EXHIBIT 10.15
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STOCK PURCHASE AND REDEMPTION AGREEMENT
dated as of October 14, 1999
by and among
GENSTAR CAPITAL PARTNERS II, X.X.
XXXXXXX XX LLC
XXXXXX X. XXXXXX, XX.
(the "Shareholders"),
PANOLAM ACQUISITION COMPANY, L.L.C.
(the "Purchaser")
and
PANOLAM INDUSTRIES HOLDINGS, INC.
(the "Company")
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS............................................................................. 2
SECTION 1.1 Certain Definitions.............................................................. 2
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SECTION 1.2 Certain Additional Definitions................................................... 7
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ARTICLE II PURCHASE AND SALE OF COMPANY CAPITAL STOCK AND REDEMPTION OF REDEEMED SHARES........... 9
SECTION 2.1 Purchase and Sale of Company Common Stock........................................ 9
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SECTION 2.2 Cancellation of Company Options.................................................. 9
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SECTION 2.3 Redemption of Redeemed Shares.................................................... 10
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SECTION 2.4 Negotiation of New Credit Facility............................................... 10
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SECTION 2.5 The Closing; Closing Deliveries.................................................. 10
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SECTION 2.6 No Further Ownership Rights in Redeemed Shares or Company Options................ 12
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SECTION 2.7 Lost Share Certificates.......................................................... 12
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.................................... 12
SECTION 3.1 Authority........................................................................ 13
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SECTION 3.2 Organization..................................................................... 13
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SECTION 3.3 Ownership of Shares.............................................................. 13
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SECTION 3.4 Conflicts........................................................................ 14
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SECTION 3.5 Consents, Approvals, Etc......................................................... 14
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SECTION 3.6 Brokers.......................................................................... 14
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS..................... 14
SECTION 4.1 Authority........................................................................ 15
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SECTION 4.2 Organization..................................................................... 15
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SECTION 4.3 Company Capital Stock............................................................ 15
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SECTION 4.4 Company Subsidiaries............................................................. 17
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SECTION 4.5 Conflicts........................................................................ 18
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SECTION 4.6 Consents, Approvals, Etc......................................................... 19
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SECTION 4.7 Financial Statements; SEC Reports................................................ 19
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SECTION 4.8 Undisclosed Liabilities.......................................................... 20
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SECTION 4.9 Certain Changes or Events........................................................ 20
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SECTION 4.10 Tax Matters...................................................................... 21
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SECTION 4.11 Litigation and Governmental Orders............................................... 23
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SECTION 4.12 Compliance with Laws............................................................. 23
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SECTION 4.13 Permits, Licenses, Governmental Authorizations, Etc.............................. 23
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SECTION 4.14 Tangible Property................................................................ 24
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SECTION 4.15 Intellectual Property............................................................ 24
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SECTION 4.16 Certain Contracts................................................................ 26
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SECTION 4.17 Employee Benefit Matters......................................................... 27
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SECTION 4.18 Labor Matters.................................................................... 29
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SECTION 4.19 Environmental Matters............................................................ 29
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SECTION 4.20 Insurance........................................................................ 30
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SECTION 4.21 Transactions with Affiliates..................................................... 30
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SECTION 4.22 Year 2000 Compliance............................................................. 30
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SECTION 4.23 Distributors and Suppliers....................................................... 30
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SECTION 4.24 Product Warranties; Product Recalls.............................................. 31
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SECTION 4.25 Products Liability............................................................... 31
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SECTION 4.26 Antitrust........................................................................ 32
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SECTION 4.27 Brokers; Fees and Expenses....................................................... 32
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SECTION 4.28 Prior Agreements................................................................. 32
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ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE PURCHASER......................................... 33
SECTION 5.1 Authority........................................................................ 33
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SECTION 5.2 Organization..................................................................... 34
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SECTION 5.3 Conflicts........................................................................ 34
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SECTION 5.4 Consents, Approvals, Etc......................................................... 34
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SECTION 5.5 Litigation and Governmental Orders............................................... 34
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SECTION 5.6 Financing........................................................................ 35
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SECTION 5.7 Investment Intent................................................................ 35
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SECTION 5.8 Due Diligence Investigation...................................................... 35
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SECTION 5.9 Brokers.......................................................................... 36
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SECTION 5.10 Solvency......................................................................... 36
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ARTICLE VI ADDITIONAL AGREEMENTS.................................................................. 36
SECTION 6.1 No Solicitation.................................................................. 36
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SECTION 6.2 Conduct of the Company Prior to Closing.......................................... 37
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SECTION 6.3 Conduct of the Purchaser Prior to Closing........................................ 39
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SECTION 6.4 Access to Information............................................................ 39
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SECTION 6.5 Confidentiality.................................................................. 40
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SECTION 6.6 Efforts; Consents; Regulatory and Other Authorizations; Financing................ 40
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SECTION 6.7 Further Action................................................................... 41
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SECTION 6.8 Indemnification; Officers' and Directors' Insurance.............................. 41
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SECTION 6.9 Books and Records................................................................ 43
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SECTION 6.10 Termination of Certain Agreements; Continuation of Engagement Agreement.......... 43
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SECTION 6.11 No Solicitation.................................................................. 43
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SECTION 6.12 Tax Matters...................................................................... 43
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ARTICLE VII CONDITIONS TO CLOSING................................................................. 44
SECTION 7.1 Conditions to Obligations of the Shareholders and the Company.................... 44
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SECTION 7.2 Conditions to Obligations of the Purchaser....................................... 45
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ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER.................................................... 47
SECTION 8.1 Termination...................................................................... 47
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SECTION 8.2 Effect of Termination............................................................ 48
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ARTICLE IX SURVIVAL AND INDEMNIFICATION........................................................... 48
SECTION 9.1 Survival of Representations, Warranties and Covenants............................ 48
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SECTION 9.2 Indemnification of the Purchaser................................................. 49
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SECTION 9.3 Intentionally Omitted............................................................ 50
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SECTION 9.4 Indemnification of the Shareholders; Defense of Claims........................... 50
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SECTION 9.5 Claims for Indemnification....................................................... 50
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SECTION 9.6 Defense by Indemnifying Party.................................................... 51
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SECTION 9.7 Pledge of Shareholder Notes; Manner of Indemnification........................... 52
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SECTION 9.8 Limitations on Indemnification................................................... 54
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ARTICLE X GENERAL PROVISIONS...................................................................... 56
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SECTION 10.1 Expenses......................................................................... 56
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SECTION 10.2 Costs and Attorneys' Fees........................................................ 57
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SECTION 10.3 Notices.......................................................................... 57
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SECTION 10.4 Public Announcements............................................................. 58
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SECTION 10.5 Interpretation................................................................... 58
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SECTION 10.6 Severability..................................................................... 59
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SECTION 10.7 Entire Agreement................................................................. 59
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SECTION 10.8 Assignment....................................................................... 59
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SECTION 10.9 No Third Party Beneficiaries..................................................... 59
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SECTION 10.10 Waivers and Amendments........................................................... 60
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SECTION 10.11 Equitable Remedies............................................................... 60
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SECTION 10.12 Governing Law; Consent to Jurisdiction........................................... 60
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SECTION 10.13 WAIVER OF JURY TRIAL............................................................. 61
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SECTION 10.14 Exclusivity of Representations and Warranties.................................... 61
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SECTION 10.15 Counterparts..................................................................... 61
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EXHIBIT 2.2 Consideration Spreadsheet........................................................
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EXHIBIT 2.3 Schedule of Options..............................................................
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EXHIBIT 2.3A Junior Subordinated Notes Term Sheet.............................................
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EXHIBIT 7.1(f) Form of Stockholders Agreement...................................................
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EXHIBIT 7.1(i) Form of Opinion of Xxxxxx Xxxx & Xxxxxxxx LLP....................................
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EXHIBIT 7.2(f) Employment Agreement Term Sheet..................................................
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EXHIBIT 7.2(g) Form of Opinion of Xxxxxx & Xxxxxxx..............................................
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STOCK PURCHASE AND REDEMPTION AGREEMENT
THIS STOCK PURCHASE AND REDEMPTION AGREEMENT (as amended from time to time
pursuant to the terms hereof, this "Agreement") is made and entered into as of
October 14, 1999 by and among Genstar Capital Partners II, L.P. ("Genstar"), a
Delaware limited partnership, StarGen II LLC, a Delaware limited liability
company ("Stargen"), and Xxxxxx X. Xxxxxx, Xx. (together with Genstar and
Stargen, the "Shareholders"), Panolam Acquisition Company, L.L.C., a Delaware
limited liability company (the "Purchaser"), and Panolam Industries Holdings,
Inc., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Shareholders collectively own all of the issued and
outstanding shares of Class A Common Stock, par value $0.01 per share, of the
Company, comprising all of the issued and outstanding shares of capital stock of
the Company.
WHEREAS, the Purchaser desires to purchase shares from the Shareholders and
to purchase newly issued shares from the Company, so that the aggregate number
of shares of capital stock of the Company held by the Purchaser, after the
Redemption (as defined herein), will represent approximately 93.1% of the issued
and outstanding shares of capital stock of the Company, upon the terms and
subject to the conditions set forth herein (such transactions sometimes being
referred to herein as the "Share Purchases").
WHEREAS, the Company desires to consummate the Share Purchases and to
redeem (the "Redemption") simultaneously with the Share Purchases such number of
issued and outstanding shares of capital stock of the Company owned or held of
record, or to be owned or held of record, by each of the Shareholders,
respectively, as are set forth on Exhibit 2.3 hereto under the caption "Number
of Shares Redeemed for Note" (the "Redeemed Shares").
WHEREAS, the Shareholders desire to have the Company effect the Redemption.
WHEREAS, the issued and outstanding shares of capital stock of the Company
as are set forth on Exhibit 2.3 hereto under the caption "Roll-Over Equity"
shall not be redeemed in the Redemption, but shall remain outstanding after the
Share Purchases and the Redemption (the "Retained Shares").
WHEREAS, it is intended that the Share Purchases be accounted for as a
recapitalization for financial reporting purposes.
WHEREAS, upon the terms and subject to the conditions set forth herein, in
connection with the Share Purchases, the Company, the Shareholders and the
Purchaser desire to cancel, or cause to be canceled, all outstanding options,
warrants and other rights to purchase or otherwise acquire shares of capital
stock of the Company, whether vested or unvested, in exchange for the
consideration set forth herein.
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AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants, promises and agreements hereinafter set forth, the mutual benefits to
be gained by the performance thereof, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged and
accepted, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Certain Definitions. As used in this Agreement, the
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following terms shall have the following respective meanings:
"Acquisition Date" means, with respect to the Company and each Company
Subsidiary (other than Pioneer Plastics Corporation), the respective date on
which the Shareholders acquired control of the Company or such Company
Subsidiary, or in the case of Pioneer Plastics Corporation, July 17, 1998.
"Action" means any claim, action, suit or proceeding, arbitral action,
governmental inquiry, criminal prosecution or other investigation.
"Affiliate" means, when used with respect to a specified Person, another
Person that either directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the Person
specified.
"Business" means the business and operations of the Company and the Company
Subsidiaries, as conducted as of the date hereof by the Company and the Company
Subsidiaries and, with respect to a Predecessor, the business and operations as
conducted by such Predecessor.
"Business Day" means any day that is not a Saturday, Sunday or other day on
which banks are required or authorized by Law to be closed in the State of New
York.
"Carlyle Affiliate" means the (i) Purchaser, (ii) any Person that controls,
is controlled by or is under common control with the Purchaser, including any of
the Purchaser's members or any other corporation, limited liability company,
limited partnership or other entity directly or indirectly controlled by TC
Group, L.L.C. or CEP General Partner L.P. or any partner or any member of a
Carlyle Affiliate or (iii) any entity that is controlled by one or more of the
persons who control TC Group, L.L.C.
"Company Capital Stock" means the authorized capital stock of the Company.
"Company Class A Common Stock" means the authorized Class A Common Stock,
par value $0.01 per share, of the Company.
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"Company Common Stock" means the authorized Common Stock, par value $0.01
per share, of the Company.
"Company Employee" means each employee of the Company or any Company
Subsidiary.
"Company Option Plan" means the Panolam Industries Holdings, Inc. 1996
Equity Incentive Plan.
"Company Options" means all outstanding options, warrants and other rights
to purchase or otherwise acquire shares of Company Common Stock, whether vested
or unvested.
"Confidentiality Agreement" means the letter agreement, dated as of June
16, 1999, between The Carlyle Group and Warburg Dillon Read LLC, on behalf of
the Company and the Company Subsidiaries.
"Contract" means any currently enforceable contract, agreement, indenture,
note, bond, loan, instrument, lease, conditional sales contract, mortgage,
license, franchise agreement, binding commitment or other arrangement, whether
written or oral.
"DGCL" means the General Corporation Law of the State of Delaware.
"Encumbrance" means any security interest, pledge, mortgage, lien, charge,
adverse claim of ownership or use, restriction on transfer (such as a right of
first refusal or other similar rights), defect of title, or other encumbrance of
any kind or character.
"Engagement Agreement" means that certain letter agreement, dated January
24, 1999 between Panolam Industries International and Genstar Capital LLC
relating to a negotiation fee payable in connection with the acquisition by the
Company of Pioneer Plastics Corporation from Rugby.
"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, causes of action, demands, demand letters, claims,
liens, notices of non-compliance or violations, investigations, proceedings,
consent orders or consent or settlement agreements relating in any way to any
Environmental Law or any License required under any Environmental Law to the
extent arising out of any action, inaction, event, condition, liability or
obligation of the Company or any Predecessor or any Company Subsidiary occurring
or existing prior to the Closing, whether or not disclosed on the Company
Disclosure Schedule or otherwise known by the Purchaser or the Company or any
Company Subsidiary.
"Environmental Law" means any Law pertaining to land use, air, soil,
surface water, groundwater (including the protection, cleanup, removal,
remediation or damage thereof), public or employee health or safety or any other
environmental matter, including the following laws as in effect on the Closing
Date: (i) Clean Air Act (42 U.S.C. (S)7401, et seq.); (ii) Clean Water Act (33
U.S.C. (S)1251, et seq.); (iii) Resource Conservation and Recovery Act (42
U.S.C. (S)6901, et seq.); (iv) Comprehensive Environmental Resource Compensation
and Liability Act (42 U.S.C.
3
(S)9601, et seq.); (v) Safe Drinking Water Act (42 U.S.C. (S)300f, et seq.);
(vi) Toxic Substances Control Act (15 U.S.C. (S)2601, et seq.); (vii) Rivers and
Harbors Act (33 U.S.C. (S)401, et seq.); (viii) Endangered Species Act (16
U.S.C. (S)1531, et seq.); and (ix) Occupational Safety and Health Act (29 U.S.C.
(S)651, et seq.); and (ix) any other Laws relating to Hazardous Materials or
Hazardous Materials Activities.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, any successor statute thereto, and the rules and regulations
promulgated thereunder.
"GAAP" means generally accepted accounting principles in the United States.
"Governmental Authority" means any government, any governmental entity,
department, commission, board, agency or instrumentality, and any court,
tribunal, or judicial body, whether federal, state, county, local or foreign.
"Governmental Order" means any statute, rule, regulation, order, judgment,
injunction, decree, stipulation or determination issued, promulgated or entered
by or with any Governmental Authority of competent jurisdiction.
"Hazardous Material" means any material or substance that is prohibited or
regulated by any Environmental Law or that has been designated by any
Governmental Authority to be radioactive, toxic, hazardous or otherwise a danger
to health, reproduction or the environment, including asbestos, petroleum, radon
gas, and radioactive matter.
"Hazardous Materials Activity" means the handling, transportation,
transfer, recycling, storage, use, treatment, manufacture, disposal, generation,
recycling, investigation, removal, remediation, release, exposure of others to,
sale, or distribution of any Hazardous Material or any product containing a
Hazardous Material.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976,
as amended, any successor statute thereto, and the rules and regulations
promulgated thereunder.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, any successor statute thereto, and the rules and regulations
promulgated thereunder.
"IRS" means the United States Internal Revenue Service, and any successor
agency thereto.
"Knowledge of the Company" or "known to the Company" and any other phrases
of similar import means, with respect to any matter in question relating to the
Company, if any of Xxxxxx X. Xxxxxx, Xx., the President and Chief Executive
Officer of the Company, Xxxx X. Xxxxxx, the Company's Director of Finance, Xxxx-
Xxxxxx Xxxxx, Xxxxxxx X. Xxxxxxxx or Xxxxxxx X. Xxxxxxx, directors of the
Company, has actual knowledge of such matter after reasonable inquiry.
"Law" means any federal, state, county, local or foreign statute, law,
ordinance, regulation, rule, code, order or rule of common law.
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"Liability" means any and all debts, liabilities and obligations of any
kind or nature, whether accrued or fixed, absolute or contingent, matured or
unmatured, or determined or determinable.
"License" means any license, permit and other governmental authorization
required for the operation of the Business as conducted by the Company and the
Company Subsidiaries.
"Loss" means any Liability, loss, damage, claim, cost or expense, including
attorneys' fees and expenses, and disbursement and settlement costs.
"Management Services Agreement" shall mean the Amended and Restated
Management Advisory and Consulting Agreement amended and restated as of January
24, 1999 among the Company, Panolam Industries, Ltd. and Genstar Capital LLC.
"Material Adverse Effect" or "Material Adverse Change" means any effect or
change that, individually or in the aggregate, is materially adverse to the
operations, business, financial condition or results of operations of the
Company and the Company Subsidiaries, taken as a whole, except for any such
effects or changes resulting directly or indirectly from (i) the announcement or
performance of the transactions contemplated by this Agreement, (ii) regulatory
changes, (iii) changes in the industries in which the Company and the Company
Subsidiaries operate and not specifically related to the Company, Company
Subsidiaries or the Purchaser, or (iv) changes in general economic conditions or
the securities markets generally.
"Notes" means the $135,000,000 principal amount 11-1/2% Senior Subordinated
Notes due 2009 issued by Panolam Industries on February 18, 1999.
"Panolam Industries" means Panolam Industries International, Inc., a
Delaware corporation and an indirect, wholly-owned subsidiary of the Company.
"Permitted Encumbrances" means (i) all statutory or other liens for Taxes
or assessments which are not yet due or delinquent or the validity of which are
being contested in good faith by appropriate proceedings for which adequate
reserves are being maintained on the Current Balance Sheet in accordance with
GAAP, (ii) all cashiers', landlords', workmen's and repairmen's, warehousemen's
and carriers' liens and other similar liens imposed by law, incurred in the
ordinary course of business, (iii) all Laws and Governmental Orders, (iv) all
leases, subleases, licenses, concessions or service contracts to which any
Person or any of its Subsidiaries is a party, (v) Encumbrances identified on
title policies or preliminary title reports or other documents or writings
included in the public records, (vi) Encumbrances securing the Senior Debt and
(vii) all other liens and mortgages, covenants, imperfections in title, charges,
easements, restrictions and other Encumbrances which, in the case of any such
Encumbrances pursuant to the foregoing clauses (i) through (vi), do not
materially detract, individually or in the aggregate, from the value of,
materially interfere with, or otherwise affect the present use and enjoyment of
the asset or property subject thereto or affected thereby.
"Person" means any individual, general or limited partnership, firm,
corporation, limited liability company, association, trust, unincorporated
organization or other entity, as well as any
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syndicate or group that would be deemed to be a person under Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended, any successor statutes thereto,
and the rules and regulations promulgated thereunder.
"Pioneer Agreement" means the Stock Purchase Agreement and related
agreements dated as of July 17, 1998 by and between P-II Third, Inc., a Delaware
corporation and an indirect, wholly-owned subsidiary of the Company, and Rugby.
"Predecessor" means a predecessor in interest to the Business.
"Proprietary Rights" means (i) United States and foreign patents, patent
applications, patent disclosures and improvements thereto, including any
continuations, continuations in part, renewals and applications for any of the
foregoing ("Patents"), (ii) United States and foreign trademarks, service marks,
trade dress, logos, trade names, corporate names, designs and general
intangibles of like nature, together with all the goodwill associated therewith,
and the registrations and applications for registration thereof ("Trademarks"),
(iii) United States and foreign copyrights, and the registrations and
applications for registration thereof ("Copyrights"), (iv) computer software,
(v) computer databases, (vi) works of authorship, (vii) mask works, (viii)
technology, and (ix) trade secrets and other confidential information, know-how,
proprietary processes, formulae, algorithms, models, user interfaces, customer
lists, inventions, discoveries, concepts, ideas, techniques, methods, source
codes, object codes, methodologies and, with respect to all of the foregoing,
related confidential data or information (collectively, "Trade Secrets").
"Rugby" means Rugby U.S.A., Inc., a Georgia corporation.
"SEC" means the United States Securities and Exchange Commission, and any
successor agency thereto.
"Securities Act" means the Securities Act of 1933, as amended, any
successor statute thereto, and the rules and regulations promulgated thereunder.
