EX. 10.2

 

 

 

 

--------------------------------------------------------------------------------

 

OPTION AGREEMENT

DATED

August 28, 2000

 

--------------------------------------------------------------------------------

 

 

OSLER, HOSKIN & HARCOURT LLP

-

WHITE & CASE LLP

 

 

 

OPTION AGREEMENT

OPTION AGREEMENT made as of August 28, 2000 (this "Agreement"),

BETWEEN:

UPM-KYMMENE CORPORATION,

a corporation existing under the laws of Finland

("UPM")

- and -

REPAP ENTERPRISES INC.,

a corporation existing under the laws of Canada

("Repap").

WHEREAS UPM and Repap have entered into an Acquisition Agreement dated as of the
date hereof (the "Acquisition Agreement") which provides, upon the terms and
subject to the conditions set forth therein, for the completion of an
amalgamation (the " Amalgamation") involving Repap and 3796477 Canada Inc.;

AND WHEREAS, unless the context otherwise requires, words and phrases used
herein shall have the meanings assigned to such words and phrases in the
Acquisition Agreement;

AND WHEREAS as a condition to UPM's entering into the Acquisition Agreement, UPM
has required that Repap agree, and in order to induce UPM to enter into the
Acquisition Agreement, Repap has agreed to grant UPM an option to purchase from
the treasury of Repap, in accordance with the terms and conditions of this
Agreement, up to 19.9% of the issued and outstanding Repap Common Shares on the
date of the first Exercise Notice (as defined below);

NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement and in the Acquisition Agreement, the parties hereto agree as follows:

 

ARTICLE 1
THE OPTION

Section 1.1 Grant of Option.

Subject to the terms and conditions set forth herein, Repap hereby grants to UPM
an irrevocable option (the "Option") to purchase from the treasury of Repap up
to the greater of 19.9% of the issued and outstanding Repap Common Shares on the
date hereof (being 148,048,167 Repap Common Shares) and 19.9% of the issued and
outstanding Repap Common Shares on the date of the first Exercise Notice (as
defined below) (in each case, the "Option Shares") in the manner set forth below
at a purchase price (the "Purchase Price") per Option Share equal to $0.20 in
cash per Option Share; provided, however, that in no event shall the number of
shares for which this Option is exercisable exceed 19.9% of the issued and
outstanding shares of Repap Common Shares at the time of exercise without giving
effect to the number of Repap Common Shares issued or issuable pursuant to this
Option. The number of Repap Common Shares that may be received upon the exercise
of the Option and the Purchase Price are subject to adjustment as herein set
forth.

Section 1.2 Exercise of Option.

The Option may be exercised by UPM, in whole or in part, at any time or from
time to time after the occurrence of an Exercise Event (as defined below) and
prior to the Termination Date (as defined below). An "Exercise Event" shall
occur for purposes of this Agreement upon an Acquisition Proposal being made,
publicly announced or otherwise publicly disclosed by any Person other than UPM
prior to the Repap Meeting or in the circumstances described in Section
6.4(1)(b)(ii) of the Acquisition Agreement. The "Termination Date" shall occur
for purposes of this Agreement upon the first to occur of any of the following:
 a. the Effective Date;
 b. the date which is six months following termination of the Acquisition
    Agreement;
 c. the date on which the Option shall have been exercised in full;
 d. the day next preceding the date on which the Acquisition Proposal referred
    to in Section 1.2(2) hereof is to be consummated; or
 e. if the Acquisition Agreement is terminated in circumstances in which no
    Break Fee is payable pursuant to Section 6.4 of the Acquisition Agreement.

