DRAFT OF AUGUST 3, 1999
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended June 30, 1999
Commission File Number 1-7107
LOUISIANA-PACIFIC CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 93-0609074
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
111 S. W. Fifth Avenue, Portland, Oregon 97204-3699
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (503) 221-0800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock: 107,406,329 shares of Common Stock, $1 par value, outstanding as
of August 1, 1999.
ABOUT FORWARD-LOOKING STATEMENTS
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 provide a "safe harbor" for all forward-looking statements
to encourage companies to provide prospective information about their businesses
and other matters as long as those statements are identified as forward-looking
and are accompanied by meaningful cautionary statements identifying important
factors that could cause actual results to differ materially from those
discussed in the statements. This report contains, and other reports and
documents filed by L-P with the Securities and Exchange Commission may contain,
forward-looking statements. These statements are or will be based upon the
beliefs and assumptions of, and on information available to, the management of
L-P.
The following statements are or may constitute forward-looking statements:
(1) statements preceded by, followed by or that include the words "may," "will,"
"could," "should," "believe," "expect," "anticipate," "intend," "plan,"
"estimate," "potential," "continue" or "future" or the negative or other
variations thereof and (2) other statements regarding matters that are not
historical facts. These forward-looking statements are subject to various risks
and uncertainties, including the following:
- Risks and uncertainties relating to the possible invalidity of the
underlying beliefs and assumptions;
- Possible changes or developments in social, economic, business,
industry, market, legal and regulatory circumstances and conditions;
and
- Actions taken or omitted to be taken by third parties, including
customers, suppliers, business partners, competitors and
legislative, regulatory, judicial and other governmental authorities
and officials.
In addition to the foregoing and any risks and uncertainties specifically
identified in the text surrounding forward-looking statements, any statements in
the reports and other documents filed by L-P with the Commission that warn of
risks or uncertainties associated with future results, events or circumstances
identify important factors that could cause actual results, events and
circumstances to differ materially from those reflected in the forward-looking
statements.
2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLAR AMOUNTS IN MILLIONS EXCEPT PER SHARE) (UNAUDITED)
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- -----------------------------
1999 1998 1999 1998
-------------- ------------- -------------- -------------
Net Sales ....................................... $ 768.5 $ 623.2 $1,368.6 $1,171.5
-------------- --------------- -------------- -------------
Costs and expenses:
Cost of sales..................................... 530.9 506.2 999.0 1,002.2
Depreciation, amortization and depletion.......... 45.7 49.5 88.5 89.0
Selling and administrative........................ 54.7 45.5 100.6 89.5
Unusual (credits) and charges, net (5.2) (328.3) (5.2) (328.3)
Interest expense.................................. 11.1 10.1 20.1 19.8
Interest income................................... (9.4) (1.5) (19.2) (3.6)
-------------- --------------- -------------- -------------
Total costs and expenses.......................... 627.8 281.5 1,183.8 868.6
-------------- --------------- -------------- -------------
Income before taxes and minority interest......... 140.7 341.7 184.8 302.9
Provision for income taxes........................ 55.8 138.8 73.2 126.3
Minority interest in net income (loss) of
consolidated subsidiaries..................... --- (1.0) (0.5) (2.2)
-------------- --------------- -------------- -------------
Net income....................................... $ 84.9 $ 203.9 $ 112.1 $ 178.8
-------------- --------------- -------------- -------------
-------------- --------------- -------------- -------------
Net income per share-basic and diluted............ $ .79 $ 1.87 $ 1.05 $ 1.64
-------------- --------------- -------------- -------------
-------------- --------------- -------------- -------------
Average shares outstanding (millions)
-- basic.................. 106.6 109.1 106.4 109.1
-------------- --------------- -------------- -------------
-------------- --------------- -------------- -------------
-- diluted................ 106.8 109.4 106.6 109.4
-------------- --------------- -------------- -------------
-------------- --------------- -------------- -------------
Cash dividends per share.......................... $ .14 $ .14 $ .28 $ .28
-------------- --------------- -------------- -------------
-------------- --------------- -------------- -------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED FINANCIAL
STATEMENTS.
3
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN MILLIONS) (UNAUDITED)
JUNE 30, 1999 DECEMBER 31, 1998
ASSETS ---------------- -----------------
Cash and cash equivalents $ 152.9 $ 126.5
Accounts receivable, net 204.2 134.7
Inventories 239.7 205.7
Prepaid expenses 19.6 8.1
Income tax refunds receivable --- 43.9
Deferred income taxes 121.8 93.2
---------------- -----------------
Total current assets 738.2 612.1
---------------- -----------------
Timber and timberlands 498.4 499.0
Property, plant and equipment 2,213.8 2,086.5
Less accumulated depreciation (1,202.9) (1,173.2)
---------------- -----------------
Net property, plant and equipment 1,010.9 913.3
Notes receivable from asset sales 403.8 403.8
Goodwill, net of amortization 132.9 60.0
Other assets 30.0 30.9
---------------- -----------------
Total assets $ 2,814.2 $ 2,519.1
---------------- -----------------
---------------- -----------------
LIABILITIES AND EQUITY
Current portion of long-term debt $ 23.2 $ 34.1
Accounts payable and accrued liabilities 270.2 192.5
Current portion of contingency reserves 205.0 140.0
Income taxes payable 13.4 ---
---------------- -----------------
Total current liabilities 511.8 366.6
---------------- -----------------
Long-term debt, excluding current portion:
Limited recourse notes payable 396.5 396.5
Other long-term debt 181.6 63.3
---------------- -----------------
Total long-term debt, excluding current portion 578.1 459.8
---------------- -----------------
Contingency reserves, excluding current portion 102.9 228.0
Deferred income taxes and other 301.8 241.9
Commitments and contingencies
Stockholders' equity:
Common stock 117.0 117.0
Additional paid-in-capital 465.2 465.4
Retained earnings 1,001.2 918.8
Treasury stock (201.3) (204.0)
Loans to Employee Stock Ownership Trusts (17.9) (28.8)
Accumulated comprehensive income (loss) (44.6) (45.6)
---------------- -----------------
Total stockholders' equity 1,319.6 1,222.8
---------------- -----------------
Total liabilities and equity $ 2,814.2 $ 2,519.1
---------------- -----------------
---------------- -----------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED FINANCIAL
STATEMENTS.
4
LOUISIANA-PACIFIC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN MILLIONS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30,
-----------------------------------
1999 1998
------------- -------------
Cash flows from operating activities:
Net income................................................... $ 112.1 $ 178.8
Depreciation, amortization and depletion..................... 88.5 89.0
Unusual (credits) and charges, net (5.2) (328.3)
Cash settlements of contingencies............................ (78.1) (38.9)
Other adjustments, net....................................... 13.8 10.4
Decrease (increase) in certain working capital components
and deferred taxes...................................... 80.2 219.0
------------- -------------
Net cash provided by (used in) operating activities..... 211.3 130.0
------------- -------------
Cash flows from investing activities:
Capital spending............................................. (57.0) (75.9)
Asset sales proceeds.......................................... 17.6 299.5
ABT purchase, including replacement of debt.................. (213.0) ---
Other investing activities, net.............................. (1.6) 4.1
------------- -------------
Net cash provided by (used in) investing activities..... (254.0) 227.7
------------- -------------
Cash flows from financing activities:
New borrowings, including net changes in revolving
borrowings.............................................. 139.3 328.0
Repayment of long-term debt.................................. (46.0) (265.0)
Increase (decrease) in short-term notes payable.............. --- 6.4
Cash dividends............................................... (29.7) (30.5)
Other financing activities, net.............................. 5.5 4.5
------------- -------------
Net cash provided by (used in) financing activities..... 69.1 43.4
------------- -------------
Net increase (decrease) in cash and cash equivalents............... 26.4 401.1
Cash and cash equivalents at beginning of period................... 126.5 31.9
------------- -------------
Cash and cash equivalents at end of period......................... $ 152.9 $ 433.0
------------- -------------
------------- -------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE UNAUDITED FINANCIAL
STATEMENTS.
5
NOTES TO UNAUDITED CONSOLIDATED SUMMARY FINANCIAL STATEMENTS
1. These consolidated summary financial statements should be read in
conjunction with the consolidated financial statements and the notes thereto
included in L-P's Annual Report on Form 10-K for the year ended December 31,
1998 (as the same may be amended, the "1998 Form 10-K").
These consolidated summary financial statements reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
the management of L-P, necessary to present fairly, in all material respects,
the consolidated financial position and results of operations of L-P and its
subsidiaries. Certain 1998 amounts have been reclassified to conform to the 1999
presentation.
Results of operations for interim periods are not necessarily indicative of
results to be expected for an entire year.
2. Basic earnings per share are based on the weighted average number of
shares of common stock outstanding during the applicable period. Diluted
earnings per share include the effects of potentially dilutive common stock
equivalents.
3. The preparation of interim financial statements requires the estimation
of L-P's effective income tax rate based on estimated annual amounts of taxable
income and expenses. These estimates are updated quarterly.
4. The preparation of interim financial statements requires the estimation
of L-P's year-end inventory quantities and costs for purposes of determining
last in, first out (LIFO) inventory adjustments. These estimates are revised
quarterly and the estimated incremental change in the LIFO inventory reserve is
expense over the remainder of the year.
5. Components of comprehensive income include net income, currency
translation adjustments and other income (loss). Comprehensive income was $87.5
million in the second quarter of 1999, $203.6 million for the second quarter of
1998, $113.1 million for the first six months of 1999 and $179.9 million for the
same period in 1998.
6. In June 1998, the Financial Accounting Standards Board adopted Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). The new statement will require
recognition of all financial instruments as either assets or liabilities on the
balance sheet at fair value; changes to fair value will impact earnings either
as gains or losses. SFAS 133 will be effective for L-P beginning January 1,
2001. L-P is assessing the impact this statement will have on its financial
statements and related disclosures.
7. In February 1999, L-P acquired all of the capital stock of ABT Building
Products Co. ("ABT") for approximately $164 million. Concurrent with the
acquisition, L-P also paid off approximately $49 million of ABT debt. In
connection with the acquisition of ABT, L-P borrowed $100 million under a new
uncommitted bank credit facility and increased its net revolving borrowings
under its existing credit facility by $65 million. The acquisition was accounted
for as a purchase and ABT's results of operations for the period subsequent to
the acquisition have been included in L-P's Condensed Consolidated Statements of
Income for the period ended June 30, 1999. The purchase price has been
preliminarily allocated to the assets and liabilities of ABT based on their
estimated fair values in L-P's Condensed Consolidated Balance Sheet at June 30,
1999. Based on current estimates, L-P has recorded purchase price in excess of
net assets acquired ("goodwill") of $77 million in its Condensed Consolidated
Balance Sheet at June 30, 1999, which is being amortized using the straight-line
method over 15 years. However, L-P is still in the process of obtaining
information to be used in the determination of the fair value of certain assets
and liabilities, which could affect both the amount of purchase price allocated
to those assets and liabilities and the amount of goodwill recorded and
amortized in future periods.
The following unaudited pro forma financial information gives effect to the
acquisitions of ABT as if it has been consummated at the beginning of each
period presented.
6
SIX MONTHS ENDED JUNE 30,
-------------------------------------------
1999 1998
--------------------- ---------------------
DOLLAR AMOUNTS IN MILLIONS
EXCEPT PER SHARE
Net Sales.................................................... $ 1,410.0 $ 1,339.3
Net Income................................................... 111.0 180.9
Net income per share-- basic 1.04 1.66
-- diluted 1.04 1.65
The principal pro forma adjustments reflected in the foregoing pro forma
information are adjustments to record interest expense on indebtedness incurred
in connection with the acquisition and the amortization of goodwill. The
foregoing pro forma information is provided for illustrative purposes only and
does not purport to be indicative of results that actually would have been
achieved had the acquisition been consummated at the beginning of the periods
presented or of future results.
8. The following table sets forth selected segment data for the periods
ended June 30, 1999 and 1998:
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
Sales:
Structural products............................ $ 430.1 $ 357.9 $ 775.1 $ 639.4
Exterior products.............................. 79.1 23.6 116.9 51.7
Industrial panel products...................... 73.1 45.3 126.9 88.5
Specialty and other products................... 158.3 175.6 299.9 350.2
Pulp........................................... 27.9 20.8 49.8 41.7
------------- ------------- ------------- -------------
Total sales.................................... $ 768.5 $ 623.2 $ 1,368.6 $ 1,171.5
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Profit (loss):
Structural products............................ $ 148.6 $ 43.1 $ 222.3 $ 48.1
Exterior products.............................. 16.3 4.7 24.0 9.6
Industrial panel products...................... 4.7 1.9 5.8 2.7
Specialty and other products................... (2.1) (3.7) (9.7) (10.4)
Pulp........................................... (4.9) (3.9) (10.7) (15.5)
Unusual credits and charges, net............... 5.2 328.3 5.2 328.3
General corporate and other expense, net....... (25.4) (20.1) (51.2) (43.7)
Interest income (expense), net................. (1.7) (8.6) (.9) (16.2)
------------- ------------- ------------- -------------
Income before taxes and minority interest...... $ 140.7 $ 341.7 $ 184.8 $ 302.9
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
9. The description of certain legal and environmental matters involving L-P
set forth in Part II of this report under the caption "Legal Proceedings" is
incorporated herein by reference. The increase in the current portion of
contingency reserves reflects the expected payment of the $125 million second
fund relating to L-P's nationwide class action litigation settlement in the
first half of 2000.
10. The description of a potential acquisition set forth below under the
caption "Acquisition" in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" is incorporated herein by reference.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Net income for the second quarter of 1999 was $84.9 million, or $.79 per
diluted share, on sales of $768.5 million, compared to second quarter 1998 net
income of $203.9 million, or $1.87 per diluted share, on sales of $623.2
million. Excluding a $5.2 million pretax gain ($3.2 million after tax, or $.03
per diluted share) on the sale of timberland, net income for the second quarter
of 1999 was $81.7 million, or $.76 per diluted share compared to second quarter
1998 income excluding unusual items (primarily a gain on the sale of California
timberlands) of $8.7 million, or $.08 per diluted share.
Net income for the first six months of 1999 was $112.1 million, or $1.05
per diluted share, on sales of $1.37 billion, compared to net income for the
first six months of 1998 of $178.8 million, or $1.64 per diluted share, on sales
of $1.17 billion. Excluding unusual items, net income for the first six months
of 1999 was $108.9 million, or $1.02 per diluted share, compared to a loss for
the first six months of 1998 of $16.4 million, or $.15 per diluted share.
Sustained demand for building products and the continued strength in
housing markets factored positively into second quarter earnings. This demand
resulted in improved market prices for structural panels (oriented strand board
(OSB) and plywood) and lumber which was the primary factor for increased sales
and earnings.
L-P operates in five segments: structural products; exterior products;
industrial panel products; specialty and other products; and pulp. Structural
products is the most significant segment, accounting for more than 50% of sales
during the first six months of both 1999 and 1998. L-P's results of operations
are discussed separately for each segment below. Production volumes and industry
product price trends are presented below in the tables captioned "Summary of
Production Volumes" and "Industry Product Price Trends."
SELECTED SEGMENT DATA
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------------ -----------------------------------------
1999 1998 % CHG 1999 1998 % CHG
------------- ------------- -------- ------------- --------------- -----------
Sales:
Structural products.............. $ 430.1 $ 357.9 +20% $ 775.1 $ 639.4 +21%
Exterior products................ 79.1 23.6 +235% 116.9 51.7 +126%
Industrial panel products........ 73.1 45.3 +61% 126.9 88.5 +43%
Specialty and other products..... 158.3 175.6 -10% 299.9 350.2 -14%
Pulp............................. 27.9 20.8 +34% 49.8 41.7 +19%
------------- ------------- -------- ------------- --------------- -----------
Total sales...................... $ 768.5 $ 623.2 +23% $ 1,368.6 $ 1,171.5 +17%
------------- ------------- ------------- ---------------
------------- ------------- ------------- ---------------
Profit (loss):
Structural products.............. $ 148.6 $ 43.1 +245% $ 222.3 $ 48.1 +362%
Exterior products................ 16.3 4.7 +247% 24.0 9.6 +150%
Industrial panel products........ 4.7 1.9 +147% 5.8 2.7 +115%
Specialty and other products..... (2.1) (3.7) +43% (9.7) (10.4) +7%
Pulp............................. (4.9) (3.9) -26% (10.7) (15.5) +31%
Unusual credits and charges, net. 5.2 328.3 -98% 5.2 328.3 -98%
General corporate and other
expense, net..................... (25.4) (20.1) -26% (51.2) (43.7) -17%
Interest income (expense), net... (1.7) (8.6) +80% (.9) (16.2) +94%
------------- ------------- -------- ------------- --------------- -----------
Income before taxes and minority
interest......................... $ 140.7 $ 341.7 -59% $ 184.8 $ 302.9 -39%
------------- ------------- ------------- ---------------
------------- ------------- ------------- ---------------
8
STRUCTURAL PRODUCTS
The structural products segment consists of oriented strand board (OSB),
plywood, lumber and engineered wood products (EWP). The significant growth in
sales in the structural products segment in 1999 was primarily due to increases
in OSB, plywood and non-redwood lumber prices. OSB, lumber and EWP volume
increases were partially offset by a volume decline in plywood.
OSB market prices and sales trends continued upward through the first six
months of 1999. OSB average selling prices increased 51% in the second quarter
of 1999 compared to the second quarter of 1998 and 42% for the first six months
of 1999 compared to the first six months of 1998. Robust U.S. housing markets
have created strong demand for OSB and other building products. OSB sales volume
increased approximately 2% in the second quarter of 1999 compared to the second
quarter of 1998, and 7% for the first six months of 1999 compared to the first
six months of 1998 due primarily to the addition of a new mill in April of 1998
that provided a net capacity increase.
Plywood average selling prices increased 30% in the second quarter of 1999
over the second quarter of 1998, offset by an approximate 37% decline in volume.