"Senior Debt" means all indebtedness outstanding under (i) that certain
$75,000,000 Credit Agreement, dated as of February 18, 1999, entered into among
Panolam Industries International, Inc., a Delaware corporation, as the Borrower,
the financial institutions and other entities listed on the signature pages
thereto, as Initial Lenders, DLJ Capital Funding, Inc., for itself as an Initial
Lender and as Syndication Agent, Credit Suisse First Boston, for itself as an
Initial Lender and as Administrative Agent, and Royal Bank of Canada, for itself
as an Initial Lender and as Documentation Agent, as amended, and (ii) the
US$15,000,000 Senior Secured Revolving Credit Facility and US$50,000,000 Senior
Secured Term Credit Facilities provided under that certain US$65,000,000 Credit
Agreement, dated as of February 18, 1999, among Panolam Industries Ltd., an
Ontario corporation, as the Borrower, the other Loan Parties signatory thereto,
the financial institutions and other entities listed on the signature pages
thereof, as Initial Lenders, Credit Suisse First Boston Canada, for itself as an
Initial Lender and as Administrative Agent, and Royal Bank of Canada, for itself
as an Initial Lender and as Documentation Agent, as amended.
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"Subsidiary" means, with respect to a Person, any other Person in which
such Person has a direct or indirect equity or other ownership interest in
excess of fifty percent (50%).
"Tax" or "Taxes" means any federal, state, local or foreign income, gross
receipts, sales, use, employment, franchise, profits, property, capital stock,
premium, minimum and alternative minimum or other taxes, fees stamp taxes and
duties, assessments or charges of any kind whatsoever (whether payable directly
or by withholding), together with any interest and any penalties, additions to
tax or additional amounts imposed by the IRS or any other Governmental Authority
with respect thereto.
"Tax Return" means a report, return, declaration, claim for refund, or
other information, return or statement relating to Taxes, including any schedule
or attachment thereto, and including any amendment thereof, required to be filed
with, or supplied to, the IRS or any other Governmental Authority with respect
to any Tax.
SECTION 1.2 Certain Additional Definitions. As used in this Agreement, the
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following terms shall have the respective meanings ascribed thereto in the
respective sections of this Agreement set forth opposite each such term below:
Term Section
Aggregate Share Purchase Price 2.1(b)
Aggregate Option Purchase Price 2.2(b)
Agreement Preamble
Antitrust Matter 4.26
Antitrust Losses 9.8(c)
Audited Company Financial Statements 4.7(a)
Balance Sheet Date 4.7(a)
Bank Facility 2.4
Closing 2.5(a)
Closing Date 2.5(a)
Company Preamble
Company Benefit Plan(s) 4.17(a)
Company Bylaws 4.2
Company Certificate of Incorporation 4.2
Company Disclosure Schedule Article IV Preamble
Company Financial Statements 4.7(a)
Company Indemnified Parties 6.8(a)
Company Subsidiary(ies) 4.4(a)
Company Subsidiary Shares 4.4(a)
Counter Indemnification Notice 9.7(c)
Current Balance Sheet 4.7(a)
Domtar Industries 6.10
Domtar Stockholders' Agreement 6.10
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Term Section
DOJ 4.26
Environmental Losses 9.8(b)
Equity Funds 5.6
Financing Commitment 5.6
Form S-4 4.7(b)
Indemnification Notice 9.7(c)
Leased Real Property 4.14(a)
Leases 4.14(c)
Listed Contract(s) 4.16(a)
New Share Certificate 2.5(b)
New Share Purchase Price 2.1(b)
Newly Issued Shares 2.1(c)
Occurrence 4.25
Option Agreement 6.10
Optionholder(s) 2.2(a)
Option Purchase Price 2.2(b)
Owned Real Property 4.14(a)
Purchaser Preamble
Purchased Shares 2.1(a)
Purchaser Disclosure Schedule Article V Preamble
Redeemed Shares Recitals
Redeemed Share Certificate(s) 2.5(d)
Redemption Recitals
Redemption Price 2.3(b)
Repayment 2.4
Response Activities 9.8(c)
Retained Shares Recitals
Retrofits 4.25
Shareholders Preamble
Shareholder Notes 2.3(b)
Shareholders Disclosure Schedule Article III Preamble
Share Certificate(s) 2.5(d)
Share Purchases Recitals
Stock Option Agreement 6.10
Stockholders Agreement 7.1(f)
Tax Matters 9.2
Unaudited Company Financial Statements 4.7(a)
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ARTICLE II
PURCHASE AND SALE OF COMPANY CAPITAL STOCK
AND REDEMPTION OF REDEEMED SHARES
SECTION 2.1 Purchase and Sale of Company Common Stock.
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(a) Upon the terms and subject to the conditions set forth herein, at
the Closing, the Purchaser shall purchase from the Shareholders, and the
Shareholders shall sell to the Purchaser, an aggregate of 105,894.4 shares of
Company Class A Common Stock (collectively, the "Purchased Shares"), free and
clear of all Encumbrances.
(b) As consideration for the purchase and sale of the Purchased
Shares pursuant to Section 2.1(a) hereof, at the Closing, the Purchaser shall
deliver and pay to the Shareholders (in the amounts set forth on Exhibit 2.3) an
aggregate in cash of an amount equal to (i) One Hundred Forty-Eight Million
Dollars ($148,000,000) less (ii) Eleven Million Six Hundred Thirteen Thousand
Nine Hundred Seventy-Four Dollars ($11,613,974) (the "New Share Purchase Price"
and such net amount being referred to herein as the "Aggregate Share Purchase
Price").
(c) Upon the terms and subject to the conditions set forth herein, at
the Closing, the Purchaser will purchase from the Company, and the Company will
sell to the Purchaser, as aggregate of 9.017.5shares of Company Class A Common
Stock (collective the "Newly Issued Shares"), free and clear of all
Encumbrances. The purchase price for the Newly Issued Shares purchased by the
Company shall be an amount equal to the amount equal to the New Share Purchase
Price of $11,613,974.
SECTION 2.2 Cancellation of Company Options.
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(a) Upon the terms and subject to the conditions set forth herein,
the Board of Directors of the Company shall adopt resolutions to the effect that
each outstanding Company Option shall become exercisable in full immediately
prior to the Closing and, effective upon the Closing, shall be cancelled,
retired and extinguished and upon the cancellation thereof, each holder of a
Company Option (each, an "Optionholder" and, collectively, the "Optionholders")
shall cease to have any rights with respect thereto, except the right to receive
the Option Purchase Price payable with respect thereto pursuant to Section
2.2(b) hereof.
(b) As consideration for the cancellation of all Company Options
pursuant to Section 2.2(a) hereof, at the Closing, the Company shall distribute
to each Optionholder an amount in cash equal to the product obtained by
multiplying (x) the aggregate number of shares of Company Common Stock issuable
upon the exercise in full of each Company Option held by such Optionholder, by
(y) the excess of (A) the $1,287.94, over (B) the exercise price per share of
each such Company Option. The amount of cash payable in respect of each Company
Option by the Company to the Optionholder thereof pursuant to this Section
2.2(b) shall be referred to herein as the "Option Purchase Price." The aggregate
amount of cash payable by the Company to all of the Optionholders pursuant to
this Section 2.2(b) shall be $8,613,974 (the "Aggregate Option Purchase Price").
9
(c) The name of each Optionholder, the aggregate number of shares of
Company Common Stock issuable upon the exercise in full of each Company Option
held by such Optionholder, the per share exercise price of each such Company
Option, and the consideration payable by the Company in exchange for the
cancellation thereof pursuant to the terms and conditions of this Section 2.2
are set forth on Exhibit 2.2 hereto.
SECTION 2.3 Redemption of Redeemed Shares.
-----------------------------
(a) Upon the terms and subject to the conditions set forth herein, at
the Closing, each Shareholder shall sell to the Company, and the Company shall
purchase and redeem from Genstar and Stargen, the number of Redeemed Shares set
forth opposite such Shareholder's name on Exhibit 2.3 hereto under the caption
"Number of Shares Redeemed for Note." The Redeemed Shares are an aggregate of
14,752.2 shares of Company Class A Common Stock.
(b) As consideration for the sale and redemption of the Redeemed
Shares pursuant to Section 2.3(a) hereof, at the Closing, the Company shall
deliver and pay to the Shareholders junior subordinated notes of the Company
(each, a "Shareholder Note" and, collectively, the "Shareholder Notes," and,
together with the Cash Redemption Consideration, the "Redemption Price"), with
the terms set forth in Exhibit 2.3A hereto, having an aggregate principal amount
of Nineteen Million Dollars ($19,000,000). The Redeemed Shares delivered to the
Company at the Closing shall thereafter be canceled and held as treasury shares
or retired and no longer be outstanding.
(c) Exhibit 2.3 hereto sets forth the name of each Shareholder, the
number of Purchased Shares and the number of Redeemed Shares held of record by
each such Shareholder as of the date hereof, the amount of the Aggregate Share
Purchase Price payable by the Purchaser to each of the Shareholders in exchange
for the Purchased Shares pursuant to Section 2.1(b) hereof, the aggregate
principal amount of each Shareholder Note issuable as consideration for the
Redeemed Shares pursuant to Section 2.3(b) hereof, and the number of Retained
Shares held of record by each such Shareholder.
SECTION 2.4 Negotiation of New Credit Facility. Prior to the Closing, the
----------------------------------
Purchaser shall use commercially reasonable efforts to negotiate the terms of a
senior credit facility to be entered into by the Company or a Company Subsidiary
(the "Bank Facility") that will replace all outstanding Senior Debt. The closing
of the Bank Facility and the repayment of the Senior Debt (the "Repayment")
shall occur concurrently with the Share Purchases and the Redemption.
SECTION 2.5 The Closing; Closing Deliveries.
-------------------------------
(a) The consummation of the Share Purchases, the Redemption and the
other transactions contemplated hereby shall take place at a closing (the
"Closing") to be held at 10:00 a.m., Washington time, on a date to be designated
by the Shareholders, the Purchaser and the Company, which date shall be no later
than the second (2nd) Business Day after satisfaction or, if permissible
pursuant to the terms hereof, waiver of the conditions set forth in Article VII
hereof
10
(the "Closing Date"), at the offices of Xxxxxx & Xxxxxxx, 0000 Xxxxxxxxxxxx
Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000, unless another time, date or place is
mutually agreed upon in writing by the Shareholders, the Purchaser and the
Company.
(b) At the Closing, the Company shall deliver, or cause to be
delivered, the following:
(i) to each of Genstar and Stargen, a Shareholder Note
issuable to each such Shareholder pursuant to Section 2.3 hereof and in the
principal amount set forth on Exhibit 2.3 hereto;
(ii) to the Purchaser, a certificate representing the Newly
Issued Shares (the "New Share Certificate"); and
(iii) all other certificates, instruments and other documents
required to be delivered by the Company on or before the Closing pursuant to
this Agreement, including the certificates, instruments and other documents
referred to in Section 7.2 hereof, or as may reasonably be requested by the
Purchaser in order to consummate the transactions contemplated hereby.
(c) At the Closing, the Purchaser shall deliver, or cause to be
delivered, the following:
(i) to each Shareholder, that portion of the Aggregate Share
Purchase Price payable to each such Shareholder pursuant to Section 2.1(b)
hereof and in the amount set forth on Exhibit 2.3 hereto, payable by certified
or cashier's check, or by wire transfer of immediately available funds to an
account designated by each such Shareholder in writing at least one (1) day
prior to the Closing Date;
(ii) to the Company, the New Share Purchase Price; and
(iii) all other certificates, instruments and other documents
required to be delivered by the Purchaser on or before the Closing pursuant to
this Agreement, including the certificates, instruments and other documents
referred to in Section 7.1 hereof, or as may reasonably be requested by the
Company or the Shareholders in order to consummate the transactions contemplated
hereby.
(d) At the Closing, the Shareholders shall deliver, or cause to be
delivered, the following:
(i) to the Purchaser, certificates representing the Shares
(each a "Share Certificate" and collectively the "Share Certificates"), duly
endorsed or accompanied by stock powers duly endorsed in blank with any required
transfer stamp affixed thereto;
(ii) to the Company, certificates representing the Redeemed
Shares (each a "Redeemed Share Certificate" and collectively the "Redeemed Share
Certificates"), duly
11
endorsed or accompanied by stock powers duly endorsed in blank with any required
transfer stamp affixed thereto;
(iii) to the Purchaser, the Shareholder Note to which such
Shareholder is entitled under Section 2.3 hereof and Exhibit 2.3 hereto, as
security for such Shareholder's indemnification obligations under this
Agreement; and
(iv) all other certificates, instruments and other documents
required to be delivered by the Shareholders on or before the Closing pursuant
to this Agreement, including the certificates, instruments and other documents
referred to in Section 7.2 hereof, or as may reasonably be requested by the
Purchaser in order to consummate the transactions contemplated hereby.
(e) At the Closing, the Company shall (i) distribute to each
Optionholder the cash amount set forth opposite the name of each such
Optionholder on Exhibit 2.2 hereto, less an amount equal to any applicable
withholding Taxes required to be withheld upon the cancellation of each Company
Option held by each such Optionholder, and (ii) disburse all amounts so withheld
pursuant to clause (i) of this Section 2.5(e) to the applicable federal and
state taxing authorities. No interest will accrue or be paid on any amounts
payable upon cancellation of a Company Option pursuant to this Article II.
SECTION 2.6 No Further Ownership Rights in Redeemed Shares or Company
---------------------------------------------------------
Options. The Shareholder Notes paid as consideration for the redemption and
-------
surrender of Redeemed Share Certificates representing Redeemed Shares pursuant
to this Article II shall be deemed to have been paid in full satisfaction of all
rights pertaining to the Redeemed Shares represented by such Redeemed Share
Certificates. All cash amounts paid as consideration for the cancellation of
Company Options pursuant to this Article II shall be deemed to have been paid in
full satisfaction of all rights pertaining to such Company Options.
SECTION 2.7 Lost Share Certificates. In the event that any certificate
-----------------------
representing Shares or Redeemed Shares shall have been lost, stolen or
destroyed, upon (i) the making of an affidavit of that fact by the Shareholder
claiming such certificate to be lost, stolen or destroyed, and (ii) the
execution and delivery to the Company of an indemnity agreement in customary
form and substance, the Company shall issue to such Shareholder, in exchange for
such lost, stolen or destroyed certificate, a new share certificate.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
Subject to the exceptions and qualifications set forth in the Form S-4 and
in the disclosure schedule of even date herewith collectively delivered by the
Shareholders to the Purchaser on or prior to the date hereof (the "Shareholders
Disclosure Schedule"), each of the Shareholders hereby severally, but not
jointly, represents and warrants to the Purchaser and to the Company as follows:
12
SECTION 3.1 Authority. Such Shareholder has all requisite power and
---------
authority (and, if an individual, legal capacity) to enter into this Agreement,
to perform such Shareholder's obligations hereunder and to consummate the
transactions contemplated hereby. To the extent that such Shareholder is an
entity, the execution and delivery of this Agreement by such Shareholder, the
performance by such Shareholder of its obligations hereunder, and the
consummation by such Shareholder of the transactions contemplated hereby, have
been duly authorized by the Board of Directors or other managing body of such
Shareholder and no other corporate or other action, as the case may be, on the
part of such Shareholder is necessary to authorize the execution and delivery of
this Agreement by such Shareholder, the performance by such Shareholder of its
obligations hereunder or the consummation by such Shareholder of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by such Shareholder and, assuming due authorization, execution and
delivery by the other parties hereto, this Agreement constitutes a legally valid
and binding obligation of such Shareholder, enforceable against such Shareholder
in accordance with its terms, except as such enforceability may be limited by
principles of public policy, and subject to (i) the effect of any applicable
Laws of general application relating to bankruptcy, reorganization, insolvency,
moratorium or similar Laws affecting creditors' rights and relief of debtors
generally, and (ii) the effect of rules of law and general principles of equity,
including rules of law and general principles of equity governing specific
performance, injunctive relief and other equitable remedies (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
SECTION 3.2 Organization. If such Shareholder is an entity, such
------------
Shareholder is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization or incorporation, as applicable.
SECTION 3.3 Ownership of Shares. Such Shareholder is the sole record owner
-------------------
of the Redeemed Shares and the shares of Company Common Stock set forth opposite
such Shareholder's name on Exhibit 2.3 hereto, free and clear of any
Encumbrances other than restrictions on the transfer of such shares imposed
under federal and state securities or "blue sky" Laws, and such shares are the
only shares of Company Capital Stock owned of record or beneficially by such
Shareholder. Such Shareholder has no other options, warrants or other rights to
purchase or otherwise acquire any shares of Company Capital Stock, except
options granted to such Shareholder under the Company Option Plan, all of which
are set forth opposite such Shareholder's name on Exhibit 2.3 hereto. Such
Shareholder is not a party to any Contract or subject to any Action pursuant to
which such Shareholder is or may be required to sell, deliver or transfer any of
the shares owned by such Shareholder to any other Person, or otherwise dispose
of such shares. Such Shareholder has the sole and unrestricted right and
authority (in the case of Genstar and Stargen, acting through their general
partners or managing members, respectively) to vote the shares of Company Stock
owned by such Shareholder and to transfer the Shares owned of record by such
Shareholder to the Purchaser and the Company, as the case may be. The delivery
of the Redeemed Share Certificates held by such Shareholder at the Closing
pursuant to Section 2.5(d) hereof will transfer to the Company good and valid
title to the Redeemed Shares held by such Shareholder at the Closing, free and
clear of all Encumbrances. The delivery of the Share Certificates held by such
Shareholder at the Closing pursuant to
13
Section 2.5(d) hereof will transfer to the Purchaser good and valid title to the
Shares held by such Shareholder at the Closing, free and clear of all
Encumbrances.
SECTION 3.4 Conflicts. Assuming all consents, approvals, authorizations,
---------
filings and notifications and other actions set forth in Section 3.5 hereof have
been obtained or made, and except as set forth in Section 3.4 of the
Shareholders Disclosure Schedule or as may result from any facts and
circumstances relating solely to the Company, the execution and delivery of this
Agreement by such Shareholder, the performance by such Shareholder of such
Shareholder's obligations hereunder, and the consummation by such Shareholder of
the transactions contemplated hereby, does not and will not (i) conflict with or
result in a violation of the organizational documents of such Shareholder, if
such Shareholder is an entity, or (ii) conflict with or result in a violation of
any Law or Governmental Order applicable to such Shareholder or the assets or
properties of such Shareholder, except, in the case of clause (ii) of this
Section 3.4, as would not, individually or the aggregate, have a material
adverse effect on the ability of such Shareholder to perform such Shareholder's
obligations under this Agreement or consummate the transactions contemplated
hereby.
SECTION 3.5 Consents, Approvals, Etc. No consent, waiver, approval,
-------------------------
authorization, license, order or permit of, or declaration, filing or
registration with, or notification to, any Governmental Authority or third party
is required to be made or obtained by such Shareholder in connection with the
execution and delivery of this Agreement by such Shareholder, the performance by
such Shareholder of such Shareholder's obligations hereunder, or the
consummation by such Shareholder of the transactions contemplated hereby, except
(i) as set forth in Section 3.5 of the Shareholders Disclosure Schedule, (ii)
applicable requirements, if any, under applicable federal or state securities or
"blue sky" Laws and the HSR Act, (iii) as may be necessary as a result of any
facts or circumstances relating solely to the Company, and (iv) where the
failure to obtain such consent, approval, authorization or action, or to make
such filing or notification, would not, when taken together with all other such
failures by such Shareholder, have a material adverse effect on the ability of
such Shareholder to perform such Shareholder's obligations under this Agreement
or consummate the transactions contemplated hereby.
SECTION 3.6 Brokers. No broker, finder or investment banker has been
-------
retained by such Shareholder in connection with the transactions contemplated by
this Agreement, nor is any broker, finder or investment banker entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon any agreements or other
arrangements made by or on behalf of such Shareholder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
THE SHAREHOLDERS
Subject to the exceptions and qualifications set forth in the disclosure
schedule of even date herewith delivered by the Company and the Shareholders to
the Purchaser on or prior to the date hereof, which disclosure schedule shall be
deemed to include and incorporate therein the
14
Form S-4 (the "Company Disclosure Schedule"), the Company and each of the
Shareholders hereby jointly and severally represent and warrant to the Purchaser
as follows:
SECTION 4.1 Authority. The Company has all requisite corporate power and
---------
authority to enter into this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by the Company, the performance by the Company of its
obligations hereunder, and the consummation by the Company of the transactions
contemplated hereby, have been duly authorized by the Board of Directors of the
Company, and no other corporate action on the part of the Company is necessary
to authorize the execution and delivery of this Agreement by the Company, the
performance by the Company of its obligations hereunder or the consummation by
the Company of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Company and, assuming due authorization,
execution and delivery by the other parties hereto, this Agreement constitutes a
legally valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by principles of public policy, and subject to (i) the effect of any
applicable Laws of general application relating to bankruptcy, reorganization,
insolvency, moratorium or similar Laws affecting creditors' rights and relief of
debtors generally, and (ii) the effect of rules of law and general principles of
equity, including rules of law and general principles of equity governing
specific performance, injunctive relief and other equitable remedies (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
SECTION 4.2 Organization. The Company is duly organized, validly existing
------------
and in good standing under the laws of the State of Delaware, and has all
requisite corporate power and authority to own, operate or lease the properties
and assets now owned, operated or leased by it, and to carry on its business as
currently conducted by the Company. The Company is duly qualified to do business
and is in good standing, under the Laws of each jurisdiction in which the
character of its properties owned, operated or leased, or the nature of its
activities, makes such qualification necessary, except in those jurisdictions
where the failure to be so qualified or in good standing, when taken together
with all other failures by the Company and any Company Subsidiaries to be so
qualified or in good standing, would not have a Material Adverse Effect. True
and complete copies of the Certificate of Incorporation (the "Company
Certificate of Incorporation") and Bylaws (the "Company Bylaws") of the Company,
each as amended and in effect as of the date of this Agreement, have been made
available to the Purchaser and its agents and representatives.