Repap shall notify UPM promptly in writing of the occurrence of any Exercise
Event, it being understood that the giving of such notice by Repap shall not be
a condition to the right of UPM to exercise the Option. In the event UPM wishes
to exercise the Option, UPM shall send a written notice (an "Exercise Notice")
to Repap specifying the total number of Option Shares that UPM wishes to
purchase, the denominations of the certificate or certificates evidencing such
Option Shares which UPM wishes to receive, the date (subject to the earlier of
the satisfaction or waiver of the conditions set forth in Section 1.3 hereof) on
which the Option Shares are to be issued (the "Closing Date") which shall be a
Business Day not later than the fifth Business Day and not earlier than the
second Business Day after delivery of such notice, and the place for the closing
(the "Closing") of such purchase; provided, that if the closing of such purchase
cannot be consummated by reason of any applicable judgment, injunction, decree,
order, law or regulation, the period of time that would otherwise run pursuant
to this sentence shall run instead from the date on which such restriction on
consummation has expired or been terminated; and provided, further, that if
prior notification to, approval of or filing with any Governmental Entity is
required in connection with such purchase, UPM and Repap shall promptly file the
required notice or application for approval and responses thereto, and shall
expeditiously process the same and the period of time that otherwise would run
pursuant to this sentence shall run instead from the last date on which any
required notification periods have expired or been terminated and such approvals
have been obtained and any requisite waiting period or periods shall have
passed.

Section 1.3 Conditions to Closing.

The obligation of Repap to deliver Option Shares upon any exercise of the Option
pursuant to Section 1.2(5) hereof is subject to the following conditions:

 1. The Option Shares shall have been approved for listing on The Toronto Stock
    Exchange ("TSE"), provided however, that Repap and UPM agree that Repap
    shall not be obligated to qualify the Option Shares for resale in the United
    States or Canada other than on the terms and subject to the conditions set
    forth in Section 3.2 hereof; and
 2. No preliminary or permanent injunction or other order by any court of
    competent jurisdiction prohibiting such issuance of Option Shares shall be
    in effect (provided that Repap has used its reasonable best efforts to
    resist or overturn same).

Section 1.4 Closing.

In the event of a Closing pursuant to Section 1.2(5), Repap shall deliver to UPM
a certificate or certificates evidencing the applicable number of Option Shares
(in the denominations specified therein), and UPM shall purchase each such
Option Share from Repap at the Purchase Price. Payment of the Purchase Price
shall be made by wire transfer of immediately available funds, provided that
failure or refusal of Repap to designate such a bank account shall not preclude
UPM from exercising the Option by delivery of a certified cheque or bank draft.
Upon the tender of the applicable Purchase Price in immediately available funds,
UPM shall be deemed to be the holder of record of the Repap Common Shares
issuable upon such exercise, notwithstanding that the stock transfer books of
Repap shall then be closed or that certificates representing such Repap Common
Shares shall not then be actually delivered to UPM. Repap shall pay all
expenses, and any and all federal, provincial, state and local taxes and other
charges that may be payable in connection with the preparation, issue and
delivery of stock certificates in the name of UPM or its assignee, transferee or
designee, excluding for greater certainty, income taxes or other taxes payable
by UPM in relation to its capital or profits.

Section 1.5 Adjustments upon Share Issuances, Changes in Capitalization, etc.

In the event of any change in Repap Common Shares or in the number of
outstanding Repap Common Shares by reason of a stock dividend, split-up,
recapitalization, combination, exchange of shares or similar transaction or any
other extraordinary change in the corporate or capital structure of Repap
(including, without limitation, the declaration or payment of an extraordinary
dividend of cash, securities or other property), the type and number of shares
or securities to be issued by Repap upon exercise of the Option and the Purchase
Price shall be adjusted appropriately, and proper provision shall be made in the
agreements governing such transaction, so that UPM shall receive upon exercise
of the Option the number and class of shares and/or other securities and/or cash
and/or property that UPM would have received in respect of Repap Common Shares
if the Option had been exercised immediately prior to such event, or the record
date therefor, as applicable, and elected, to the fullest extent it would have
been permitted to elect, to receive such securities, cash or other property (as
UPM shall determine). In the event that Repap shall enter into an agreement
(other than the Acquisition Agreement): (i) to consolidate with, amalgamate or
merge into any person, other than UPM or any subsidiary of UPM, and shall not be
the continuing or surviving corporation of such consolidation, amalgamation or
merger; (ii) to permit any person, other than UPM or any subsidiary of UPM, to
merge into Repap and Repap shall be the continuing or surviving corporation,
but, in connection with such merger, the then outstanding Repap Common Shares
shall be changed into or exchanged for shares or other securities of Repap or
any other person or cash or any other property or the then outstanding Repap
Common Shares shall after such merger represent less than 50% of the outstanding
shares and share equivalents of the surviving corporation; or (iii) to sell or
otherwise transfer all or substantially all of its assets to any person, other
than UPM or any subsidiary of UPM; then, and in each such case, proper provision
shall be made in the agreements governing such transaction (and the continuing
or surviving or transferee corporation shall also enter into an agreement with
UPM to provide UPM with such rights) so that UPM shall receive upon exercise of
the Option, the number and class of shares and/or other securities and/or cash
and/or property that UPM would have received in respect of Repap Common Shares
if the Option had been exercised immediately prior to such transaction, or the
record date therefor, as applicable, and elected, to the fullest extent it would
have been permitted to elect, to receive such securities, cash or other property
(as UPM shall determine), and the Purchase Price shall be adjusted
appropriately. The provisions of this Agreement, including, without limitation,
Sections 1.1, 1.2, 1.4 and 3.2, shall apply with appropriate adjustments to any
securities for which the Option becomes exercisable pursuant to this Section
1.5.