For the first six months of 1999 average selling prices increased 26% over the
same period in 1998, offset by an approximate 26% decline in volume. The price
increases reflect the strong demand factors discussed above. The volume
decreases are primarily the result of a temporary shut-down of plywood
manufacturing facilities and the allocation of additional veneer to laminated
veneer lumber (LVL) production rather than to plywood production.
Lumber sales increased in the second quarter of 1999 compared to 1998 due
to a shift to a higher percentage of outside sales and a lower percentage of
sales to the distribution business within L-P (part of the Specialty and Other
Products segment). Excluding the effect of redwood lumber operations sold in
1998, average selling prices increased approximately 6% in the second quarter of
1999 compared to the second quarter of 1998, offset by a slight decline in
volume. The selling average for redwood lumber is generally significantly higher
than for other species of lumber. For the first six months of 1999, excluding
the sold redwood lumber operations, average selling prices and volumes did not
change significantly.
Engineered wood products (EWP) include engineered I-Joists, LVL and
hardwood veneer. Sales of EWP products increased significantly, primarily as a
result of a marketing agreement to sell the products of an independent producer.
Sales volumes also increased in this segment due to strong residential and
commercial construction markets. The average selling prices of EWP products did
not change significantly. The price for the basic raw materials (OSB used in the
web stock for I-Joists, veneer used in LVL and lumber used for flange material
in I-Joists) increased significantly in 1999 due to the market price increases,
which led to lower profitability.
In the second quarter of 1999 and in the first six months of 1999,
profitability of the structural products segment increased significantly,
largely as a result of price improvements for OSB, plywood and non-redwood
lumber and improvements in the efficiency of L-P's production facilities. Lower
log costs in the southern region of the country contributed to the increase in
plywood earnings. Log costs in the southern region of the country decreased
approximately 7% in the first six months of 1999 over the same period in 1998,
while log costs in northern regions and Canada decreased approximately 5%.
Structural products profits also benefited in 1999 from the sale of unprofitable
California operations in mid-1998.
EXTERIOR PRODUCTS
The exterior products segment consists of siding and related products such
as soffit, facia and trim. In 1999, this segment includes products added from
the purchase of ABT, including hardboard siding, vinyl siding and other
products. Average sales prices of OSB-based exterior products decreased slightly
in the second quarter of 1999 compared to the same period in 1998, while volumes
increased about 38%. Average sales prices of OSB-based exterior products
decreased slightly for the six months ended June 30, 1999 compared to the six
months ended June 30, 1998, while volumes increased about 13%. Increased volumes
were primarily due to an increase in the number of distributors in the
southeastern distribution network. Total profits increased in 1999 primarily due
to the increased sales volume, the acquisition of ABT and more efficient use of
production capacity.
9
INDUSTRIAL PANEL PRODUCTS
The industrial panels segment consists of particleboard, medium density
fiberboard (MDF) and hardboard and, in 1999, the laminated industrial panels
products of ABT. Increased demand for particleboard and MDF contributed to
modestly higher pricing. Higher prices and the addition of the ABT products in
1999 are the primary reasons for the increase in sales and profits in 1999 in
this segment over the second quarter of 1998 and over the first six months of
1998.
SPECIALTY AND OTHER PRODUCTS
The specialty and other products segment includes distribution facilities,
wood chips, coatings and chemicals, cellulose insulation, Ireland operations,
Alaska operations, moldings and other products. In the second quarter of 1999,
sales for this segment decreased compared to the second quarter of 1998,
primarily due to the sale of the assets of the Weather-Seal windows and doors
division, Creative Point Inc. and two California distribution facilities,
partially offset by sales of ABT products. The same factors also contributed to
the decline in sales in the first six months of 1999 compared to the first six
months of 1998.
PULP
Pulp segment operations in 1999 continued to be impacted by the worldwide
over-capacity in the pulp industry and the Asian market crisis, although pricing
has improved over 1998 as the Asian economy improves. Pulp segment losses
increased for the second quarter of 1999 compared to the second quarter of 1998
due primarily to higher maintenance charges related to repairs and higher raw
material costs at the Samoa, California mill. Losses decreased for the first
six months of 1999 compared to the first six months of 1998, due primarily to
partial recovery of inventory market write-downs taken in previous periods and
lower unit costs due to higher production volumes. L-P's pulp facilities took
significant downtime in the first half of 1998.
UNUSUAL CREDITS AND CHARGES NET
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Gain on sale of assets............................. $ 5.2 $ 359.1 $ 5.2 $ 359.1
Adjustment for litigation reserves and other....... --- (30.8) --- (30.8)
------------ ------------ ------------ ------------
$ 5.2 $ 328.3 $ 5.2 $ 328.3
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
In the second quarter of 1999, L-P recorded a net gain of $5.2 million
($3.2 million after taxes, or $.03 per diluted share) from the sale of timber
and timberlands in Texas.
In the second quarter of 1998, L-P recorded a net gain of $328.3 million
($195.2 million after taxes, or $1.79 per diluted share) primarily resulting
from gains on the sales of timberland, sawmill and distribution assets in
California and the Weather-Seal window and door business. Charges relating to
the settlement of legal issues in Montrose, Colorado of $14.0 million after
taxes (or $.13 per diluted share) and other charges were netted against the
asset sales gains.
GENERAL CORPORATE AND OTHER EXPENSE
General corporate expense increased primarily due to the addition of sales
and marketing personnel as L-P has increased its focus on customers and
additional costs for administrative infrastructure, including the conversion to
new accounting and human resource systems.
10
INTEREST INCOME (EXPENSE)
Cash from asset sales was used to repay loans and lines of credit in late
1998, reducing debt levels and net interest expense in 1999 compared to 1998.
LEGAL AND ENVIRONMENTAL MATTERS
Refer to the "Legal Proceedings" section of this Form 10-Q for a discussion
of certain legal and environmental matters and the potential impact of these
matters on L-P.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $211 million in the first six months of
1999 compared to $130 million in the first six months of 1998. The increase in
cash provided by operations resulted primarily from improved operating results
(excluding unusual items). Partially offsetting this increase, L-P made $78
million in litigation-related payments, largely due to the early payment program
relating to L-P's nationwide class action litigation settlement, during the
first six months of 1999 compared to $39 million in the first six months of
1998.
Cash used in investing activities was $254 million in the first six months
of 1999 compared to cash provided by investing activities of $228 million in the
first six months of 1998. L-P paid $213 million to acquire ABT in February 1999.
L-P received approximately $300 million from asset sales proceeds in 1998.
Capital expenditures in property, plant, equipment and timber decreased in 1999
compared to 1998, primarily because L-P did not have any new mills under
construction. L-P has announced plans to build several wood-processing
facilities in Canada, including an OSB plant, and is building an OSB plant in
Chile.
In the first six months of 1999, L-P borrowed $165 million to finance the
acquisition of ABT. In the first six months of 1998, L-P repaid $265 million on
its revolving credit line with the proceeds from $349 million in new borrowings
related to the monetization of notes receivable from asset sales.
L-P expects to be able to meet its cash requirements through cash from
operations, existing cash balances, existing credit facilities and access to the
capital markets. Cash and cash equivalents totaled $153 million at June 30, 1999
compared to $127 million at December 31, 1998. L-P has a $300 million revolving
credit facility available through January 2002, under which L-P had $40 million
of borrowings outstanding at June 30, 1999. L-P also had $100 million of
borrowings under a new uncommitted bank credit facility outstanding at June 30,
1999. L-P has filed a shelf registration statement for the sale of up to $500
million of debt securities to be offered from time to time in one or more
series. The proceeds from the sale of such securities are anticipated to be used
by L-P for general corporate purposes, which may include repayment of debt
(including debt incurred in connection with the acquisition of ABT), and,
potentially, for the acquisition of Forex discussed below.
Changes in L-P's balance sheet from December 31, 1998 to June 30, 1999
include increases of $69 million in accounts receivable, $34 million in
inventories, $98 million in net property, plant and equipment, and $73 million
in goodwill resulting primarily from the consolidation of ABT and L-P for
financial reporting purposes. The increase of $145 million in current
liabilities resulted primarily from the consolidation of ABT and L-P for
financial reporting purposes and an increase in the current portion of
contingency reserves to reflect the expected payment, in the first quarter of
2000, of the second fund relating to L-P's nationwide class action siding
litigation settlement.
Contingency reserves, which represent an estimate of future cash needs for
various contingencies (primarily payments for siding litigation settlements),
totaled $308 million at June 30, 1999, of which $205 million is estimated to be
payable within one year. As with all accounting estimates, there is inherent
uncertainty concerning the reliability and precision of these estimates. The
amounts ultimately paid in resolving these contingencies could exceed the
current reserves by a material amount. Contingency reserves decreased in 1999
due to the continued implementation of the early payment program relating to
L-P's nationwide class action siding litigation settlement. Litigation related
payments totaled $78 million for the first six months of 1999.
11
ACQUISITION
On June 28, 1999, L-P agreed to make a tender offer for the outstanding
shares of Le Groupe Forex Inc., a Canadian OSB producer, for $26 (Canadian) per
share payable in cash, installment notes or a combination thereof. On August 3,
1999, in response to a competing proposal made by a third party, L-P agreed to
increase its offer to $31 (Canadian) per share. At $31 (Canadian) per share, the
total purchase price for Forex would be approximately $550 million (US),
including the assumption of debt. L-P intends to finance the acquisition by
issuing debt under bank or bridge loans or a planned public debt offering
(discussed above). Forex is required to notify L-P prior to approving or
accepting any competing acquisition proposal that Forex determines is more
favorable to its stockholders, whereupon L-P would have five business days to
modify, if it so chooses, its offer. If Forex determines that a modification
proposed by L-P would result in the competing acquisition proposal not being
more favorable to its stockholders, Forex would be required to accept L-P's
proposed modification. In certain circumstances, including certain circumstances
involving the termination of the agreement between L-P and Forex, Forex would be
required to pay L-P a fee in the amount of $28 million (Canadian). The proposed
acquisition of Forex is subject to customary conditions, including a condition
that at least two-thirds of each class of Forex's capital stock will have been
tendered to L-P and a condition relating to the receipt of regulatory approvals.
ASSETS HELD FOR SALE
L-P is in the process of seeking to sell its Chetwynd, British Columbia
pulp mill. L-P is also currently in discussions relating to the possible sale
of most of the assets of its Ketchikan Pulp Company subsidiary. In addition,
L-P is exploring the possible sale of the Samoa, California pulp mill. While
L-P currently believes it has adequate support for the carrying value of the
affected assets, there can be no assurance that the proceeds ultimately
received in any sale transaction would not fall short of the applicable
carrying value, resulting in a loss on such sale.
YEAR 2000 COMPLIANCE
The Year 2000 problem refers to a worldwide issue relating to a flaw in
many computer programs and computer applications embedded in equipment and other
devices. In many existing software and hardware applications, two digits were
used to represent the year, such as "99" for "1999." If not corrected, these
applications may interpret "00" to be the year 1900 rather than 2000, producing
erroneous data or, at worst, failing altogether. L-P recognizes the Year 2000
problem as a serious issue. Accordingly, L-P now considers the potential impact
of the Year 2000 in connection with all in-house application development and
purchases of third-party software. In the fall of 1997, L-P undertook a formal
project to address its Year 2000 exposure and readiness.
All of L-P's business groups, operations and corporate functions are
covered by the Year 2000 project. The project team is staffed by full-time
employees, contractors and consultants as appropriate. The project is
continuously monitored by a management steering committee and L-P's internal
auditors to ensure that proper methodology is being followed, that adequate
controls are in place and that appropriate steps are being taken to limit risk.
In addition, periodic reports are made to senior management, the finance and
audit committee and the board of directors.
The project is divided into three primary areas: (1) information systems;
(2) manufacturing systems/building infrastructure; and (3) business partners
(including suppliers and customers).
INFORMATION SYSTEMS. L-P's information systems include such common business
applications as payroll, human resources, sales order entry, inventory
management, finance and accounting. L-P's Year 2000 project
12
phases for information systems include: inventorying and prioritizing all
information systems; assessing the Year 2000 readiness of such systems;
remediating such systems (through conversion, upgrades, replacement or
risk-managed acceptance of non-compliant items); testing; and developing and
implementing contingency plans, to the extent determined to be appropriate, for
each system. The inventory and assessment phases for L-P's information systems
have been completed. L-P has replaced its basic payroll, human resources and
most accounting applications with off-the-shelf packages and has completed the
remediation of a number of other information systems. As of July 31, 1999,
approximately 11% of L-P's other information systems required further
remediation through system upgrades and/or replacements. The remediation of
these systems is scheduled for completion by September 30, 1999. Testing of
information systems and contingency planning are underway and are scheduled to
be completed by November 30, 1999.
MANUFACTURING SYSTEMS/BUILDING INFRASTRUCTURE. With respect to L-P's
manufacturing systems and building infrastructure, the Year 2000 project is
focused on surveying and, where necessary, remediating all computer-controlled
and/or embedded devices used in L-P's manufacturing processes or in building
infrastructure (such as the heating and air conditioning systems, security
access and alarm systems, telephones, and office equipment used in L-P's offices
and plants). The Year 2000 project phases for manufacturing systems and building
infrastructure include: inventorying items that are exposed to Year 2000 issues;
assessing the Year 2000 readiness of such items; remediating such items (through
conversion, upgrades, replacement, or risk-managed acceptance of non-compliant
items), testing; and developing and implementing contingency plans, to the
extent determined to be appropriate, for each business group and facility
location. The inventory and assessment phases for L-P's manufacturing systems
and building infrastructure has been completed. As of July 31, 1999,
approximately 1% of L-P's manufacturing systems and building infrastructure
required further remediation. This remediation is scheduled to be completed by
September 30, 1999. Testing of manufacturing systems and building infrastructure
and contingency planning are underway and are scheduled to be completed by
November 30, 1999.
BUSINESS PARTNERS. L-P also faces the risk of business disruption from
outside business partners, which may have information systems, manufacturing
systems or infrastructure that are not Year 2000 compliant. In this regard,
L-P's Year 2000 project includes identifying and prioritizing L-P's major
business partners (primarily suppliers of raw materials and essential services
such as utilities and transportation and significant customers), assessing
their Year 2000 readiness and developing contingency plans where appropriate.
The identification and prioritization phases have been completed and L-P has
requested that all of its major business partners respond to a survey eliciting
information as to their Year 2000 readiness. Of the approximately 50% of the
business partners that have responded to the survey, none have disclosed
significant readiness issues. However, in light of the substantial number of
parties who failed to respond to the survey, L-P recently decided to pursue
responses from these parties more aggressively through business-unit
operating personnel rather than through corporate management personnel. In
addition, as part of its contingency planning process, L-P intends to focus
on obtaining appropriate assurances from all critical business partners that
have not responded to the survey by September 30, 1999 and to monitor the Year
2000 readiness of its most critical business partners throughout the remainder
of 1999.
If L-P's efforts in this regard cause it to believe that significant risk
is present, L-P will seek to identify alternate business partners and to develop
contingency plans to address potential business disruptions prior to December
1999.
COSTS. The total expense associated with L-P's Year 2000 project is
presently estimated to be approximately $7.2 million, of which approximately
$4.7 million (including certain costs incurred by ABT prior to its acquisition
by L-P) had been incurred by June 30, 1999. These costs are being expensed as
incurred and are not expected to have a material effect on L-P's financial
position or results of operations. These costs do not include expenses and
capital costs associated with replacing systems which L-P would have replaced
regardless of Year 2000 issues, including a new human resources information
system and a new core financial system.
MOST REASONABLY LIKELY WORST-CASE SCENARIO. The occurrence of unscheduled
downtime at L-P's facilities resulting from internal or third-party system
failures could have an adverse effect on L-P's business, results of operations
and cash flows. In this regard, L-P believes that its dependence on third
parties for critical services such as telecommunications, energy, water and
other utilities, financial services and transportation poses the greatest risk.
L-P is seeking to assess the Year 2000 readiness of all mission critical systems
and business partners and to
13
develop appropriate contingency plans. These plans may include identifying
alternative systems and suppliers and assisting major customers who may be
affected by Year 2000 issues. However, there can be no assurance that L-P will
not experience unscheduled downtime, business disruptions or other adverse
consequences of the Year 2000 problem.
ADDITIONAL CONSIDERATIONS. Despite the extensive efforts of L-P's project
team, it is likely that some unexpected problems associated with the Year 2000
issue will arise. In addition, the costs and completion dates for L-P's Year
2000 project discussed herein are based on management's estimates, which were
derived using numerous assumptions regarding future events, including continued
availability of certain resources, remediation plans of business partners and
other factors. There can be no assurance that these estimates will be achieved
and actual results could differ significantly from L-P's current expectations.
14
LOUISIANA-PACIFIC CORPORATION
SUMMARY OF PRODUCTION VOLUMES
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
Oriented strand board panels, million
square ft 3/8" basis........................... 1,068 986 2,122 1,906
Softwood plywood million square ft 3/8" basis...... 211 270 447 501
Lumber, million board feet......................... 269 288 529 574
Oriented strand board siding and specialty products
million square ft 3/8" basis................... 94 100 192 195
Hardboard siding surface measure million square
ft basis....................................... 85 --- 114 ---
Engineered I-Joists, million lineal feet........... 21 24 45 46
Laminated Veneer Lumber, thousand cubic ft......... 1,800 2,000 3,500 3,600
Industrial panel products (particle board, medium
density fiberboard and hardboard), million
square ft 3/4" basis........................... 175 148 335 293
Pulp, thousand short tons.......................... 90 91 185 141
15
INDUSTRY PRODUCT PRICE TRENDS
OSB PLYWOOD LUMBER PARTICLEBOARD
----------- ---------- ---------- -------------
N. CENTRAL
7/16" BASIS SOUTHERN FRAMING
24/16 PINE 1/2" LUMBER INLAND
SPAN BASIS COMPOSITE INDUSTRIAL
RATING CDX 3 PLY PRICES 3/4" BASIS
----------- ---------- ---------- -------------
Annual Average
1993 $ 236 $ 282 $ 394 $ 258
1994 265 302 405 295
1995 245 303 337 290
1996 184 258 398 276
1997 142 265 417 262
1998 205 284 349 259
1998 Second Quarter Average 195 262 346 262
1999 First Quarter Average 218 318 384 247
1999 Second Quarter Average 289 343 423 270
Source: Random Lengths. The amounts set forth are dollars per 1,000 square
feet or, in the case of lumber, 1,000 board feet.
