate 1.3848 1.3636 1.3725 1.3659 1.2898
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA (1)
Net fixed assets $ 1,008.7 $2,284.2 $2,452.0 $2,392.7 $2,358.9
Total assets 1,397.9 3,303.7 3,618.3 3,422.3 3,265.9
Debt (2) 1,096.8 2,489.8 2,299.6 2,233.9 2,006.4
Shareholders' equity (deficiency) (17.3) 41.1 514.0 185.8 893.7
Year-end Cdn$/US$ exchange rate 1.4291 1.3696 1.3652 1.4028 1.3240
- ----------------------------------------------------------------------------------------------------------------------------
CASH FLOW DATA FROM CONTINUING OPERATIONS (1)
Cash flow from operations (3) $ (34.8) $ (13.5) $ 135.5 $ (38.2) $ (84.2)
Additions to fixed assets 16.2 19.3 35.7 18.9 19.5
Net additions (reductions) to long-term debt (229.4) 105.4 51.0 (68.2) (3.1)
Issue of share capital 157.1 -- 13.2 150.2 --
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA (IN DOLLARS) (1)
Cash dividends $-- $-- $-- $-- $--
Earnings (Loss) from:
- Continuing operations, basic (0.36) (0.76) 0.18 (0.89) (2.04)
- Discontinued operations 0.19 (3.23) 0.99 0.18 (0.40)
Total (0.17) (3.99) 1.17 (0.71) (2.44)
- ----------------------------------------------------------------------------------------------------------------------------
VOTING SHARES (THOUSANDS)(4)
Common shares $ 742,461 $123,437 $123,424 $121,940 $ 84,394
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
REPAP ENTERPRISES INC.
YEARS ENDED DECEMBER 31
(MILLIONS OF CANADIAN DOLLARS, EXCEPT PER SHARE DATA) Q1 Q2 Q3 Q4 YEAR
- ---------------------------------------------------------------------------------------------------------------------------
1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales from continuing operations $ 123.7 $ 133.8 $ 115.6 $ 147.3 $ 520.4
Operating profit (loss) (6.9) 6.1 (24.2) 21.0 (4.0)
Net income (loss) attributable to common shareholders (125.9) (52.2) 65.2 49.4 (63.5)
Earnings (loss) from continuing operations per share
Basic (0.34) (0.25) (0.11) (0.01) (0.36)
Adjusted basic (1.02) (0.42) 0.12 0.03 (0.17)
Fully diluted (1.02) (0.42) 0.03 0.06 (0.36)
See accompanying notes
- ---------------------------------------------------------------------------------------------------------------------------
1996(1)
- ---------------------------------------------------------------------------------------------------------------------------
Net sales from continuing operations $ 116.9 $ 131.5 $ 123.1 $ 113.6 $ 485.1
Operating profit (loss) 26.2 20.9 (0.1) (5.4) 41.6
Loss attributable to common shareholders (36.5) (43.4) (52.0) (360.1) (492.0)
Earnings (loss) from continuing operations per share
Basic (0.05) (0.09) (0.28) (0.34) (0.76)
Fully diluted (0.03) (0.09) (0.28) (0.34) (0.76)
See accompanying notes
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Amounts from prior years have been restated. See Notes 1, 2 and 17 to the
Corporation's consolidated financial statements.
(2) Includes long-term debt, revolving credit facilities and repayable grants.
(3) Before net change in non-cash working capital.
(4) In August 1, 1997, US$ 130 million convertible debentures, maturing on that
date, were converted into common shares of the Corporation at a formula price of
US$0.21 per share, being 95% of the weighted average price of the common shares
traded on the Toronto Stock Exchange for the 20 days preceding conversion date.
The total number of common shares issued on conversion was 619,023,800.
30
<PAGE> 33
[REPAP LOGO]
PRICE RANGE AND TRADING VOLUME OF COMMON SHARES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
REPAP ENTERPRISES INC.
