EXHIBIT 10.5
EXECUTION COPY
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of June 7, 1996 (as hereafter
amended, supplemented or otherwise modified, this "AGREEMENT"), among PANOLAM
INDUSTRIES INTERNATIONAL, INC., a corporation organized and existing under the
laws of the State of Delaware ("PANOLAM INTERNATIONAL") and a direct wholly
owned subsidiary of Panolam Industries Holdings, Inc., a corporation organized
and existing under the laws of the State of Delaware ("PANOLAM HOLDINGS");
GENSTAR CAPITAL PARTNERS II, L.P., a limited partnership organized and existing
under the laws of the State of Delaware ("GCP II"); CCFL SUBORDINATED DEBT FUND
AND COMPANY, LIMITED PARTNERSHIP, a limited partnership organized and existing
under the laws of the Province of Quebec ("CCFL"); DOMTAR INDUSTRIES INC., a
corporation organized and existing under the laws of the State of Delaware
("DOMTAR U.S."); and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (together with GCP II, CCFL and Domtar
U.S., the "PARENT STOCKHOLDERS");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Parent Stockholders own, beneficially and of record, all
of the issued and outstanding shares of capital stock of Panolam Holdings (the
"PARENT SHARES");
WHEREAS, Panolam International owns, beneficially and of record, all
of the issued and outstanding shares of Panolam Industries Ltd., a corporation
organized and existing under the laws of the Province of Ontario (the
"COMPANY");
WHEREAS, as a condition to the willingness of the Parent Stockholders
to enter into certain transactions and agreements relating to the acquisition by
Panolam Holdings and its subsidiaries, including Panolam International, of
certain assets of Domtar Inc., a corporation organized under the federal laws of
Canada, and Domtar U.S., the Parent Stockholders have required that Panolam
International agree, and in order to induce the Parent Stockholders to enter
into such transactions and agreements, Panolam International has agreed, to
enter into this Agreement with respect to all shares of the Company now owned or
hereafter acquired by Panolam International (the "OPTION SHARES");
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements and covenants hereinafter set forth and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
SECTION 1. GRANT. (a) Panolam International hereby grants to the
Parent Stockholders and, upon the issuance thereof, the holders of any Parent
Shares issued after the date hereof (collectively, the "GRANTEES") an
irrevocable option (the "OPTION") to purchase
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the Option Shares at a purchase price per Option Share equal to the Per Share
Amount (as defined below), net to Panolam International in cash, all in
accordance with the terms of this Agreement.
(b) For purposes of this Agreement, "PER SHARE AMOUNT" shall mean, as
of any date of determination, US$1,000.00, divided by the total number of Option
Shares outstanding on such date on a fully-diluted basis.
SECTION 2. EXERCISE. (a) At any time from and after the date hereof to
and including the tenth anniversary of the date hereof (the "EXPIRATION DATE")
the holders of a majority of the Parent Shares (the "MAJORITY HOLDERS") may
exercise the Option; provided, however, that so long as GCP II holds 20% or more
of the outstanding Parent Shares, the Option may not be exercised unless GCP II
is among the Majority Holders; provided further that so long as any amounts
remain outstanding under (i) the credit agreement, dated as of the date hereof
(as thereafter amended, supplemented or otherwise modified, the "SENIOR CREDIT
AGREEMENT"), among the Company and Panolam Industries, Inc., a corporation
organized and existing under the laws of the State of Delaware and an indirect
wholly owned subsidiary of Panolam Holdings, as borrowers, Panolam Holdings,
Panolam International, The Melamine Group, Inc., a corporation organized under
the laws of the State of Oregon and an indirect wholly owned subsidiary of
Panolam Holdings, and Melamine Decorative Laminates, Inc., a corporation
organized under the laws of the state of Oregon and an indirect wholly owned
subsidiary of Panolam Holdings, as guarantors, the Bank of Nova Scotia
("SCOTIABANK"), as agent for the lenders thereunder, and the other financial
institutions party thereto, as lenders, (ii) the credit agreement, dated as of
the date hereof (as thereafter amended, supplemented or otherwise modified, the
"SUBORDINATED CREDIT AGREEMENT") between the Company and CCFL, (iii) the note,
dated the date hereof (as thereafter amended, supplemented or otherwise
modified, the "NOTE"), made by Panolam Holdings in favor of Domtar U.S., the
Option may not be exercised.