16
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Certain legal and environmental matters involving L-P are discussed below.
ENVIRONMENTAL PROCEEDINGS
In March 1995, L-P's subsidiary, Ketchikan Pulp Company ("KPC"), entered
into agreements with the federal government to resolve violations of the Clean
Water Act and the Clean Air Act that occurred at KPC's pulp mill during the late
1980's and early 1990's. These agreements were subsequently approved by the U.S.
District Court for the District of Alaska. In addition to civil and criminal
penalties that were paid in 1995, KPC agreed to undertake certain remedial and
pollution-control projects. These projects included (i) capital projects for
spill containment and water treatment plant upgrades estimated to cost
approximately $13.4 million (of which approximately $7.5 million had been spent
at June 30, 1999) and (ii) non-capital projects relating to the investigation
and remediation of Ward Cove, a body of water adjacent to the mill site,
estimated to cost approximately $6.3 million (of which approximately $1.8
million had been spent at June 30, 1999). As a result of the closure of the mill
in May 1997, KPC's obligations with respect to the capital projects have been
suspended through January 2000, and KPC is in the process of seeking permanent
relief from those obligations. KPC's obligations with respect to the Ward Cove
investigation and remediation have not been affected by the closure of the mill.
In June 1997, KPC entered into an agreement with the State of Alaska and
the U.S. Environmental Protection Agency (the "EPA") to investigate and, if
necessary, clean up the former mill site. KPC has completed the investigative
portion of this project and commenced work on the clean-up portion of this
project, which is expected to be completed in late 1999. Total costs associated
with this project are estimated to be between $2.7-$3.0 million, of which
approximately $2.7 million had been spent at June 30, 1999.
KPC has completed the closure of a landfill near Thorne Bay, Alaska,
pursuant to an agreement with the U.S. Forest Service (the "USFS"). Costs of the
project totaled approximately $6.5 million. KPC will monitor leachate from the
landfill in order to evaluate whether treatment of the leachate is necessary.
Certain L-P plant sites have, or are suspected of having, substances in the
ground or in the groundwater underlying the sites that are considered
pollutants. Where the pollutants were caused by previous owners of the property,
L-P is vigorously pursuing those parties through legal channels as well as
insurance coverage under all applicable policies.
Although L-P's policy is to comply with all applicable environmental laws
and regulations, the company has, in the past, been required to pay fines for
noncompliance. In some instances, litigation has resulted from contested
environmental actions. Also, L-P is involved in other environmental actions and
proceedings which could result in fines or penalties. Based on the information
currently available, management believes that any fines, penalties or other
losses resulting from the matters discussed above will not have a material
adverse effect on the consolidated financial position or results of operations
of L-P.
COLORADO CRIMINAL PROCEEDINGS
In June 1995, a federal grand jury returned an indictment in the U.S.
District Court for the District of Colorado against L-P in connection with
alleged environmental violations, as well as alleged fraud in connection with
the submission of unrepresentative oriented strand board (OSB) product samples
to an industry product certification agency, by L-P's Montrose (Olathe),
Colorado OSB plant. In connection with entering a guilty plea as to certain
criminal violations in May 1998, (i) L-P agreed to pay total penalties of $37
million (including making $500,000 in charitable contributions), of which $12
million was paid in 1998, and was sentenced to five years of probation and (ii)
all remaining charges against L-P were dismissed. Under the terms of the
original agreement, the $25 million balance of the fine assessed against L-P,
which is secured by a statutory lien, was payable in three equal
17
annual installments, together with accrued interest, beginning July 1, 2000.
However, in April 1999, the court approved a modification to the agreement,
pursuant to which L-P paid this balance, without interest, during the second
quarter of 1999.
In December 1995, L-P received a notice of suspension from the EPA stating
that, because of the criminal proceedings pending against L-P in Colorado, the
Montrose facility would be prohibited from purchasing timber directly from the
USFS. In April 1998, L-P signed a Settlement and Compliance Agreement with the
EPA. This agreement formally lifted the 1995 suspension imposed on the Montrose
facility. The agreement has a term of five years and obligates L-P to (i)
develop and implement certain corporate policies and programs, including a
policy of cooperation with the EPA, an employee disclosure program and a policy
of nonretaliation against employees, (ii) conduct its business to the best of
its ability in accordance with federal laws and regulations and local and state
environmental laws, (iii) report significant violations of law to the EPA, and
(iv) conduct at least two audits of its compliance with the agreement.
OSB SIDING MATTERS
L-P has been named as a defendant in numerous class action and nonclass
action proceedings, brought on behalf of various persons or purported classes of
persons (including nationwide classes in the United States and Canada) who own
or have purchased or used OSB siding manufactured by L-P, because of alleged
unfair business practices, breach of warranty, misrepresentation, conspiracy to
defraud, and other theories related to alleged defects, deterioration, or
failure of OSB siding products.
The U.S. District Court for the District of Oregon has given final approval
to a settlement between L-P and a nationwide class composed of all persons who
own, have owned, or subsequently acquire property on which L-P's OSB siding was
installed prior to January 1, 1996, excluding persons who timely opted out of
the settlement and persons who are members of the settlement class in the
Florida litigation described below. Under the settlement agreement, an eligible
claimant whose claim is filed prior to January 1, 2003 (or earlier in certain
cases) and is approved by an independent claims administrator, is entitled to
receive from the settlement fund established under the agreement a payment equal
to the replacement cost (determined by a third-party construction cost estimator
and currently estimated to be in the range of $2.20 to $6.40 per square foot
depending on the type of product and geographic location) of damaged siding,
reduced by a specific adjustment (of up to 65 percent) based on the age of the
siding. Class members who previously submitted or resolved claims under any
other warranty or claims program of L-P may be entitled to receive the
difference between the amount payable under the settlement agreement and the
amount previously paid. The extent of damage to OSB siding at each claimant's
property is determined by an independent adjuster in accordance with a specified
protocol. Settlement payments are not subject to adjustment for improper
maintenance or installation.
A claimant who is dissatisfied with the amount to be paid under the
settlement may elect to pursue claims against L-P in a binding arbitration
seeking compensatory damages without regard to the amount of payment calculated
under the settlement protocol. A claimant who elects to pursue an arbitration
claim must prove his entitlement to damages under any available legal theory,
and L-P may assert any available defense, including defenses that otherwise had
been waived under the settlement agreement. If the arbitrator reduces the damage
award otherwise payable to the claimant because of a finding of improper
installation, the claimant may pursue a claim against the contractor/builder to
the extent the award was reduced.
The settlement requires L-P to contribute $275 million to the settlement
fund in seven annual installments payable during the period from 1996 through
2002 in the following amounts: $100 million; $55 million; $40 million; $30
million; $20 million; $15 million; and $15 million. As of June 30, 1999, L-P had
funded the first four installments. L-P also had funded a significant portion of
the last three installments through the Early Payment Program discussed below.
The estimated cumulative total of approved claims under the settlement, as
calculated under the terms of the settlement (without giving effect, in the case
of unpaid claims, to discounted settlements under the Early Payment Program),
exceeded $575 million at June 30, 1999. In these circumstances, unless L-P makes
an additional contribution of $50 million to the settlement fund by August 2001,
the settlement will terminate as to all claims in excess of $275 million that
remain unpaid. In addition, unless L-P makes a second additional contribution of
$50 million to the settlement fund by August 2002, the settlement will terminate
as to all claims in
18
excess of $325 million that remain unpaid. If L-P makes both of these additional
contributions, the settlement would continue in effect until at least August
2003, at which time L-P would be required to make an election with respect to
all unpaid claims that were filed prior to December 31, 2002. If, in August
2003, L-P elects to pay pursuant to the settlement all approved claims that
remain unpaid at that time, 50% of the unpaid claims must be paid by August 2004
and the remaining 50% must be paid by August 2005. If L-P elects not to pay the
unpaid claims pursuant to the settlement, the settlement will terminate with
respect to such unpaid claims and all unpaid claimants will be free to pursue
their individual remedies from and after August 2003.
If L-P makes all payments required under the settlement agreement,
including all additional payments as specified above, class members will be
deemed to have released L-P from all claims for damaged OSB siding, except for
claims arising under their existing 25-year limited warranty after termination
of the settlement agreement. The settlement agreement does not cover
consequential damages resulting from damage to OSB Inner-Seal siding or damage
to utility grade OSB siding (sold without any express warranty), either of which
could create additional claims. In addition to payments to the settlement fund,
L-P was required to pay fees of class counsel in the amount of $26.25 million,
as well as expenses of administering the settlement fund and inspecting
properties for damage and certain other costs. After accruing interest on
undisbursed funds and deducting class notification costs, prior claims costs
(including payments advanced to homeowners in urgent circumstances) and payment
of claims under the settlement, as of June 30, 1999, approximately $5.3 million
remained of the $225 million paid into the fund to date (all of which is
presently dedicated to the payment of expenses or held in reserve).
On October 26, 1998, L-P announced an agreement to offer early payments to
eligible claimants who have submitted valid and approved claims under the
original settlement agreement (the "Early Payment Program") and to establish an
additional $125 million fund to pay all other approved claims that are filed
before December 31, 1999 (the "Second Settlement Fund").
The Early Payment Program applies to all claimants who are entitled to
be paid from the $80 million of mandatory contributions to the settlement
fund that remain to be made under the settlement agreement, and to all
claimants who otherwise would be paid from the proceeds of the two optional
$50 million contributions to the settlement fund that L-P may elect to make
under the settlement agreement. The early payments from the $80 million of
mandatory contributions are discounted at a rate of 9% per annum calculated
from their original payment dates (1999-2002) to the date the early payment
offer was made. The early payments from the two $50 million optional
contributions are discounted at a rate of 12% per annum calculated from 2001
and 2002, respectively, to the date the early payment offer was made.
Claimants may accept or reject the discounted early payments in favor of
remaining under the original settlement, but may not arbitrate the amount of
their early payments. For purposes of determining whether L-P has made any
mandatory or optional contribution to the settlement fund as of the
respective due date therefor, L-P will receive credit for the undiscounted
amount of such contribution to which the discounted amount thereof paid
pursuant to the Early Payment Program is attributable. At June 30, 1999,
approximately $130.3 million in Early Payment Program checks had been mailed
and $120.7 million had been cashed in settlement claims, while approximately
$3.0 million in such checks remained to be mailed. Giving effect only to
Early Payment Program checks that had actually been cashed, L-P had
effectively satisfied an estimated cumulative total of approximately $352.8
million of its mandatory and optional contributions to the settlement fund at
June 30, 1999.
The $125 million Second Settlement Fund represents an alternative source of
payment for all approved claims not eligible for the Early Payment Program and
all new claims filed before December 31, 1999. In early 2000, claimants electing
to participate in the Second Settlement Fund will be offered a pro rata share of
the fund in complete satisfaction of their claims, which they may accept or
reject in favor of remaining under the original settlement. Claimants who accept
their pro rata share may not file additional claims under the settlement or
arbitrate the amount of their payments. Claimants who elect not to participate
in the Second Settlement Fund remain bound by the terms of the original
settlement. If L-P is dissatisfied with the number of claimants who elect to be
paid from the Second Settlement Fund, L-P may refuse to proceed with funding at
its sole option. In that event, the Second Settlement Fund will be canceled and
all the claimants who had elected to participate in it will be governed by the
original settlement.
19
A settlement of a related class action in Florida was approved by the
Circuit Court for Lake County, Florida, on October 4, 1995. Under the
settlement, L-P has established a claims procedure pursuant to which members of
the settlement class may report problems with L-P's OSB siding and have their
properties inspected by an independent adjuster, who will measure the amount of
damage and also determine the extent to which improper design, construction,
installation, finishing, painting, and maintenance may have contributed to any
damage. The maximum payment for damaged siding is $3.40 per square foot for lap
siding and $2.82 per square foot for panel siding, subject to reduction by up to
75 percent for damage resulting from improper design, construction,
installation, finishing, painting, or maintenance, and also subject to reduction
for age of siding more than three years old. L-P has agreed that the deduction
from the payment to a member of the Florida class will be not greater than the
deduction computed for a similar claimant under the national settlement
agreement described above. Class members will be entitled to make claims until
October 4, 2000.
ABT HARDBOARD SIDING MATTERS
ABT, ABTco, Inc., a wholly owned subsidiary of ABT ("ABTco" and, together
with ABT, the "ABT Entities"), Abitibi-Price Corporation ("Abitibi"), a
predecessor of ABT, and certain affiliates of Abitibi (the "Abitibi Affiliates"
and, together with Abitibi, the "Abitibi Entities") have been named as
defendants in a conditionally certified class action filed in the Circuit Court
of Choctaw County, Alabama, on December 21, 1995 and in six other putative class
action proceedings filed in the following courts on the following dates: the
Court of Common Pleas of Allegheny County, Pennsylvania on August 8, 1995; the
Superior Court of Forsyth County, North Carolina on December 27, 1996; the
Superior Court of Onslow County, North Carolina on January 21, 1997; the Court
of Common Pleas of Berkeley County, South Carolina on September 25, 1997; the
Circuit Court of Bay County, Florida on March 11, 1998; and the Superior Court
of Dekalb County, Georgia on September 25, 1998. These actions were brought on
behalf of various persons or purported classes of persons (including nationwide
classes) who own or have purchased or used hardboard siding manufactured or sold
by the ABT Entities or the Abitibi Entities. In general, the plaintiffs in these
actions have alleged unfair business practices, breach of warranty, fraud,
misrepresentation, negligence, and other theories related to alleged defects,
deterioration, or other failure of such hardboard siding, and seek unspecified
compensatory, punitive, and other damages, attorneys' fees and other relief. In
addition, Abitibi has been named in certain other actions, which may result in
liability to ABT under the allocation agreement between ABT and Abitibi
described below. Except in the case of certain of the putative class actions
that have been stayed, the ABT Entities have filed answers in these proceedings
that deny all material allegations of the plaintiffs and assert affirmative
defenses. L-P intends to cause the ABT Entities to defend these proceedings
vigorously.
L-P, the ABT Entities and the Abitibi Entities have also been named as
defendants in putative class action proceedings filed in the Circuit Court of
Jackson County, Missouri on April 22, 1999 and the District Court of Johnson
County, Kansas on July 14, 1999 and brought on behalf of purported classes of
persons in Missouri and Kansas, respectively, who own or have purchased
hardboard siding manufactured by the defendants. In general, the plaintiffs in
these proceedings have alleged breaches of warranty, fraud, misrepresentation,
negligence, strict liability and other theories related to alleged defects,
deterioration or other failure of such hardboard siding, and seek restitution,
punitive damages, attorneys' fees and other relief. L-P and the ABT Entities
intend to defend this proceeding vigorously.
ABT and Abitibi have agreed to an allocation of liability with respect to
claims relating to (1) siding sold by the ABT Entities after October 22, 1992
("ABT Board"), and (2) siding sold by the Abitibi Entities on or before, or held
as finished goods inventory by the Abitibi Entities on, October 22, 1992
("Abitibi Board"). In general, ABT and Abitibi have agreed that all amounts paid
in settlement or judgment (other than any punitive damages assessed individually
against either the ABT Entities or the Abitibi Entities) following the
completion of any claims process resolving any class action claim (including
consolidated cases involving more than 125 homes owned by named plaintiffs)
shall be paid (a) 100% by ABT insofar as they relate to ABT Board, (b) 65% by
Abitibi and 35% by ABT insofar as they relate to Abitibi Board, and (c) 50% by
ABT and 50% by Abitibi insofar as they cannot be allocated to ABT Board or
Abitibi Board. In general, amounts paid in connection with class action claims
for joint local counsel and other joint expenses, and for plaintiffs' attorneys'
fees and expenses, are to be allocated in a similar manner, except that joint
costs of defending and disposing of class action claims incurred prior to the
final determination of what portion of claims relate to ABT Board and what
portion relate to Abitibi Board are to be paid
20
50% by ABT and 50% by Abitibi (subject to adjustment in certain circumstances).
ABT and Abitibi have also agreed to certain allocations (generally on a 50/50
basis) of amounts paid for settlements, judgments and associated fees and
expenses in respect of non-class action claims relating to Abitibi Board. ABT is
solely responsible for such amounts in respect of claims relating to ABT Board.
Based on the information currently available, management believes that the
resolution of the foregoing matters will not have a material adverse effect on
the financial position or results of operations of L-P.
FIBREFORM WOOD PRODUCTS, INC. PROCEEDINGS
L-P has been named as a defendant in an action filed by FibreForm Wood
Products, Inc. ("FibreForm") in the Superior Court of Los Angeles County,
California on July 13, 1999. The action was subsequently removed by L-P and the
other named defendants to the United States District Court for the Central
District of California. FibreForm has alleged, in connection with failed
negotiations between FibreForm and L-P regarding a possible joint venture, that
L-P and the other defendants engaged in a fraudulent scheme to gain control
over FibreForm's proprietary manufacturing processes under the guise of such
negotiations. FibreForm has alleged fraudulent misrepresentation, negligent
misrepresentation, misappropriation of trade secrets, unfair competition,
breach of contract and breach of a confidentiality agreement by L-P and the
other defendants. FibreForm seeks general, special and consequential damages of
at least $250 million, punitive damages, restitution, injunctive and other
relief and attorneys' fees. L-P believes that FibreForm's allegations are
without merit and intends to defend this action vigorously. Based on the
information currently available, management believes that the resolution of the
foregoing matters will not have a material adverse effect on the financial
position or results of operations of L.P.