SECTION 4.3 Company Capital Stock.
---------------------
(a) The Company Capital Stock consists of 300,000 shares of Company
Common Stock, of which 150,000 shares have been designated Class A Common Stock,
par value $0.01 per share, and 150,000 shares have been designated Class B
Common Stock, par value $0.01 per share. As of the date hereof, 129,187.2 shares
of Class A Common Stock have been issued and are outstanding, and no shares of
Class B Common Stock have been issued or
15
are outstanding. All such issued and outstanding shares of Company Common Stock
have been duly authorized and validly issued, are fully paid and nonassessable
and were not issued in violation of any preemptive or similar rights created by
statute, the Company Certificate of Incorporation, the Company Bylaws or any
agreement to which the Company is a party or by which it is bound, and have been
issued in compliance with applicable federal and state securities or "blue sky"
Laws. Exhibit 2.3 hereto sets forth, as of the date hereof, the name, address
and taxpayer identification number of each holder of shares of Company Common
Stock, and the number and type of shares of Company Common Stock held of record
by each such stockholder, and no other Person owns of record any outstanding
shares of capital stock of the Company. There are no accrued or unpaid dividends
with respect to any issued and outstanding shares of Company Common Stock. Other
than the shares of Company Common Stock issued and outstanding as of the date
hereof and held of record by the Persons set forth in Exhibit 2.3 hereto, there
are no other issued or outstanding shares of Company Capital Stock.
(b) The Shares have been duly and validly authorized and are validly
issued, fully paid and non-assessable. The Newly Issued Shares have been duly
and validly authorized for issuance and when issued at the Closing pursuant to
this Agreement will be validly issued, fully paid and non-assessable.
(c) As of the date hereof, there are no outstanding subscriptions,
options, warrants, calls, rights of conversion or other rights, agreements,
arrangements or commitments of any kind or character, whether written or oral,
relating to the Company Capital Stock to which the Company is a party, or by
which it is bound, obligating the Company to issue, deliver or sell, or cause to
be issued, delivered or sold, any shares of Company Capital Stock, other than
outstanding Company Options granted under the Company Option Plan representing
the right to purchase an aggregate of 9,123.2 shares of Company Common Stock.
Exhibit 2.2 hereto sets forth, as of the date hereof, the name, address and
taxpayer identification number of each Optionholder, each Company Option held by
each such Optionholder, the aggregate number of shares of Company Common Stock
issuable upon the exercise in full of each such Company Option, and the per
share and aggregate exercise price of each such Company Option.
(d) Except as set forth in Section 4.3(d) of the Company Disclosure
Schedule, as of the date hereof, there are (i) no rights, agreements,
arrangements or commitments of any kind or character, whether written or oral,
relating to the Company Capital Stock to which the Company is a party, or by
which it is bound, obligating the Company to repurchase, redeem or otherwise
acquire any issued and outstanding shares of Company Capital Stock, (ii) no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to the Company, and (iii) no
voting trusts, stockholder agreements, proxies or other agreements or
understandings in effect to which the Company is a party, or by which it is
bound, with respect to the governance of the Company or the voting or transfer
of any shares of Company Capital Stock.
(e) The delivery at the Closing of the Share Certificates and the New
Share Certificate representing the Shares and the Newly Issued Shares,
respectively, pursuant to Section 2.5(b) hereof will transfer to the Purchaser
good and valid title to the Shares and the
16
Newly Issued Shares, respectively, free and clear of all Encumbrances, and the
Shares, the Newly Issued Shares and the Retained Shares, at the time of the
Closing, immediately following the Redemption, will represent all of the issued
and outstanding capital stock of the Company.
SECTION 4.4 Company Subsidiaries.
--------------------
(a) Section 4.4(a) of the Company Disclosure Schedule sets forth (i)
the legal name and jurisdiction of organization of each Subsidiary of the
Company (each, a "Company Subsidiary" and, collectively, the "Company
Subsidiaries"), (ii) the authorized capital stock of each Company Subsidiary,
(iii) the number and designation of all issued and outstanding shares of capital
stock of each Company Subsidiary (collectively, the "Company Subsidiary
Shares"), and (iv) the current ownership of all outstanding Company Subsidiary
Shares by the Company, other Company Subsidiaries and any third party owners
thereof. Other than the Company Subsidiaries set forth in Section 4.4(a) of the
Company Disclosure Schedule, there are no other Persons in which the Company or
any Company Subsidiary owns, of record or beneficially, any direct or indirect
equity interest or any right (contingent or otherwise) to acquire such an equity
interest. Except as set forth in Section 4.4(a) of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary is a member of any
partnership or limited liability company, nor is the Company or any Company
Subsidiary a participant in any joint venture or similar arrangement
constituting a legal entity.
(b) Except as set forth in Section 4.4(b) of the Company Disclosure
Schedule, each of the Company Subsidiaries is duly organized, validly existing
and in good standing under the laws of its respective jurisdiction of
organization, and has the requisite corporate power and authority to own,
operate or lease the respective properties and assets now owned, operated or
leased by it, and to carry on its respective business as currently conducted by
each such Company Subsidiary. Each of the Company Subsidiaries is duly qualified
to do business as a foreign corporation, and is in good standing, under the Laws
of each jurisdiction in which the character of its properties owned, operated or
leased, or the nature of its activities, makes such qualification necessary,
except in those jurisdictions where the failure to be so qualified or in good
standing, when taken together with all other failures by the Company and other
Company Subsidiaries to be so qualified or in good standing, would not have a
Material Adverse Effect. True and complete copies of the charter documents of
each Company Subsidiary, each as amended and in effect as of the date of this
Agreement, have been made available to the Purchaser and its agents and
representatives.
(c) All of the issued and outstanding Company Subsidiary Shares have
been duly authorized and validly issued, are fully paid and nonassessable and
were not issued in violation of any preemptive or similar rights created by
statute, the respective charter documents of the Company Subsidiary issuing such
Company Subsidiary Shares, or any agreement to which each such Company
Subsidiary is a party or by which it is bound, and have been issued in
compliance with applicable federal and state securities or "blue sky" Laws.
Except as set forth in Section 4.4(c) of the Company Disclosure Schedule, as of
the date hereof, there are no outstanding options, warrants, calls, rights of
conversion or other rights, agreements, arrangements or commitments of any kind
or character, whether written or oral, relating to the
17
capital stock of any Company Subsidiary to which the Company or any Company
Subsidiary is a party, or by which any of them are bound, obligating any Company
Subsidiary to issue, deliver or sell, or cause to be issued, delivered or sold,
any shares of capital stock of any Company Subsidiary. As of the date hereof,
except as set forth in Section 4.4(c) of the Company Disclosure Schedule, there
are (i) no rights, agreements, arrangements or commitments of any kind or
character, whether written or oral, relating to the capital stock of any Company
Subsidiary to which the Company or any Company Subsidiary is a party, or by
which any of them is bound, obligating the Company or any Company Subsidiary to
repurchase, redeem or otherwise acquire any issued and outstanding Company
Subsidiary Shares, (ii) no outstanding or authorized stock appreciation, phantom
stock, profit participation, or other similar rights with respect to any Company
Subsidiary, and (iii) no voting trusts, stockholder agreements, proxies or other
agreements or understandings in effect to which the Company or any Company
Subsidiary is a party, or by which any of them is bound, with respect to the
governance of any Company Subsidiary or the voting or transfer of any Company
Subsidiary Shares.
SECTION 4.5 Conflicts. Assuming all consents, approvals, authorizations,
---------
filings and notifications and other actions set forth in Section 4.6 hereof have
been obtained or made, and except as set forth in Section 4.5 of the Company
Disclosure Schedule or as may result from any facts or circumstances relating
solely to the Shareholders, the execution and delivery of this Agreement by the
Company, the performance by the Company of its obligations hereunder, and the
consummation by the Company of the transactions contemplated hereby, does not
and will not (i) conflict with or result in a violation of the Company
Certificate of Incorporation or Company Bylaws, or the organizational documents
or bylaws of any Company Subsidiary, (ii) conflict with or result in a violation
of any Law or Governmental Order applicable to the Company or any Company
Subsidiary, or their respective assets or properties, or (iii) result in a
breach of, or constitute a default (or event which with the giving of notice or
lapse of time, or both, would become a default) under, or give rise to any
rights of termination, amendment, modification, acceleration or cancellation of
or loss of any benefit under, or result in the creation of any Encumbrance on
any of the assets or properties of the Company or any Company Subsidiary
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, concession, franchise or other instrument to which the Company
or any Company Subsidiary is a party, or by which any of the assets or
properties of the Company or any Company Subsidiary is bound or affected,
except, in the case of clause (ii) and (iii) of this Section 4.5, as would not,
individually or in the aggregate, have a Material Adverse Effect or,
individually or in the aggregate, would not have a material adverse effect on
the ability of the Company to perform its obligations under the Agreement or
consummate the transactions contemplated hereby. Except as set forth in Section
4.5 of the Company Disclosure Schedule, the Company will not become obligated to
make any severance, "excess parachute payment" (within the meaning of Section
280G of the Internal Revenue Code) or other similar type of payment or any
gross-up payment in connection therewith (including under the employment
agreement referred to in Section 6.6(f)) to any employee of the Company solely
as a result of the execution and delivery of this Agreement by the parties
hereto, their performance of their obligations hereunder or the consummation of
the transactions contemplated hereby. As of the date hereof Panolam Industries
is not, and immediately prior to the Closing it will not be, in material breach
or violation of the Indenture dated as of February 18, 1999 between Panolam
18
Industries and State Street Bank and Trust Company, and there is, and
immediately prior to the Closing there will not be, any material default or
event which with notice or the passage of time would become a material default.
Neither the Company nor any Company Subsidiary will be obligated to pay any
prepayment, termination or other fee to the lenders of the Senior Debt upon the
repayment of the outstanding Senior Debt and the termination of the related bank
facilities as contemplated by Section 2.4.
SECTION 4.6 Consents, Approvals, Etc. No consent, waiver, approval,
------------------------
authorization, license, order or permit of, or declaration, filing or
registration with, or notification to, any Governmental Authority or third party
is required to be made or obtained by the Company or any Company Subsidiary in
connection with the execution and delivery of this Agreement by the Company, the
performance by the Company of its obligations hereunder, or the consummation by
the Company of the transactions contemplated hereby, except (i) as set forth in
Section 4.6 of the Company Disclosure Schedule, (ii) applicable requirements, if
any, under the DGCL, federal or state securities or "blue sky" Laws and the HSR
Act, (iii) as may be necessary as a result of facts or circumstances relating
solely to the Shareholders, and (iv) where the failure to obtain such consent,
approval, authorization or action, or to make such filing or notification, would
not, when taken together with all other such failures by the Company and the
Company Subsidiaries, have a Material Adverse Effect.
SECTION 4.7 Financial Statements; SEC Reports.
---------------------------------
(a) The Company has prepared, or caused to be prepared, and made
available to the Purchaser and its agents and representatives the audited
consolidated financial statements of the Company (including the balance sheet
and the related statements of income and cash flows) as of and for each of the
twelve month periods ended December 31, 1998, 1997, 1996, respectively (the
"Audited Company Financial Statements"), and unaudited condensed consolidated
financial statements of the Company (including the balance sheet and the related
statements of income and cash flows) as of and for the six month period ended
June 30, 1999 (the "Unaudited Company Financial Statements" and, together with
the Audited Financial Statements, the "Company Financial Statements"). Except as
set forth therein, the Company Financial Statements (i) have been prepared in
accordance with the books and records of the Company, (ii) have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
indicated therein and with each other (except that the Unaudited Company
Financial Statements may not contain all of the notes required by GAAP), and
(iii) present fairly, in all material respects, the consolidated financial
position, results of operations and cash flows of the Company and the Company
Subsidiaries as of the respective dates and during the respective periods
indicated therein, subject in the case of the Unaudited Company Financial
Statements to normal recurring year-end adjustments, which would not be material
in amount. The balance sheet of the Company as of June 30, 1999 shall be
referred to herein as the "Current Balance Sheet" and the date thereof shall be
referred to herein as the "Balance Sheet Date."
(b) Except as set forth on Section 4.7 of the Company Disclosure
Schedule and except for the transactions contemplated by this Agreement: (a) the
Company's Registration
19
Statement on Form S-4, Amendment No. 1 (File No. 333-78569) ("Form S-4"), filed
with the SEC on August 30, 1999 complied, and if it is declared effective prior
to the Closing Date, will comply, at the time it is declared effective, in all
material respects with the requirements of the Securities Act and (b) the Form
S-4 did not contain, at the time it was filed and, if it is declared effective
prior to the Closing Date, will not contain at the time it is declared
effective, any untrue statement of a material fact or omit to state a material
fact required to be stated or incorporated by reference therein or necessary in
order to make the statements therein in light of the circumstances under which
they were made not misleading.
SECTION 4.8 Undisclosed Liabilities. Neither the Company nor any Company
-----------------------
Subsidiary has any Liability that is required to be reflected on a balance sheet
or in the financial notes thereto in accordance with GAAP, except as (i)
reflected in, reserved against or disclosed in the Company Financial Statements,
(ii) disclosed in Section 4.8 of the Company Disclosure Schedule or in any of
the documents set forth in the Company Disclosure Schedule, (iii) incurred in
the ordinary course of business since the Balance Sheet Date, or (iv)
individually or in the aggregate would not have a Material Adverse Effect.
SECTION 4.9 Certain Changes or Events. Except as set forth in Section 4.9
-------------------------
of the Company Disclosure Schedule or as contemplated by this Agreement, since
the Balance Sheet Date, there has not been, occurred or arisen:
(a) any damage to, or destruction or loss of, any of the assets or
properties of the Company or any Company Subsidiary which has had a Material
Adverse Effect;
(b) any declaration, setting aside or payment of any dividend, or
other distribution or capital return in respect of any shares of Company Capital
Stock, or any redemption, repurchase or other acquisition by the Company or any
Company Subsidiary of any shares of Company Capital Stock;
(c) any sale, assignment, transfer, lease, license or other
disposition, or agreement to sell, assign, transfer, lease, license or otherwise
dispose of, any of the assets of the Company or any Company Subsidiary (except
for sales of inventory in the ordinary course of business) having a value, in
any individual case, in excess of $100,000;
(d) any acquisition (by merger, consolidation or other combination,
or acquisition of stock or assets) by the Company or any Company Subsidiary of
any corporation, partnership or other business organization, or any division
thereof;
(e) except for borrowings under existing agreements in the ordinary
course of business or inter-company indebtedness between the Company and any of
the Company Subsidiaries or between the Company Subsidiaries, (i) any incurrence
by the Company or any Company Subsidiary of any indebtedness for borrowed money,
(ii) any issuance by the Company or any Company Subsidiary of any debt
securities, or (iii) any assumption, granting, guarantee, endorsement or other
accommodation or arrangement making the Company or any Company Subsidiary
responsible for the indebtedness for borrowed money or debt securities of any
Person
20
other than another Company Subsidiary, in the case of each of clauses (i), (ii)
and (iii) of this Section 4.9(e), having an aggregate value in excess of $50,000
for all such occurrences;
(f) any material change in any method of accounting or accounting
practice used by the Company or any Company Subsidiary;
(g) (i) any employment, deferred compensation, severance or similar
agreement entered into or amended by the Company or any Company Subsidiary,
except any individual employment agreement providing for compensation of less
than $200,000 per annum entered into in the ordinary course of business
consistent with past practice, and any individual severance agreement entered
into in the ordinary course of business consistent with past practice, (ii) any
increase in the compensation payable, or to become payable, by the Company or
any Company Subsidiary to any Company Employees, or any directors or officers of
the Company or any Company Subsidiaries, (iii) any payment of or provision for
any bonus, stock option, stock purchase, profit sharing, deferred compensation,
pension, retirement or other similar payment or arrangement to any Company
Employee, or any director or officer of the Company or any Company Subsidiary,
or (iv) any increase in the coverage or benefits available under any severance
pay, termination pay, vacation pay, company awards, salary continuation or
disability, sick leave, deferred compensation, bonus or other incentive
compensation, insurance, pension or other employee benefit plan, payment or
arrangement made to, for or with such directors, officers, employees, agents or
representatives, other than, in the case of clauses (ii), (iii) and (iv) of this
Section 4.9(g), normal increases in the ordinary course of business consistent
with past practice, and except, in the case of clause (iii) of this Section
4.9(g), to the extent that the Company or any Company Subsidiary is
contractually obligated to do so or required to do so by applicable Law;
(h) make or authorize any individual capital expenditure exceeding
$1,000,000 in the aggregate, except as contemplated by, and disclosed in, the
Company's operating budget previously provided to Purchaser;
(i) any event or condition of any kind or character that has had a
Material Adverse Effect; or
(j) any agreement, other than this Agreement, to take any actions
specified in this Section 4.9.
SECTION 4.10 Tax Matters.
------------
(a) Except as set forth in Section 4.10 of the Company Disclosure
Schedule, (i) the Company and each Company Subsidiary has prepared and timely
filed, will prepare and timely file, or has been or will be included in, all Tax
Returns required to be filed by or on behalf of the Company or any Company
Subsidiary with respect to material Taxes concerning or attributable to the
Company and any Company Subsidiary or their operations for any taxable period
ending on or before the Closing Date, taking into account any extension of time
to file that has been granted to, or obtained by or on behalf of, the Company or
any Company Subsidiary, (ii) neither the Company nor any Company Subsidiary is
the beneficiary of any
21
extension of time within which to file any Tax Return, (iii) all such Tax
Returns are, or will be as of the Closing Date, correct and complete in all
material respects, (iv) all Taxes owed by the Company and each Company
Subsidiary for any taxable period ending on or before the Closing Date (whether
or not shown to be payable on such Tax Returns) have been paid or will be paid
as of the Closing Date, or adequate reserves have been or will be established
with respect thereto, and (v) no material deficiency, dispute or claim with
respect to Taxes of the Company or any Company Subsidiary has been proposed,
asserted or assessed by the IRS or any other Government Authority (A) in
writing, and (B) to the Knowledge of the Company.
(b) Except as set forth in Section 4.10 of the Company Disclosure
Schedule, as of the date hereof, (i) no waivers of statutes of limitations have
been given with respect to any Taxes of the Company or any Company Subsidiary,
which waivers are currently in effect, and no request for any such waiver is
currently pending, (ii) neither the Company nor any Company Subsidiary has
agreed to any extension of time with respect to a Tax assessment or deficiency,
(iii) no requests for ruling or determination letters or competent authority
relief with respect to the Company or any Company Subsidiary is currently
pending with the IRS or any Government Authority with respect to any Taxes, (iv)
no audit or other examination of any Tax Return of the Company or any Company
Subsidiary is presently in progress, nor has the Company or any Company
Subsidiary been notified in writing of any request for such an audit or other
examination, and (v) the Purchaser has received correct and complete copies of
all statements of deficiencies, closing agreements or other similar statements
assessed against or agreed to by the Company or any Company Subsidiary with
respect to Taxes.
(c) Except as set forth in Section 4.10 of the Company Disclosure
Schedule, (i) neither the Company nor any Company Subsidiary has filed a consent
under Internal Revenue Code (S)341(f) concerning collapsible corporations, (ii)
neither the Company nor any Company Subsidiary has made any payments, is
obligated to make any payments, or is a party to any agreement that under
certain circumstances could obligate it to make any payments that will not be
deductible under Internal Revenue Code (S)280G, and (iii) neither the Company
nor any Company Subsidiary has been a United States real property holding
corporation within the meaning of Internal Revenue Code (S)897(c)(2) during the
applicable period specified in Internal Revenue Code (S)897(c)(1)(A)(ii).