(b) In order to exercise the Option, the Majority Holders shall
deliver written notice of their election to exercise the Option, substantially
in the form attached hereto as Exhibit A (the "EXERCISE NOTICE"), to Panolam
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International and to each Grantee (the "OTHER GRANTEES") not a party to such
Exercise Notice.
(c) Within 10 days of receipt of the Exercise Notice, Panolam
International shall deliver to each Grantee unaudited financial statements of
the Company for each complete fiscal year from the date hereof through the date
of the Exercise Notice, together with copies of any additional financial
information regarding the Company provided to CCFL during the immediately
preceding 12-month period.
(d) In order for each Other Grantee to join in the exercise of the
Option, each such Other Grantee (together with the Majority Holders, the
"EXERCISING HOLDERS")
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shall, within 20 days of such Other Grantee's receipt of the Exercise Notice,
deliver written notice of its election to join in the exercise of the Option,
substantially in the form attached hereto as Exhibit B (a "PURCHASE NOTICE"), to
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Panolam International, each Majority Holder and each Other Grantee.
(e) For purposes of this Agreement, (i) "PRO RATA SHARE" shall mean,
with respect to each Grantee and as of the date of the Exercise Notice, that
number of Option Shares equal to the product of (A) the total number of Option
Shares then held by Panolam International and (B) a fraction, the numerator of
which shall be the total number of Parent Shares then held by such Grantee, and
the denominator of which shall be the total number of Parent Shares then issued
and outstanding; and (ii) "ADDITIONAL PRO RATA SHARE" shall mean, with respect
to each Exercising Holder and as of the date of the Exercise Notice, that number
of Option Shares equal to the product of (A) the total number of Option Shares
then held by Panolam International less the aggregate Pro Rata Shares of the
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Exercising Holders and (B) a fraction, the numerator of which shall be the total
number of Parent Shares then held by such Exercising Holder, and the denominator
of which shall be the total number of Parent Shares then held by all of the
Exercising Holders.
SECTION 3. CLOSING. The closing of the purchase of the Option Shares
(the "CLOSING") shall be held at the place and time specified in the Exercise
Notice. At the Closing, Stockholder shall deliver to each Exercising Holder a
certificate or certificates evidencing such Exercising Holder's Pro Rata Share,
and such Exercising Holder's Additional Pro Rata Share, if any, of the Option
Shares, and such Exercising Holder shall purchase each such Option Share from
Panolam International for the Per Share Amount. Each such certificate shall be
duly endorsed in blank or accompanied by stock powers duly executed in blank, in
proper form for transfer and reasonably satisfactory to the Majority Holders,
and shall be accompanied by evidence reasonably satisfactory to the Majority
Holders, and shall be accompanied by evidence reasonably satisfactory to the
Majority Holders of the payment of all applicable transfer taxes. All payments
made by any Exercising Holder to Panolam International pursuant to this Section
3 shall be made by wire transfer in immediately available funds to a bank
account specified by Panolam International in an amount equal to the aggregate
purchase price of the Option Shares purchased thereby.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PANOLAM INTERNATIONAL.
The Company hereby represents and warrants as of the date hereof as follows:
(a) ORGANIZATION AND AUTHORITY. Panolam International is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all necessary power, capacity and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Stockholder and the consummation by Stockholder of the
transactions contemplated hereby have been duly and validly authorized by all
necessary action on the part of the Stockholder.
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(b) AUTHORITY; NO CONFLICTS. The execution and delivery of this
Agreement by Stockholder does not, and the performance of this Agreement by
Stockholder will not, except as would not prevent Stockholder from performing
its obligations under this Agreement and subject to compliance with the share
transfer restrictions contained in the articles of incorporation of the Company,
(i) require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or foreign,
(ii) conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Stockholder or by which any property or asset of
Stockholder is bound or affected, or (iii) result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance of any nature whatsoever on any property or asset of Stockholder or
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which
Stockholder is a party or by which Stockholder or any property or asset of
Stockholder is bound or affected.