OTHER PROCEEDINGS
L-P and its subsidiaries are parties to other legal proceedings. Management
believes that the outcome of such proceedings will not have a material adverse
effect on the consolidated financial position or results of operations of L-P.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
L-P held its Annual Meeting of Stockholders on May 10, 1999, at which the
stockholders of L-P voted on and approved the following:
1. The election of two Class II directors of L-P for terms expiring at
the Annual Meeting of Stockholders in 2002.
2. An amendment to L-P's 1992 Non-Employee Director Stock Option Plan
(the "Plan") to increase the number of shares of L-P's common stock
available for option grants under the Plan by 600,000 shares to a
total of 1,200,000 shares.
3. Approval of a stockholder proposal relating to stockholder action by
written consent.
The voting with respect to each of these matters was as follows:
1. ELECTION OF DIRECTORS
NAME FOR WITHHELD
Paul W. Hansen 84,145,439 2,348,449
Donald R. Kayser 84,967,999 1,525,889
21
2. AMENDMENT TO 1992 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
FOR AGAINST ABSTENTIONS
77,518,436 8,072,422 903,030
3. STOCKHOLDER PROPOSAL RELATING TO STOCKHOLDER ACTION BY WRITTEN CONSENT
FOR AGAINST ABSTENTIONS NON-VOTES
49,957,593 23,847,381 1,572,253 11,116,661
22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
10.1 Amended and Restated Support Agreement, dated August 2,
1999, between L-P and Forex
10.2 Amended and Restated Lock-Up Agreement, dated August 2,
1999, among L-P and each of the parties identified in
Schedule B thereof
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by L-P during the quarter ended
June 30, 1999
23
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LOUISIANA-PACIFIC CORPORATION
Date: August 3, 1999 By: /s/ Gary C. Wilkerson
------------------------------------
Gary C. Wilkerson
Vice President and General Counsel
Date: August 3, 1999 By: /s/ Curtis M. Stevens
------------------------------------
Curtis M. Stevens
Vice President, Chief Financial
Officer and Treasurer
(Principal Financial Officer)
24
EXHIBIT 10.1
AMENDED AND RESTATED SUPPORT AGREEMENT
LOUISIANA-PACIFIC CORPORATION
August 2, 1999
CONFIDENTIAL
- ------------
LE GROUPE FOREX INC.
1 Place Ville-Marie, Suite 3415
Montreal, Quebec
H3B 3N6
Dear Sirs:
This letter agreement (the "Agreement") sets out the terms and conditions upon
which Louisiana-Pacific Corporation (the "Offeror") will, either directly or
through a wholly-owned subsidiary, make an offer on the terms summarized in
Schedule "A" to this Agreement (the "Offer") for all of the issued and
outstanding Class A Multiple Voting Shares (the "Class A Shares") and all of the
issued and outstanding Class B Subordinate Voting Shares (the "Class B Shares,
and collectively with the Class A shares, the "Common Shares") of Le Groupe
Forex Inc. (the "Corporation") at the price per Common Share specified in
Schedule "A". This Agreement amends and restates the Support Agreement dated
June 25, 1999, as amended on July 21, 1999 between the Offeror and the
Corporation.
This Agreement further sets out certain covenants of the Corporation.
1. THE OFFER
1.1 TIMING. The Offeror agrees to make the Offer for 100% of the Common
Shares as soon as possible but in any event not more than ten (10)
calendar days after the date of this Agreement provided that, if the
Corporation has given to the Offeror a notice contemplated by Section
3.2 (j) hereof prior to the making of the Offer, such ten (10) day
period may, at the option of the Offeror, be extended by ten (10) days.
1.2 CONDITIONS PRECEDENT. Notwithstanding section 1.1, the Offeror shall
not be required to make the Offer (and shall, if it determines not to
make the Offer, without prejudice to any other rights, terminate this
Agreement by written notice to the Sellers and the Corporation) if:
(a) prior to the making of the Offer, (i) any act, action, suit or
proceeding shall have
-2-
been taken before or by any domestic or foreign court or
tribunal or governmental agency or other regulatory authority
or administrative agency or commission by any elected or
appointed public official or private person (including,
without limitation, any individual, corporation, firm, group
or other entity) in Canada or elsewhere, or (ii) any law,
regulation or policy shall have been proposed, enacted,
promulgated or applied:
a. to cease trade, enjoin, prohibit or impose material
limitations or conditions on the purchase by or the
sale to the Offeror of the Common Shares or any of
them pursuant to the Offer or the right of the
Offeror to own or exercise full rights of ownership
of the Common Shares or any of them; or
b. which, if the Offer was consummated, would, in the
judgment of the Offeror, acting reasonably,
materially and adversely affect the Corporation and
each of Forex OSB Inc. and Forex Chambord Inc. (the
"Subsidiaries") considered as a whole;
(b) at the time the Offeror proposes to make the Offer, there
exists any prohibition at law (other than those referred to in
paragraphs 2(b), (c) or (d) of Schedule "A" hereto) against
the Offeror making the Offer or taking up and paying for 100%
of the Common Shares under the Offer;
(c) there shall have occurred (or there shall have been generally
disclosed, if previously undisclosed generally) any change
(other than a change in the market conditions or price of
O.S.B.)(or any condition, event or development involving a
prospective change) in the business, assets, capitalization,
financial condition, licenses, permits, rights or privileges,
whether contractual or otherwise, of the Corporation or any of
its Subsidiaries which, in the judgment of the Offeror, acting
reasonably, is or would be materially adverse to the
Corporation and its Subsidiaries considered as a whole;
(d) the Offeror shall not have obtained assurances acceptable to
it with respect to CAAFS held by the Corporation from such
appropriate governmental authorities as it shall consider
desirable to ensure that there will be no termination, default
(other than a default resulting from a change of control)
breach or other adverse effects on the Corporation or the
Subsidiaries as a result of the transactions contemplated
herein;
(e) the agreement entered into on the date hereof between the
holders of Common Shares listed on Schedule "C" hereof (the
"Sellers") and the Offeror whereby such Sellers agreed to
deposit irrevocably and unconditionally
-3-
under the Offer that number of Common Shares, respectively,
set forth opposite their names on Schedule "C" including such
Common Shares to be issued pursuant to the exercise of the
options referred to therein is not in full force and effect
(the "Lock-Up Agreement");
(f) any representation or warranty of any of the Sellers in the
Lock-Up Agreement or any representation or warranty of the
Corporation in this Agreement shall not have been, as of the
date made, true and correct in all material respects, or the
Corporation or any of the Sellers shall not have respectively
performed in all material respects any covenant or complied
with any agreement to be performed by them or it under the
Lock-Up Agreement and this Agreement; or
(g) all non-unionized individuals working for the Corporation as a
result of services agreement entered into between the
Corporation and companies controlled by insiders of the
Corporation shall not have agreed to become employees of the
Corporation before the Offeror takes up and pays for the
Common Shares (the "Effective Date").
The foregoing conditions are for the sole benefit of the Offeror and may be
waived by the Offeror in whole or in part at any time and shall be deemed to
have been waived by it by the making of the Offer.
2. Representations and Warranties
2.1 REPRESENTATIONS AND WARRANTIES OF THE OFFEROR. The Offeror hereby
represents and warrants that:
(a) the Offeror is a corporation duly incorporated and validly
existing under the laws of its jurisdiction of incorporation;
(b) the Offeror has the financial resources and is financially
capable of completing the Offer; and
(c) the Offeror has the requisite corporate power and authority to
enter into this Agreement and to perform its obligations
hereunder; the execution and delivery of this Agreement by
Offeror and the consummation by the Offeror of the
transactions contemplated by this Agreement have been duly
authorized by the board of directors of the Offeror and no
other corporate proceedings on the part of the Offeror are
necessary to authorize this Agreement or the transactions
contemplated hereby and this Agreement has been duly executed
and delivered by Offeror and constitutes a valid and binding
agreement of the Offeror, enforceable against the Offeror in
accordance with its terms subject to the usual
-4-
exceptions as to bankruptcy and the availability of equitable
remedies.
2.2 REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. In addition to the
representations and warranties made by the Corporation in Schedule B
hereof, the Corporation hereby represents and warrants that its board
of directors, upon consultation with its financial and legal advisors,
has determined that the price per Common Share offered pursuant to the
Offer is fair to the holders of Common Shares and that the Offer is in
the best interests of the Corporation and the holders of Common Shares.
3. Covenants of the Corporation
3.1 GENERAL. The Corporation hereby covenants that until the Offeror has
taken up and paid for the Common Shares under the Offer or abandoned
the Offer or the terms of this Agreement have been terminated by the
Corporation or the Offeror pursuant to Section 6 hereof:
(a) except as previously disclosed to the Offeror, it shall, and
shall cause each of its Subsidiaries or to, conduct its and
their respective businesses only in, and not take or omit to
take any action except in, the usual, ordinary and regular
course of business and consistent with past practice;
(b) except as previously disclosed to the Offeror, it will use its
reasonable best efforts to cause the Corporation to comply
promptly with all material requirements which applicable law
may impose on the Corporation and its Subsidiaries;
(c) it will promptly advise the Offeror orally and in writing of
any material change known to the Corporation in the condition
(financial or otherwise), properties, assets, liabilities,
operations, business or prospects of the Corporation or any of
its Subsidiaries;
(d) except for transactions (i) contemplated among the parties by
this Agreement or (ii) disclosed in writing by the Corporation
to the Offeror, prior to the Corporation or any of its
Subsidiaries making or agreeing to make any commitment or
agreement with respect to the following matters, it shall not
and shall not suffer or permit any Subsidiary to;
(i) pay any dividend or issue or commit to issue
any share of or other ownership interest in
the Corporation or the Subsidiaries (other
than as referred to in paragraph (d) of
Schedule "B" hereof);
-5-
(ii) grant or commit to grant any options,
warrants, convertible securities or rights
to subscribe for, purchase or otherwise
acquire or exchange into any shares or other
ownership interest in the Corporation or any
subsidiary;
(iii) directly or indirectly redeem, purchase or
otherwise acquire or commit or offer to
acquire any share of or other ownership
interest in the Corporation or any
subsidiary;
(iv) effect any subdivision, consolidation or
reclassification of any of its shares (or
pay any dividend or make any distribution on
or in respect of any of its shares); or
(v) amend its articles or by-laws;
(e) it shall not, and shall cause its Subsidiaries not to, settle
or compromise any claim brought by any present, former or
purported holder of any of its securities in connection with
the transactions contemplated by this Agreement prior to the
Effective Date without the prior written consent of the
Offeror, such consent not to be unreasonably withheld;
(f) except in the usual, ordinary and regular course of business
and consistent with past practice, or except as previously
disclosed in writing to the Offeror or as required by
applicable laws, it and its Subsidiaries shall not enter into
or modify in any material respect any contract, agreement,
commitment or arrangement which new contract or series of
related new contracts or modification to an existing contract
or series of related existing contracts would be material to
the Corporation or which would have a material adverse effect
on the Corporation;
(g) without restricting the fiduciary obligations of its
directors, it shall use all commercially reasonable efforts to
satisfy (or cause the satisfaction of) the conditions
precedent to its obligations hereunder to the extent the same
is within its control and to take, or cause to be taken, all
action and to do, or cause to be done, all other things
necessary, proper or advisable under all applicable laws to
complete the Offer and the transactions contemplated by this
Agreement;
(h) it shall make, or cooperate as necessary in the making of, all
necessary filings and applications under all applicable laws
required in connection with the transactions contemplated
herein and take all reasonable action necessary to be in
compliance with such laws;
-6-
(i) it shall use its reasonable commercial efforts to conduct its
affairs and shall cause its Subsidiaries to conduct their
affairs so that all of its representations and warranties
contained herein shall be true and correct in all material
respects on and as of the Effective Date as if made on and as
of such date;
(j) it will forthwith request from every person to whom it has
provided, since January 1, 1999, confidential information
concerning the Corporation in the context of an Acquisition
Proposal (as defined in Section 3.2(f) that such person
(including Boise Cascade Corporation or any of its affiliates
and associates) immediately return to the Corporation such
information and all copies thereof in any form whatsoever
under the power or control of any person and delete any such
information from all retrieval systems and data bases;
(k) if the Offeror takes up and pays for Common Shares pursuant to
the Offer, it will use all reasonable commercial efforts to
enable the Offeror to acquire the balance of the Common Shares
as soon as practicable by way of compulsory acquisition or any
subsequent acquisition transaction (as such expressions are
defined in the Offer); and
(l) use its reasonable best efforts to cause all members of the
board of directors of the Corporation and its Subsidiaries to
resign at the time and in the manner requested by the Offeror,
after the Offeror takes up and pays for the Common Shares.
3.2 SUPPORT FOR OFFER. The Corporation confirms to the Offeror and
covenants that:
(a) its board of directors supports the Offer and has decided to
recommend its acceptance to holders of Common Shares;
(b) the Corporation will use its reasonable best efforts to mail
the directors' circular (including such recommendation) with
the Offer, as well as to provide drafts thereof to the Offeror
and give the Offeror a reasonable opportunity to comment
thereon;
(c) the Corporation will cause a list of shareholders of the
Corporation prepared by the Corporation or the transfer
agent(s) of the Corporation in accordance with section 123.113
of the COMPANIES ACT (Quebec) and a list of holders of stock
options and any other rights, warrants or convertible
securities currently outstanding (with full particulars as to
the purchase, exercise or conversion price and expiry date)
prepared by the Corporation (as well as a security position
listing from each depositary, including The Canadian
-7-
Depository for Securities Limited) to be delivered to the
Offeror within two business days after execution of this
Agreement and supplemental lists setting out any changes
thereto for each business day thereafter to be delivered
forthwith to the Offeror, all such deliveries to be both in
printed form and computer-readable format;
(d) notwithstanding the pre-agreement investigation of the
Corporation and its Subsidiaries conducted by or on behalf of
the Offeror, the Corporation and its Subsidiaries shall give
the Offeror and its authorized agents reasonable ongoing
access during the term of this Agreement, upon reasonable
notice to the Corporation, to all of the Corporation's and its
subsidiaries' personnel, assets, properties, books, records,
agreements and commitments and to reasonably co-operate with
the Offeror and any such authorized persons in their review
and furnish such persons with all material information with
respect to the Corporation and its Subsidiaries and their
ongoing operations and activities as the Offeror or any person
authorized by it may reasonably request, provided that the
Offeror shall not unreasonably disrupt the normal business
operations of the Corporation or its Subsidiaries;
(e) (i) its board of directors has determined unanimously to use
its and their respective reasonable efforts (x) to encourage
all persons holding options to exercise such options prior to
the expiry of the Offer which, by their terms, are otherwise
exercisable and to tender all Common Shares issued in
connection therewith to the Offer and (y) to encourage all
persons holding convertible debentures to deposit such
convertible debentures for conversion prior to the expiry of
the Offer conditional upon the Offeror taking up and paying
for the Common Shares deposited under the Offer, (ii) its
board of directors has also resolved and has authorized and
directed the Corporation, subject to any required regulatory
or stock exchange approval, to cause the vesting of option
entitlements, to accelerate prior to or concurrent with the
expiry of the Offer which, by their terms, are otherwise
accelerated upon the Offeror's purchase of the Common Shares,
such that outstanding options to acquire Common Shares are
exercisable prior to or concurrent with the expiry of the
Offer, and to arrange for all Common Shares that are fully
paid thereunder to be distributed to those persons entitled
thereto so as to be able to be tendered into the Offer and to
thereafter satisfy all other obligations of the Corporation
under such plans;
(f) the Corporation shall not, directly or indirectly, through any
officer, director, employee, representative or agent of the
Corporation or any of its Subsidiaries, solicit, initiate or
knowingly encourage or facilitate (including by way of
furnishing information or entering into any form of agreement,
arrangement or understanding) the initiation of any inquiries
or proposals
-8-
regarding an Acquisition Proposal (as defined below),
participate in any, discussions or negotiations regarding any
Acquisition Proposal, withdraw or modify in a manner adverse
to the Offeror the approval of the Board of Directors of the
Corporation of the transactions contemplated hereby, accept or
approve or recommend any Acquisition Proposal or cause the
Corporation to enter into any agreement related to any
Acquisition Proposal; provided, however, that subject to
paragraph (j) below but notwithstanding the preceding part
of this paragraph and any other provision of this Agreement,
nothing shall prevent the Board of Directors of the
Corporation from considering, negotiating, approving,
recommending to its shareholders or entering into an agreement
in respect of an unsolicited bona fide written Acquisition
Proposal made and received under circumstances not involving
any breach of this Section that the Board of Directors of the
Corporation determines in good faith, after consultation with
financial advisors and after receiving a written opinion of
outside counsel to the effect that the Board of Directors of
the Corporation is required to take such action in order to
discharge properly its fiduciary duties, would, if consummated
in accordance with its terms, result in a transaction more
favourable to the Corporation's shareholders than the
transaction contemplated by this Agreement (any such
Acquisition Proposal being referred to herein as a "Superior
Proposal"), or from approving or recommending such Superior
Proposal. "Acquisition Proposal" means any merger,
amalgamation, take-over bid, sale of material assets (or any
lease, long-term supply agreement or other arrangement having
the same economic effect as a sale), any sale of a material
number of shares or rights or interests therein or thereto or
similar transactions involving the Corporation or any
Subsidiaries, or a proposal to do so, excluding this Offer;
(g) the Corporation shall promptly notify the Offeror of any
future Acquisition Proposal of which directors or senior
officers become aware, or any amendments to the foregoing, or
any request for non-public information relating to the
Corporation or any Subsidiaries in connection with an
Acquisition Proposal or for access to the properties, books or
records of the Corporation or any Subsidiary by any person or
entity that informs the Corporation or such Subsidiary that it
is considering making, or has made, an Acquisition Proposal.