(d) Except as set forth in Section 4.10(d) of the Company Disclosure
Schedule, (i) neither the Company nor any Company Subsidiary is a party to any
Tax allocation, Tax sharing or other similar agreement, and (ii) neither the
Company nor any Company Subsidiary (A) has been a member of an affiliated group
within the meaning of Internal Revenue Code (S)1504(a) (or any similar group
defined under a similar provision of state, local or foreign law) filing a
consolidated Tax Return (other than a group the common parent of which was the
Company) or (B) has any Liability for the Taxes of any Person (other than the
Company or any Company Subsidiary) under Treasury Regulation (S)1.1502-6 (or any
similar provision of Law), as a transferee or successor, by Contract, or
otherwise.
(e) The unpaid Taxes of the Company and the Company Subsidiaries (A)
did not, as of June 30, 1999, exceed by any material amount the reserve for Tax
Liability (rather than
22
any reserve for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the face of the Unaudited Company Financial
Statements (rather than in any notes thereto) and (B) will not exceed by any
material amount that reserve as adjusted for the passage of time through (and
including) the Closing Date in accordance with the past custom and practice of
the Company and the Company Subsidiaries.
SECTION 4.11 Litigation and Governmental Orders. Except as set forth in
----------------------------------
Section 4.11 of the Company Disclosure Schedule, as of the date hereof, (i)
there are no Actions pending or, to the Knowledge of the Company, threatened
against the Company or any Company Subsidiary, or any of the assets or
properties of the Company or any Company Subsidiary, that would have a Material
Adverse Effect, and (ii) the Company, each Company Subsidiary and their
respective assets and properties, are not subject to any material Governmental
Order relating specifically to the Company, any Company Subsidiary or any of
their respective assets or properties.
SECTION 4.12 Compliance with Laws. The Company and each Company Subsidiary
--------------------
has conducted its respective part of the Business, including its use, occupancy
and operations of the Owned Real Property and the Leased Real Property, in
compliance with all applicable Laws, except where the failure to so comply, when
taken together with other such failures by the Company and the Company
Subsidiaries to so comply, would not have a Material Adverse Effect; provided
that the foregoing representation as it relates to Laws other than Environmental
Laws and the Antitrust Matter, is hereby given for the time period since the
Acquisition Date. Except as set forth in Section 4.12 of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary has received any
written, nor to the Knowledge of the Company, any oral notice from any
Governmental Authority to the effect that the Company or any Company Subsidiary
is not in compliance with any applicable Laws, except where the failure to so
comply, when taken together with all other such failures by the Company and the
Company Subsidiaries to so comply, would not have a Material Adverse Effect.
Except as set forth in Section 4.12 of the Company Disclosure Schedule, to the
Knowledge of the Company, as of the date hereof, there is no inquiry or other
investigation pending before, or threatened in writing by, any Governmental
Authority against the Company or any of the Company Subsidiaries.
SECTION 4.13 Permits, Licenses, Governmental Authorizations, Etc. The
---------------------------------------------------
Company and the Company Subsidiaries have all Licenses required to permit the
Company and the Company Subsidiaries to conduct their respective part of the
Business, including its use, occupancy and operations of the Owned Real Property
and the Leased Real Property, except for such failures to have such Licenses,
when taken together with all other such failures by the Company and the Company
Subsidiaries to have such Licenses, as would not have a Material Adverse Effect.
As of the date hereof, all of the Licenses held by or issued to the Company or
any of the Company Subsidiaries are in full force and effect, and the Company or
the respective Company Subsidiary that is a party thereto is in compliance with
each such License held by or issued to it, except for such failures to so
comply, when taken together with all other such failures by the Company and the
Company Subsidiaries to so comply, as would not have a Material Adverse Effect.
23
SECTION 4.14 Tangible Property.
-----------------
(a) Section 4.14(a) of the Disclosure Schedule contains a true,
correct and complete list of (i) each item of real property owned, as of the
date hereof, by the Company or any Company Subsidiary ("Owned Real Property"),
(ii) each item of real property leased from or to a third party, as of the date
hereof, by the Company or any Company Subsidiary ("Leased Real Property"), the
name of the third party lessor(s) or lessee(s) thereof, as the case may be, the
date of the lease contract relating thereto and all amendments thereof. Except
as set forth in Section 4.14(a) of the Company Disclosure Schedule, either the
Company or a Company Subsidiary has legal, valid and marketable title to all
Owned Real Property, and a valid and subsisting leasehold interest in all Leased
Real Property, in each case free and clear of all Encumbrances other than
Permitted Encumbrances, and has the right to use the Owned Real Property and the
Leased Real Property in the manner and for the purposes as each is currently
being used by the Company or a Company Subsidiary, as the case may be.
(b) Except as set forth in Section 4.14(b) of the Company Disclosure
Schedule, the Company and the Company Subsidiaries have legal and valid title
to, or in the case of leased assets and properties, valid and subsisting
leasehold interests in, all of the material tangible personal assets and
properties used or held for use by the Company or any Company Subsidiary in
connection with the conduct of the Business, free and clear of all Encumbrances
other than Permitted Encumbrances.
(c) A true and complete copy of each lease with respect to Leased
Real Property with all amendments and modifications has been delivered to
Purchaser (the "Leases"), and there has been no default, nor any event which
with passage of time or the giving of notice would constitute a default, under
any of the Leases on the part of the tenant or, to the Company's Knowledge, the
landlord, that remains uncured, except for defaults that would not, individually
or in the aggregate, have a Material Adverse Effect.
SECTION 4.15 Intellectual Property.
---------------------
(a) Section 4.15(a) of the Company Disclosure Schedule contains a
true, correct and complete list of all material Proprietary Rights owned by the
Company or any Company Subsidiary, including: (i) for each material Patent, as
applicable, the number, normal expiration date, title and priority information
for each country in which such Patent has been issued, or the application
number, date of filing, title and priority information for each such country,
(ii) for each material Trademark, the application serial number or registration
number thereof, if applicable, the class of goods or the nature of the goods or
services covered thereby, the countries in which such Trademark is registered,
if applicable, and the expiration date for each country in which such Trademark
has been registered, if applicable, and (iii) for each material registered
Copyright, the number and date of registration thereof for each country in which
a Copyright application has been registered.
(b) Except as set forth in Section 4.15(b) of the Company Disclosure
Schedule, (i) all Trademark registrations are currently in compliance with all
legal requirements
24
(including the timely post-registration filing of affidavits of use and
incontestability and renewal applications) other than any requirement that, if
not satisfied, is not likely to result in a cancellation of any such
registration or otherwise result in a Material Adverse Effect, and (ii) all
Trademarks have been in continuous use by the Company or Company Subsidiaries
since the Acquisition Date, other than Trademarks as to which the lack of such
continuous use would not have a Material Adverse Effect.
(c) Except as set forth in Section 4.15(c) of the Company Disclosure
Schedule, all Patents are currently in compliance with legal requirements
(including payment of filing, examination, and maintenance fees) other than any
requirement that, if not satisfied, would not result in a revocation of the
Patent in question or otherwise result in a Material Adverse Effect.
(d) Section 4.15(d) of the Company Disclosure Schedules sets forth a
complete and accurate list of all license agreements granting to the Company or
any Company Subsidiary (other than license agreements between the Company and
one or more of the Company Subsidiaries or between Company Subsidiaries) any
right to use or practice any rights under any third party Proprietary Rights (i)
used in connection with the design, development, use, maintenance and support,
testing, assembly and manufacture of the Company's or the Company Subsidiary's
products, and (ii) in software that is commercially available on reasonable
terms to any Person, in each case for a license fee of more than $50,000 per
annum, indicating for each the title and the parties thereto.
(e) Except as set forth in Section 4.15(e) of the Company Disclosure
Schedule, (i) the Company and the Company Subsidiaries own or have a valid right
to use, free and clear of all Encumbrances (other than Encumbrances that would
not have a Material Adverse Effect), the Proprietary Rights used by them in
connection with the conduct of the Business as presently conducted by the
Company and the Company Subsidiaries, and (ii) the Company and the Company
Subsidiaries will not cease to have a valid right to use such Proprietary Rights
by reason of the execution and delivery of this Agreement by the Company, the
performance by the Company of its obligations hereunder, or the consummation by
the Company of the transactions contemplated hereby except, in each of clause
(i) and (ii) of this Section 4.15(e), any Proprietary Right as to which the
failure of the Company or Company Subsidiaries to have a valid right to use such
Proprietary Right, individually or in the aggregate, would not have a Material
Adverse Effect.
(f) The Company and the Company Subsidiaries have taken reasonable
steps in accordance with normal industry practice, except in circumstances where
the failure to take such steps would not have a Material Adverse Effect, to
protect the Company's and the Company Subsidiaries' rights in confidential
information and Trade Secrets of the Company and the Company Subsidiaries.
(g) Except as set forth in Section 4.15(g) of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary has received any
written notice, nor is the Company or any Company Subsidiary aware of any
claims, threatened or pending, that
25
would have a Material Adverse Effect (i) challenging the ownership, use,
validity or enforceability of any of the Proprietary Rights owned or used by the
Company or any Company Subsidiary in connection with the conduct of the Business
as presently conducted by the Company and the Company Subsidiaries, or (ii)
alleging infringement, violation or unauthorized use of the Proprietary Rights
of others due to any activity or conduct by the Company or any Company
Subsidiary. To the Knowledge of the Company, no other Person is infringing upon,
misappropriating, diluting or violating in any way any Proprietary Rights owned
by the Company or a Company Subsidiary and no such claims have been brought
against any third party by the Company or any Company Subsidiary, in any case
where such infringement, misappropriation, dilution or violation would have a
Material Adverse Effect. Except as set forth in Section 4.15(g) of the Company
Disclosure Schedules, no Proprietary Rights owned or licensed by the Company or
the Company Subsidiaries are subject to any outstanding order, judgment, decree,
stipulation or agreement restricting the use thereof by the Company or any
Company Subsidiary where such restriction, individually or in the aggregate,
would have a Material Adverse Effect.
SECTION 4.16 Certain Contracts.
-----------------
(a) Section 4.16 of the Company Disclosure Schedule contains a true,
correct and complete list of all Contracts referred to in clauses (i) through
(ix), inclusive, of this Section 4.16 to which the Company or any Company
Subsidiary is a party (each, a "Listed Contract" and, collectively, the "Listed
Contracts"). True, correct and complete copies of each Listed Contract has been
made available to the Purchaser:
(i) notes, debentures, other evidences of indebtedness,
guarantees, loans, credit or financing agreements or instruments, or other
Contracts for money borrowed, including any agreements or commitments for future
loans, credit or financing, in each case in excess of $500,000 (including the
Notes), other than any of the foregoing relating to any intercompany
indebtedness;
(ii) employment agreements involving annual salary payments by
the Company or any Company Subsidiary in excess of $200,000 which are not
terminable without penalty within sixty (60) days;
(iii) Contracts entered into other than in the ordinary course of
business and requiring the Company or any Company Subsidiary to make
expenditures or involving receipts by the Company and the Company Subsidiaries
in excess of $500,000 individually and which are not terminable without penalty
within one (1) year;
(iv) leases, rental or occupancy agreements, licenses,
installment and conditional sale agreements, and other Contracts affecting the
ownership of, leasing of, title to, use of, or any leasehold or other interest
in, any real or personal property involving aggregate annual payments in excess
of $1,000,000 and which are not terminable;
(v) indemnity arrangements arising in connection with any sale
or disposition of assets for proceeds in excess of $250,000, other than sales of
assets by the
26
Company or any Company Subsidiary in the ordinary course of business, wherein
the Company or any Company Subsidiary is the indemnitor thereunder;
(vi) joint venture Contracts, partnership agreements, or
limited liability company agreements;
(vii) Contracts explicitly requiring capital expenditures
exceeding $500,000 after the date hereof, except as contemplated by, and
disclosed in, the Company's operating budget previously provided to the
Purchaser;
(viii) material licensing agreements with respect to Proprietary
Rights; and
(ix) agreements containing covenants presently limiting, in any
material respect, the freedom of the Company or any Company Subsidiary to
compete with any person in any line of business or in any area or territory.
(b) Except as set forth in Section 4.16 of the Company Disclosure
Schedule or as would not, individually or in the aggregate, have a Material
Adverse Effect, (i) each Listed Contract is in full force and effect and
represents a legally valid and binding obligation of the Company or the Company
Subsidiary which is a party thereto, and to the Knowledge of the Company,
represents a legally valid and binding obligation of the other parties thereto,
(ii) since the Acquisition Date, each of the Company and the Company
Subsidiaries has performed, in all material respects, all obligations required
to be performed by it under each of the Listed Contracts to which it is a party,
(iii) neither the Company or any Company Subsidiary is in material breach or
violation of, or material default under, any of the Listed Contracts to which it
is a party, nor has the Company or any Company Subsidiary received any written
notice that it has breached, violated or defaulted under any of the Listed
Contracts to which it is a party, and (iv) to the Knowledge of the Company,
there is no breach by any other party or parties to any of the Listed Contracts.
(c) The Replacement Promissory Note, dated June 30, 1996, in the
aggregate principal amount of $27,629,949.49, payable to the order of Rugby USA,
Inc. by Pioneer Plastics Corporation (the "Rugby Note"), has been canceled and
neither the Company nor any Company Subsidiary has any Liability under the Rugby
Note.
SECTION 4.17 Employee Benefit Matters.
------------------------
(a) Except as set forth in Section 4.17(b) of the Company Disclosure
Schedule, neither the Company nor any commonly controlled entity has incurred
any material liability under Title IV of ERISA or any similar Canadian law which
could become or remain a material liability of the Company after the Closing and
the consummation of the Share Purchases. None of the Company, any Company
Subsidiary, or any director, officer or employee thereof, or any of the Company
Benefit Plans (or to the Knowledge of the Company with respect to any
Multiemployer Plan (as defined in Section 4001(a)(3) of ERISA), or any trust
created thereunder, or any fiduciary thereof, has engaged in a transaction or
taken any other action or
27
omitted to take any action involving any Company Benefit Plan which could
constitute a prohibited transaction within the meaning of Section 406 of ERISA
or similar Canadian law which is not otherwise exempted and which would result
in a material liability to the Company, or would cause the Company to be subject
to either a material liability or material civil penalty assessed pursuant to
Sections 409 or 502 of ERISA or a material tax imposed pursuant to Sections 4975
or 4976 of the Internal Revenue Code or similar Canadian laws. Except as set
forth in Section 4.17(b) of the Company Disclosure Schedule, each of the Company
Benefit Plans (to the Knowledge of the Company with respect to any Multiemployer
Plan) has been operated and administered in all material respects in accordance
with its terms and applicable laws, including but not limited to ERISA and the
Internal Revenue Code. Except as set forth in Section 4.17(b) of the Company
Disclosure Schedule, each Company Benefit Plan intended to be qualified under
Section 401(a) of the Internal Revenue Code has been determined by the IRS to be
so qualified and has remained tax qualified to this date, and its related trust
is tax exempt and has been so since its creation or the remedial amendment
period maintaining such tax qualified status has not expired and no events have
occurred that could reasonably be expected to adversely effect such tax
qualified status. All benefits due under any Company Benefit Plan have been
timely paid, and there are no material pending or, to the Knowledge of the
Company, threatened claims by or on behalf of any of the Company Benefit Plans
or any fiduciary, by any employee or beneficiary covered under any such plan, or
otherwise, involving any such plan or fiduciary for which the Company could have
any material Liability (other than routine claims for benefits).
(b) Section 4.17(c) of the Company Disclosure Schedule contains a
true, correct and complete list of (i) each material severance agreement and
plan of the Company and each Company Subsidiary with or relating to their
respective employees, and (ii) each material plan and agreement of the Company
and each Company Subsidiary with or relating to its respective employees which
contain change of control provisions. A true, correct and complete copy of each
of the agreements and plans set forth in Section 4.17(c) of the Company
Disclosure Schedule has been made available to the Purchaser and its agents and
representatives.
(c) Except as set forth in Section 4.17(d) of the Company Disclosure
Schedule or as otherwise required by applicable Law, no Company Benefit Plan
provides retiree medical or retiree life insurance benefits to any person.
(d) Except as required by applicable Law, each Company Benefit Plan
can be amended or terminated at any time without approval from any person, and
without material liability to the Company, other than for benefits accrued prior
to such amendment or termination. All material contributions and payments to or
with respect to each Employee Benefit Plan have been timely made and Seller has
made adequate provision for reserves to satisfy material contributions and
payments that have not been made because they are not yet due under the terms of
such Employee Benefit Plan or applicable Law. Except as set forth in Section
4.17(e) of the Company Disclosure Schedule, no agreement, commitment, or
obligation exists to increase any benefits under any Employee Benefit Plan or to
adopt any new Employee Benefit Plan.
28
(e) No ERISA Pension Plan (as defined in section 3(2) of ERISA) has
incurred any "accumulated funding deficiency" or "waived funding deficiency"
within the meaning of Section 302 of ERISA or Section 412 of the Internal
Revenue Code.
(f) The fair market value of the plan assets of each ERISA Pension
Plan are at least equal to (i) the present value of its benefit liabilities (as
defined in ERISA Section 4001(a)(16), including any unpredictable contingent
event benefits within the meaning of Internal Revenue Code Section 412(l)(7),
and determined on the basis of assumptions prescribed by the PBGC for purposes
of ERISA Section 4044), and (ii) the Projected Benefit Obligations thereunder,
as defined in Statement of Financial Accounting Standards No. 87, including any
allowance for indexation and ad hoc increases. Except as set forth in Section
-- ---
4.17(g) of the Company Disclosure Schedule, no ERISA Pension Plan has been
completely or partially terminated or been the subject of a Reportable Event
under ERISA Section 4043. No proceeding by the PBGC to terminate any ERISA
Pension Plan has been instituted, and the Company has not incurred any material
liability to the PBGC (other than the PBGC premiums, all of which have been
timely paid) or otherwise under Title IV of ERISA with respect to any ERISA
Pension Plan.
(g) The Company does not maintain, participate in, contribute to, or
have any obligation to contribute or any liability with respect to any
Multiemployer Plan. The Company has not had any obligation with respect to any
Multiemployer Plan since the Acquisition Date. The Company neither maintains nor
participates in any Voluntary Employees' Beneficiary Association ("VEBA"), under
Internal Revenue Code Sections 419 and 419A, which is intended to be exempt from
taxation under section 501(c)(9) of the Internal Revenue Code.
SECTION 4.18 Labor Matters. Neither the Company nor any Company
-------------
Subsidiary is a party to any labor agreement with respect to its employees with
any labor organization, group or association, nor have there been any material
attempts to organize the employees of the Company or any Company Subsidiary
within the one (1) year period prior to the date hereof. Except as set forth in
Section 4.18 of the Company Disclosure Schedule or as would not have a Material
Adverse Effect, there is no labor strike, labor disturbance or work stoppage
pending against the Company or any Company Subsidiary.
SECTION 4.19 Environmental Matters. Except as set forth in Section 4.19
---------------------
of the Company Disclosure Schedule, (i) no Hazardous Material is present at any
of the real property owned or leased by the Company or any Company Subsidiary in
violation of, or that would result in any Liability to the Company or any
Company Subsidiary under, any applicable Law, (ii) neither the Company nor any
of the Company Subsidiaries has engaged in any Hazardous Materials Activity in
violation of, or that would result in any Liability to the Company or any
Company Subsidiary under, any applicable Law, (iii) no Action is pending or, to
the Knowledge of the Company, threatened against the Company or any Company
Subsidiary concerning any of the Hazardous Materials Activities of the Company
and the Company Subsidiaries, or any of the real property owned or leased by the
Company or any of the Company Subsidiaries, and (iv) to the Knowledge of the
Company, no Hazardous Material has migrated or threatened to migrate from any of
the Owned Real Property or Leased Real Property upon or beneath other
properties,
29
and no Hazardous Material has migrated or threatened to migrate from other
properties upon or beneath any of the Owned Real Property or Leased Real
Property, except, in the case of clause (i), (ii) (iii) and (iv) of this Section
4.19, for such violations, activities and actions as have not had, and would not
have, individually or in the aggregate, a Material Adverse Effect.
SECTION 4.20 Insurance. Section 4.20 of the Company Disclosure Schedule
---------
sets forth a true, correct and complete list of all insurance policies which are
in force as of the date hereof which the Company or any Company Subsidiary is a
named insured or beneficiary (the "Named Insurance Policies"). Neither the
Company nor any Company Subsidiary has received any notice or other
communication since the Acquisition Date canceling or materially amending or
materially increasing the premium payable under any of the Named Insurance
Policies, and to the Knowledge of the Company, no such cancellation, amendment
or increase of premiums is threatened. All of the Named Insurance Policies are
on an occurrence basis and will be in full force and effect at, and immediately
following the Closing.
SECTION 4.21 Transactions with Affiliates. Except as set forth in Section
----------------------------
4.21 of the Company Disclosure Schedule, since the Acquisition Date, there have
been and there currently exist, no transactions, agreements or arrangements
(other than employment arrangements entered into in the ordinary course of
business) between the Company and the Company Subsidiaries, on the one hand, and
any director or officer of the Company or any of its Affiliates, on the other
hand, with an aggregate value in excess of $60,000 per transaction or per annum,
as applicable, other than those constituting an employee benefit plan or
compensation arrangement.