(c) BINDING AND ENFORCEABLE. This Agreement has been duly executed and
delivered by Panolam International and is a legal, valid and binding obligation
of Panolam International, enforceable against Panolam International in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
arrangement, moratorium and other laws of general applicability relating to or
affecting creditor's rights and to general principles of equity, whether
considered in a proceeding at law or in equity.
(d) TITLE TO THE SHARES. As of the date hereof, Panolam International
is the record and beneficial owner of 1,000 class A common shares of the
Company, which are all the issued and outstanding shares of the Company on the
date hereof. Except for security interests, liens or other encumbrances created
pursuant to the Senior Credit Agreement, the Subordinated Credit Agreement and
the Note, Panolam International owns all such shares free and clear of all
security interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on Panolam International's voting rights, charges and
other encumbrances of any nature whatsoever, and Panolam International has not
appointed or granted any proxy, which appointment or grant is still effective,
with respect to such shares. Upon the exercise of the Option and the delivery
pursuant to Section 3 to the relevant Exercising Holder by Panolam International
of a certificate or certificates evidencing such shares owned by Panolam
International, such Exercising Holder will receive good, valid and marketable
title to such shares, free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal, agreements, limitations on such
Exercising Holder's voting rights, charges and other encumbrances of any nature
whatsoever.
SECTION 5. ASSIGNMENT. Each Grantee may assign all or a portion of its
rights under this Agreement; provided, however, that each such assignment shall
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be to an assignee reasonably acceptable to Panolam Holdings and the parties to
each such assignment
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shall execute and deliver to Panolam Holdings, for its acceptance and recording
in its records, an assignment and acceptance, substantially in the form of
Exhibit C hereto. Upon such execution, delivery, acceptance and recording, from
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and after the effective date specified in each assignment and acceptance (i) the
assignee thereunder shall be a party hereto and, to the extent that rights
hereunder have been assigned to it pursuant to such assignment and acceptance,
have the rights of a Grantee hereunder and (ii) the assignor thereunder shall,
to the extent that rights hereunder have been assigned by it pursuant to such
assignment and acceptance, relinquish its rights under this Agreement (and, in
the case of an assignment and acceptance covering all or the remaining portion
of an assigning Grantee's rights under this Agreement, such Grantee shall cease
to be a party hereto). Upon its receipt of an assignment and acceptance executed
by an assigning Grantee and an assignee acceptable to Panolam Holdings, Panolam
Holdings shall, if such assignment and acceptance has been completed and is in
substantially the form of Exhibit C hereto, accept such assignment and
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acceptance and record the information contained therein in its records.
SECTION 6. NO THIRD PARTY BENEFICIARIES. This Agreement shall be
binding upon and inure solely to the benefit of the parties hereto (and the
holders from time to time of Parent Shares) and their respective successors and
assigns. Nothing in this Agreement, whether express or implied, is intended to
or shall confer upon any person other than the parties hereto (and the holders
from time to time of Parent Shares) and their respective successors and
permitted assigns, any legal or equitable right, benefit or remedy of any nature
whatsoever, under or by reason of this Agreement.
SECTION 7. TERMINATION. This Agreement (a) may be terminated prior to
the Expiration Date at the election of the holders of a majority of the Parent
Shares from time to time outstanding or by resolutions duly adopted by the board
of directors of Panolam Holdings and (b) shall terminate immediately upon
Panolam Holdings becoming a Public Company (as defined in the stockholders'
agreement, dated as of the date hereof, among the Parent Stockholders and
Panolam Holdings (the "STOCKHOLDERS' AGREEMENT"); terms used and not otherwise
defined herein are used herein as defined in the Stockholders' Agreement). Upon
termination of this Agreement as provided in this Section 7, this Agreement
shall forthwith become void and no party hereto shall have any rights or
obligations hereunder.