Such notice shall include a description of the material terms
and conditions of any proposal and provide such details of the
proposal, inquiry or contact as the Offeror may reasonably
request including the identity of the person making such
proposal, inquiry or contact;
(h) if the Corporation receives a request for non-public
information from a person who shall have made a bona fide
Acquisition Proposal (the existence and content of which have
been disclosed to the Offeror), and the Board of
-9-
Directors of the Corporation determines that such proposal
would be a Superior Proposal pursuant to paragraph (f) above
after having received the opinion referred to therein, then,
and only in such case, the Board of Directors of the
Corporation may, subject to the execution of a confidentiality
agreement containing a standstill provision substantially
similar to that contained in the confidentiality agreement
signed by the Offeror, provide such person with access to
information regarding the Corporation, provided, however that
the Corporation sends a copy of any such confidentiality
agreement to the Offeror immediately upon its execution and
the Offeror is provided with a list of or copies of the
information provided to such person and immediately provided
with access to similar information to which such person was
provided;
(i) the Corporation shall ensure that its and its Subsidiaries'
officers, directors, employees and any financial advisors or
other advisors, agents or representatives retained by it are
aware of the provisions of this Section, and it shall be
responsible for any breach of this Section by any such
persons;
(j) the Corporation shall not withdraw or modify in a manner
adverse to the Offeror its approval or recommendation of the
Offer or accept, approve, recommend or enter into any
agreement in respect of an Acquisition Proposal (other than a
confidentiality agreement) on the basis that it would
constitute a Superior Proposal unless (i) it has notified the
Offeror of its bona fide intention to do so and provided the
Offeror with a copy of the documentation setting forth or
providing for such Acquisition Proposal, and (ii) five
business days shall have elapsed from the later of the date
the Offeror received such notice and the date the Offeror
received a copy of such documentation;
(k) during such five business day period, the Corporation
acknowledges that the Offeror shall have the opportunity, but
not the obligation, to offer to amend the terms of this
Agreement. The Board of Directors of the Corporation will
review any offer by the Offeror to amend the terms of this
Agreement in good faith in order to determine, in its
discretion in the exercise of its fiduciary duties, whether
the Offeror's offer upon acceptance by the Corporation would
result in the Acquisition Proposal not being a Superior
Proposal. If the Board of Directors of the Corporation so
determines, it will enter into an amended agreement with the
Offeror reflecting the Offeror's amended proposal; and
(l) the Corporation acknowledges and agrees that each successive
modification of any Acquisition Proposal shall constitute a
new Acquisition Proposal for all purposes of this Section,
including the five business days period referred in paragraphs
((j)) and ((k)).
-10-
4. Covenants of the Offeror
4.1 OFFEROR. Subject to the terms and conditions hereof, the Offeror hereby
covenants to:
(a) use its reasonable commercial efforts to successfully complete
the Offer, including diligently pursuing all requisite
regulatory approvals;
(b) co-operate with the Sellers and the Corporation in making all
requisite regulatory filings, and giving evidence in relation
thereto, and to provide copies of all written documents and
submissions and responses with respect thereto in connection
with regulatory proceedings; and
(c) provide copies of drafts of the Offer to the Corporation, in
order to provide them with an opportunity to comment.
4.2 CONFIDENTIALITY AGREEMENT. The Offeror hereby covenants and agrees to
be bound by the terms of the confidentiality agreement dated June 18,
1999 between the Offeror and the Corporation (the "Confidentiality
Agreement") throughout the term of this Agreement and in the event that
this Agreement is terminated for any reason whatsoever. The Corporation
hereby confirms and agrees that the Confidentiality Agreement will be
null and void in the event that the Offeror takes up and pays for
Common Shares under the Offer. Furthermore, in such circumstances, each
of the Sellers agrees to hold all Information (as defined below)
confidential and not to use it in any way detrimental to the interests
of the Offeror, the Corporation or its Subsidiaries, except as required
by law. For the purposes hereof, "Information" has the meaning ascribed
to such expression in the Confidentiality Agreement.
5. Break Fee Event
5.1 A "Break Fee Event" shall occur if (x) the Board of Directors of the
Corporation shall withdraw or modify in a manner adverse to the Offeror
its approval or recommendation of the Offer, or approve or recommend
any Superior Proposal, or determine at the conclusion of the process
set out in Section 3.2 (k) and (l) that any Acquisition Proposal is
a Superior Proposal, or shall fail to reaffirm such approval or
recommendation upon the Offeror's request, or take or resolve to take
any of the foregoing actions, or (y) an Acquisition Proposal shall have
been made directly to the Corporation's shareholders for a
consideration exceeding $31.00 prior to the Offeror making the Offer
and the Offeror shall decide not to make the Offer and such Acquisition
Proposal succeeds.
6. Termination
-11-
6.1 TERMINATION BY CORPORATION. The Corporation, when not in default in
performance of its material obligations under this Agreement, may,
without prejudice to any other rights and subject to Section 6.3
hereof, terminate its obligations under this Agreement by notice to the
Offeror if:
(a) the Offer has not been made within the time period provided in
Section 1.1;
(b) the Offer does not conform in all material respects with the
description of the Offer in Schedule "A";
(c) the Offeror has not taken up and paid for the Common Shares on
or prior to December 31, 1999;
(d) Common Shares deposited under the Offer have not, for any
reason whatsoever (other than that all the terms and
conditions of the Offer have not been complied with or waived
by the Offeror) been taken up and paid for on or before the
expiry of ten days after the expiry of the Offer (as it may
have been extended); or
(e) A Break Fee Event described in clause (x) of Section 5.1 shall
have occurred, provided that no termination under this
paragraph shall be effective unless and until the Corporation
shall have paid the Offeror by bank draft or wire transfer the
sum of $28 million in immediately available funds (the "Break
Fee").
6.2 TERMINATION BY OFFEROR. The Offeror, when not in default in performance
of its material obligations under this Agreement, may, without
prejudice to any other rights, terminate its obligations under this
Agreement by notice to the Corporation if:
(a) the Offeror has not taken up and paid for the Common Shares on
or prior to December 31, 1999;
(b) a Break Fee Event shall have occurred;
(c) as a result of the failure of any of the conditions set forth
in Schedule "A", the Offer shall have expired or have been
terminated in accordance with its terms without the Offeror
having purchased any Common Share pursuant to the Offer; or
(d) the Sellers or the Corporation shall have breached in any
material respect any of their respective representations,
warranties, covenants or other agreements contained in the
Lock-Up Agreement or this Agreement.
-12-
6.3 PAYMENT OF BREAK FEE. The Corporation shall pay the Break Fee to the
Offeror (i) in the event of any termination of this Agreement pursuant
to paragraph (b) or (d) of Section 6.2, or (ii) in the event that an
Acquisition Proposal made by a person other than the Offeror shall be
publicly announced or communicated to the Corporation prior to the
termination hereof and consummated within twelve (12) months of the
date of this Agreement or six (6) months after termination of this
Agreement whichever shall occur later. Such Break Fee shall be payable
by bank draft or wire transfer no later than the first business day
following the termination of this Agreement in the circumstances
described in (i) above or the first business day following the
consummation of the Acquisition Proposal in the circumstances described
in (ii) above.
6.4 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 6.1 or 6.2, this Agreement (except for
Sections 6.1(e), 6.3, 6.4 and 7) shall forthwith become void and
cease to have any force or effect without any liability on the part of
any party hereto or any of its affiliates; provided however that
nothing in this Section 6.4 shall relieve any party to this Agreement
of liability for any breach of this Agreement.
7. General
7.1 DISCLOSURE. Except as required by applicable laws or regulations, or as
required by any competent governmental, judicial or other authority, or
in accordance with the requirements of any stock exchange, no party
shall make any public announcement or statement with respect to this
Agreement or the Lock-Up Agreement without the approval of the others,
which shall not be unreasonably withheld. Moreover, the parties agree
to consult with each other prior to issuing each public announcement or
statement with respect to this Agreement or the Lock-Up Agreement.
7.2 ASSIGNMENT. The Offeror may assign all or any part of its rights and/or
obligations under this Agreement to a wholly-owned subsidiary of the
Offeror, but, if such assignment takes place, the Offeror shall
continue to be liable to the Corporation for any default in performance
by the assignee. This Agreement shall not otherwise be assignable by
any party without the consent of the other.
7.3 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Province of Quebec and of Canada
applicable therein (without regard to conflict of laws principles).
7.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the Corporation shall survive until the Effective
Date and the representations and warranties made by the Offeror herein
shall survive for a period of one year from the date hereof except that
any representations which prove to be incorrect
-13-
or untrue as a result of tax matters shall survive only as to such tax
matters until thirty (30) days following the last applicable limitation
period under applicable tax laws and except in the case of fraud which
shall survive indefinitely. No investigations made by or on behalf of
the Offeror or any of its authorized agents at any time shall have the
effect of waiving, diminishing the scope of or otherwise affecting any
representation, warranty or covenant made by the Corporation herein or
pursuant hereto.
7.5 AMENDMENTS. This Agreement may not be amended except by written
agreement signed by all of the parties to this Agreement.
7.6 SPECIFIC PERFORMANCE AND OTHER EQUITABLE RIGHTS. Each of the parties
recognizes and acknowledges that this Agreement is an integral part of
the Offer, that the Offeror would not contemplate causing the Offer to
be made unless this Agreement was executed, and that a breach by any
party of any covenants or other commitments contained in this Agreement
will cause the other parties to sustain injury for which they would not
have an adequate remedy at law for money damages. Therefore, each of
the parties agrees that in the event of any such breach, the aggrieved
party or parties shall be entitled to the remedy of specific
performance of such covenants or commitments and preliminary and
permanent injunctive and other equitable relief in addition to any
other remedy to which it or they may be entitled, at law or in equity,
and the parties further agree to waive any requirement for the securing
or posting of any bond in connection with the obtaining of any such
injunctive or other equitable relief.
7.7 EXPENSES. The Corporation shall pay its legal, financial advisory and
accounting costs and expenses incurred in connection with the
preparation, execution and delivery of this Agreement and all documents
and instruments executed or prepared pursuant to this Agreement and any
other costs and expenses whatsoever and howsoever incurred. The Offeror
shall pay its legal, financial advisory and accounting costs and
expenses incurred in connection with the preparation, execution and
delivery of this Agreement and all documents and instruments executed
or prepared pursuant to this Agreement and any other costs and expenses
whatsoever and howsoever incurred.
7.8 BUSINESS DAY. A business day for the purpose of this Agreement shall
mean any day on which chartered banks in the City of Montreal are open
for business.
7.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts which together shall be deemed to constitute one valid and
binding agreement, and delivery of the counterparts may be effected by
means of a telecopier transmission.
7.10 SCHEDULE. Schedules "A" , "B" and C hereto shall for all purposes form
an integral part
-14-
of this Agreement.
7.11 ENTIRE AGREEMENT. This Agreement, together with the Confidentiality
Agreement (as defined herein) and any document referred to herein,
constitutes the entire agreement and understanding between the parties
pertaining to the subject matter of this Agreement.
7.12 TIME. Time shall be of the essence in this Agreement.
7.13 CURRENCY. All sums of money referred to in this Agreement shall mean
Canadian funds.
7.14 NOTICES. Any notice, request, consent, agreement or approval which may
or is required to be given pursuant to this Agreement shall be in
writing and shall be sufficiently given or made if delivered, or sent
by telecopier, in the case of:
(a) the Offeror, addressed as follows:
Louisiana-Pacific Corporation
111 South West Fifth
Portland, Oregon
USA 97204
Attention: The Office of the General Counsel
Telecopier No. (503) 796-0105
with a copy to:
Stikeman, Elliott
Suite 4000
1155 West Rene-Levesque Blvd.
Montreal, Quebec
H3B 3V3
Attention: Pierre A. Raymond
Telecopier No.: (514) 397-3222
(b) the Corporation, addressed as follows:
-15-
Le Groupe Forex Inc.
1, Place Ville-Marie, suite 3415
Montreal, Quebec
H3B 3N6
Attention: Jacques Dalpe, Vice-president Affaires
juridiques
Telecopier No.:
with a copy to:
Martineau Walker
Tour de la Bourse
800, Place Victoria, Suite 3400
Montreal, Quebec
H4Z 1E9
Attention: Maurice Forget
Telecopier No.: (514) 397-7600
or to such other address as the relevant party may from time to time advise by
notice in writing given pursuant to this Section. The date of receipt of any
such notice, request, consent, agreement or approval shall be deemed to be the
date of delivery or sending thereof.
8. Special Provisions
8.1 JOINT CONDUCT. Notwithstanding any other provision hereof, the Offeror
shall upon its written election have no obligations hereunder to the
Corporation if the Corporation fails to comply with the terms hereof or
with any of its covenants or agreements hereunder or if any of the
representations or warranties of the Corporation prove to be incorrect
or untrue in any material respect.
8.2 COMMON SHARES. References to "Common Shares" include any shares into
which the foregoing may be reclassified, sub-divided, consolidated or
converted and any rights and benefits arising therefrom including any
extraordinary distributions of securities which may be declared in
respect of the Common Shares.
------------
-16-
If the terms and conditions of this letter are acceptable to you, please so
indicate by executing and returning the enclosed copy hereof to the undersigned
prior to 8:00 p.m. (Montreal time) on August 2, 1999, failing which this offer
shall be null and void.
Yours truly,
Louisiana-Pacific Corporation
By: /s/Gary Wilkerson
---------------------------------------
Gary Wilkerson
Agreed and accepted this 2nd day of August 1999
Le Groupe Forex Inc.
By: /s/ J. J. Cossette
---------------------------------------
Jean-Jacques Cossette
-17-
SCHEDULE "A"
TERMS OF THE OFFER
1. GENERAL TERMS. The Offer shall be made by a circular bid prepared in
compliance with the Securities Act (Quebec) and other applicable
provincial securities laws. The Offer shall be open for twenty-one (21)
days or such longer period as may be required to satisfy all of the
conditions set forth in paragraph 3 below, provided that in no event
shall the Offer be required to be open after December 31, 1999.
2. PRICE OF THE OFFER. The Offer shall be made for a consideration of not
less than Cdn. $31.00 per Common Share payable, at the option of the
holder, in cash, by the delivery of Instalment Notes (which shall be
deemed for purposes of the Offer to have a value equal to the original
principal amount thereof) or a combination thereof.
3. CONDITIONS OF THE OFFER. The Offer shall not be subject to any
conditions other than those substantially described as follows:
(a) not less than 66-2/3% of the outstanding Class A Multiple
Voting Shares and not less than 66-2/3% of the outstanding
Class B Subordinate Voting Shares (on a fully-diluted basis,
assuming that all rights to acquire Common Shares were to be
exercised in full) are tendered under the Offer and not
withdrawn at the expiration of the Offer;
(b) (i) the Commissioner of Competition (the "Commissioner")
appointed under the Competition Act (Canada) (the "Act") shall
have issued an advance ruling certificate under section 102 of
the Act in respect of the transaction (the "Transaction")
which will result from the Offer; (ii) the Commissioner shall
have advised the Offeror that he does not intend at the
current time to apply to the Competition Tribunal for an order
under section 92 of the Act in respect of the Transaction; or
(iii) the applicable waiting period under section 123 of the
Act shall have expired without the Commissioner having
notified the Offeror that he intends to apply to the
Competition Tribunal for an order under section 92 of the Act
in respect of the Transaction; and no proceedings shall have
been taken or threatened under the merger provisions of Part
VIII or under section 45 of the Act in respect of the
Transaction;
(c) any applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 shall have expired or been
earlier terminated;
(d) any other requisite regulatory approvals or requirements
(including without
-18-
limitation those of stock exchanges and securities regulatory
authorities and under the Investment Canada Act,) shall have
been obtained or satisfied on terms satisfactory to the
Offeror;
(e) (i) no act, action, suit or proceeding shall have been
threatened or taken before or by any domestic or foreign court
or tribunal or governmental agency or other regulatory
authority or administrative agency or commission by any
elected or appointed public official or private person
(including, without limitation, any individual, corporation,
firm, group or other entity) in Canada or elsewhere and (ii)
no law, regulation or policy shall have been proposed,
enacted, promulgated or applied:
a. to cease trade, enjoin, prohibit or impose material
limitations or conditions on the purchase by or the
sale to the Offeror of the Common Shares or any of
them pursuant to the Offer or the right of the
Offeror to own or exercise full rights of ownership
of the Common Shares or any of them, or
b. which if the Offer was consummated, would materially
and adversely affect the Corporation and its
Subsidiaries considered on a consolidated basis or
the Offeror;
(f) there shall not exist any prohibition at law against the
Offeror making the Offer or taking up and paying for 100% of
the Common Shares under the Offer;
(g) there shall not have occurred any change after December 31,
1998 (other than a change in the market conditions or price of
O.S.B.)(or any condition, event or development involving
prospective change) in the business, assets, capitalization,
financial condition, licences, permits, rights or privileges,
whether contractual or otherwise, of the Corporation or any of
its Subsidiaries considered as a whole which was not disclosed
prior to the Offer in writing to the Offeror, and which, in
the judgment of the Offeror, acting reasonably, is or would be
materially adverse to the Corporation and its Subsidiaries
considered as a whole;
(h) the Offeror shall have obtained assurances acceptable to it
with respect to CAAFS held by the Corporation from such
appropriate governmental authorities as it shall consider
desirable to ensure that there will be no termination, default
(other than a default resulting from a change of control),
breach or other adverse effects on the Corporation or the
Subsidiaries as a result of the transactions contemplated
herein; and
(i) any representation or warranty of any of the Sellers and the
Corporation in the
-19-
Lock-Up Agreement and this Agreement shall not have been, as
of the date made, true and correct in all material respects,
or the Corporation or any of the Sellers shall not have
performed in all material respects any covenant or complied
with any agreement to be performed by them under the Lock-Up
Agreement and this Agreement.
The foregoing conditions will be for the sole benefit of the Offeror and may be
waived by it in whole or in part at any time.