- ------------------------------------------------------------------------------------------------------------------
CANADA (TORONTO, VANCOUVER AND MONTREAL STOCK EXCHANGES)(1)
High Low Close Volume
- ------------------------------------------------------------------------------------------------------------------
(in Canadian $ per Share) (000's of Shares)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 First Quarter $ 4.20 $ 1.45 $ 1.55 46,015
Second Quarter 1.73 0.51 0.57 48,347
Third Quarter 0.70 0.16 0.265 245,675
Fourth Quarter 0.285 0.10 0.185 234,034
- -----------------------------------------------------------------------------------------------------------------
1996 First Quarter $ 7.00 $ 5.125 $ 5.375 25,910
Second Quarter 6.45 4.85 5.35 18,044
Third Quarter 5.70 4.65 5.05 11,552
Fourth Quarter 5.80 3.75 3.87 39,677
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
UNITED STATES (THE NASDAQ STOCK NATIONAL MARKET SYSTEM)(1)
High Low Close Volume
- -------------------------------------------------------------------------------------------------------------------
(in US $ per Share) (000's of Shares)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997 First Quarter $ 3.083 $ 1.031 $ 1.125 24,693
Second Quarter 1.25 0.359 0.469 17,726
Third Quarter 0.531 0.094 0.219 36,114
Fourth Quarter * 0.219 0.094 0.094 17,985
* From Oct. 1 to Dec. 5 - Repap was delisted on Dec. 5
- -------------------------------------------------------------------------------------------------------------------
1996 First Quarter $ 5.188 $ 3.75 $ 3.938 29,234
Second Quarter 4.75 3.547 3.813 26,333
Third Quarter 4.188 3.375 3.688 16,321
Fourth Quarter 4.313 2.719 2.781 27,700
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
LIQUIDITY
1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
TOTAL VOLUME (000'S OF SHARES) 670,689 194,771
Canada 574,071 95,183
United States 96,618 99,588
- -----------------------------------------------------------------------------------------------------------------
MONTHLY AVERAGE TRADING
VOLUME (000'S OF SHARES) 55,882 16,231
VALUE ($MILLIONS)(1) $ 24.0 $ 84.2
Based on weighted average share price on the Toronto Stock
Exchange (1997: $0.44; 1996: $8.19)(2)
- -----------------------------------------------------------------------------------------------------------------
MAJOR SHAREHOLDERS
AS AT FEBRUARY 28, 1998:
- -----------------------------------------------------------------------------------------------------------------
PUBLIC FLOAT(3) 530.7 71.4
Silverton International Fund Limited(4) 158.6 21.4
Paloma Partners L.L.C.(4) 53.2 7.2
- -----------------------------------------------------------------------------------------------------------------
TOTAL(5) 742.5 100.0
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Repap shares are no longer traded on the Vancouver Stock Exchange (as of
December 31, 1997) or on the NASDAQ National Market System (as of December 5,
1997). The tables include no trading statistics for NASDAQ subsequent to
December 5, 1997.
(2) See liquidity table.
(3) The public float includes 49.1 million shares owned by CIBCOppenheimer
Corp., representing 6.6 percent of outstanding shares.
(4) Silverton International Fund Limited and River Road (Canada) L.L.C. are
represented on Repap's Board of Directors.
(5) No dividends were paid on the common shares in 1996 and 1997.
31
<PAGE> 34
[REPAP LOGO]
GLOSSARY
ANNUAL ALLOWABLE CUT:
Average volume of timber which the holder of a Forest Licence
or a Tree Farm Licence is legally entitled to harvest in a designated managed
forest area during one year.
BASIS WEIGHT:
A measure of paper thickness and weight. The weight of a ream (500 sheets) of
paper of specific length and width.
BOARD FOOT:
One square foot of lumber, one inch thick.
CHEMICAL PULP:
Pulp produced by cooking wood chips in a pressure vessel (digester) in the
presence of certain chemicals to remove lignin and other wood chemicals.
COATED PAPER:
Paper which is coated with clay and usually supercalendered to produce a
glossy surface. The paper may be coated on only one side or on both sides.
COATED PAPER GRADES:
Paper can be coated on one side (C1S) or two sides (C2S). C2S is classified in
five "enamel numbers" in terms of brightness, gloss and pulp content with No. 1
being the top grade. Nos. 1 through 3 and about one-quarter of No. 4 are
freesheet papers while the other half of No. 4 and essentially all of No. 5 are
groundwood papers.