SECTION 8. STOCKHOLDERS' AGREEMENT. Prior to the exercise of the
Option, the terms of the Stockholders' Agreement shall apply mutatis mutandis to
the rights hereunder of the Grantees (and their respective successors and
permitted assigns), and upon exercise of the Option, the terms of the
Stockholders' Agreement shall apply mutatis mutandis to the Option Shares;
provided, however, that in either case the holders of a majority of the then
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outstanding Parent Shares acting in their sole discretion shall be entitled to
amend, supplement or otherwise modify the terms of the Stockholders' Agreement
as applied to the Grantees' rights hereunder or the Option Shares, as the case
may be.
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SECTION 9. REMEDIES. The failure by any party hereto to comply in all
material respects with each provision of this Agreement applicable thereto, or
to fulfill in all material respects each of its obligations under this
Agreement, will result in immediate and irreparable harm to the other parties
hereto, which harm cannot be compensated adequately by recovery of damages
alone. In the event of any such failure or threatened failure, the other parties
hereto shall, in addition to any other rights or remedies available at law, in
equity or otherwise, be entitled to temporary and permanent injunctive relief,
specific performance and other equitable remedies.
SECTION 10. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, between
or among the parties with respect to the subject matter hereof.
SECTION 11. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any law or
public policy, all other terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
(and the holders from time to time of Parent Shares) shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.
SECTION 12. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, or by courier service, cable, telecopy, telegram, or registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties hereto (and holders from time to time of Parent Shares) at their
addresses set forth on the signature pages to this Agreement or, in the case of
holders of Parent Shares other than GCP II, at their addresses set forth in the
stock transfer books of Panolam Holdings (or at such other address for a party
hereto as shall be specified in a notice given in accordance with this Section
12).
SECTION 13. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE,
WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS.
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SECTION 14. HEADINGS. The descriptive headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning, construction or interpretation of this Agreement.
SECTION 15. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
SECTION 16. EXPENSES. All costs and expenses, including, without
limitation, fees and disbursements of counsel, incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party,
or holders of Parent Shares, as the case may be, incurring such costs and
expenses.
SECTION 17. AMENDMENTS. This Agreement may not be amended, modified,
supplemented or waived except by an instrument in writing signed by, or on
behalf of, Panolam International and the Majority Holders; provided, however,
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that Section 2(a) may not be amended, modified, supplemented or waived in any
manner adverse to any creditor under the Senior Credit Agreement, the
Subordinated Credit Agreement or the Note except by an instrument in writing
signed by, or on behalf of, Scotiabank, CCFL or Domtar U.S., respectively.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PANOLAM INDUSTRIES
HOLDINGS, INC.
By:______________________________
Name:
Title:
By:______________________________
Name:
Title:
Metro Tower, Suite 1170
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Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
GENSTAR CAPITAL
PARTNERS II, L.P.
By Genstar Capital LLC,
as general partner
By:______________________________
Name:
Title:
By:______________________________
Name:
Title:
Metro Tower, Suite 1170
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Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
CCFL SUBORDINATED DEBT
FUND AND COMPANY,
LIMITED PARTNERSHIP
By: CCFL Mezzanine Partners of
Canada Limited, as general partner
By:______________________________
Name:
Title:
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Attention: ▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
DOMTAR INDUSTRIES INC.
By:______________________________
Name:
Title:
c/o Domtar Inc.
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Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
______________________________
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EXHIBIT A
FORM OF EXERCISE NOTICE
[INSERT DATE]
Panolam Industries International, Inc.
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Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Panolam Industries Ltd.
Option Exercise Notice
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Ladies and Gentlemen:
Reference is made to the stock option agreement, dated as of June 7,
1996 (as thereafter amended, supplemented or otherwise modified, the "Stock
Option Agreement"; terms used and not otherwise defined herein are used herein
as defined in the Stock Option Agreement), among Panolam Industries
International, Inc., a corporation organized and existing under the laws of the
State of Delaware ("Panolam International") and a direct wholly owned subsidiary
of Panolam Industries Holdings, Inc., a corporation organized and existing under
the laws of the State of Delaware ("Panolam Holdings"); Genstar Capital Partners
II, L.P., a limited partnership organized and existing under the laws of the
State of Delaware; CCFL Subordinated Debt Fund and Company, Limited Partnership,
a limited partnership organized and existing under the laws of the Province of
Quebec; Domtar Industries Inc., a corporation organized and existing under the
laws of the State of Delaware; and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇.