4. TERMS OF INSTALMENT NOTES. The Installment Notes shall be issued by a
Canadian corporation pursuant to a note indenture and the principal
terms thereof shall be:
(a) interest rate: annual interest rate equal to the rate secured
by the Offeror on the indebtedness incurred to finance the
Offer from its principal bankers payable quarterly calculated
in arrears;
(b) instalments: 20% of the principal payable on the Effective
Date and 20% on the first, second, third and fourth
anniversary of the issuance of the notes (it being understood
that, if the initial principal payment is duly paid or
provided for on the Effective Date, the notes need represent
only the principal payments due after the Effective Date);
(c) guarantee: unconditionally guaranteed by Offeror;
(d) security: unsecured, ranking PARI PASSU with indebtedness to
ordinary creditors of the issuer;
(e) events of default: customary, including non-payment of
instalment or interest and insolvency of issuer or guarantor;
(the "Instalment Notes").
5. HOLDCO PURCHASE. The Offer will provide that any holder of Common
Shares which holds such Common Shares indirectly through a holding
corporation (a "Holdco") may deposit all of the outstanding shares of
its Holdco under the Offer. Any such deposit of shares of a Holdco as
opposed to the deposit of the underlying Common Shares shall be subject
to customary conditions, including (i) any required approval under
applicable securities laws, (ii) the relevant seller providing
representations, warranties and indemnities reasonably satisfactory to
the Offeror, including as to the absence of any liabilities in the
relevant Holdco and of any asset other than Common Shares, and (iii)
each seller who deposits shares of a Holdco shall reimburse the Offeror
for any additional costs that will
-20-
be incurred as a result of the acquisition of such Holdco.
-21-
SCHEDULE "B"
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Each of
Corporation and each of the Subsidiaries has been duly
incorporated or formed under applicable law, is validly
existing and has full corporate or legal power and authority
to own its properties and conduct its businesses as currently
owned and conducted. All of the outstanding shares and other
ownership interests of the Subsidiaries are validly issued,
fully paid and non-assessable and all such shares and other
ownership interests owned directly or indirectly by
Corporation are owned free and clear of all material liens,
claims or encumbrances, and except as disclosed in paragraph
(d) hereof, there are no outstanding options, rights,
entitlements, understandings or commitments (contingent or
otherwise) regarding the right to acquire any shares or other
ownership interests in any of the Subsidiaries.
(b) AUTHORITY; NO CONFLICT. The Corporation has the requisite
corporate power and authority to enter into this Agreement and
to perform its obligations hereunder. The execution and
delivery of this Agreement by Corporation and the consummation
by Corporation of the transactions contemplated by this
Agreement have been duly authorized by the board of directors
of Corporation and no other corporate proceedings on the part
of Corporation are necessary to authorize this Agreement or
the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Corporation and constitutes a
valid and binding obligation of Corporation, enforceable
against Corporation in accordance with its terms subject to
the usual exceptions as to bankruptcy and the availability of
equitable remedies. Except as disclosed in writing to the
Offeror prior to the execution of this Agreement, the
execution and delivery by Corporation of this Agreement and
performance by it of its obligations hereunder and (subject to
satisfying the conditions to the Offer specified in clauses
3(b), (c) and (d) of Schedule "A" with respect to subparagraph
A(ii) below) the completion of the Offer and the transactions
contemplated thereby, will not:
a. result in a violation or breach of, require any
consent to be obtained under or give rise to any
termination rights or other adverse consequences
under any provision of:
b. its or any Subsidiary's certificate of incorporation,
articles, by-laws or other charter documents,
including any unanimous shareholder agreement or any
other agreement or understanding with any party
-22-
holding an ownership interest in any Subsidiary;
(i) any law, regulation, order, judgment or
decree; or
(ii) any material contract, agreement, license,
franchise or permit to which the Corporation
or any Subsidiary is bound or is subject or
is the beneficiary;
c. except as disclosed to the Offeror prior to the
execution of this Agreement, give rise to any right
of termination or acceleration of indebtedness, or
cause any indebtedness to come due before its stated
maturity or cause any available credit to cease to be
available; or
d. result in the imposition of any hypothec, mortgage,
lien, charge, encumbrance, or adverse claim upon any
of its assets or the assets of any Subsidiary, or
restrict, hinder, impair or limit the ability of
Corporation or any Subsidiary to carry on the
business of Corporation or any Subsidiary as and
where it is now being carried on or as and where it
may be carried on in the future.
(c) CONSENTS AND APPROVALS. No consent, approval or authorization
of, or declaration or filing with, or notice to, any
Governmental Entity which has not been received or made is
required by or with respect to Corporation or any of its
Subsidiaries in connection with the execution and delivery of
this Agreement by Corporation or the consummation by
Corporation of the transactions contemplated hereby, except
for (i) satisfying the conditions of the Offer specified in
clauses 3 (b), (c) and (d) of Schedule "A", (ii) any other
consents, approvals, authorizations, filings or notices the
failure to make or obtain which would not reasonably be
expected to have, individually or in the aggregate, a material
adverse effect on Corporation.
(d) CAPITAL STRUCTURE. As of July 30, 1999, there are 11,169,483
Class A Shares and 5,950,158 Class B Shares issued and
outstanding. As at the date hereof, up to a maximum of
1,583,233 Class B Shares may be issued pursuant to outstanding
stock option entitlements. 1,000,000 Class B Shares may be
issued pursuant to an option granted to CIBC World Markets
Inc. and 3,293,077 Class B Shares may be issued pursuant to
the exercise of convertible debentures. Except as described in
the immediately preceding sentence, there are no options,
warrants, conversion privileges or other rights, agreements,
arrangements or commitments obligating Corporation or any
Subsidiary to issue or sell any shares of the capital of
Corporation or any of its Subsidiaries or securities or
obligations of any kind
-23-
convertible into or exchangeable for any shares of the capital
of Corporation, any Subsidiary or any other person, nor,
except as disclosed to the Offeror prior to the execution of
this Agreement, is there outstanding any stock appreciation
rights, phantom equity or similar rights, agreements,
arrangements or commitments based upon the book value, income
or any other attribute of Corporation or any Subsidiary.
(e) QSC DOCUMENTS. The Corporation is a "reporting issuer" under
the SECURITIES ACT (Quebec), as amended (the "SECURITIES ACT")
and is not in default of any material requirements of any
applicable securities laws, and no delisting, suspension of
trading in or cease trading order with respect to the Common
Shares or any other securities of the Corporation is pending
or threatened.
(f) FINANCIAL STATEMENTS. As of their respective dates, the
consolidated financial statements of Corporation included in
any documents filed with the Quebec Securities Commission on a
non-confidential basis (the "QSC Documents") complied as to
form in all material respects with the regulations of the QSC
with respect thereto, had been prepared in accordance with
generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may
otherwise be indicated in the notes thereto) and fairly
presented the consolidated financial position of Corporation
and its Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for
the periods then ended (subject, in the case of unaudited
quarterly statements, to normal year-end audit adjustments).
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS; NO UNDISCLOSED MATERIAL
LIABILITIES. Except as disclosed to the Offeror prior to the
execution of this Agreement and except as has been publicly
disclosed in any document filed with the Quebec Securities
Commission (the "QSC"), since December 31, 1998 (i) the
Corporation and the Subsidiaries have conducted their
respective businesses only in the ordinary course, (ii) no
liability or obligation of any nature (whether absolute,
accrued, contingent or otherwise) material to the Corporation
or any Subsidiary has been incurred, and (iii) there has not
been any material adverse change in the financial conditions,
results of operations or businesses of the Corporation or any
Subsidiary.
(h) REAL PROPERTY; OTHER ASSETS. Except as disclosed to the
Offeror prior to the execution of this Agreement, the
Corporation and its Subsidiaries have good and valid title to
the real property interests and to each other asset reflected
in the latest balance sheet of Corporation included in the
Filed QSC Documents (other than as disclosed in the Filed QSC
Documents, or any such other asset disposed of or consumed in
the ordinary course of
-24-
business) free and clear of any and all hypothecs, mortgages,
liens, charges, encumbrances and adverse claims except (A)
those reflected or reserved against in the latest balance
sheet of Corporation included in the Filed QSC Documents, (B)
taxes not in default and payable without penalty and interest,
and (C) other Liens that individually or in the aggregate
would not have a material adverse effect on Corporation
(collectively, "Permitted Liens").
(j) YEAR 2000 COMPLIANCE.
(i) Corporation presently expects that all reprogramming,
remediation and testing of Information Systems and
Equipment (as defined below) that is required to make
it in all material respects Year 2000 Compliant will
be completed no later than December 31, 1999. Except
as otherwise disclosed in the Filed QSC Documents,
the cost of all such reprogramming, remediation and
testing, together with the reasonably foreseeable
consequences of any reasonably foreseeable failure of
such Information Systems and Equipment to be or
timely become Year 2000 Compliant will not have,
individually or in the aggregate, a material adverse
effect on Corporation.
(ii) (A) As used in respect of Information Systems and
Equipment, "Year 2000 Compliant" means that such
Information Systems and Equipment will not cease to
properly function, produce erroneous results or
otherwise experience diminished performance or
functionality when presented with or when
calculating, comparing, sequencing or otherwise
processing date data before, during and after the
year 2000 and (B) "Information Systems and Equipment"
means all computer hardware, firmware, software and
information processing systems and all equipment
containing embedded microchips that is used by
Corporation or any of its Subsidiaries in the conduct
of their respective business.
(j) INTELLECTUAL PROPERTY. Other than as disclosed in writing to
the Offeror all of the material patents, registered trademarks
and service marks, trade names and licenses owned or used by
the Corporation at the date of this Agreement are in good
standing, valid and adequate to permit the Corporation and its
Subsidiaries to conduct its business as presently conducted.
-25-
(k) MATERIAL CONTRACTS. There have been made available to Offeror
and its representatives true, correct and complete copies of
all of the material contracts to which Corporation or any of
its Subsidiaries is a party or by which any of them is bound
(collectively, the "Material Contracts"). None of Corporation
or its Subsidiaries or, to the knowledge of Corporation, any
other party, is in material breach or default under any
Material Contract.
(l) LITIGATION, ETC. As of the date hereof, except as disclosed in
the Filed QSC Documents or disclosed to the Offeror prior to
the execution of this Agreement, (i) there is no suit, claim,
action, proceeding or investigation pending or, to the
knowledge of Corporation, threatened against Corporation or
any of its Subsidiaries before any court or other Governmental
Entity, and (ii) neither Corporation nor any of its
Subsidiaries is subject to any outstanding order, writ,
judgment, injunction, decree or arbitration order or award
that, in any such case described in clauses (i) and (ii), has
had or would reasonably be expected to have, individually or
in the aggregate, a material adverse effect on Corporation or
which could prevent or materially delay the consummation of
the transaction contemplated herein. As of the date hereof,
there are no suits, claims, actions, proceedings or
investigations pending or, to the knowledge of Corporation,
threatened, seeking to prevent, hinder, modify or challenge
the transactions contemplated by this Agreement.
(m) COMPLIANCE WITH APPLICABLE LAW. Except as disclosed in the
Filed QSC Documents or disclosed to the Offeror prior to the
execution of this Agreement, Corporation and its Subsidiaries
are in material compliance with all applicable statutes, law,
ordinances, rules, certificates, orders, grants, regulations
and other authorization of any Governmental Entity, except for
non-compliance which would not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on
Corporation.
(n) ENVIRONMENTAL LAWS.
a. Definitions. For purposes of this Agreement, the
following definitions shall apply:
(i) The term "ENVIRONMENT" shall mean all
components of the earth, including, without
limitation, air (and all layers of the
atmosphere), land (and all surface and
subsurface soil, underground spaces and
cavities and all land submerged under water)
and water (and all surface and underground
water), organic and inorganic matter and
living organisms,
-26-
and the interacting natural systems that
include components referred to above in this
definition of "ENVIRONMENT";
(iii) The terms "ENVIRONMENTAL LAWS" shall mean
any and all applicable federal, provincial,
municipal or local statutes, legislations,
codes, ordinances, decrees, rules,
regulations, judicial or departmental or
regulatory judgments, orders, decisions,
rulings or awards, policies and guidelines
having force of law, (hereafter "LAWS")
pertaining to the Environment, health and
safety matters or conditions, Hazardous
Substances, pollution or protection of the
Environment, including, without limitation,
Laws relating to: (i) on site or off-site
contamination; (ii) occupational health and
safety; (iii) chemical substances or
products; (iv) Release of pollutants,
contaminants, chemicals or other industrial,
toxic or radioactive substances or Hazardous
Substances into the Environment; (v) the
manufacture, processing, distribution, use,
treatment, storage, transport, packaging,
labelling, sale, recycling, disposal,
destruction, incineration, burial,
advertising, display or handling of
Hazardous Substances; and (vi) any
preventive measures, Remedial Actions and
notifications in connection with the
foregoing;
(iv) The terms "HAZARDOUS SUBSTANCE" shall mean
any substance, whether waste, liquid,
gaseous or solid matter, fuel,
micro-organism, ray, odour, radiation,
energy, vector, plasma and organic or
inorganic matter, which is or is deemed to
be, alone or in any combination, hazardous,
waste, hazardous waste, toxic, a pollutant,
a deleterious substance, a contaminant or a
source of pollution or contamination under
any Environmental Laws, whether or not such
substance is defined as hazardous under
Environmental Laws;
(v) The term "RELEASE" shall mean to release,
spill, leak, discharge, dispose, pump, pour,
emit, empty, inject, leach, dump or allow to
escape;
(vi) The terms "REMEDIAL ACTION" shall mean any
compelled action that is necessary to: (i)
clean up, remove, treat or in any other way
deal with Hazardous Substances in the
Environment; (ii) prevent any Release of
Hazardous Substances where such Release
would violate any Environmental Laws or
would endanger or threaten to
-27-
endanger public health or welfare or the
Environment; or (iii) perform remedial
studies, investigations, restoration, and
post-remedial studies, investigations and
monitoring on, about or in connection with
the Immoveables or any immoveable or real
property owned, used or leased by the
Offeror.
b. Except as previously disclosed to the Offeror,
(i) Each of the Corporation and its
Subsidiaries, has been, and is being
operated, and their assets are being used in
material compliance with all Environmental
Laws, and each of the Corporation and its
Subsidiaries holds and their business has
been conducted in material compliance with
all environmental permits, certificates of
authorization, registrations and other
authorizations (collectively, "ENVIRONMENTAL
PERMITS") required under Environmental Laws,
and all such Environmental Permits are in
full force and effect, except where failure
to hold and maintain in full force and
effect any such Environmental Permits would
not have a material adverse effect on the
Corporation, any of its Subsidiaries or
their business;
(ii) Each of the Corporation and its Subsidiaries
has not caused or permitted to cause, and
has no knowledge of any material Release of
Hazardous Substances at, on or under any of
the real estates owned or leased by any of
the Corporation or its Subsidiaries which
would require Remedial Action, or from any
real estate owned or operated by third
parties, but with respect to which any of
the Corporation or any of its Subsidiaries
is alleged to have material liability and
which could have a material adverse effect
on the Corporation, any of its Subsidiaries
or their business;
(iii) No Hazardous Substances have been
transported or arranged for the
transportation of any such Hazardous
Substances to any location which is not
listed and duly authorized pursuant to
Environmental Laws, and which would lead to
material claims against any of the
Corporation or its Subsidiaries for Remedial
Action.
(o) TAXES. Except as previously disclosed to the Offeror:
-28-
(i) Except where the failure to do so would not
reasonably be expected to have, individually
or in the aggregate, a material adverse
effect on Corporation, each of Corporation
and each subsidiary of Corporation (and any
affiliated or unitary group of which any
such person was a member) has (A) timely
filed all federal, provincial, local and
foreign returns, declarations, reports,
estimates, information returns and
statements ("Returns") required to be filed
by or for it in respect of any Taxes (as
hereinafter defined) and has caused such
Returns as so filed to be true, correct and
complete, (B) established reserves that are
reflected in Corporation's most recent
financial statements included in the Filed
QSC Documents and that as so reflected are
adequate for the payment of all Taxes not
yet due and payable with respect to the
results of operations of Corporation and its
Subsidiaries through the date hereof, and
(C) timely withheld and paid over to the
proper taxing authorities all Taxes and
other amounts required to be so withheld and
paid over. Each of Corporation and each
subsidiary of Corporation has timely paid
all Taxes that are shown as being due on the
Returns referred to in the immediately
preceding sentence. There have been made
available to Offeror and its representatives
true, correct and complete copies of all
Returns filed by or for Corporation and each
subsidiary of Corporation since 1994 in
respect of any Taxes.
(ii) As of the date hereof, (A) there has been no
taxable period since 1992 for which a Return
of Corporation or any of its Subsidiaries
has been or is being examined by the
Minister of Revenue of Quebec or any other
federal, provincial, local or foreign taxing
authority, and (B) except for alleged
deficiencies which have been finally and
irrevocably resolved, Corporation has not
received formal or informal notification
that any deficiency for any Taxes, the
amount of which could reasonably be expected
to have, individually or in the aggregate, a
material adverse effect on Corporation, has
been or will be proposed, asserted or
assessed against Corporation or any of its
Subsidiaries by any federal, provincial,
local or foreign taxing authority or court
with respect to any period; (C) No waiver or
extension of any statute of limitations in
effect with respect to Taxes or Returns of
the Corporation or any subsidiary.
-29-
For purposes of this Agreement, "Taxes" shall mean all
federal, provincial, local, foreign income, property, sales,
excise, goods and services, employment, payroll, franchise,
withholding and other taxes, tariffs, charges, fees, levies,
imposts, duties, licenses, payroll or employee withholding
taxes or other assessments of every kind and description,
together with any interest and any penalties, additions to tax
or additional amounts imposed by any federal, state, local or
foreign taxing authority.