SECTION 4.22 Year 2000 Compliance. Except as set forth on Section 4.22 of
--------------------
the Company Disclosure Schedule, all computer systems and software and all
related components (including hardware, firmware, system software,
communications software, application software, personal computers and
workstations, servers, networking and peripheral equipment) owned or used by the
Company or any Company Subsidiary in connection with its respective business
have been tested for Year 2000 Compliance and on or prior to December 31, 1999
will be Year 2000 Compliant, except where the failure to be Year 2000 Compliant
would not have a Material Adverse Effect. "Year 2000 Compliant" or "Year 2000
Compliance" means accurately processing, providing or receiving date data
(including calculating, comparing and sequencing dates) from, into and between
the twentieth and twenty-first centuries, the years 1999 and 2000, and leap year
calculations, when used in accordance with applicable specifications or
documentation. The Company and the Company Subsidiaries will not be required to
spend in excess of $1,000,000 after the date hereof (excluding compensation
costs for employees) for the Company and the Company Subsidiaries to be Year
2000 Compliant.
SECTION 4.23 Distributors and Suppliers.
--------------------------
(a) As of the date hereof, to the Knowledge of the Company, except as
set forth in Section 4.23 of the Company Disclosure Schedule, the Company is not
involved in any material controversy with any of its material distributors,
customers or suppliers, and no material customer or material supplier of the
Company or any Company Subsidiary has terminated or
30
threatened in writing to terminate a material agreement with the Company
relating to its purchase of products from, or sale to, the Company or any
Company Subsidiary.
(b) As of the date hereof, to the Knowledge of the Company, customers
or distributors accounting for more than twenty five percent (25%) of the
Company's consolidated revenue for the first six months of 1999 from all
customers or distributors, or suppliers accounting for more than twenty five
percent (25%) of the Company's consolidated expense for the first six months of
1999 to all suppliers, respectively, have not asserted any material controversy
or material dispute with the Company or any Company Subsidiary, terminated or
ceased to do business with the Company or any Company Subsidiary, or threatened
in writing to do any of the foregoing.
SECTION 4.24 Product Warranties; Product Recalls.
-----------------------------------
(a) To the Knowledge of the Company, Section 4.24 of the Company
Disclosure Schedule contains the forms of express product warranties and
guaranties that have been used by the Company and each Company Subsidiary in
their respective businesses at any time during the period from January 1, 1997
to the date hereof (or since the Acquisition Date, if shorter). To the Knowledge
of the Company, except as set forth in Section 4.24 of the Company Disclosure
Schedule, (i) neither the Company nor any Company Subsidiary has offered any
materially different forms of express product warranties and guaranties after
January 1, 1997 (or since the Acquisition Date, if shorter), and (ii) no defects
exist in the products manufactured and sold by the Company or any Company
Subsidiary since the Acquisition Date that would result in an increase in such
product warranty expense claims that in the aggregate would have a Material
Adverse Effect.
(b) To the Knowledge of the Company, none of the products designed,
manufactured, packaged, labeled, shipped or sold in connection with the
respective businesses of the Company and each Company Subsidiary has, since
January 1, 1997 (or since the Acquisition Date, if shorter), been subject to, or
is currently subject to, any recall mandated by any Governmental Authority.
SECTION 4.25 Products Liability. To the Knowledge of the Company, (i)
------------------
since the Acquisition Date, there has not been any Occurrence that would have a
Material Adverse Effect, and (ii) there is no material rework or change of a
part or parts in an entire class of products (collectively, "Retrofits"), by or
on behalf of the Company or any Company Subsidiary, other than Retrofits
conducted by the Company or any Company Subsidiary in the ordinary course of
business consistent with past practices. The term "Occurrence" shall mean and
refer to any accident, happening or event that took place since January 1, 1997
(or the Acquisition Date, if shorter) which was caused or allegedly was caused
by any alleged hazard or alleged defect in manufacture, design, materials or
workmanship, including any alleged failure to warn or any breach of express or
implied warranties or representations with respect to, or any such accident,
happening or event otherwise involving, any product manufactured or distributed
by or on behalf of the Company or any Company Subsidiary (including any parts or
components) that is reasonably likely to result in a claim or loss.
31
SECTION 4.26 Antitrust. As of the date hereof, the Company has been
---------
orally advised by an attorney from the United States Department of Justice
("DOJ") who is handling the investigation by DOJ relating to the Subpoena issued
by the United States District Court of the District of Maryland dated May 5,
1999, issued to Xxxxx Tees, Pioneer Plastics Corp. and the Company that the
Company is not the target of such investigation and that nothing in DOJ's
investigation is inconsistent with the Company's not being a target in the
investigation, and to the Company's actual knowledge, there has been no act,
event or occurrence, and to the Company's actual knowledge the Company has not
received information from any source, that could reasonably result in the
Company being named as a target in such investigation. For purposes of the
previous sentence, the "Company's actual knowledge" means the actual knowledge
of the persons named in the definition of "Knowledge of the Company" without
obligation of inquiry. As used in this Agreement, "Antitrust Matter" means the
antitrust matters that are the subject of the investigation or the Subpoena
(including any governmental or private claim or action arising out of the
occurrences that constitute the subject matter of such investigation or
Subpoena), to the extent arising out of any action, inaction, event, condition,
liability or obligation of the Company or any Company Subsidiary, or any
officer, director, employee or agent of the Company or any Company Subsidiary,
occurring or existing prior to the Closing.
SECTION 4.27 Brokers; Fees and Expenses. Except for Warburg Dillon Read
--------------------------
LLC and Genstar Capital LLC, each of whom are entitled to certain investment
banking and advisory fees in connection with the Agreement and the transactions
contemplated hereby (which fees shall be paid in full by the Company), no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon any arrangements made by or on behalf of the Company.
Section 4.27 of the Company Disclosure Schedule sets forth a good faith estimate
------------
of the amount of the fees and expenses that the Company or a Company Subsidiary
will be required to make as a result of the transactions contemplated by this
Agreement. The total fees and expenses of the Company and the Company
Subsidiaries for Warburg Dillon Read, Genstar Capital LLC, accountants and legal
counsel in connection with the transactions contemplated by this Agreement will
be no more than $5,500,000. The Shareholders will reimburse the Company or a
Company Subsidiary, as applicable, for any such fees and expenses paid by the
Company or any Company Subsidiary which are in excess of $5,500,000.
SECTION 4.28 Prior Agreements. Neither the execution nor the performance
of this Agreement or Amendment No. 5 to the Pioneer Agreement, dated as of
October 13, 1999, or any of the transactions contemplated hereby or thereby,
including the sale of the Shares and the sale and redemption of the Redeemed
Shares pursuant to this Agreement, will result in the loss of any
indemnification and guarantee rights, or related remedies, that the Company or
any Company Subsidiary has under any of the following agreements (the "Prior
-----
Agreements"):
----------
(a) the Pioneer Agreement;
(b) the Asset Purchase Agreement and any related agreements, dated
February 15, 1996, between Domtar Industries, Inc. and Panolam Industries, Inc.,
a Delaware corporation;
32
(c) the Asset Purchase Agreement and any related agreements, dated as
of February 15, 1996, between Domtar Industries, Inc. and Panolam Industries,
Ltd., a corporation formed and existing under the laws of the Province of
Ontario; and
(d) the Settlement Agreement and Release and any related agreements,
dated December 22, 1994, among Pioneer Plastics Corporation, Sterling Engineered
Products, Inc. and Trinova Corporation.
Neither the Company nor any Company Subsidiary has received notice
from any of the other parties to the Prior Agreements that as of the date hereof
the Company or any Company Subsidiary is not entitled to the benefits of the
indemnification and guarantee rights, or related remedies, that the Company or
any Company Subsidiary has under any of the Prior Agreements. To the Knowledge
of the Company, neither the Company nor any Company Subsidiary is in material
breach or violation of, or material default under, any of the Prior Agreements
to which it is a party, nor has the Company or any Company Subsidiary received
any written notice that it has breached, violated or defaulted under any of the
Prior Agreements to which it is a party.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Subject to the exceptions and qualifications set forth in the
disclosure schedule of even date herewith collectively delivered by the
Purchaser to the Shareholders and the Company on or prior to the date hereof
(the "Purchaser Disclosure Schedule"), the Purchaser hereby represents and
warrants to the Shareholders and the Company as follows:
SECTION 5.1 Authority. The Purchaser has all requisite power and
---------
authority to enter into this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement by the Purchaser, the performance by the Purchaser of its
obligations hereunder, and the consummation by the Purchaser of the transactions
contemplated hereby, have been duly authorized by the Board of Directors or
other managing body of the Purchaser and no other corporate or other action on
the part of the Purchaser is necessary to authorize the execution and delivery
of this Agreement by the Purchaser, the performance by the Purchaser of its
obligations hereunder or the consummation by the Purchaser of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Purchaser and, assuming due authorization, execution and delivery by the other
parties hereto, this Agreement constitutes a legally valid and binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms, except as such enforceability may be limited by principles of
public policy, and subject to (i) the effect of any applicable Laws of general
application relating to bankruptcy, reorganization, insolvency, moratorium or
similar Laws affecting creditors' rights and relief of debtors generally, and
(ii) the effect of rules of law and general principles of equity, including
rules of law and general principles of equity governing specific performance,
injunctive relief and other equitable remedies (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
33
SECTION 5.2 Organization. The Purchaser is duly organized, validly
------------
existing and in good standing under the laws of the jurisdiction of its
organization, and has all requisite corporate or other organizational power and
authority to own, operate or lease the properties and assets now owned, operated
or leased by it, and to carry on its business as currently conducted by the
Purchaser. The Purchaser is duly qualified to do business, and is in good
standing, under the Laws of each jurisdiction in which the character of its
properties owned, operated or leased, or the nature of its activities, makes
such qualification necessary, except in those jurisdictions where the failure to
be so qualified or in good standing would not have a material adverse effect on
the ability of the Purchaser to perform its obligations under this Agreement or
consummate the transactions contemplated hereby.
SECTION 5.3 Conflicts. Assuming all consents, approvals, authorizations,
---------
filings and notifications and other actions set forth in Section 5.4 hereof have
been obtained or made, and except as set forth in Section 5.3 of the Purchaser
Disclosure Schedule, the execution and delivery of this Agreement by the
Purchaser, the performance by the Purchaser of its obligations hereunder, and
the consummation by the Purchaser of the transactions contemplated hereby, does
not and will not (i) conflict with or result in a violation of the
organizational documents of the Purchaser, (ii) conflict with or result in a
violation of any Law or Governmental Order applicable to the Purchaser or the
assets or properties of the Purchaser, or (iii) result in a breach of, or
constitute a default (or event which with the giving of notice or lapse of time,
or both, would become a material default) under, or give rise to any rights of
termination, amendment, modification, acceleration or cancellation of or loss of
any benefit under, or result in the creation of any Encumbrance on any of the
assets or properties of the Purchaser pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, concession, franchise or
other instrument to which the Purchaser is a party, or by which any of the
assets or properties of the Purchaser is bound or affected, except, in the case
of clauses (ii) and (iii) of this Section 5.3, as would not, individually or in
the aggregate, have a material adverse effect on the ability of the Purchaser to
perform its obligations under this Agreement or consummate the transactions
contemplated hereby.
SECTION 5.4 Consents, Approvals, Etc. No consent, waiver, approval,
------------------------
authorization, license, order or permit of, or declaration, filing or
registration with, or notification to, any Governmental Authority or third party
is required to be made or obtained by the Purchaser in connection with the
execution and delivery of this Agreement by the Purchaser, the performance by
the Purchaser of its obligations hereunder, and the consummation by the
Purchaser of the transactions contemplated hereby, except (i) as set forth in
Section 5.4 of the Purchaser Disclosure Schedule, (ii) applicable requirements,
if any, under applicable federal or state securities or "blue sky" Laws and the
HSR Act, and (iii) where the failure to obtain such consent, approval,
authorization or action, or to make such filing or notification would not, when
taken together with all other such failures by the Purchaser, have a material
adverse effect on the ability of the Purchaser to perform its obligations under
this Agreement or consummate the transactions contemplated hereby.
SECTION 5.5 Litigation and Governmental Orders. As of the date hereof,
----------------------------------
(i) there are no Actions pending against the Purchaser or any of its
Subsidiaries, or any of the assets or
34
properties of the Purchaser or any of its Subsidiaries, that individually or in
the aggregate, would prevent the Purchaser from performing its obligations under
this Agreement or consummating the transactions contemplated hereby, and (ii)
the Purchaser, its Subsidiaries and their respective assets and properties are
not subject to any Governmental Order that would prevent the Purchaser from
performing its obligations under this Agreement or consummating the transactions
contemplated hereby.
SECTION 5.6 Financing. Section 5.6 of the Purchase Disclosure Schedule
---------
sets forth a complete and correct copies of a commitment letter from Bankers
Trust Company for the aggregate amount of $335 million (including a $50 million
uncommitted acquisition revolver) in financing including a term sheet accurately
describing the proposed terms and conditions of such financing (the "Financing
Commitment"). The Financing Commitment has not been withdrawn or terminated,
assuming the due execution and delivery by the Company of the Financing
Commitment, and the Purchaser has no reason to believe that the Financing
Commitment will not lead to the financing as contemplated by the Financing
Commitment. The Purchaser can obtain the funds (the "Equity Funds") required to
pay the Aggregate Share Purchase Price without the prior consent, approval or
other discretionary action of any third party. The Financing Commitment,
together with the Equity Funds, constitute all of the required financing
required to be provided by the Purchaser for the consummation of the
transactions contemplated by this Agreement and the payments of all fees and
expenses incurred by the Purchaser in connection therewith.
SECTION 5.7 Investment Intent. The Purchaser acknowledges that the Shares
-----------------
have not been registered under the Securities Act, and may not be resold absent
registration under the Securities Act or an applicable exemption from the
registration and prospectus delivery requirements of the Securities Act. The
Purchaser further acknowledges that the Company is under no obligation, and
assumes no obligation pursuant to the terms hereof, or the terms of any other
certificate, instrument or other document executed and delivered by the Company
in connection with the transactions contemplated hereby, to register the Shares
under the Securities Act or any state securities or "blue sky" Laws. The
Purchaser is acquiring the Shares for its own account, for investment purposes
only and not with a view toward any resale or other distribution thereof (within
the meaning of the Securities Act). The Purchaser qualifies as an "accredited
investor" as that term is defined in Rule 501 of Regulation D promulgated under
the Securities Act.
SECTION 5.8 Due Diligence Investigation. The Purchaser has had an
---------------------------
opportunity to discuss the business, management, operations and finances of the
Company with its officers, directors, employees, agents, representatives and
affiliates (including the Shareholders), and has had an opportunity to inspect
the facilities of the Company. The Purchaser has conducted its own independent
investigation of the Company and has been furnished by the Company, or its
agents or representatives, with all information, documents and other material
relating to the Company, and its business, management, operations and finances,
that the Purchaser has requested. In making its decision to execute and deliver
this Agreement and to consummate the transactions contemplated hereby, the
Purchaser has relied solely upon the representations and warranties of the
Shareholders and the Company set forth in Article III and Article IV and in the
35
Company Disclosure Schedule hereof, respectively, and has not relied upon any
other information provided by, for or on behalf of the Company, or its agents or
representatives, to the Purchaser in connection with the transactions
contemplated hereby.
SECTION 5.9 Brokers. No broker, finder or investment banker is entitled
-------
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon any arrangements made by
or on behalf of the Purchaser or its Affiliates.
SECTION 5.10 Solvency. Immediately after giving effect to the
--------
transactions contemplated by this Agreement and the closing of any financing to
be obtained by the Company or any of its Affiliates in order to effect the
transactions contemplated by this Agreement, the Company and the Company
Subsidiaries shall be able to pay their debts as they become due and shall own
property having a fair saleable value greater than the amounts required to pay
its debts (including a reasonable estimate of the amount of all contingent
liabilities). Immediately after giving effect to the transactions contemplated
by this Agreement and the closing of any financing to be obtained by the Company
or any of its Affiliates in order to effect the transactions contemplated by
this Agreement, the Company and the Company Subsidiaries shall have adequate
capital to carry on its business. No transfer of property is being made and no
obligation is being incurred in connection with the transactions contemplated by
this Agreement and the closing of any financing to be obtained by the Company or
any of its Affiliates in order to effect the transactions contemplated by this
Agreement with the intent to hinder, delay or defraud either present or future
creditors of the Purchaser.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 No Solicitation. The Company and the Shareholders hereby
---------------
agree that neither the Company, the Company Subsidiaries or the Shareholders,
nor any of their respective officers, directors, general or limited partners,
managers, employees, agents, representatives or Affiliates shall, during the
period commencing with the execution and delivery hereof and terminating upon
the earlier to occur of the Closing or the termination of this Agreement
pursuant to and in accordance with Section 8.1 hereof, directly or indirectly
solicit, initiate or continue any discussions or negotiations with, or encourage
or respond to any inquiries or proposals by, or participate in any negotiations
with, provide any information to, or otherwise cooperate in any way or enter
into any agreement with, any Person or group other than the Purchaser and its
officers, directors, employees, agents and representatives, concerning any
proposed sale of the Company or any Company Subsidiary, all or a substantial
portion of their respective assets and properties, or the Business, any merger,
consolidation or combination, any sale of all or a majority of the outstanding
Company Capital Stock or outstanding capital stock of any Company Subsidiary,
any liquidation, dissolution or winding up of the Company, or any similar
transaction or series of transactions involving the Company or any of the
Company Subsidiaries. The Company will promptly notify the Purchaser in the
event that, during the period commencing with the execution and delivery of this
Agreement by all of the parties hereto and terminating upon the earlier to occur
of the Closing and the termination of this Agreement
36
pursuant to and in accordance with Section 8.1 hereof, the Company shall receive
any such inquiry or proposal or offer to discuss or negotiate any such
transaction.
SECTION 6.2 Conduct of the Company Prior to Closing.
---------------------------------------
(a) Unless the Purchaser otherwise consents in writing (which consent
shall not be unreasonably withheld) and except as otherwise set forth herein or
in the Company Disclosure Schedule (including Section 6.2 thereof), during the
period commencing with the execution and delivery of this Agreement by all of
the parties hereto and terminating upon the earlier to occur of the Closing and
the termination of this Agreement pursuant to and in accordance with Section 8.1
hereof, the Company shall, and shall cause each Company Subsidiary to, (i)
conduct the Business only in the usual, regular and ordinary course, (ii) use
commercially reasonable efforts consistent with past practices and policies,
subject to the limitations set forth herein, to keep available the services of
the officers and key employees of the Company and the Company Subsidiaries, and
to preserve intact the current relationships of the Company and the Company
Subsidiaries with their respective customers, suppliers, distributors, and other
Persons with which the Company and the Company Subsidiaries have significant
business relationships as of the date hereof, (iii) use commercially reasonable
efforts consistent with past practices and policies to maintain the assets and
properties of the Company and the Company Subsidiaries in their current
condition, normal wear and tear excepted, and (iv) maintain the books, accounts
and records of the Company and the Company Subsidiaries in the usual, regular
and ordinary manner, on a basis consistent with past practice.