In accordance with Section 2 of the Stock Option Agreement, the
undersigned hereby elect[s] to exercise the Option.
The closing of the purchase of the Option Shares (the "Closing") will
be held at your offices at Metro Tower, Suite 1170, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, on [INSERT DATE]/1/, at [10:00 a.m.] local time.
_____________________
1 Such date shall be a Business Day not later than 60 days from the date of
the Exercise Notice.
2
At the Closing, the undersigned will [each] purchase its Pro Rata
Portion of the Option Shares, as well as its Additional Pro Rata Portion of any
Option Shares with respect to which the Other Grantees have not timely delivered
a Purchase Notice.
[Each of the] [The] undersigned hereby represents and warrants to
Panolam International that:
1. such Grantee holds, beneficially and of record, the number of
Parent Shares indicated beneath such Grantee's name on the signature page
to this option exercise notice, and that such shares represent the
percentage of the total number of Parent Shares issued and outstanding on
the date hereof indicated beneath such Grantee's name on the signature page
to this option exercise notice;
2. such Grantee understands that the Option Shares are being
offered and sold without registration under the Securities Act in reliance
upon the exemption provided in Section 4(2) of the Securities Act, and that
such exemption depends in part upon, and such Shares are being sold in
reliance on, the representations and warranties set forth in this option
exercise notice;
3. such Grantee has full power and authority to enter into this
agreement, and that this agreement constitutes a valid and legally binding
obligation of such Grantee, enforceable against it in accordance with its
terms;
4. such Grantee's Pro Rata Portion and Additional Pro Rata
Portion, if any, of the Option Shares will be acquired for investment for
such Grantee's own account, not as a nominee or agent, and not with a view
to the resale or distribution of any part thereof, such Grantee has no
present intention of selling, granting any participation in, or otherwise
distributing the same, and such Grantee does not presently have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person,
with respect to any of such Option Shares;
5. such Grantee is an experienced investor in securities of
companies and acknowledges that it can bear the economic risk of its
investment and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the
investment in the Option Shares;
6. such Grantee has not been organized for the purpose of
acquiring the Shares;
7. such Grantee understands that the Option Shares are
characterized as "restricted securities" under the federal securities laws
inasmuch as
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they are being acquired from Panolam International in a transaction not
involving a public offering and that under such laws and applicable
regulations such shares may be resold without registration under the
Securities Act only in certain limited circumstances;
8. such Grantee is familiar with Commission Rules 144 and 144A,
as presently in effect, and understands the resale limitations imposed
thereby and by the Securities Act;
9. such Grantee has had access to the management and records of
the Company and has had an opportunity to ask questions of management of
the Company regarding its business and affairs; and
10. a copy of this option exercise notice has been delivered to
each of the Other Grantees.
Please acknowledge your understanding of the foregoing and your
receipt of this option exercise notice by signing in the space provided below
and returning to the undersigned a copy of this letter to the address indicated
beneath its name below.
Very truly yours,
[LIST MAJORITY HOLDERS]
By:______________________________
Name:
Title:
[INSERT ADDRESS]
Attention: [INSERT NAME]
Telephone: .
Telecopy: .
Number of Parent Shares held:____
Percent of outstanding Parent Shares:____
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ACKNOWLEDGED on [INSERT DATE]:
PANOLAM INDUSTRIES
INTERNATIONAL, INC.
By:______________________________
Name:
Title:
By:______________________________
Name:
Title:
EXHIBIT B
FORM OF PURCHASE NOTICE
[INSERT DATE]
Panolam Industries International, Inc.
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Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Panolam Industries Ltd.