GROUNDWOOD COATED PAPER:
A term to describe paper where a major component is groundwood or mechanical
pulp. The chemical pulps such as kraft are used to provide sufficient strength
to enable the paper to run properly on high-speed paper machines and printing
presses.
GROUNDWOOD PULP:
A type of mechanical pulp produced by grinding.
INTEGRATED:
Generally refers to a company that produces the pulp it uses in papermaking. A
captive pulp company.
KRAFT PULP:
The principal type of chemical pulp, produced by an alkaline cooking process
and noted for its strength.
LIGHTWEIGHT COATED PAPER:
Groundwood coated paper in basis weights ranging from 30 to 45 pounds.
MARKET PULP:
Wood pulp produced by one company and sold to another in the open market.
MFBM:
One thousand foot board measures (board feet).
MMFBM:
One million foot board measures (board feet).
NORTHERN SOFTWOOD KRAFT PULP:
Kraft pulp produced from slow-growing northern softwood trees which commands a
premium price because it is stronger than southern softwood pulp.
SHORT TON OR TON:
2,000 pounds.
TIMBER LICENSE:
A license granted by a government providing for the management of a portion of
public forest for a period of years, and providing for the harvesting of a
certain volume of timber each year.
TONNE OR METRIC TON:
One metric ton, equal to 1,000 kilograms or approximately 2,205 pounds.
WOOD PULP:
Wood fibres produced from
solid wood for use in the production of paper, paperboard and other products.
CONVERSION TABLE:
- ---------------------------------
Imperial Metric
Measure System
- ---------------------------------
1 inch = 2.54 centimetres
- ---------------------------------
1 foot = 0.3048 metre
- ---------------------------------
1 yard = 0.9144 metre
- ---------------------------------
1 mile = 1.6093 kilometres
- ---------------------------------
1 acre = 0.4047 hectare
- ---------------------------------
1 short ton = 0.9072 tonne
- ---------------------------------
1 cubic yard = 0.7646 cubic
metre
- ---------------------------------
32
<PAGE> 35
[REPAP LOGO]
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------
William J. Anderson*
Bermuda
Chairman
Robert E. Bellamy *
Toronto, Ontario
Corporate Director
Guy G. Dufresne
Montreal, Quebec
Quebec Cartier Mining Company
President and Chief Executive Officer
Stephen C. Larson
New Canaan, Connecticut
President and Chief Executive Officer
David McAusland
Montreal, Canada
Byers Casgrain
Managing Partner
Robert Poile*
Greenwich, Connecticut
Director, Paloma Partners Mgmt. Co.
John R. Purcell
North Palm Beach, Florida
Chairman and Chief Executive Officer
Grenadier Associates Ltd
Senior Officers
Stephen C. Larson
President and Chief Executive Officer
Vice Presidents
Michelle A. Cormier
Vice President, Finance
Neil M. Falco
Vice President
Terry W. McBride
Vice President, General Counsel and
Secretary
* Member of Audit committee
OPERATING MANAGEMENT
REPAP NEW BRUNSWICK INC.
David T. Nelligan
Vice President, Administration
(Interim General Manager)
REPAP MARKETING INC.
Neil M. Falco
President
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
ANNUAL MEETING:
The Annual Meeting of
Shareholders will be held
Wednesday, May 20, 1998
at 10:30 a.m. at:
Sheraton Center Toronto
Essex Ballroom
123 Queen Street W.
Toronto, Ontario
H5H 2M9
SHARE INFORMATION:
The Corporation's Common Shares are traded on the Toronto Stock Exchange and the
Montreal Exchange. The stock market symbol is RPP.
TRANSFER AGENT AND REGISTRAR:
Montreal Trust Company
1800 McGill College Ave.
7th Floor
Montreal, Quebec
H3A 3K9
AUDITORS:
Ernst & Young
1 Place Ville Marie
Suite 2400
Montreal, Quebec
H3B 3M9
SOLICITORS:
Canada
Stikeman Elliott
1155 Rene-Levesque Blvd. West
Suite 3900
Montreal, Quebec
H3B 3V2
Gowling, Strathy & Henderson
160 Elgin Street, Suite 2600
Ottawa, Ontario
K1N 8S3
United States
Sullivan & Cromwell
125 Broad Street
32nd Floor
New York, New York
U.S.A. 10004
VERSION FRANCAISE:
Pour obtenir la version francaise
de ce rapport, il suffit d'ecrire au :
Secretaire
Les Entreprises Repap
300 Atlantic Street
Suite 200
Stamford, CT 06901
- --------------------------------------------------------------------------------
EXECUTIVE OFFICES:
- --------------------------------------------------------------------------------
REPAP ENTERPRISES INC.