(b) Except as expressly provided in this Agreement or Section 6.2 of
the Company Disclosure Schedule, during the period commencing with the execution
and delivery of this Agreement by all of the parties hereto and terminating upon
the earlier to occur of the Closing and the termination of this Agreement
pursuant to and in accordance with Section 8.1 hereof, the Company shall not,
and shall cause the Company Subsidiaries not to, do or cause to be done any of
the following without the prior written consent of the Purchaser (which consent
shall not be unreasonably withheld):
(i) except in the ordinary course of business, create any
Encumbrance on any assets or properties (whether tangible or intangible) of the
Company or any Company Subsidiary, other than (A) Permitted Encumbrances, (B)
Encumbrances that will be released at or prior to the Closing, and (C)
Encumbrances on assets or properties having an aggregate value not in excess of
$100,000;
(ii) except for sales of inventory in the ordinary course of
business and except for transactions among the Company and Company Subsidiaries,
sell, assign, transfer, lease or otherwise dispose of, or agree to sell, assign,
transfer, lease or otherwise dispose of, any of assets of the Company or any
Company Subsidiary having a value, in any individual case, in excess of
$100,000;
(iii) acquire by merger, consolidation or combination, or
acquisition of stock or assets) any corporation, partnership or other business
organization or division thereof;
37
(iv) (A) enter into or amend any employment, deferred
compensation, severance or similar agreement, except any individual employment
agreement providing for compensation of less than $200,000 per annum entered
into in the ordinary course of business consistent with past practice, or any
severance agreement entered into in the ordinary course of business consistent
with past practice, (B) increase the compensation payable, or to become payable,
by the Company or any Company Subsidiary to any Company Employees, or any
directors or officers of the Company or any Company Subsidiaries, (C) pay or
make provision for the payment of any bonus, stock option, stock purchase,
profit sharing, deferred compensation, pension, retirement or other similar
payment or arrangement to any Company Employee, or any director or officer of
the Company or any Company Subsidiary, or (D) increase the coverage or benefits
available under any severance pay, termination pay, vacation pay, company
awards, salary continuation or disability, sick leave, deferred compensation,
bonus or other incentive compensation, insurance, pension or other employee
benefit plan, payment or arrangement made to, for or with Company Employees or
any director or officer of the Company or any Company Subsidiary, other than, in
the case of clauses (B), (C) and (D) of this Section 6.2(b)(iv), normal
increases in the ordinary course of business consistent with past practice, and
except, in the case of clause (C) of this Section 6.2(b)(iv), to the extent that
the Company or any Company Subsidiary is contractually obligated to do so or
required to do so by applicable Law;
(v) materially change any method of accounting or accounting
practice used by the Company or any Company Subsidiary, other than such changes
required by GAAP;
(vi) issue or sell any additional shares of the Company
Capital Stock, or any capital stock or other equity interests in any Company
Subsidiary, or securities convertible into or exchangeable for any such shares
of capital stock of, or equity interests in, the Company or any Company
Subsidiary, or issue or grant any options, warrants, calls, subscription rights
or other rights of any kind to acquire additional shares of such capital stock
of, or other equity interests in, the Company or any Company Subsidiary, except
pursuant to Company Options outstanding on the date hereof;
(vii) amend in any respect the Company Certificate of
Incorporation or Company Bylaws, or the organizational documents of any Company
Subsidiary, or effect any recapitalization, reclassification or similar change
in the capitalization of the Company;
(viii) take any action which would materially interfere with the
consummation of the transactions contemplated hereby, make such consummation
more difficult, or materially delay the consummation of such transactions;
(ix) incur, guarantee or assume any indebtedness for borrowed
money, except for (A) borrowings under existing agreements in the ordinary
course of business or to make the payment to Rugby described in Amendment No. 5
to the Pioneer Agreement and related fee to Genstar Capital LLC and (B)
borrowings under inter-company indebtedness between the Company and any of the
Company Subsidiaries or between the Company Subsidiaries;
38
(x) pay the additional consideration payable under the
Pioneer Agreement;
(xi) declare, set aside or pay any dividend or distribution or
other capital return in respect of any shares of Company Capital Stock, or
redeem, purchase or acquire any shares of Company Capital Stock;
(xii) make or authorize any individual capital expenditure
exceeding $500,000 except as contemplated by, and disclosed in, the Company's
operating budget previously provided to Purchaser;
(xiii) enter into or amend any agreement or arrangement with
Genstar or its Affiliates; or
(xiv) enter into any agreement to take, or cause to be taken,
any of the actions set forth in this Section 6.2(b).
SECTION 6.3 Conduct of the Purchaser Prior to Closing. During the period
-----------------------------------------
commencing with the execution and delivery of this Agreement by all of the
parties hereto and terminating upon the earlier to occur of the Closing and the
termination of this Agreement pursuant to and in accordance with Section 8.1
hereof, the Purchaser shall not take, or cause to be taken, any action which
would materially interfere with the consummation of the transactions
contemplated hereby, make such consummation more difficult or materially delay
the consummation of such transactions.
SECTION 6.4 Access to Information. Subject to the terms of the
---------------------
Confidentiality Agreement, during the period commencing upon the execution of
this Agreement by all of the parties hereto and terminating upon the earlier to
occur of the Closing and the termination of this Agreement pursuant to and in
accordance with Section 8.1 hereof, upon reasonable notice and during normal
business hours, the Company shall, and shall cause the officers, employees,
auditors and agents of the Company to, (i) afford the officers, employees and
authorized agents and representatives of the Purchaser reasonable access to the
offices, properties, books and records of the Company and the Company
Subsidiaries, and (ii) furnish to the officers, employees and authorized agents
and representatives of the Purchaser such additional financial and operating
data and other information regarding the assets, properties, goodwill and
business of the Company and the Company Subsidiaries as the Purchaser may from
time to time reasonably request; provided, however, that the Purchaser shall not
unreasonably interfere with any of the businesses or operations of the Company
or any Company Subsidiary. The Company shall provide the Purchaser, as soon as
available, its unaudited condensed consolidated financial statements for the
nine month-period ended September 30, 1999, which shall (i) have been prepared
in accordance with the books and records of the Company, (ii) have been prepared
in accordance with GAAP applied on a basis consistent with that reflected in the
Audited Company Financial Statements, and (iii) present fairly, in all material
respects, the consolidated financial position, results of operations and cash
flows of the Company and the Company Subsidiaries as of its date and during the
respective periods indicated therein.
39
SECTION 6.5 Confidentiality. The terms of the Confidentiality Agreement
---------------
are hereby incorporated herein by reference and shall continue in full force and
effect until the Closing, such that the information obtained by any party
hereto, or its officers, employees, agents or representatives, during any
investigation conducted pursuant to Section 6.4 hereof, or in connection with
the negotiation and execution of this Agreement or the consummation of the
transactions contemplated hereby, or otherwise, shall be governed by the terms
of the Confidentiality Agreement. Upon the Closing, the Confidentiality
Agreement and the obligations of the parties thereto and under this Section 6.5
shall terminate and be of no further force or effect. Genstar and Stargen agree
to keep confidential information and documents of the Company, unless disclosure
is required by court or administrative order.
SECTION 6.6 Efforts; Consents; Regulatory and Other Authorizations;
-------------------------------------------------------
Financing.
---------
(a) Each party hereto shall use its reasonable best efforts to (i)
take, or cause to be taken, all appropriate action, and do, or cause to be done,
all things necessary, proper or advisable under applicable Law or otherwise to
promptly consummate and make effective the transactions contemplated by this
Agreement, (ii) obtain all authorizations, consents, orders and approvals of,
and give all notices to and make all filings with, all Governmental Authorities
and other third parties that may be or become necessary for the performance of
its obligations under this Agreement and the consummation of the transactions
contemplated hereby, including approval by the Board of Directors of the Company
of the Share Purchases and the Redemption, and those consents set forth in the
Shareholders Disclosure Schedule, the Company Disclosure Schedule or the
Purchaser Disclosure Schedule, as applicable, (iii) lift or rescind any
injunction or restraining order or other order adversely affecting the ability
of the parties hereto to consummate the transactions contemplated hereby, and
(iv) fulfill all conditions to the obligations of such parties under this
Agreement. Each party hereto shall cooperate fully with the other parties hereto
in promptly seeking to obtain all such authorizations, consents, orders and
approvals, giving such notices, and making such filings. The parties hereto
shall not to take any action that is reasonably likely to have the effect of
unreasonably delaying, impairing or impeding the receipt of any required
authorizations, consents, orders or approvals.
(b) In furtherance and not in limitation of the terms of Section
6.6(a) hereof, to the extent required by applicable Law, each party hereto shall
file, or cause to be filed, a Notification and Report Form pursuant to the HSR
Act with respect to the transactions contemplated hereby within seven (7)
Business Days of the date hereof, shall supply promptly any additional
information and documentary material that may be requested by any Governmental
Authority (including the Antitrust Division of the United States Department of
Justice and the United States Federal Trade Commission) pursuant to the HSR Act,
and shall cooperate in connection with any filing under applicable antitrust
Laws and in connection with resolving any investigation or other inquiry
concerning the transactions contemplated by this Agreement commenced by any
Governmental Authority, including the United States Federal Trade Commission,
the Antitrust Division of the United States Department of Justice, or the office
of any state attorney general.
40
(c) In furtherance and not in limitation of the terms of Section
6.6(a) hereof, as promptly as practicable following the execution and delivery
of this Agreement by all of the parties hereto, the Purchaser shall take, or
cause to be taken, all action necessary, proper or advisable to obtain all
financing necessary to make the payments required under Article II hereof
(including the Aggregate Share Purchase Price and the Aggregate Option Purchase
Price), to pay all fees and expenses to be paid by the Purchaser in connection
with the transactions contemplated hereby, and to satisfy any other payment
obligations that the Purchaser may incur in connection with, and may be required
in order to consummate, the transactions contemplated hereby, including the
closing of the Bank Facility and the Repayment of all outstanding Senior Debt.
The Purchaser hereby agrees that it shall not amend (other than to extend the
termination date thereof), waive, discharge or terminate any material provision
of the Financing Commitment or any other agreement relating to the financing of
the transactions contemplated hereby without the prior written consent of the
Shareholders, which consent shall not be unreasonably withheld or delayed. In
the event that any portion of such financing becomes unavailable, regardless of
the reason therefor, the Purchaser shall use its commercially reasonable efforts
to obtain alternative financing on substantially comparable or more favorable
terms from other sources.
(d) The Company shall timely effect a tax election under Section
338(h)(10) of the Internal Revenue Code with respect to the acquisition by the
Company of Pioneer Plastics Corporation.
(e) The Shareholders and the Company shall cooperate with any
reasonable requests of the Purchaser related to the recording of the
transactions contemplated by this Agreement as a recapitalization for financial
reporting purposes.
(f) The Purchaser shall use its commercially reasonable best efforts
to negotiate an employment agreement contemplated by the term sheet included in
Exhibit 7.2(f), on terms consistent with such term sheet, and shall deliver to
Xx. Xxxxxx or his counsel an employment agreement that the Purchaser is prepared
to have the Company or a Company Subsidiary execute in satisfaction of the
condition set forth in Section 7.2(f).
SECTION 6.7 Further Action. Subject to the terms and conditions herein
--------------
provided, each of the parties hereto shall use its reasonable best efforts to
deliver, or cause to be delivered, such further certificates, instruments and
other documents, and to take, or cause to be taken, such further actions, as may
be necessary, proper or advisable under applicable Laws to consummate and make
effective the transactions contemplated by this Agreement.
SECTION 6.8 Indemnification; Officers' and Directors' Insurance.
---------------------------------------------------
(a) From and after the Closing, the Purchaser shall, and shall cause
the Company to, (i) indemnify and hold harmless each present and former director
and officer of the Company and each present and former Company Subsidiary (the
"Company Indemnified Parties"), against any Losses incurred or suffered by any
of the Company Indemnified Parties in connection with any Liabilities or any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or
41
occurring at or prior to the Closing, whether asserted or claimed prior to, at
or after the Closing, to the fullest extent that the Company or any Company
Subsidiary would have been permitted under the Company Certificate of
Incorporation and Company Bylaws, or other organizational documents of any
Company Subsidiary, in each case as in effect on the date hereof, to indemnify
such Company Indemnified Parties, and (ii) advance reasonable expenses as
incurred by any Company Indemnified Party in connection with any matters for
which such Company Indemnified Party is entitled to indemnification from the
Purchaser pursuant to this Section 6.8(a) to the fullest extent permitted under
the Company Certificate of Incorporation and Company Bylaws, or other
organizational documents of any Company Subsidiary; provided, however, the
Company Indemnified Party to whom expenses are advanced provides an undertaking
to repay such advances if it is ultimately determined that such Company
Indemnified Party is not entitled to indemnification under the Company
Certificate of Incorporation and Company Bylaws, or other organizational
documents of any Company Subsidiary, or pursuant to this Section 6.8(a). The
foregoing indemnification shall not entitle any Company Indemnified Party to
seek indemnification for any amount for which such person is obligated to
provide indemnification pursuant to Section 9.2. The Company will not amend the
provisions of the Company's Certificate of Incorporation or Bylaws relating to
elimination of liability of directors and indemnification of officers,
directors, employees and other persons in a way that would adversely affect such
officers, directors, employees and other persons.
(b) For a period of six (6) years following the Closing, the
Purchaser shall maintain, or shall cause the Company for itself and the Company
Subsidiaries to maintain (to the extent available in the market), in effect a
directors' and officers' liability insurance policy covering those persons who
are currently covered by the Company's directors' and officers' liability
insurance policy (copies of which have been heretofore delivered by the Company
to the Purchaser and its agents and representatives) with coverage in amount and
scope at least as favorable as the Company's existing coverage; provided,
however, that in no event shall the Purchaser or the Company be required to
expend in the aggregate in excess of one hundred and fifty percent (150%) of the
annual premium currently paid by the Company for such coverage, and if such
premium would at any time exceed one hundred and fifty percent (150%) of such
amount, then the Purchaser or the Company shall maintain insurance policies
which provide the maximum and best coverage available at an annual premium equal
to one hundred and fifty percent (150%) of such amount; provided further that
this Section 6.8(b) shall be deemed to have been satisfied if a prepaid policy
or policies (i.e., "tail coverage") have been obtained by the Company which
policy or policies provide such directors and officers with the coverage
described in this Section 6.8(b) for an aggregate period of not less than six
(6) years with respect to claims arising from facts or events that occurred on
or before the Closing Date, including with respect to the transactions
contemplated by this Agreement.
(c) The terms and provisions of this Section 6.8 are intended to be
in addition to the rights otherwise available to the Company Indemnified Parties
by applicable Law, charter, bylaw or agreement, and shall operate for the
benefit of, and shall be enforceable by, the Company Indemnified Parties and
their respective heirs and representatives.
42
SECTION 6.9 Books and Records. For a period of five (5) years (or with
-----------------
respect to Taxes, six (6) years) following the Closing, the Purchaser shall, and
shall cause the Company and the Company Subsidiaries to, provide to any
Shareholder for any proper purpose relating to such Shareholder's ownership of
any securities of the Company, access to the books and records of the Company
upon reasonable advance written notice during regular business hours for the
sole purpose of obtaining information for use as aforesaid and will permit such
Shareholder to make such extracts and copies thereof as may be necessary. Such
Shareholder shall reimburse the Company or the Company Subsidiary for the
reasonable out-of-pocket expenses incurred by any of them in performing the
covenants set forth in this Section 6.9.
SECTION 6.10 Termination of Certain Agreements; Continuation of Engagement
-------------------------------------------------------------
Agreement. On or prior to the Closing, Genstar, the Company and the relevant
---------
Company Subsidiaries shall take all actions necessary, if any, to terminate (i)
that certain Stock Option Agreement, dated as of June 7, 1996 (the "Stock Option
Agreement"), as amended, among Panolam Industries International, Genstar, CCFL
Subordinated Debt Fund and Company, Limited Partnership, a limited partnership
organized and existing under the laws of the Province of Quebec ("CCFL"), Domtar
Industries Inc., a corporation organized and existing under the laws of the
State of Delaware ("Domtar Industries"), and Xxxxxx X. Xxxxxx, such that any
option granted pursuant to such Stock Option Agreement shall be canceled,
retired and extinguished unexercised, (ii) that certain Stockholders' Agreement,
dated as of June 7, 1996 (the "Domtar Stockholders' Agreement"), as amended,
among Company, Genstar, CCFL, Domtar Industries, Xxxxxx X. Xxxxxx and Stargen,
such that all rights and obligations of the parties thereunder shall terminate,
and (iii) the Management Services Agreement. The Company hereby confirms that
Panolam Industries will continue to be obligated to make, and shall make, all
unpaid payments required under clause (ii) of the Engagement Agreement and the
Company and after the Closing the Purchaser shall cause Panolam Industries to
fulfill such obligations.
SECTION 6.11 No Solicitation. The Shareholders hereby agree that from the
---------------
date hereof until the third anniversary of the Closing, neither they nor any of
their affiliates shall solicit the employment of any person who is employed by
the Company as of the date hereof.
SECTION 6.12 Tax Matters.
-----------
(a) The Company shall prepare or cause to be prepared and file or
cause to be filed all Tax Returns for the Company and the Company Subsidiaries
for all periods (or portions thereof) ending on or prior to the Closing Date
which are filed after the Closing Date. The Purchaser shall permit the
Shareholders to review and comment on each such Tax Return described in the
preceding sentence prior to filing, and shall make such revisions to such Tax
Returns as reasonably requested by the Shareholders.
(b) The Company agrees to assign and promptly remit all refunds
(including interest thereon), net of any Tax effect to the Company, received by
the Company or any Company Subsidiary of any Taxes paid by the Company with
respect to any taxable period ending on or prior to the Closing Date; provided,
however, that the Company shall be entitled to the portion of any refund
resulting from a carryback of a net operating loss, net capital loss, Tax
43
credit or similar item sustained or arising in any period (or portion thereof)
ending after the Closing Date. Notwithstanding the foregoing, no payment shall
be required to be made pursuant to this Section 6.12(b) unless the amount of
such payment would have been indemnifiable under the Agreement (had it been an
obligation of the Company).
ARTICLE VII
CONDITIONS TO CLOSING
SECTION 7.1 Conditions to Obligations of the Shareholders and the Company
-------------------------------------------------------------
The obligations of the Shareholders and the Company to consummate the Share
Purchases, the Redemption and the other transactions contemplated by this
Agreement to be consummated as of the Closing shall be subject to the
satisfaction, fulfillment or written waiver, at or prior to the Closing, of each
of the following conditions:
(a) Representations and Warranties; Covenants. (i) The
-----------------------------------------
representations and warranties of the Purchaser set forth in Article V hereof
shall be true and correct as of the Closing, with the same force and effect as
if made as of the Closing or, in the case of representations and warranties
which address matters only as of a particular date, as of such date, with only
such exceptions as, individually or in the aggregate, have not had and would not
have a material adverse effect on the ability of the Purchaser to perform its
obligations under this Agreement or consummate the transactions contemplated
hereby, (ii) the covenants and agreements set forth in this Agreement to be
performed or complied with by the Purchaser at or prior to the Closing, shall
have been performed or complied with in all material respects, and (iii) the
Shareholders and the Company shall have received a certificate of the Purchaser,
dated as of the Closing Date, certifying as to the matters set forth in clauses
(i) and (ii) of this Section 7.1(a), signed on behalf of the Purchaser by a duly
authorized officer thereof.
(b) No Governmental Order. No Governmental Authority shall have
---------------------
enacted, issued, promulgated, enforced or entered any Governmental Order which
is in effect and has the effect of making the Share Purchases or any other
transactions contemplated by this Agreement illegal or otherwise restraining or
prohibiting the consummation of the Share Purchases or any other transactions
contemplated hereby.
(c) HSR Act. The waiting period under the HSR Act, if applicable,
-------
shall have expired or been terminated.
(d) Governmental Approvals. All consents and approvals of
----------------------
Governmental Authorities necessary for consummation of the Share Purchases and
the other transactions contemplated by this Agreement shall have been obtained.
(e) Legal Actions or Proceedings. No legal action or proceeding
----------------------------
shall have been instituted seeking to restrain, prohibit, invalidate or
otherwise affect the transactions contemplated by this Agreement.
44
(f) Stockholders Agreement. The Purchaser shall deliver to the
----------------------
Company and the Shareholders the Stockholders Agreement, substantially in the
form attached hereto as Exhibit 7.1(f) (the "Stockholders Agreement").
(g) Solvency Certificate. The Shareholders and the Company shall
--------------------
have received copies of any solvency opinions of appraisal firms or investment
banks obtained at the request of the Purchaser's financing sources or otherwise
delivered in connection with the transactions contemplated by this Agreement,
addressed to the Shareholders and the Board of Directors of the Company (or
stating that the Shareholders and the Board of Directors of the Company may rely
thereon as if addressed to the Purchaser).
(h) Shareholder Notes, Payments and Deliveries. The Company shall
------------------------------------------
have executed and delivered the Shareholder Notes to the Shareholders and the
Purchaser and the Company shall have made all payments required to be made
pursuant to Article II hereof. The Company shall have paid Genstar Capital LLC
all fees and expenses accrued through the Closing Date under the Management
Services Agreement as set forth in Section 7.1(h) of the Company Disclosure
--------------
Schedule.
(i) Opinion of Counsel for the Purchaser. The Shareholders shall
------------------------------------
have received the favorable opinion of Xxxxxx Xxxx & Xxxxxxxx, LLP, counsel for
the Purchaser, dated the Closing Date, in substantially the form attached hereto
as Exhibit 7.1(i).
SECTION 7.2 Conditions to Obligations of the Purchaser. The obligations
------------------------------------------
of the Purchaser to consummate the Share Purchases and the other transactions
contemplated by this Agreement to be consummated as of the Closing shall be
subject to the satisfaction, fulfillment or written waiver, at or prior to the
Closing, of each of the following conditions:
(a) Representations and Warranties; Covenants. (i) the
-----------------------------------------
representations and warranties of the Shareholders and the Company set forth in
Article III and Article IV hereof, respectively, shall be true and correct as of
the Closing, with the same force and effect as if made as of the Closing or, in
the case of representations and warranties which address matters only as of a
particular date, as of such date, with only such exceptions as, individually or
in the aggregate, have not had and would not have a Material Adverse Effect,
(ii) the covenants and agreements set forth in this Agreement to be performed or
complied with by the Shareholders or the Company at or prior to the Closing,
shall have been performed or complied with in all material respects, and (iii)
the Purchaser shall have received a certificate of the Shareholders, dated as of
the Closing Date, certifying as to the matters set forth in clauses (i) and (ii)
of this Section 7.2(a) with respect to the Shareholders, signed by each of the
Shareholders or a duly authorized officer thereof, and (iv) the Purchaser shall
have received a certificate of the Company, dated as of the Closing Date,
certifying as to the matters set forth in clauses (i) and (ii) of this Section
7.2(a) with respect to the Company, signed on behalf of the Company by a duly
authorized officer thereof.