Purchase Notice
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Ladies and Gentlemen:
Reference is made to the stock option agreement, dated as of June 7,
1996 (as thereafter amended, supplemented or otherwise modified, the "Stock
Option Agreement"; terms used and not otherwise defined herein are used herein
as defined in the Stock Option Agreement), among Panolam Industries
International, Inc., a corporation organized and existing under the laws of the
State of Delaware ("Panolam International") and a direct wholly owned subsidiary
of Panolam Industries Holdings, Inc., a corporation organized and existing under
the laws of the State of Delaware ("Panolam Holdings"); Genstar Capital Partners
II, L.P., a limited partnership organized and existing under the laws of the
State of Delaware; CCFL Subordinated Debt Fund and Company, Limited Partnership,
a limited partnership organized and existing under the laws of the Province of
Quebec; Domtar Industries Inc., a corporation organized and existing under the
laws of the State of Delaware; and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇.
In accordance with Section 2 of the Stock Option Agreement, the
undersigned hereby elects to join with the Majority Holders in the exercise of
the Option.
At the Closing, the undersigned will purchase its Pro Rata Portion of
the Option Shares, as well as its Additional Pro Rata Portion of any Option
Shares with respect to which the Other Grantees have not timely delivered a
Purchase Notice.
The undersigned hereby represents and warrants to Panolam
International that:
1. such Grantee holds, beneficially and of record, the number
of Parent Shares indicated beneath such Grantee's name on the signature
page to this
2
option exercise notice, and that such shares represent the percentage of
the total number of Parent Shares issued and outstanding on the date hereof
indicated beneath such Grantee's name on the signature page to this
purchase notice;
2. such Grantee understands that the Option Shares are being
offered and sold without registration under the Securities Act in reliance
upon the exemption provided in Section 4(2) of the Securities Act, and that
such exemption depends in part upon, and such Shares are being sold in
reliance on, the representations and warranties set forth in this purchase
notice;
3. such Grantee has full power and authority to enter into this
agreement, and that this agreement constitutes a valid and legally binding
obligation of such Grantee, enforceable against it in accordance with its
terms;
4. such Grantee's Pro Rata Portion and Additional Pro Rata
Portion, if any, of the Option Shares will be acquired for investment for
such Grantee's own account, not as a nominee or agent, and not with a view
to the resale or distribution of any part thereof, such Grantee has no
present intention of selling, granting any participation in, or otherwise
distributing the same, and such Grantee does not presently have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person,
with respect to any of such Option Shares;
5. such Grantee is an experienced investor in securities of
companies and acknowledges that it can bear the economic risk of its
investment and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of the
investment in the Option Shares;
6. such Grantee has not been organized for the purpose of
acquiring the Shares;
7. such Grantee understands that the Option Shares are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from Panolam International in a
transaction not involving a public offering and that under such laws and
applicable regulations such shares may be resold without registration under
the Securities Act only in certain limited circumstances;
8. such Grantee is familiar with Commission Rules 144 and 144A,
as presently in effect, and understands the resale limitations imposed
thereby and by the Securities Act;
3
9. such Grantee has had access to the management and records of
the Company and has had an opportunity to ask questions of management of
the Company regarding its business and affairs; and
10. a copy of this purchase notice has been delivered to each of
the Majority Holders and each of the Other Grantees.
Please acknowledge your understanding of the foregoing and your
receipt of this purchase notice by signing in the space provided below and
returning to the undersigned a copy of this letter to the address indicated
beneath its name below.
Very truly yours,
[OTHER GRANTEE]
By: _______________________
Name:
Title:
[INSERT ADDRESS]
Attention: [INSERT NAME]
Telephone: .
Telecopy: .
Number of Parent Shares held: _____________
Percent of outstanding Parent Shares:______
ACKNOWLEDGED on [INSERT DATE]:
PANOLAM INDUSTRIES
INTERNATIONAL, INC.
By: ______________________
Name:
Title:
By: ______________________
Name:
Title:
EXHIBIT C
FORM OF ASSIGNMENT AND ACCEPTANCE
[INSERT DATE]
[ASSIGNEE]
[INSERT ADDRESS]
Attention: [INSERT NAME]
Panolam Industries Holdings, Inc.
▇/▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇, ▇.▇.
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Panolam Industries Ltd.