300 Atlantic Street
Suite 200
Stamford, CT 06901
Tel: 203-964-6160
Fax: 203-964-6175
<PAGE> 36
[REPAP LOGO]
REPAP ENTERPRISES INC.
300 Atlantic Street
Suite 200
Stamford, CT 06901
United States
PRINTED IN CANADA
[RECYCLED PAPER LOGO]
THIS ANNUAL REPORT IS RECYCLABLE.
<PAGE> 1
EXHIBIT 21.1
March 3, 1998
REPAP ENTERPRISES INC. & SUBSIDIARIES
REPAP ENTERPRISES INC.
Incorporated under the laws of Canada
(formerly Repap Enterprises Corporation Inc.
formerly Quinsprack Limited)
ALCELL TECHNOLOGIES INC.
Continued under the laws of the Province of New Brunswick
(formerly Alcell Developments Inc.
formerly 155945 Canada Inc.)
BLACKVILLE LUMBER INC.
Incorporated under the laws of the Province of New Brunswick
BLACKVILLE LUMBER PARTNERSHIP
Formed under the laws of the Province of New Brunswick
Partners: Miramichi Pulp & Paper Inc. (99.99%)
Newcastle Coated Paper Inc. (0.01%)
(formerly Miramichi Paper Partnership)
NEWCASTLE COATED PAPER INC.
Incorporated under the laws of Canada
(formerly 161183 Canada Inc.)
REPAP CONSTRUCTION INC.
Continued under the laws of the Province of New Brunswick
(formerly Repap Ferrostaal Inc. )
(formerly Repap Development Corp.)
REPAP MARKETING INC.
Incorporated under the laws of the State of Delaware
(formerly Green Forest Corporation, into which was merged the original Repap
Ferrostaal (U.S.A.) Inc.)
(formerly Repap Ferrostaal (U.S.A.)
(formerly Repap Development Inc.)
REPAP NEW BRUNSWICK INC.
Incorporated under the laws of Canada
(formerly Miramichi Pulp & Paper Inc.,)
(formerly Acadia Forest Products Limited)
(formerly Aidaca Pulp & Paper Limited)
REPAP TECHNOLOGIES INC.
Incorporated under the laws of the State of Delaware
(formerly Biological Energy Corporation)
2
<PAGE> 1
EXHIBIT 23.1 -- CONSENT OF INDEPENDENT CHARTERED ACCOUNTANT
We consent to the incorporation by reference in this Annual Report (Form
10-K) of Repap Enterprises Inc. of our report dated January 21, 1998, except for
Note 25 which is as at February 20, 1998, and our comments by auditors for U.S.
readers on Canada-U.S. reporting differences dated January 21, 1998, included in
the 1997 Annual Report to Shareholders of Repap Enterprises Inc.
Our audit also included the financial statements schedules of Repap
Enterprises Inc. listed in Item 14(a). These schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Montreal, Canada,
January 21, 1998. Chartered Accountants
3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and consolidated statement of operations and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 43
<SECURITIES> 0
<RECEIVABLES> 80
<ALLOWANCES> 0
<INVENTORY> 66
<CURRENT-ASSETS> 189
<PP&E> 1,408
<DEPRECIATION> 400
<TOTAL-ASSETS> 1,398
<CURRENT-LIABILITIES> 302
<BONDS> 927
0
16
<COMMON> 640
<OTHER-SE> (674)
<TOTAL-LIABILITY-AND-EQUITY> 1,398
<SALES> 520
<TOTAL-REVENUES> 610
<CGS> 416
<TOTAL-COSTS> 524
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118
<INCOME-PRETAX> (121)
<INCOME-TAX> 2
<INCOME-CONTINUING> (123)
<DISCONTINUED> 74
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (64)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