(b) No Governmental Order. No Governmental Authority shall have
---------------------
enacted, issued, promulgated, enforced or entered any Governmental Order which
is in effect and has the
45
effect of making the Share Purchases or any other transactions contemplated by
this Agreement illegal or otherwise restraining or prohibiting the consummation
of the Share Purchases or any other transactions contemplated hereby.
(c) HSR Act. The waiting period under the HSR Act, if applicable,
-------
shall have expired or been terminated.
(d) Governmental Approvals. All consents and approvals of
----------------------
Governmental Authorities necessary for consummation of the transactions
contemplated hereby shall have been obtained.
(e) Resignations. The Purchaser shall have received a letter of
------------
resignation from each member of the Board of Directors of the Company.
(f) Employment Agreements. Xxxxxx X. Xxxxxx, Xx. shall have entered
---------------------
into an employment agreement, in form and substance satisfactory to the
Purchaser in its sole discretion, on terms that are consistent with the terms
set forth on the term sheets included in Exhibit 7.2(f).
(g) Opinion of Counsel for Shareholder. Purchaser shall have
----------------------------------
received the favorable opinion of Xxxxxx & Xxxxxxx, counsel for Shareholder,
dated the Closing Date, substantially in the form attached hereto at Exhibit
7.2(g).
(h) Legal Actions or Proceedings. No legal action or proceeding
----------------------------
shall have been instituted seeking to restrain, prohibit, invalidate or
otherwise affect the transactions contemplated by this Agreement.
(i) Delivery of Share Certificates. The Shareholders shall have
------------------------------
delivered to the Purchaser the Share Certificates representing the Shares, free
and clear of any Encumbrances.
(j) Delivery of Redeemed Share Certificates. The Shareholders shall
---------------------------------------
have delivered to the Company the Redeemed Share Certificates representing the
Redeemed Shares, and any other required endorsements and documents of transfer
and all other required documents, certificates and agreements necessary to
convey good and valid title to the Redeemed Shares, free and clear of any
Encumbrances.
(k) Refinancing. The Bank Facility shall have closed and the
-----------
Repayment shall have occurred, unless the failure to obtain the Bank Facility
was the result of a willful failure by the Purchaser to perform any covenant or
condition contained therein, the inaccuracy of any representation or warranty
arising out of the bad faith or willful misconduct of the Purchaser.
(l) Termination of Agreements. The Stock Option Agreement, the
--------------------------
Domtar Stockholders' Agreement and the Management Services Agreement shall have
been terminated pursuant to and in accordance with Section 6.10 hereof, and the
Purchaser shall have received satisfactory evidence thereof.
46
(m) Pledge of Notes. Each Shareholder shall have delivered to the
---------------
Purchaser the Shareholder Note issued by the Company to such Shareholder
pursuant to Section 2.3(b) hereof, as the sole security for such Shareholder's
indemnification obligations hereunder.
(n) Stockholders Agreement. The Company and the Shareholders shall
----------------------
deliver to the Purchaser the Stockholders Agreement.
(o) Material Adverse Change. From the date hereof, there shall not
-----------------------
have occurred a Material Adverse Change or an event that with the passage of
time would reasonably be likely to result in a Material Adverse Change.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be terminated at any time
-----------
prior to the Closing:
(a) by the mutual written consent of the Shareholders, the Company
and the Purchaser;
(b) by either the Shareholders and the Company, on the one hand, or
the Purchaser, on the other hand, by written notice to the other party or
parties, as the case may be, if any Governmental Authority with jurisdiction
over such matters shall have issued a Governmental Order permanently
restraining, enjoining or otherwise prohibiting the Share Purchases or any other
transactions contemplated hereby, and such Governmental Order shall have become
final and unappealable; provided, however, that the terms of this Section 8.1(b)
shall not be available to any party or parties, as the case may be, unless such
party or parties shall have used its reasonable best efforts to oppose any such
Governmental Order or to have such Governmental Order vacated or made
inapplicable to the Share Purchases or other transaction contemplated by this
Agreement to which such Governmental Order relates;
(c) by either the Shareholders and the Company, on the one hand, or
the Purchaser, on the other hand, by written notice to the other party or
parties, as the case may be, if the Closing shall not have been consummated on
or before November 30, 1999, unless the failure to consummate the Closing on or
prior to such date is the result of a default under this Agreement by the party
or parties, as the case may be, seeking to terminate the Agreement pursuant to
the terms of this Section 8.1(c);
(d) by the Purchaser upon written notice to the Shareholders and the
Company if the Shareholders or the Company shall have breached this Agreement in
any material respect and such breach shall not have been cured within twenty
(20) calendar days of the delivery of such written notice by the Purchaser to
the Shareholders and the Company;
(e) by the Shareholders and the Company upon written notice to the
Purchaser if the Purchaser shall have breached this Agreement in any material
respect and such breach shall
47
not have been cured within twenty (20) calendar days of the delivery of such
written notice by the Shareholders and the Company to the Purchaser; and
(f) by the Shareholders and the Company if on or before October 31,
1999 the Financing Commitment has not been amended to (A) eliminate the
conditions set forth in paragraph (xxii) and (B) modify the conditions set forth
in paragraphs (i), (ii), (vi) and (xiii) to confirm that all documentation
described therein (to the extent theretofore delivered to Bankers Trust Company)
is satisfactory to Bankers Trust Company, it being understood that Bankers Trust
Company shall be required to be satisfied with any modifications or additions to
the documentation described in such clauses (and with any additional
documentation described in such clauses to the extent not finalized by October
31, 1999).
SECTION 8.2 Effect of Termination. In the event of termination of this
---------------------
Agreement and abandonment of the Share Purchases and the other transactions
contemplated by hereby pursuant to and in accordance with Section 8.1 hereof,
this Agreement shall forthwith become void and of no further force or effect
whatsoever and there shall be no liability on the part of any party hereto;
provided, however, that notwithstanding the foregoing, nothing herein contained
shall relieve any party hereto from any liability resulting from or arising out
of any breach of any agreement or covenant hereunder; and provided further,
however, that notwithstanding the foregoing, the terms of Section 6.5, Article
IX and Article X hereof shall survive any termination of this Agreement, whether
in accordance with Section 8.1 or otherwise.
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
SECTION 9.1 Survival of Representations, Warranties and Covenants. The
------------------------------------------------------
representations and warranties set forth in Article III, Article IV and Article
V of this Agreement shall survive until the 18 month anniversary of the Closing,
except for the representations and warranties contained in Section 4.10, Section
4.17, Section 4.19 and Section 4.26 hereof, which shall survive until the third
(3rd) anniversary of the Closing as provided in Section 10.3. Unless written
notice of a claim based on such representation or warranty specifying in
reasonable detail the facts on which the claim is based shall have been
delivered to the indemnifying party on or prior to the expiration date of such
representation or warranty, such representation or warranty shall be deemed to
be of no further force or effect. Any obligation of the Shareholders to provide
indemnification for Environmental Losses or Antitrust Losses shall survive until
the third (3rd) anniversary of the Closing, unless written notice of a claim for
indemnification shall be made in accordance with this Article IX and delivered
to the Shareholders on or prior to the expiration date, in which case the
indemnification obligation shall survive as to such claim until such claim has
been resolved. Any claim for indemnification for Environmental Losses and
Antitrust Losses must be made in accordance with this Article IX, including
Section 9.5(a), and must be delivered to the Shareholders as provided in Section
10.3 on or prior to the third (3rd) anniversary of the Closing. Except as
otherwise stated herein, each covenant and agreement set forth in this Agreement
shall survive the execution and delivery of this Agreement and shall continue
until the expiration of the applicable statute of limitations period. From and
after the Closing, the remedies contemplated by this Article IX shall be the
sole recourse of the parties hereto and their
48
respective Affiliates for all Losses, Liabilities , Actions, damages or expenses
related to or arising, directly or indirectly, out of this Agreement, the
transactions contemplated hereby or otherwise arising at Law or in equity, and
each party hereto hereby waives any and all rights, claims, causes of action and
other remedies such party or its Affiliates may have against the other parties
hereto relating to the subject matter of this Agreement other than the remedies
expressly provided in this Article IX; provided, however, that notwithstanding
the foregoing, nothing contained in this Agreement or otherwise shall in any way
limit any claim, suit, cause or action or remedy that may be available to the
Purchaser, the Company or the Shareholders based on intentional
misrepresentation.
SECTION 9.2 Indemnification of the Purchaser.
--------------------------------
(a) Subject to the provisions of this Article IX, the Shareholders
shall jointly and severally indemnify and hold harmless the Purchaser and its
directors, officers and Affiliates from and against, and in respect of, any and
all Losses incurred by, resulting from, arising out of, relating to, imposed
upon or incurred by the Purchaser or any of its directors, officers or
Affiliates, or the Company after the Closing Date, by reason of (i) any
inaccuracy in, or breach of, any of the representations and warranties of the
Company or the Shareholders contained in this Agreement, (ii) any breach of any
covenants or agreements of the Company or the Shareholders contained in this
Agreement, (iii) any Environmental Claims or (iv) the Antitrust Matter. For
purposes of the indemnification obligations hereunder and the calculation of
Losses, any inaccuracy in, or breach of a representation and warranty shall be
deemed to constitute a breach of such representation or warranty,
notwithstanding any limitation or qualification as to the materiality set forth
in such representation or warranty as to the scope, accuracy or completeness
thereof, it being the intention of the parties that the Purchaser shall, subject
to Section 9.8 hereof, be indemnified and held harmless from and against any and
all Losses to which the Purchaser is entitled to indemnification hereunder.
(b) Subject to the provisions of this Article IX, the Shareholders
shall jointly and severally indemnify and hold harmless the Purchaser and its
directors, officers and Affiliates from and against, and in respect of, any and
all Taxes that the Company or any Company Subsidiary is required to pay as a
result of the Tax Audits (as defined below), which are in addition to the Taxes
previously paid with respect to the matters and the Tax periods covered by such
Tax Audits and that are in excess of the amounts reserved on the Financial
Statements. The Purchaser shall cause the Company and the Company Subsidiaries
to use their reasonable efforts to defend such Tax Audits in an effort to
mitigate the Taxes payable as a result of such Tax Audits. The Shareholders
shall have the right to participate in the Tax Audits, and in the event that it
becomes reasonably likely that the Shareholders would be obligated to indemnify
the Purchaser for such Tax Audits, the Shareholders may elect to control the
defense of the Tax Audits. For purposes of this Section 9.2(b), "participate"
shall mean the right to participate in conferences, meetings or proceedings with
any Tax Authority, the subject matter of which includes an item for which the
Shareholders may have liability hereunder, and participation in the submission
and determination of the content of documentation and oral presentations to or
before a Tax Authority in connection with the Tax Audits. The Purchaser and the
Company agree that without the written consent of the Shareholders, which
consent will not be
49
unreasonably withheld, they will not settle (and they will cause the Company
Subsidiaries not to settle) any of such Tax Audits, if the Shareholders would be
responsible for any portion of such settlement pursuant to this Article IX. The
"Tax Audits" are the audits identified as items 3 (Maine Sales, Use & Transient
Rentals Tax, Withholding Tax and Income Tax), 5 (Indiana Use, Income and Payroll
Tax) and 6 (Tennessee Department of Revenue for PPC Disposition) of Section 4.10
of the Company Disclosure Schedule.
SECTION 9.3 Intentionally Omitted
---------------------
SECTION 9.4 Indemnification of the Shareholders; Defense of Claims. The
------------------------------------------------------
Purchaser shall indemnify and hold harmless the Shareholders and each of their
respective directors, officers, partners and Affiliates from and against, and in
respect of, any and all Losses incurred by, resulting from, arising out of,
relating to, imposed upon or incurred by the Shareholders or any of their
respective directors, officers, partners and Affiliates by reason of (i) any
inaccuracy in, or breach of, any of the representations and warranties of the
Purchaser contained in this Agreement and (ii) any breach of any covenants or
agreements of the Purchaser contained in this Agreement.
In the event that a third party commences any action against any of
the Shareholders or any of their respective directors, officers, partners or
Affiliates which relates to (A) the Purchaser's ownership of the Company and the
Company Subsidiaries and the operations of the Company and the Company
Subsidiaries after the Closing Date, or (B) any failure by the Company or the
Company Subsidiaries after the Closing Date to perform and discharge all of
their respective obligations under any Contracts or other undertakings after the
Closing Date, then the Company and the Company Subsidiaries shall, and the
Purchaser shall cause the Company and the Company Subsidiaries to, use their
commercially reasonable best efforts to defend, at the expense of the Company
and the Company Subsidiaries, any Shareholder or any director, officer, partner
or Affiliate of a Shareholder against whom or which such action is brought in
order to have such action dismissed against such person without liability to
such person; provided that the Company and the Company Subsidiaries shall not be
obligated to hire counsel separate from Company counsel.
For purposes of the indemnification obligations hereunder and the
calculation of Losses, any inaccuracy in, or breach of a representation and
warranty shall be deemed to constitute a breach of such representation or
warranty, notwithstanding any limitation or qualification as to the materiality
set forth in such representation or warranty as to the scope, accuracy or
completeness thereof, it being the intention of the parties that the
Shareholders shall, subject to Section 9.8 hereof, be indemnified and held
harmless from and against any and all Losses to which the Shareholders are
entitled to indemnification hereunder.
SECTION 9.5 Claims for Indemnification.
--------------------------
(a) After a party who is entitled to indemnification hereunder (the
"indemnified party") either (a) receives notice of any claim or the commencement
of any action by any third party which such indemnified party reasonably
believes may give rise to a claim for
50
indemnification from the other party (the "indemnifying party") or (b) sustains
any Loss not involving a third-party claim, such indemnified party shall, if a
claim is to be made against an indemnifying party under this Article IX,
promptly (and, with respect to a third-party action, within fifteen (15)
calendar days after service of the citation or summons, notify such indemnifying
party in writing in reasonable detail of such claim, action or Loss, as the case
may be; provided that the failure to so notify the indemnifying party shall not
affect the rights to indemnification hereunder except to the extent that the
indemnifying party is actually prejudiced by such failure. In the event of any
claim for indemnification hereunder resulting from or in connection with any
claim or legal proceedings by a third party, the notice to the indemnifying
party shall specify, if known, the amount or an estimate of the amount of the
liability arising therefrom. Notwithstanding the foregoing, with respect to the
Antitrust Matter, an indemnified party shall have the right to notify the
indemnifying party and a "claim" shall be deemed to exist only after the Company
or a Company Subsidiary (A) has incurred after Closing at least $100,000 in
Antitrust Losses in respect of the Antitrust Matter or (B) has been named a
defendant in a civil or criminal action related to such Antitrust Matter or
received notification from DOJ or other Governmental Authority that the Company
or a Company Subsidiary will be so named or has been advised by DOJ that it is a
target of the investigation related to the Antitrust Matter; provided, however,
if on the third anniversary of the Closing none of the events described in
clause (B) shall have occurred and be pending, then the obligations of the
Shareholders to provide indemnification for Antitrust Losses shall expire on the
third anniversary of the Closing (except to the extent of indemnifiable
Antitrust Losses incurred prior to the third anniversary of the Closing Date
that are the subject of a claim properly made prior to the third anniversary).
(b) The Shareholders hereby appoint Genstar as their representative
(the "Shareholder Representative") to take any and all action on their behalf in
respect of the indemnification provisions contained in this Agreement and the
Purchaser is authorized to rely on any such action as being the duly authorized
action of the Shareholders. The Shareholders shall indemnify and hold harmless
the Shareholder Representative so designated pursuant to the foregoing sentence
from and against any Actions brought against the Shareholder Representative in
connection with the performance of its duties under this Agreement.
SECTION 9.6 Defense by Indemnifying Party. In connection with any claim
-----------------------------
giving rise to indemnity hereunder resulting from or arising out of any claim or
legal proceeding by a person who is not a party to this Agreement, the
indemnifying party at its sole cost and expense may, upon written notice to the
indemnified party, assume the defense of any such claim or legal proceeding if
it acknowledges to the indemnified party in writing its obligations to indemnify
the indemnified party with respect to such claim. If the indemnifying party does
not assume control of the defense, the indemnified party shall control such
defense. The party that does not assume control of the defense shall be entitled
to participate in (but not control) the defense of any such action, with its
counsel and at its own expense. The party controlling the defense shall keep the
other party advised of the status of such action, suit, proceeding or claim and
the defense thereof and shall consider recommendations made by the other party
with respect thereto. The indemnified party shall not agree to any settlement of
such action, suit, proceeding or claim without the prior written consent of the
indemnifying party. The indemnifying party shall not
51
agree to any settlement of such action, suit, proceeding or claim that does not
include a complete release of the indemnified party from all liability with
respect thereto or that imposes any liability or obligation on the indemnified
party without the prior written consent of the indemnified party.
SECTION 9.7 Pledge of Shareholder Notes; Manner of Indemnification.
------------------------------------------------------
(a) All indemnification by the Purchaser hereunder shall be effected
by the payment of cash or the delivery of a certified or official bank check in
the amount of the indemnifiable Loss.
(b) All indemnification by the Shareholders hereunder shall be
effected solely by the reduction of amounts owed by the Company under the
Shareholder Notes, in accordance with this Section 9.7. Each Shareholder hereby
pledges and grants to the Purchaser a security interest in such Shareholder's
Shareholder Note, and in the proceeds of, and payments and distributions on,
such Shareholder Note, as security for, and as the exclusive source of recovery
against such Shareholder in respect of, such Shareholder's indemnification
obligations hereunder. On the third anniversary, the Purchaser shall release the
security interest and return the Shareholder Notes to the Shareholders and shall
execute and deliver such other documents as the Shareholders may reasonably
request in order to effect such release, unless any claim is then pending, in
which case Shareholder Notes (which may be replacement notes) equal to the
aggregate dollar amount of such claim (as provided in the Indemnification Notice
of such claim delivered prior to the expiration of the applicable survival
period) shall be retained by the Purchaser and the balance of the Shareholder
Notes (which may be replacement notes) released to the Shareholders. Upon any
final determination with respect to such an Indemnification Claim, the Purchaser
shall cause the Shareholder Notes in the amount of the award to be canceled and
the remaining Shareholder Notes shall be released to the Shareholders or the
Company may execute replacement Shareholder Notes with the reduced principal
amount.
(c) From time to time, the Purchaser may give notice (the
"Indemnification Notice") to the Shareholder Representative specifying the
nature and dollar amount of any claim for indemnification it may have under this
Article IX. If the Shareholder Representative does not give notice to the
Purchaser disputing such claim (a "Counter Indemnification Notice") within
thirty (30) calendar days after receipt of the Indemnification Notice, then the
dollar amount of damages claimed by the Purchaser set forth in its
Indemnification Notice shall be deemed conclusive for purposes of this
Agreement, and, at the end of such 30-day period, the principal amount of the
Shareholder Notes shall be reduced by (and only to the extent of) the dollar
amount claimed in the Indemnification Notice and the Company may execute
replacement Shareholder Notes with the reduced principal amount.
(d) If a Counter Indemnification Notice is given with respect to a
Claim, the principal amount of the Shareholder Notes shall be reduced (and
replacement Shareholder Notes shall be issued) only after a final decision has
been obtained by a court or as a result of an arbitration award with respect to
the amount of, and the liability for, such indemnification claim, and then in
accordance with such decision.
52
(e) If the Company is obligated to redeem or repay all or a portion
of the Shareholder Notes before the third anniversary of the Closing, then the
payment will be put into an interest-bearing, indemnification escrow account. If
the Company is obligated to redeem or repay all or a portion of the Shareholder
Notes after the third anniversary and at such time as there is a pending
Indemnification Notice, then the payment (up to the amount of the pending
Indemnification Notice) will be put into an interest-bearing, indemnification
escrow account. The escrow agent shall be a bank reasonably acceptable to the
Company and the Shareholder Representative. The escrow agent shall release funds
from the escrow account to satisfy an indemnification claim only (i) in
accordance with joint written instructions of the Purchaser and the Shareholder
Representative or (ii) after a final decision has been obtained by a court or as
a result of an arbitration award with respect to the amount of, and the
liability for, such indemnification claim, and then in accordance with such
decision. On the third anniversary of the Closing Date, the Escrow Agent shall
pay and distribute the then amount of escrow account to Shareholders, unless any
claim is then pending, in which case an amount equal to the aggregate dollar
amount of such claim (as provided in the Indemnification Notice of such claim
delivered prior to expiration of the applicable survival period) shall be
retained by the escrow agent and the balance paid to the Shareholders. Upon any
final determination with respect to such an Indemnification Claim, the escrow
agent shall deliver the amount awarded to the Purchaser and the balance of the
Indemnification Fund shall be distributed to the Shareholders.