Assignment and Acceptance
-------------------------
Ladies and Gentlemen:
Reference is made to the stock option agreement, dated as of June 7,
1996 (as thereafter amended, supplemented or otherwise modified, the "Stock
Option Agreement"; terms used and not otherwise defined herein are used herein
as defined in the Stock Option Agreement), among Panolam Industries
International, Inc., a corporation organized and existing under the laws of the
State of Delaware ("Panolam International") and a direct wholly owned subsidiary
of Panolam Industries Holdings, Inc., a corporation organized and existing under
the laws of the State of Delaware ("Panolam Holdings"); Genstar Capital Partners
II, L.P., a limited partnership organized and existing under the laws of the
State of Delaware; CCFL Subordinated Debt Fund and Company, Limited Partnership,
a limited partnership organized and existing under the laws of the Province of
Quebec; Domtar Industries Inc., a corporation organized and existing under the
laws of the State of Delaware; and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇.
1. The [INSERT ASSIGNOR NAME] (the "Assignor") hereby sells and
assigns to [INSERT ASSIGNOR NAME] (the "Assignee"), and the Assignee hereby
purchases and assumes from the Assignor, that interest in and to all of the
Assignor's rights and obligations under the Stock Option Agreement as of the
date hereof.
2
2. The Assignor represents and warrants as of the Effective Date (as
defined below) that it is the legal and beneficial owner of the interest being
assigned by it hereunder and that such interest is free and clear of any liens
or encumbrances.
3. The Assignee confirms that it has received a copy of the Stock
Option Agreement and the Stockholders' Agreement.
4. Following the execution of this assignment and acceptance by the
Assignor and the Assignee, it will be delivered to Panolam Holdings for
acceptance and recording in its records by the Panolam Holdings. The effective
date of this assignment and acceptance shall be the date of acceptance thereof
by Panolam Holdings (the "Effective Date").
5. Upon such acceptance and recording by Panolam Holdings, as of the
Effective Date, (i) the Assignee shall be a party to the Stock Option Agreement
and, to the extent provided in this assignment and acceptance, have the rights
and obligations of a Grantee thereunder and (ii) the Assignor shall, to the
extent provided in this assignment and acceptance, relinquish its rights and be
released from its obligations under the Stock Option Agreement.
7. This assignment and acceptance shall be governed by, and construed
in accordance with, the laws of the State of Delaware
3
Please acknowledge your understanding of the foregoing and your
receipt of this purchase notice by signing in the space provided below and
returning to the undersigned a copy of this letter to the address indicated
beneath its name below.
Very truly yours,
[ASSIGNOR]
By: ________________________
Name:
Title:
[INSERT ADDRESS]
Attention: [INSERT NAME]
Telephone: .
Telecopy: .
Number of Parent Shares held: _____________
Percent of outstanding Parent Shares: _____
ACKNOWLEDGED AND AGREED
on [INSERT DATE]:
[ASSIGNEE]
By: ___________________
Name:
Title:
4
ACCEPTED on this _____ day
of __________ , ____
PANOLAM INDUSTRIES
HOLDINGS, INC.
By: _________________________
Name:
Title:
By: _________________________
Name:
Title:
AMENDMENT NO. 1 TO STOCK OPTION AGREEMENT
TO: The parties to the Stock Option Agreement (the "Agreement") dated as of
June 7, 1996 among Panolam Industries International, Inc., Genstar Capital
Partners II, L.P. ("GCP II") and the other Parent Stockholders (as defined
in the Agreement)
In connection with (a) the refinancing of the credit facilities
established under the Senior Credit Agreement and the Subordinated Credit
Agreement; (b) the corporate reorganization pursuant to which all of the issued
and outstanding shares of the Company were transferred to PII Third, Inc.