(r) EMPLOYEE PLANS. "Employee Plans" means all the employee
benefit, fringe benefit, supplemental unemployment benefit,
bonus, incentive, profit sharing, termination, change of
control, pension, retirement, stock option, stock purchase,
stock appreciation, health, welfare, medical, dental,
disability, life insurance and similar plans, programmes,
arrangements or practices relating to the current or former
employees, officers or directors of the Corporation
maintained, sponsored or funded by the Corporation, whether
written or oral, funded or unfunded, insured or self-insured,
registered or unregistered.
a. The Corporation has made available to the Offeror
true, correct and complete copies of all the Employee
Plans as amended as of the date hereof, together with
all summary plan descriptions and all material
correspondence with all relevant persons.
b. The Corporation may unilaterally amend or terminate,
in whole or in part, each Employee Plan, each subject
only to approvals required by laws and, with respect
to amendment or termination, the collective
agreements of the Corporation.
c. All contributions or premiums required to be paid by
the Corporation under the terms of each Employee Plan
or by laws have been made in a timely fashion in
accordance with laws and the terms of the Employee
Plans. The Corporation does not have any liability
(other than liabilities accruing after the date
hereof) with respect to any of the Employee Plans.
Contributions or premiums have been paid by the
Corporation when due.
d. No commitments to establish, improve or otherwise
amend any Employee Plan have been made except as
required by applicable laws or as disclosed prior to
the execution of this Agreement to the Offeror.
e. None of the Employee Plans is a pension plan.
-30-
f. All employee data necessary to administer each
Employee Plan has been made available by the
Corporation to the Offeror and is true and correct as
of the date of this Agreement and the Corporation
will notify the Offeror of any changes thereto.
g. None of the Employee Plans provide benefits to
retired employees or to the beneficiaries or
dependents of retired employees.
(q) LABOUR MATTERS. Other than as disclosed to the Offeror prior
to the execution of this Agreement, or except as set forth in
the Information Circular and Proxy Statement of the
Corporation dated February 23, 1999, neither the Corporation
nor any Subsidiary is a party to any written or oral policy,
agreement, obligation or understanding providing for severance
or termination payments to, or any employment agreement with,
any person.
(r) BROKERS. No broker, investment banker, financial advisor or
other person, other than CIBC World Markets Inc., the fees and
expenses of which will be paid by Corporation, is entitled to
any broker's, finder's, financial advisor's or other similar
fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on
behalf of Corporation.
(s) WRITTEN OPINION OF FINANCIAL ADVISOR. Corporation has received
the opinion of CIBC World Markets Inc. on August 2, 1999 (a
true, correct and complete copy of which will be delivered to
Offeror by Corporation), to the effect that, based upon and
subject to the matters set forth therein and as of the date
thereof, the Price of the Offer to be received by the holders
of Common Shares in the Offer, is fair, from a financial point
of view, to such holders and such opinion has not been
withdrawn or modified.
(t) BOOKS AND RECORDs. The corporate records and minutes books of
Corporation and its Subsidiaries have been maintained
substantially in accordance with all applicable laws and are
complete and accurate in all material respects.
-31-
SCHEDULE "C"
CLASS A CLASS B OPTIONS TOTAL
SHARES SHARES
Placements Al-Vi Inc. 3,320,663 23,402 3,344,065
2330-3076 QBC. Inc. 2,653,486 2,653,486
Jean-Jacques Cossette 285,464 2,200 200,000 487,664
2954-7635 Quebec 173,650 233,100 406,750
Inc.
Viviane Cossette 8,204 200,000 208,204
Fernand Cossette 658,825 3,002 200,000 861,827
9008-6760 Quebec 385,064 2 385,066
Inc.
Marcel Cossette 235,245 235,245
Andre J. Lascelle 192,441 14,720 200,000 407,161
Pierre Moreau 200,000 500 150,000 350,500
2700638 Canada Inc. 56,350 56,350
Norman Farrell 200,020 150,000 350,020
Lock-up Group 8,369,412 276,926 1,100,000 9,746,338
Exhibit 10.2
AMENDED AND RESTATED LOCK-UP AGREEMENT
LOUISIANA-PACIFIC CORPORATION
August 2, 1999
CONFIDENTIAL
To the parties identified in Schedule "B" hereof
(the "Sellers")
c/o: Jean-Jacques Cossette
1200 1re Avenue
Val d'Or, Quebec
J9P 1Z5
Dear Sirs:
This letter agreement (the "Agreement") sets out the terms and conditions upon
which Louisiana-Pacific Corporation (the "Offeror") will, either directly or
through a wholly-owned subsidiary, make an offer on the terms summarized in
Schedule "A" to this Agreement (the "Offer") for all of the issued and
outstanding Class A Multiple Voting Shares (the "Class A Shares") and all of the
issued and outstanding Class B Subordinate Voting Shares (the "Class B Shares,
and collectively with the Class A shares, the "Common Shares") of Le Groupe
Forex Inc. (the "Corporation") at the price per Common Share specified in
Schedule "A". This Agreement amends and restates the Lock-Up Agreement dated
June 25, 1999 as amended on July 21, 1999 between the Offeror and the Sellers.
This Agreement also sets out the terms and conditions of the agreement by each
of the Sellers to deposit irrevocably and unconditionally under the Offer that
number of Common Shares set forth opposite their respective names on Schedule
"B" hereof, including that number of Common Shares to be issued pursuant to the
exercise of the options referred to therein (in the aggregate, the "Securities",
and, individually, "its portion of the Securities"), and sets out the
obligations and commitments of the Sellers in connection therewith.
1. THE OFFER
1.1 TIMING. The Offeror agrees to make the Offer for 100% of the Common
Shares as soon as possible but in any event not more than ten (10)
calendar days after the date of this Agreement provided that, if the
Corporation has given to the Offeror a notice contemplated by Section
3.2(j) of the Support Agreement (as defined
-2-
hereunder) prior to the making of the Offer, such ten (10) day period
may, at the option of the Offeror, be extended by ten (10) days.
1.2 CONDITIONS PRECEDENT. Notwithstanding Section 1.1, the Offeror shall
not be required to make the Offer (and shall, if it determines not to
make the Offer, without prejudice to any other rights, terminate this
Agreement by written notice to the Sellers and the Corporation) if:
(a) prior to the making of the Offer, (i) any act, action, suit or
proceeding shall have been taken before or by any domestic or
foreign court or tribunal or governmental agency or other
regulatory authority or administrative agency or commission by
any elected or appointed public official or private person
(including, without limitation, any individual, corporation,
firm, group or other entity) in Canada or elsewhere, or (ii)
any law, regulation or policy shall have been proposed,
enacted, promulgated or applied:
a. to cease trade, enjoin, prohibit or impose material
limitations or conditions on the purchase by or the
sale to the Offeror of the Common Shares or any of
them pursuant to the Offer or the right of the
Offeror to own or exercise full rights of ownership
of the Common Shares or any of them; or
b. which, if the Offer was consummated, would, in the
judgment of the Offeror, acting reasonably,
materially and adversely affect the Corporation and
each of Forex OSB Inc. and Forex Chambord Inc. (the
"Subsidiaries") considered as a whole;
(b) at the time the Offeror proposes to make the Offer, there
exists any prohibition at law (other than those referred to in
paragraphs 3(b), (c) or (d) of Schedule "A" hereto) against
the Offeror making the Offer or taking up and paying for 100%
of the Common Shares under the Offer;
(c) there shall have occurred (or there shall have been generally
disclosed, if previously undisclosed generally) any change
(other than a change in the market conditions or price of
O.S.B.)(or any condition, event or development involving a
prospective change) in the business, assets, capitalization,
financial condition, licenses, permits, rights or privileges,
whether contractual or otherwise, of the Corporation or any of
its Subsidiaries which, in the judgment of the Offeror, acting
reasonably, is or would be materially adverse to the
Corporation and its Subsidiaries considered as a whole;
(d) the Offeror shall not have obtained assurances acceptable to
it with respect to
-3-
CAAFS held by the Corporation or such appropriate governmental
authorities as it shall consider desirable to ensure that
there will be no termination, default (other than a default
resulting from a change of control), breach or other adverse
effects on the Corporation or the Subsidiaries as a result of
the transactions contemplated herein;
(e) the agreement entered into on the date hereof between the
Corporation and the Offeror whereby the Corporation agreed to
support the Offer, is not in full force and effect (the
"Support Agreement");
(f) any representation or warranty of any of the Sellers in this
Agreement or any representation or warranty of the Corporation
in the Support Agreement shall not have been, as of the date
made, true and correct in all material respects, or the
Corporation or any of the Sellers shall not have respectively
performed in all material respects any covenant or complied
with any agreement to be performed by them or it under this
Agreement and the Support Agreement; or
(g) all non-unionized individuals working for the Corporation as a
result of services agreement entered into between the
Corporation and companies controlled by insiders of the
Corporation shall not have agreed to become employees of the
Corporation before the Offeror takes up and pays for the
Common Shares (the "Effective Date").
The foregoing conditions are for the sole benefit of the Offeror and may be
waived by the Offeror in whole or in part at any time and shall be deemed to
have been waived by it by the making of the Offer.
2. Acceptance
2.1 DEPOSIT. Subject to the terms and conditions hereof, each of the
Sellers hereby irrevocably agrees to deposit its portion of the
Securities, together with a completed and executed letter of
transmittal, under the Offer as soon as practicable after the Offer has
been made and, in any event, on or before the third business day after
the date that the Offer is made, except that all of the Common Shares
issuable upon the exercise of the options listed in Schedule B may be
deposited no later than twenty-four (24) hours prior to the expiry of
the Offer.
2.2 NON-WITHDRAWAL. Each of the Sellers hereby irrevocably agrees not to
withdraw or take any action to withdraw any of its portion of the
Securities following their deposit under the Offer, notwithstanding any
statutory rights or other rights under the terms of the Offer or
otherwise which it might have, unless this Agreement is terminated in
accordance with its terms prior to the taking up of the Securities
-4-
under the Offer;
3. Representations and Warranties
3.1 REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each of the Sellers hereby
represents and warrants that:
(a) it is a corporation duly incorporated or created and validly
existing under the laws of its jurisdiction of incorporation
or creation, if applicable; it has the corporate or other
power, if applicable, and capacity and has received all
requisite approvals, if applicable, to enter into this
Agreement and to complete the sale of its portion of the
Securities pursuant to the Offer; this Agreement has been duly
executed and delivered by the Sellers and is a valid and
binding agreement enforceable by the Offeror against it in
accordance with its terms, subject to the usual exceptions as
to bankruptcy and the availability of equitable remedies;
(b) it is and, upon the deposit of its portion of the Securities
under the Offer, will be the sole legal and beneficial owner
of such Securities and will have the exclusive right to vote
and dispose thereof as provided in this Agreement and it is
not a party to, bound or affected by or subject to, any
provision of its constating documents if applicable, or any
statute, regulation, judgment, order, decree or law which
would be violated, contravened, breached by, or under which
default would occur as a result of, the execution and delivery
of this Agreement;
(c) the portion of the Securities to be acquired by the Offeror
from it pursuant to the Offer will be acquired by the Offeror
with good and marketable title, free and clear of any and all
hypothecs, mortgages, liens, charges, proxies, voting
agreements, encumbrances and adverse claims, save for the
charges which will be released on or before the Effective
Date;
(d) other than as disclosed to the Offeror prior to the execution
of this Agreement, there does not exist any agreement,
understanding or commitment giving rise to any material
obligations, financial or otherwise, on the part of the
Corporation or any of its Subsidiaries to such Seller or any
of its affiliates (or any associates or insiders of any of the
foregoing);
(e) other than as disclosed to the Offeror prior to the execution
of this Agreement, the execution and delivery of this
Agreement and the fulfillment of the terms hereof and thereof
by it do not and will not result in a breach of (a) its
constating documents, if applicable, or (b) any agreement or
instrument to which it is a party or by which it is
contractually bound which would have a material adverse effect
upon it; and
-5-
(f) to the best of their knowledge, the Corporation has not
omitted to disclose to the Offeror any information concerning
the Corporation, its business, assets, operations, capital,
affairs, financial conditions and prospects that a purchaser
would consider material in circumstances similar to the
transaction contemplated herein.
3.2 REPRESENTATIONS AND WARRANTIES OF THE OFFEROR. The Offeror hereby
represents and warrants that:
(a) the Offeror is a corporation duly incorporated and validly
existing under the laws of its jurisdiction of incorporation;
(b) the Offeror has the financial resources and is financially
capable of completing the Offer; and
(c) the Offeror has the requisite corporate power and authority to
enter into this Agreement and to perform its obligations
hereunder; the execution and delivery of this Agreement by
Offeror and the consummation by the Offeror of the
transactions contemplated by this Agreement have been duly
authorized by the board of directors of the Offeror and no
other corporate proceedings on the part of the Offeror are
necessary to authorize this Agreement or the transactions
contemplated hereby and this Agreement has been duly executed
and delivered by Offeror and constitutes a valid and binding
agreement of the Offeror, enforceable against the Offeror in
accordance with its terms subject to the usual exceptions as
to bankruptcy and the availability of equitable remedies.
4. Covenants of the Sellers
4.1 GENERAL. Each of the Sellers hereby covenants that until the Offeror
has taken up and paid for the Common Shares under the Offer or
abandoned the Offer or the terms of this Agreement have been terminated
by the Sellers pursuant to Section 6.1, it will:
(a) not take any action of any kind which may reduce the
likelihood of success of or delay the completion of the Offer,
including but not limited to any action that the Corporation
would be prohibited from taking under the first sentence of
Section 3.2 (f) of the Support Agreement without regard to the
proviso thereof, and will not participate in any negotiations
regarding, or otherwise cooperate in any way with or assist or
participate in:
(i) the direct or indirect acquisition or
disposition of all or any Common Shares or
any other securities of the Corporation or
its
-6-
Subsidiaries (except as expressly provided
in this Agreement); or
(ii) except as expressly permitted by this
Agreement or as previously approved in
writing by the Offeror, any amalgamation,
merger, sale of any material part of the
Corporation's or its Subsidiaries' assets,
take-over bid, plan of arrangement,
reorganization, recapitalization,
liquidation or winding-up of, or other
business combination or similar transaction
involving the Corporation or any of its
Subsidiaries;
(b) notify the Offeror forthwith upon becoming aware of any
Acquisition Proposal (as defined in Section 3.2(f) of the
Support Agreement) and inform the Offeror of all
information (including the identity of any prospective
offeror) known to the Seller at that time regarding such
proposal;
(c) cause the voting rights attaching to its portion of the
Securities to be exercised to oppose any proposed action by:
(i) the Corporation, its shareholders or others which might
reasonably be regarded as being directed towards or likely to
prevent or delay the successful completion of the Offer, or
(ii) the Corporation or its shareholders to materially change
the business, assets, operations, capital, affairs, financial
conditions, licenses, permits, rights or privileges, whether
contractual or otherwise, or prospects of the Corporation and
its Subsidiaries taken as a whole which in the judgment of the
Offeror, acting reasonably, could individually, or in the
aggregate, adversely affect the value of the Common Shares to
the Offeror, provided that nothing in this Agreement shall
require the Sellers to request any of their directors or
officers who may be a director of the Corporation or any
Sellers who are themselves a director to take any action or to
refrain from taking any action as a director of the
Corporation or to act otherwise than in accordance with his or
her fiduciary duties as a director of the Corporation;
(d) use its reasonable commercial efforts to assist the Offeror to
successfully complete the acquisition of Common Shares,
including diligently pursuing all requisite regulatory
approvals and co-operating with the Offeror in making all
requisite regulatory filings and giving evidence in relation
thereto;
(e) promptly advise the Offeror orally and in writing of any
material change (other than a change in the market conditions
or price of O.S.B. known to the Seller in the condition
(financial or otherwise), properties, assets, liabilities,
operations, business or prospects of the Corporation or any of
its Subsidiaries;
-7-
(f) promptly notify the Offeror upon any representation or
warranty of it or the Corporation contained in this Agreement
becoming untrue or incorrect in any material respect during
the period commencing on the date hereof and expiring at the
time of expiry of the Offer, and for the purposes of this
provision, each representation and warranty shall be deemed to
be given at and as of all times during such period
(irrespective of any language which suggests that it is only
being given as at the date hereof);
(g) cause its nominees on the board of directors of the
Corporation and its Subsidiaries, and use its reasonable best
efforts to cause all members of the board of directors of the
Corporation and its Subsidiaries, to resign at the time and in
the manner requested by the Offeror, after the Offeror takes
up and pays for the Securities; and
(h) use its reasonable best efforts to cause the Corporation to
comply with its covenants contained in the Support Agreement.
4.2 OPTIONS. Each of the Sellers hereby covenants to exercise all options
set out in Schedule B next to his name, if any, at least twenty-four
(24) hours before the expiry of the Offer or to have such options
cancelled.
4.3 AMENDMENT TO LOCK-UP AGREEMENT. In the event that the Corporation
enters into an amendment to the Support Agreement in accordance with
section 3.2(k) thereof, each of the Sellers hereby covenants to enter
into an amendment to this Agreement that shall reflect the terms of
such amended Support Agreement.
5. Covenants of the Offeror
5.1 OFFEROR. Subject to the terms and conditions hereof, the Offeror hereby
covenants to:
(a) use its reasonable commercial efforts to successfully complete
the Offer, including diligently pursuing all requisite
regulatory approvals;
(b) co-operate with the Sellers and the Corporation in making all
requisite regulatory filings, and giving evidence in relation
thereto, and to provide copies of all written documents and
submissions and responses with respect thereto in connection
with regulatory proceedings;
(c) provide copies of drafts of the Offer to Mr. Jean-Jacques
Cossette on behalf of the Sellers in order to provide them
with an opportunity to comment; and
(d) use its reasonable commercial efforts to file with the
Director of Investigation and Research appointed under the
COMPETITION ACT (Canada) the notice
-8-
required under Section 123 of said act prior to the expiry of
the delay referred to in Section 1.1 hereof, notwithstanding
the fact that the Offer may have been made prior thereto.