(f) If an indemnification claim is resolved at a time when there are
both outstanding Shareholder Notes and funds held in escrow, the indemnification
claim shall be satisfied first by a reduction of the principal amount of the
Shareholder Notes and thereafter by a release of cash from the escrow account.
(g) The Shareholders agree that the amount of an indemnification
claim would be allocated among the Shareholders in proportion to the principal
amounts of their respective Shareholder Notes.
(h) If the Shareholders assume the defense of an indemnified claim,
then any amount paid or incurred by the Shareholders in respect of that claim
shall be reimbursed by the Company as follows: (i) if the minimum dollar
thresholds set forth in Section 9.8(a) are applicable to the claim and if the
amount paid or incurred by the Shareholders is less than either of the minimum
dollar thresholds set forth in Section 9.8(a), then the Company shall reimburse
the Shareholders for such amount; (ii) if the amount is greater than both of the
minimum dollar thresholds set forth in Section 9.8(a), but less than the
applicable aggregate limitation with respect to such claim, then the Company
shall reimburse the Shareholders for such amount and shall offset such amount
against the Shareholder Notes, and reissue replacement Shareholder Notes in
accordance with this Section 9.7 (or funds from the escrow account shall be paid
in accordance with this Section 9.7); and (iii) if the amount is greater than
the aggregate limitation with respect to such claim, then the Company shall
reimburse the Shareholders for such amount in excess of such limitation;
provided that if the amount has exceeded the maximum, then the Company shall
have the right to assume the defense of the matter and the Shareholders shall
have the right to tender the defense of the matter to the Company. As a
precondition to receiving any
53
such reimbursement, the Shareholders shall deliver to the Company reasonable
documentation as evidence of the payment or the amount incurred.
SECTION 9.8 Limitations on Indemnification.
------------------------------
(a) General. Notwithstanding anything to the contrary set forth
-------
herein, neither the Purchaser nor the Shareholders shall be entitled to recover,
and the other party or parties, as the case may be, shall not be obligated to
pay, any claim for indemnification under Section 9.2(a)(i) or Section 9.2(b)
(other than with respect to indemnification for Environmental Losses and
Antitrust Losses, which shall be governed by Section 9.8(b) and Section 9.9(c),
respectively) or Section 9.4(i) unless and until the aggregate dollar amount of
all indemnification claims against such party or parties hereunder exceeds
$1,000,000, in which event the party or parties entitled to such indemnification
shall be entitled to recover only the amount of their indemnification claims in
excess of $500,000. Notwithstanding anything herein to the contrary, no claim
for indemnification under this Article IX may be asserted by an indemnified
party unless such claim (or series of related claims) equals or exceeds $50,000
individually. Notwithstanding anything to the contrary set forth herein, the
aggregate indemnification obligation of the Shareholders hereunder for Losses
(including in connection with the Tax Audits), other than Environmental Losses
and Antitrust Losses, shall not exceed $10,000,000.
(b) Environmental Losses. Notwithstanding anything to the contrary
--------------------
set forth herein, the indemnification obligation of the Shareholders for Losses
relating to any (x) inaccuracy in, or breach of, the representations and
warranties set forth in Section 4.19 hereof or (y) Environmental Claims
("Environmental Losses") shall be as follows:
(i) for aggregate Environmental Losses up to $1,000,000, there
shall be indemnification by the Shareholders under this Article IX limited to
fifty percent (50%) of such Environmental Losses;
(ii) for aggregate Environmental Losses in excess of $1,000,000,
there shall be indemnification by the Shareholders under this Article IX;
provided that the aggregate indemnification obligation of the Shareholders for
Environmental Losses shall not exceed $10,000,000.
(c) Antitrust Losses. Notwithstanding anything to the contrary set
----------------
forth herein, the indemnification obligation of the Shareholders for Losses
incurred by the Company or the Shareholders relating to the Antitrust Matter
("Antitrust Losses") shall be as follows:
(i) for aggregate Antitrust Losses up to $2,000,000, there
shall be indemnification by the Shareholders under this Article IX limited to
fifty percent (50%) of such Antitrust Losses; and
(ii) for aggregate Antitrust Losses in excess of $2,000,000,
there shall be indemnification by the Shareholders under this Article IX;
provided that the aggregate indemnification obligation of the Shareholders for
Antitrust Losses shall not exceed $19,000,000.
54
(d) Enforcement of Other Rights
---------------------------
(i) An indemnified party shall not have a right to
indemnification under this Article IX for Losses other than Environmental
----------
Losses, unless the Company or the appropriate Company Subsidiary first seeks, to
the fullest extent permitted by law and in a timely manner (including through
the commencement and reasonable prosecution of litigation, mediation or
arbitration by the Company or such Company Subsidiary seeking to enforce
contractual rights) and consistent with applicable agreements, to recover any
Losses from Rugby, Aeroquip Corporation, Aeroquip-Xxxxxxx, Inc. and Domtar
Industries, or any of their predecessors or successors, to the extent that the
Company or a Company Subsidiary has or may have a contractual, legal or
equitable right of indemnification, contribution or reimbursement from such
parties.
(ii) The Purchaser shall not have a right to receive
indemnification under this Article IX for Environmental Losses, unless the
----------
Company or the appropriate Company Subsidiary first (a) seeks, to the fullest
extent permitted by law and in a timely manner (including through the
commencement and reasonable prosecution of litigation, mediation or arbitration
by the Company or such Company Subsidiary seeking to enforce contractual rights)
and consistent with applicable agreements, to recover any Losses from Rugby,
Aeroquip Corporation, Aeroquip-Xxxxxxx, Inc. and Domtar Industries, or any of
their predecessors or successors, to the extent that the Company or a Company
Subsidiary has or may have a contractual right of indemnification, contribution
or reimbursement from such parties, or (b) asserts and reasonably prosecutes a
claim to recover any Losses from third parties (including any potentially liable
prior owner of the property) to the extent that the Company or such Company
Subsidiary has or may have a contractual, legal or equitable right of
indemnification, contribution or reimbursement.
(iii) The Purchaser will cause the Company and the Company
Subsidiaries (a) not to amend or modify in any material respect any contractual
rights of indemnification, reimbursement or contribution relating to Rugby,
Aeroquip Corporation, Aeroquip-Xxxxxxx, Inc. and Domtar Industries, or any of
their successors, without the prior written consent of the Shareholders, which
will not be unreasonably withheld and (b) to comply in all material respects
with the Prior Agreements.
(iv) Notwithstanding anything herein to the contrary, the
Purchaser may make a claim for indemnification if, at the expiration of the
applicable indemnification survival period pursuant to Section 9.1, the Company
or a Company Subsidiary has a pending dispute in which the Company or a Company
Subsidiary is seeking to recover from any third party for any Losses pursuant to
this Section 9.8(d).
(e) Environmental Matters. An indemnifying party shall not be liable
---------------------
for Environmental Losses under this Article IX, (A) to the extent that the Loss
arises from or is due to any actual or potential future use of the Owned Real
Property or Leased Real Property for other than an industrial use or (B) unless
the Response Activities (as defined below) are required under any Environmental
Law or any Contract existing on the Closing Date. If the Shareholders have an
obligation under this Agreement to indemnify the Purchaser from or against any
55
Environmental Losses in connection with the performance of any investigation,
clean-up, removal, containment or other remediation or response actions
("Response Activities"), such Losses shall be limited to those Losses incurred
to meet the least stringent standards or requirements that the Company or any
Company Subsidiary is lawfully required to meet by Governmental Authorities
under the applicable Environmental Law (taking into consideration the zoning of
the property and the uses of the resources thereon at the time the Response
Activities are performed); provided that for purposes of this sentence, any
standards or requirements lawfully established by the Maine Department of
Environmental Protection pursuant to the terms of the Compliance Order on
Consent applicable to the Auburn, Maine facility (the "Auburn COC") or any
----------
subsequent order entered to enforce the terms of the Auburn COC shall be deemed
to be such least stringent standards or requirements. Environmental Losses shall
be limited to out-of-pocket expenditures.
(f) Subrogation. Upon making any payment to an indemnified party
-----------
(i.e., through set-off of the Shareholder Note or through the escrow account)
for any indemnification claim pursuant to this Article IX, the indemnifying
party shall be subrogated, to the extent of such payment, to any rights that the
indemnified party may have against any other persons with respect to the subject
matter underlying such indemnification claim and the indemnified party shall
take such actions as the indemnifying party may reasonably require to perfect
such subrogation or to pursue such rights against such other persons as the
indemnified party may have; provided that no such right of subrogation shall
exist unless and until the indemnified party's Losses with respect to the
subject matter underlying such indemnified claim are paid in full if the amount
of the indemnification payment is not sufficient to pay such Losses in full.
(g) Insurance; Reimbursements; Taxes. The amount of any Losses for
--------------------------------
which indemnification is provided under this Article IX shall be reduced by (i)
any related recoveries actually received by the indemnified party under
insurance policies or other related payments received from third parties, and
(ii) any Tax benefits actually received by the indemnified party or any of its
Affiliates on account of the matter resulting in such Losses or the payment of
such Losses. In the event that the indemnified party receives any such
recoveries or Tax benefits on account of Losses that have previously been paid
by the indemnifying party to the indemnified party, the indemnified party shall,
after receipt thereof, promptly pay over to the indemnifying party the full
amount of such recoveries or Tax benefits received. If an indemnified party
receives payment from a third party in respect of Losses for which an
indemnifying party has provided indemnification (i.e., through set-off of the
Shareholder Note or through the escrow account), then the indemnified party
shall reimburse the indemnifying party to the extent of such payment (up to the
amount of the indemnification provided by the indemnifying party).
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Expenses. Except as set forth in Section 10.2 hereof, all
--------
costs and expenses (including all fees and disbursements of counsel, financial
advisors and accountants) incurred in connection with the negotiation and
preparation of this Agreement, the performance of the terms hereof and the
consummation of the transactions contemplated hereby, shall be paid
56
by the respective party incurring such costs and expenses, whether or not the
Closing shall have occurred.
SECTION 10.2 Costs and Attorneys' Fees. In the event that any action,
-------------------------
suit or other proceeding is instituted concerning or arising out of this
Agreement, the prevailing party shall recover all of such party's costs and
reasonable attorneys' fees incurred in connection with each and every such
action, suit or other proceeding, including any and all appeals and petitions
therefrom.
SECTION 10.3 Notices. All notices, requests, demands and other
-------
communications under this Agreement shall be in writing and shall be deemed to
have been duly given or made as follows: (i) if sent by registered or certified
mail in the United States return receipt requested, upon receipt; (ii) if sent
by nationally recognized overnight air courier (such as DHL or Federal Express),
two (2) business days after mailing; (iii) if sent by facsimile transmission,
with a copy mailed on the same day in the manner provided in clauses (i) or (ii)
of this Section 10.3, when transmitted and receipt is confirmed by telephone;
and (iv) if otherwise actually personally delivered, when delivered, provided
that such notices, requests, demands and other communications are delivered to
the address set forth below, or to such other address as any party shall provide
by like notice to the other parties hereto:
(a) if to the Shareholders or the Company, to:
Genstar Capital Partners, LLC
000 Xxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxx-Xxxxxx X. Xxxxx
and, prior to the Closing, to:
Panolam Industries International, Inc.
00 Xxxxxxxx Xxxxx
Xxxxxxx, Xxxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx, Xx.
57
with copies to:
Xxxxxx & Xxxxxxx
000 Xxxxxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxx, Esq.
Xxxxxxx X. Xxxxxxx, Esq.
(b) if to the Purchaser, to:
The Carlyle Group
0000 Xxxxxxxxxxxx Xxxxxx, X.X., Xxxxx 000
Xxxxxxxxxx, X.X. 00000
Facsimile: (000) 000-0000
Attention: Xx. Xxxxxx Xxxxxx, Managing Director
with a copy to:
Xxxxxx, Xxxx & Xxxxxxxx LLP
0000 Xxxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxx, Esq.
SECTION 10.4 Public Announcements. Unless otherwise required by
--------------------
applicable Law, no party to this Agreement shall make any public announcements
in respect of this Agreement or the transactions contemplated hereby, or
otherwise communicate with any news media regarding this Agreement or the
transactions contemplated hereby, without the prior written consent of the other
parties hereto. If a public statement is required to be made pursuant to
applicable Law, the parties shall consult with each other, to the extent
reasonably practicable, in advance as to the contents and timing thereof.
SECTION 10.5 Interpretation. The Article and Section headings in this
--------------
Agreement are for convenience of reference only and shall not be deemed to alter
or affect the meaning or interpretation of any provision hereof. References to
Articles or Sections in this Agreement, unless otherwise indicated, are
references to Articles or Sections of this Agreement. The parties to this
Agreement have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises with respect to any term or provision of this Agreement, this Agreement
shall be construed as if drafted jointly by the parties hereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party
hereto by virtue of the authorship of any of the terms or provisions hereof. Any
reference to any federal, state, county, local or foreign statute or Law shall
be deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. For all purposes of
58
and under this Agreement, (i) the word "including" shall be deemed to be
immediately followed by the words "without limitation," (ii) words (including
defined terms) in the singular shall be deemed to include the plural and vice
versa, (iii) words of one gender shall be deemed to include the other gender as
the context requires, and (iv) the terms "hereof," "herein," "hereto,"
"herewith" and any other words of similar import shall, unless otherwise stated,
be construed to refer to this Agreement as a whole (including all of the
Schedules and Exhibits hereto) and not to any particular term or provision of
this Agreement, unless otherwise specified.
SECTION 10.6 Severability. In the event that any one or more of the terms
------------
or provisions contained in this Agreement or in any other certificate,
instrument or other document referred to herein, shall, for any reason, be held
to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other term or provision of
this Agreement or any other such certificate, instrument or other document
referred to herein, and the parties hereto shall use their commercially
reasonable efforts to substitute one or more valid, legal and enforceable terms
or provisions into this Agreement which, insofar as practicable, implement the
purposes and intent hereof. Any term or provision of this Agreement held invalid
or unenforceable only in part, degree or within certain jurisdictions will
remain in full force and effect to the extent not held invalid or unenforceable
to the extent consistent with the intent of the parties as reflected by this
Agreement. To the extent permitted by applicable Law, each party waives any term
or provision of Law which renders any term or provision of this Agreement to be
invalid, illegal or unenforceable in any respect.
SECTION 10.7 Entire Agreement. This Agreement (including the Shareholders
----------------
Disclosure Schedule, the Company Disclosure Schedule, the Purchaser Disclosure
Schedule and the Exhibits hereto) and the Confidentiality Agreement(s)
constitute the entire agreement of the parties hereto with respect to the
subject matter hereof, and supersede all prior agreements and undertakings, both
written and oral, among the Shareholders, the Purchaser and the Company with
respect to the subject matter hereof, except as otherwise expressly provided
herein.
SECTION 10.8 Assignment. Neither this Agreement nor any of the rights,
----------
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties hereto, and any purported assignment or other
transfer without such consent shall be void and unenforceable, except that the
Purchaser may assign any of its rights, interests or obligations to any Carlyle
Affiliate; provided, however, that no such assignment shall relieve the
Purchaser of its obligations under this Agreement. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective successors and assigns.
SECTION 10.9 No Third Party Beneficiaries. Except as specifically
----------------------------
provided in Section 6.8 hereof (and solely with respect to parties indemnified
thereunder), this Agreement is for the sole benefit of the parties hereto and
nothing herein, express or implied, is intended to or shall confer upon any
other Person any legal or equitable right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
59
SECTION 10.10 Waivers and Amendments. This Agreement may be amended or
----------------------
modified only by a written instrument executed by the parties hereto. Any
failure of the parties hereto to comply with any obligation, covenant, agreement
or condition herein may be waived by the party entitled to the benefits thereof
only by a written instrument signed by the party granting such waiver. No delay
on the part of any party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
any party hereto of any right, power or privilege hereunder operate as a waiver
of any other right, power or privilege hereunder, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege hereunder. Unless otherwise provided, the rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies which
the parties hereto may otherwise have at law or in equity. Whenever this
Agreement requires or permits consent by or on behalf of a party, such consent
shall be given in writing in a manner consistent with the requirements for a
waiver of compliance as set forth in this Section 10.10.
SECTION 10.11 Equitable Remedies. Each of the parties hereto acknowledges
------------------
and agrees that the other parties hereto would be irreparably damaged in the
event that any of the terms or provisions of this Agreement are not performed in
accordance with their specific terms or otherwise are breached. Therefore,
notwithstanding anything to the contrary set forth in this Agreement, each of
the parties hereto hereby agrees that the other parties hereto shall be entitled
to an injunction or injunctions to prevent breaches of any of the terms or
provisions of this Agreement, and to enforce specifically the performance by
such first party under this Agreement, and each party hereto hereby agrees to
waive the defense in any such suit that the other parties hereto have an
adequate remedy at law and to interpose no opposition, legal or otherwise, as to
the propriety of injunction or specific performance as a remedy, and hereby
agrees to waive any requirement to post any bond in connection with obtaining
such relief. The equitable remedies described in this Section 10.11 shall be in
addition to, and not in lieu of, any other remedies at law or in equity that the
parties hereto may elect to pursue. The parties hereto hereby agree that
irreparable damage would occur in the event any of the terms or provision of
this Agreement required to be performed prior to the Closing were not performed
in accordance with the terms hereof and that, prior to the Closing, the parties
hereto shall be entitled to specific performance of the terms hereof, in
addition to any other remedy at law or in equity.
SECTION 10.12 Governing Law; Consent to Jurisdiction. This Agreement
--------------------------------------
shall be governed by, and construed in accordance with, the laws of the State of
New York applicable to contracts executed in and to be performed entirely within
the Borough of Manhattan in the City of New York. Each of the parties hereto
hereby irrevocably and unconditionally submits, for itself and its assets and
properties, to the exclusive jurisdiction of any New York State court, or
Federal court of the United States of America, sitting within the Borough of
Manhattan in the City of New York, and any appellate court from any thereof, in
any action or proceeding arising out of or relating to this Agreement, the
agreements delivered in connection herewith, or the transactions contemplated
hereby or thereby, or for recognition or enforcement of any judgment relating
thereto, and each of the parties hereto hereby irrevocably and unconditionally
(i) agrees not to commence any such action or proceeding except in such courts,
(ii) agrees that any claim in respect of any such action or proceeding may be
heard and determined in such New York State
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court or, to the extent permitted by law, in such Federal court, (iii) waives,
to the fullest extent it may legally and effectively do so, any objection which
it may now or hereafter have to the laying of venue of any such action or
proceeding in any such New York State or Federal court, and (iv) waives, to the
fullest extent permitted by law, the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such New York State or Federal
court. Each of the parties hereto hereby agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
Each of the parties hereto hereby irrevocably consents to service of process in
the manner provided for notices in Section 10.3 hereof. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by applicable Law.
SECTION 10.13 WAIVER OF JURY TRIAL. EACH PARTY HERETO ACKNOWLEDGES AND
--------------------
AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO
INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE, IT HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY HERETO CERTIFIES AND
ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH WAIVERS, (II) IT UNDERSTANDS
AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (III) IT MAKES SUCH WAIVERS
VOLUNTARILY, AND (IV) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 10.13.
SECTION 10.14 Exclusivity of Representations and Warranties. It is the
---------------------------------------------
explicit intent and understanding of each of the parties hereto that no party
hereto, nor any of their respective Affiliates, representatives or agents, is
making any representation or warranty whatsoever, oral or written, express or
implied, other than those set forth in this Agreement (as qualified by the
Shareholders Disclosure Schedule, the Company Disclosure Schedule and the
Purchaser Disclosure Schedule, as the case may be), and none of the parties
hereto is relying on any statement, representation or warranty, oral or written,
express or implied, made by another party hereto or such other party's
Affiliates, representatives or agents, except for the representations and
warranties set forth herein.
SECTION 10.15 Counterparts. This Agreement may be executed in one or more
------------
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original, but all of which taken
together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the Shareholders, the Purchaser and the Company
have executed this Agreement, or caused this Agreement to be executed by their
respective officers thereunto duly authorized, as of the date first above
written.
THE SHAREHOLDERS:
GENSTAR CAPITAL PARTNERS II, L.P.
By:
Its General Partner
By:______________________________________
Name:____________________________________
Title:___________________________________
STARGEN II LLC
By:______________________________________
Name:____________________________________
Title:___________________________________
_________________________________________
Xxxxxx X. Xxxxxx, Xx.
THE PURCHASER:
PANOLAM ACQUISITION COMPANY, L.L.C.
By:______________________________________
Name:____________________________________
Title: __________________________________
THE COMPANY:
PANOLAM INDUSTRIES HOLDINGS, INC.
By:______________________________________
Name:____________________________________
Title: __________________________________
62