("Third Intermediate Parent"); and (c) the sale by CCFL to GCP II of all the
Parent Shares owned by CCFL, the undersigned hereby amend the Agreement pursuant
to Section 17 thereof as follows:
(a) by replacing the name "Panolam International" in Sections 1 through 3
and 5 through 17 of the Agreement with "Third Intermediate Parent";
(b) by replacing clauses (i) and (ii) of Section 2(a) with the following:
"(i) (A) the credit agreement dated as of November 19, 1997 (as
amended, supplemented or otherwise modified from time to time,
the "Senior Canadian Credit Agreement") among the Company,
General Electric Capital Canada Inc. ("GE Canada") and certain
other parties, (B) the credit agreement dated as of November 19,
1997 (as amended, supplemented or otherwise modified from time to
time, the "Senior U.S. Credit Agreement") among Panolam
Industries, Inc., General Electric Capital Corporation ("GE
U.S.") and certain other parties, and (C) the note purchase
agreement dated as of November 19, 1997 (as amended, supplemented
or otherwise modified from time to time, the "Note Purchase
Agreement") among Panolam Industries International, Inc. ("First
Intermediate Parent"), GE U.S. and the Purchasers (as defined
therein), (ii) any extension, renewal, refunding or refinancing
of any indebtedness referred to in clause (i) of this Section,
(the indebtedness in clauses (i) and (ii) of this Section being
referred to collectively as the "Senior Debt")";
(c) by deleting the phrase "together with copies of any additional
financial information regarding the Company provided to CCFL during
the immediately preceding 12- month period" in Section 2(c) of the
Agreement;
-2-
(d) by replacing the phrase "the Senior Credit Agreement, the Subordinated
Credit Agreement or" with the phrase "(i) the Senior Canadian Credit
Agreement (as the same may be amended, supplemented or otherwise
modified from time to time or any extensions, renewals or refinancings
of the foregoing), (ii) the Senior U.S. Credit Agreement (as the same
may be amended, supplemented or otherwise modified from time to time
or any extensions, renewals or refinancings of the foregoing) or Note
Purchase Agreement (as the same may be amended, supplemented or
otherwise modified from time to time or any extensions, renewals or
refinancings of the foregoing) or (iii)" and replacing the phrase
"Scotiabank, CCFL or Domtar U.S., respectively" with "GE Canada, GE
U.S. or Domtar U.S., respectively, or the agent under any extension,
renewal or refinancing of the Senior Debt" in Section 17;
(e) by adding the following as Section 18:
"SECTION 18. Priority of Stock Pledges. The parties acknowledge
that certain of the indebtedness referred to in Section 2(a) is
secured, in part, by pledges of stock of First Intermediate
Parent and its subsidiaries. The parties acknowledge, confirm and
agree that (a) the Option is subject in all respects to the
rights of each such pledgee, (b) no Parent Stockholder shall have
or assert any rights (including, without limitation, any property
rights) in respect of the Option Shares by virtue of this
Agreement (or otherwise) for so long as any such pledge remains
in effect and (c) the Option rights granted under this Agreement
shall terminate automatically in the event that any such pledgee
exercises its sale rights in accordance with the terms of any
such pledge."; and
(f) by deleting Section 6 in its entirety and replacing it with the
following:
"This Agreement shall be binding upon and inure solely to the
benefit of the parties hereto, and each of the holders from time
to time of the Parent Shares or the Senior Debt, and their
respective successors and assigns. Nothing in this Agreement,
whether express or implied, is intended to or shall confer upon
any person other than the parties hereto, and each of the holders
from time to time of the Parent Shares or the Senior Debt, and
their respective successors and permitted assigns, any legal or
equitable right, benefit or remedy of any nature whatsoever,
under or by reason of this Agreement."
______________________
PII Third, Inc. hereby covenants and agrees that it shall perform,
observe and be bound by the Agreement, as amended, from and after the date
hereof.
-3-
All terms used above that are defined in the Agreement have the
respective meanings given to them in the Agreement.
DATED the day of November, 1997.
PANOLAM INDUSTRIES
INTERNATIONAL, INC.
by /s/ SIGNATURE ILLEGIBLE
--------------------------
__________________________
PII THIRD, INC.
by /s/ SIGNATURE ILLEGIBLE
--------------------------
__________________________
GENSTAR CAPITAL PARTNERS II, L.P.
BY GENSTAR CAPITAL LLC,
AS GENERAL PARTNER
by /s/ SIGNATURE ILLEGIBLE
---------------------------
____________________________