5.2 CONFIDENTIALITY AGREEMENT. The Offeror hereby covenants and agrees to
be bound by the terms of the confidentiality agreement dated June 18,
1999 between the Offeror and the Corporation (the "Confidentiality
Agreement") throughout the term of this Agreement and in the event that
this Agreement is terminated for any reason whatsoever. Pursuant to the
Support Agreement, the Corporation has confirmed and agreed that the
Confidentiality Agreement will be null and void in the event that the
Offeror takes up and pays for Common Shares (including the Securities)
under the Offer. Furthermore, in such circumstances, each of the
Sellers agrees to hold all Information (as defined below) confidential
and not to use it in any way detrimental to the interests of the
Offeror, the Corporation or its Subsidiaries, except as required by
law. For the purposes hereof, "Information" has the meaning ascribed to
such expression in the Confidentiality Agreement.
6. Termination
6.1 TERMINATION BY SELLERS. All of the Sellers, when not in default in
performance of their respective material obligations under this
Agreement, may, without prejudice to any other rights, terminate their
obligations under this Agreement by notice to the Offeror if:
(a) the Offer has not been made within the time period provided in
Section 1.1;
(b) the Offer does not conform in all material respects with the
description of the Offer in Schedule "A";
(c) the Offeror has not taken up and paid for the Securities on or
prior to December 31, 1999;
(d) Common Shares deposited under the Offer (including the
Securities) have not, for any reason whatsoever (other than
that all the terms and conditions of the Offer have not been
complied with or waived by the Offeror) been taken up and paid
for on or before the expiry of ten days after the expiry of
the Offer (as it may have been extended); or
(e) A Break Fee Event described in clause (x) of Section 5.1 of
the Support Agreement shall have occurred, provided that no
termination under this paragraph shall be effective unless and
until the Corporation shall have paid the Offeror by bank
draft or wire transfer the sum of $28 million in immediately
available funds (the "Break Fee").
-9-
6.2 TERMINATION BY OFFEROR. The Offeror, when not in default in performance
of its material obligations under this Agreement, may, without
prejudice to any other rights, terminate its obligations under this
Agreement by notice to the Sellers and if:
(a) the Offeror has not taken up and paid for the Securities on or
prior to December 31, 1999;
(b) a Break Fee Event shall have occurred;
(c) as a result of the failure of any of the conditions set forth
in Schedule "A", the Offer shall have expired or have been
terminated in accordance with its terms without the Offeror
having purchased any Common Share pursuant to the Offer; or
(d) the Sellers or the Corporation shall have breached in any
material respect any of their respective representations,
warranties, covenants or other agreements contained in this
Agreement or the Support Agreement.
6.3 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 6.1 or 6.2, this Agreement (except for
Sections 6.1((e)), 6.3 and 7) shall forthwith become void and cease to
have any force or effect without any liability on the part of any party
hereto or any of its affiliates; provided however that nothing in this
Section shall relieve any party to this Agreement of liability for any
breach of this Agreement.
7. General
7.1 DISCLOSURE. Except as required by applicable laws or regulations, or as
required by any competent governmental, judicial or other authority, or
in accordance with the requirements of any stock exchange, no party
shall make any public announcement or statement with respect to this
Agreement or the Support Agreement without the approval of the others,
which shall not be unreasonably withheld. Moreover, the parties agree
to consult with each other prior to issuing each public announcement or
statement with respect to this Agreement or the Support Agreement.
7.2 ASSIGNMENT. The Offeror may assign all or any part of its rights and/or
obligations under this Agreement to a wholly-owned subsidiary of the
Offeror, but, if such assignment takes place, the Offeror shall
continue to be liable to the Sellers for any default in performance by
the assignee. This Agreement shall not otherwise be assignable by any
party without the consent of the others.
7.3 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance
with the laws of the Province of Quebec and of Canada applicable
therein (without regard to conflict of laws principles).
7.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the Sellers and by the Offeror herein shall survive
for a period of one year from the date hereof except that any
representations which prove to be incorrect or untrue as a result of
tax matters shall survive only as to such tax matters until thirty (30)
days following the last applicable limitation period under applicable
tax laws and except in the case of the representations and warranties
contained in paragraphs 3.1((A)) THROUGH ((E)), INCLUSIVE, which shall
survive indefinitely, and in the case of fraud. No investigations made
by or on behalf of the Offeror or any of its authorized agents at any
time shall have the effect of waiving, diminishing the scope of or
otherwise affecting any representation, warranty or covenant made by
any Seller herein or pursuant hereto.
7.5 AMENDMENTS. This Agreement may not be amended except by written
agreement signed by all of the parties to this Agreement.
7.6 SPECIFIC PERFORMANCE AND OTHER EQUITABLE RIGHTS. Each of the parties
recognizes and acknowledges that this Agreement is an integral part of
the Offer, that the Offeror would not contemplate causing the Offer to
be made and the Sellers would not agree to the deposit of the
Securities under the Offer unless this Agreement was executed, and that
a breach by any party of any covenants or other commitments contained
in this Agreement will cause the other parties to sustain injury for
which they would not have an adequate remedy at law for money damages.
Therefore, each of the parties agrees that in the event of any such
breach, the aggrieved party or parties shall be entitled to the remedy
of specific performance of such covenants or commitments and
preliminary and permanent injunctive and other equitable relief in
addition to any other remedy to which it or they may be entitled, at
law or in equity, and the parties further agree to waive any
requirement for the securing or posting of any bond in connection with
the obtaining of any such injunctive or other equitable relief.
7.7 EXPENSES. Each of the Sellers shall pay its legal, financial advisory
and accounting costs and expenses incurred in connection with the
preparation, execution and delivery of this Agreement and all documents
and instruments executed or prepared pursuant to this Agreement and any
other costs and expenses whatsoever and howsoever incurred, and none of
such costs and expenses shall be borne by the Corporation or its
Subsidiaries. The Offeror shall pay its legal, financial advisory and
accounting costs and expenses incurred in connection with the
preparation, execution and delivery of this Agreement and all documents
and instruments executed or prepared pursuant to this Agreement and any
other costs and expenses whatsoever and howsoever incurred. The Sellers
shall bear all costs and expenses of obtaining the necessary consents,
and shall indemnify and hold harmless the Offeror, the Corporation and
its Subsidiaries against all
-11-
claims in respect thereof.
7.8 BUSINESS DAY. A business day for the purpose of this Agreement shall
mean any day on which chartered banks in the City of Montreal are open
for business.
7.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts which together shall be deemed to constitute one valid and
binding agreement, and delivery of the counterparts may be effected by
means of a telecopier transmission.
7.10 SCHEDULE. Schedules "A" and "B" hereto shall for all purposes form an
integral part of this Agreement.
7.11 ENTIRE AGREEMENT. This Agreement, together with the Confidentiality
Agreement (as defined herein) and any document referred to herein,
constitutes the entire agreement and understanding between the parties
pertaining to the subject matter of this Agreement.
7.12 TIME. Time shall be of the essence in this Agreement.
7.13 CURRENCY. All sums of money referred to in this Agreement shall mean
Canadian funds.
7.14 NOTICES. Any notice, request, consent, agreement or approval which may
or is required to be given pursuant to this Agreement shall be in
writing and shall be sufficiently given or made if delivered, or sent
by telecopier, in the case of:
(a) the Offeror, addressed as follows:
Louisiana-Pacific Corporation
111 South West Fifth
Portland, Oregon
USA 97204
Attention: The Office of the General Counsel
Telecopier No. (503) 796-0105
with a copy to:
-12-
Stikeman, Elliott
Suite 4000
1155 West Rene-Levesque Blvd.
Montreal, Quebec H3B 3V3
Attention: Pierre A. Raymond
Telecopier No.: (514) 397-3222
(b) in the case of the Sellers, addressed as follows:
Mr. Jean-Jacques Cossette
1200, 1ere Avenue
Val d'Or, Quebec
J9P 1Z5
with a copy to:
Martineau Walker
Tour de la Bourse
800, Place Victoria, Suite 3400
Montreal, Quebec
H4Z 1E9
Attention: Maurice Forget
Telecopier No.: (514) 397-7600
or to such other address as the relevant party may from time to time advise by
notice in writing given pursuant to this Section. The date of receipt of any
such notice, request, consent, agreement or approval shall be deemed to be the
date of delivery or sending thereof.
8. Special Provisions
8.1 JOINT CONDUCT. Notwithstanding any other provision hereof, the Offeror
shall upon its written election have no obligations hereunder to any of
the Sellers if any Seller fails to comply with the terms hereof or with
any of its covenants or agreements hereunder or if any of the
representations or warranties of any Seller prove to be incorrect or
untrue in any material respect. Furthermore, if any Seller shall
terminate its obligations under this Agreement as provided herein, any
obligations of the Offeror may be terminated with respect to all
Sellers at the Offeror's written election.
8.2 COMMON SHARES. References to "Common Shares" include any shares into
which the foregoing may be reclassified, sub-divided, consolidated or
converted and any rights and benefits arising therefrom including any
extraordinary distributions of
-13-
securities which may be declared in respect of the Common Shares.
8.3 WAIVERS AND RELEASES. Following the taking up of Securities under the
Offer, the Sellers hereby agree that they shall be deemed to have
waived all pre-emptive rights or other rights to acquire securities of
the Corporation or any subsidiary, and to have agreed to release the
Corporation and its Subsidiaries from all claims, obligations or
liabilities whatsoever.
------------
-14-
If the terms and conditions of this letter are acceptable to you, please so
indicate by executing and returning the enclosed copy hereof to the undersigned
prior to 8:00 p.m. (Montreal time) on August 2, 1999, failing which this offer
shall be null and void.
Yours truly,
Louisiana-Pacific Corporation
By: /s/ Gary Wilkerson
------------------------------------
Gary Wilkerson
Agreed and accepted this 2nd day of August 1999
PLACEMENTS AL-VI INC.
By: /s/ J. J. Cossette
------------------------------------
2330-3076 QBC. INC.
By: /s/ J. J. Cossette
------------------------------------
2954-7635 QUEBEC INC.
By: /s/ J. J. Cossette
------------------------------------
By: /s/ J. J. Cossette
------------------------------------
Jean-Jacques Cossette
By: /s/ Viviane Cossette
------------------------------------
Viviane Cossette
-15-
By: /s/ Fernand Cossette
------------------------------------
Fernand Cossette
By: /s/ Andre J. Lascelle
------------------------------------
Andre J. Lascelle
2700638 CANADA INC.
By: /s/ Pierre Moreau
------------------------------------
By: /s/ Pierre Moreau
------------------------------------
Pierre Moreau
By: /s/ Norman Farrell
------------------------------------
Norman Farrell
9008-6760 QUEBEC INC.
By: /s/ Marcel Cossette
------------------------------------
Marcel Cossette
By: /s/ Marcel Cossette
------------------------------------
Marcel Cossette
-16-
SCHEDULE "A"
TERMS OF THE OFFER
1. GENERAL TERMS. The Offer shall be made by a circular bid prepared in
compliance with the Securities Act (Quebec) and other applicable
provincial securities laws. The Offer shall be open for twenty-one (21)
days or such longer period as may be required to satisfy all of the
conditions set forth in paragraph 3 below, provided that in no event
shall the Offer be required to be open after December 31, 1999.
2. PRICE OF THE OFFER. The Offer shall be made for a consideration of not
less than Cdn. $31.00 per Common Share payable, at the option of the
holder, in cash, by the delivery of Instalment Notes (which shall be
deemed for purposes of the Offer to have a value equal to the original
principal amount thereof) or a combination thereof.
3. CONDITIONS OF THE OFFER. The Offer shall not be subject to any
conditions other than those substantially described as follows:
(a) not less than 66 2/3% of the outstanding Class A Multiple
Voting Shares and not less than 66-2/3% of the outstanding
Class B Subordinate Voting Shares (on a fully-diluted basis,
assuming that all rights to acquire Common Shares were to be
exercised in full) are tendered under the Offer and not
withdrawn at the expiration of the Offer;
(b) (i) the Commissioner of Competition (the "Commissioner")
appointed under the Competition Act (Canada) (the "Act") shall
have issued an advance ruling certificate under section 102 of
the Act in respect of the transaction (the "Transaction")
which will result from the Offer; (ii) the Commissioner shall
have advised the Offeror that he does not intend at the
current time to apply to the Competition Tribunal for an order
under section 92 of the Act in respect of the Transaction; or
(iii) the applicable waiting period under section 123 of the
Act shall have expired without the Commissioner having
notified the Offeror that he intends to apply to the
Competition Tribunal for an order under section 92 of the Act
in respect of the Transaction; and no proceedings shall have
been taken or threatened under the merger provisions of Part
VIII or under section 45 of the Act in respect of the
Transaction;
(c) any applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 shall have expired or been
earlier terminated;
(d) any other requisite regulatory approvals or requirements
(including without
-17-
limitation those of stock exchanges and securities regulatory
authorities and under the Investment Canada Act,) shall have
been obtained or satisfied on terms satisfactory to the
Offeror;
(e) (i) no act, action, suit or proceeding shall have been
threatened or taken before or by any domestic or foreign court
or tribunal or governmental agency or other regulatory
authority or administrative agency or commission by any
elected or appointed public official or private person
(including, without limitation, any individual, corporation,
firm, group or other entity) in Canada or elsewhere and (ii)
no law, regulation or policy shall have been proposed,
enacted, promulgated or applied:
a. to cease trade, enjoin, prohibit or impose material
limitations or conditions on the purchase by or the
sale to the Offeror of the Common Shares or any of
them pursuant to the Offer or the right of the
Offeror to own or exercise full rights of ownership
of the Common Shares or any of them, or
b. which if the Offer was consummated, would materially
and adversely affect the Corporation and its
Subsidiaries considered on a consolidated basis or
the Offeror;
(f) there shall not exist any prohibition at law against the
Offeror making the Offer or taking up and paying for 100% of
the Common Shares under the Offer;
(g) there shall not have occurred any change after December 31,
1998 (other than a change in the market conditions or price of
O.S.B.)(or any condition, event or development involving a
prospective change) in the business, assets, capitalization,
financial condition, licences, permits, rights or privileges,
whether contractual or otherwise, of the Corporation or any of
its Subsidiaries considered as a whole which was not disclosed
prior to the Offer in writing to the Offeror, and which, in
the judgment of the Offeror, acting reasonably, is or would be
materially adverse to the Corporation and its Subsidiaries
considered as a whole;
(h) the Offeror shall have obtained assurances acceptable to it
with respect to CAAFS held by the Corporation or such
appropriate governmental authorities as it shall consider
desirable to ensure that there will be no termination, default
(other than a default resulting from a change of control),
breach or other adverse effects on the Corporation or the
Subsidiaries as a result of the transactions contemplated
herein; and
(i) any representation or warranty of any of the Sellers and the
Corporation in this
-18-
Agreement and in the Support Agreement shall not have been, as
of the date made, true and correct in all material respects,
or the Corporation or any of the Sellers shall not have
performed in all material respects any covenant or complied
with any agreement to be performed by them under the Support
Agreement and this Agreement.
The foregoing conditions will be for the sole benefit of the Offeror and may be
waived by it in whole or in part at any time.
4. TERMS OF INSTALMENT NOTES. The Instalment Notes shall be issued by a
Canadian corporation pursuant to a note indenture and the principal
terms thereof shall be:
(a) interest rate: annual interest rate equal to the rate secured
by the Offeror on the indebtedness incurred to finance the
Offer from its principal bankers payable quarterly calculated
in arrears;
(b) instalments: 20% of the principal payable on the Effective
Date and 20% on the first, second, third and fourth
anniversary of the issuance of the notes (it being understood
that, if the initial principal payment is duly paid or
provided for on the Effective Date, the notes need represent
only the principal payments due after the Effective Date);
(c) guarantee: unconditionally guaranteed by Offeror;
(d) security: unsecured, ranking PARI PASSU with indebtedness to
ordinary creditors of the issuer;
(e) events of default: customary, including non-payment of
instalment or interest and insolvency of issuer or guarantor;
(the "Instalment Notes")
5. HOLDCO PURCHASE. The Offer will provide that any holder of Common
Shares which holds such Common Shares indirectly through a holding
corporation (a "Holdco") may deposit all of the outstanding shares of
its Holdco under the Offer. Any such deposit of shares of a Holdco as
opposed to the deposit of the underlying Common Shares shall be subject
to customary conditions, including (i) any required approval under
applicable securities laws, (ii) the relevant Seller providing
representations, warranties and indemnities reasonably satisfactory to
the Offeror, including as to the absence of any liabilities in the
relevant Holdco and of any asset other than Common Shares, and (iii)
each Seller who deposits shares of a Holdco shall reimburse the Offeror
for any additional costs that will
-19-
be incurred as a result of the acquisition of such Holdco.
-20-
SCHEDULE "B"
Class a Class B Options Total
Shares Shares
Placements Al-Vi Inc. 3,320,663 23,402 3,344,065
2330-3076 QBC. Inc. 2,653,486 2,653,486
Jean-Jacques Cossette 285,464 2,200 200,000 487,664
2954-7635 Quebec 173,650 233,100 406,750
Inc.
Viviane Cossette 8,204 200,000 208,204
Fernand Cossette 658,825 3,002 200,000 861,827
9008-6760 Quebec 385,064 2 385,066
Inc.
Marcel Cossette 235,245 235,245
Andre J. Lascelle 192,441 14,720 200,000 407,161
Pierre Moreau 200,000 500 150,000 350,500
2700638 Canada Inc. 56,350 56,350
Norman Farrell 200,020 150,000 350,020
Lock-up Group 8,369,412 276,926 1,100,000 9,746,338
5
1,000
6-MOS
DEC-31-1999
JUN-30-1999
76,900
76,000
210,500
(6,300)
239,700
738,200
2,213,800
(1,202,900)
2,814,200
511,800
578,100
0
0
117,000
1,202,600
2,814,200
1,368,600
1,368,600
999,000
1,182,900
0
0
900
184,800
73,200
112,100
0
0
0
112,100
1.05
1.05