ARTICLE 2
REPRESENTATIONS AND WARRANTIES

Section 2.1 Representations of Repap.

Repap hereby represents and warrants to UPM as follows:

 1. Repap has all necessary corporate power and authority to execute and deliver
    this Agreement, to perform its obligations hereunder and to consummate the
    transactions contemplated hereby. The execution and delivery of this
    Agreement by Repap and the consummation by Repap of the transactions
    contemplated hereby have been duly and validly authorized by all necessary
    corporate action, and no other corporate proceedings on the part of Repap
    are necessary to authorize this Agreement or to consummate such
    transactions. This Agreement has been duly executed and delivered by Repap
    and, assuming the due authorization, execution and delivery by UPM,
    constitutes the legal, valid and binding obligation of Repap, enforceable
    against Repap in accordance with its terms, subject to bankruptcy,
    insolvency and other applicable Laws affecting creditors' rights generally,
    and to general principles of equity.
 2. Repap has taken all necessary corporate action to authorize and reserve and
    permit it to issue, and at all times from the date hereof through the
    Termination Date shall have reserved, all the Option Shares issuable
    pursuant to this Agreement, and Repap shall take all necessary corporate
    action to authorize and reserve and permit it to issue all additional Repap
    Common Shares or other securities which may be issued pursuant to this
    Agreement, all of which, upon their issuance and delivery in accordance with
    the terms of this Agreement, shall be duly authorized, validly issued, fully
    paid and non-assessable, shall be delivered free and clear of all security
    interests, liens, claims, pledges, options, rights of first refusal,
    agreements, charges and other encumbrances of any nature whatsoever (other
    than as provided in this Agreement) and shall not be subject to any
    pre-emptive rights.
 3. Except for Regulatory Approvals, the execution and delivery of this
    Agreement does not, and the consummation of the transactions contemplated
    hereby will not, conflict with, or result in any breach pursuant to any
    provision of the constating documents of Repap or any subsidiary of Repap or
    result in any breach of any loan or credit agreement, note, mortgage,
    indenture, lease, pension plan or other agreement, obligation, instrument,
    permit, concession, franchise, license, judgment, order, decree, statute,
    law, ordinance, rule or regulation applicable to Repap or any subsidiary of
    Repap or their respective properties or assets, except that the Option
    Shares may not be resold except in accordance with applicable securities
    laws.

Section 2.2 Representations of UPM.

UPM has all necessary corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by UPM and the consummation by UPM of the transactions contemplated hereby have
been duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of UPM are necessary to authorize this
Agreement or to consummate such transactions. This Agreement has been duly
executed and delivered by UPM and, assuming the due authorization, execution and
delivery by Repap, constitutes the legal, valid and binding obligation of UPM,
enforceable against UPM in accordance with its terms, subject to bankruptcy,
insolvency and other applicable Laws affecting creditors' rights generally, and
to general principles of equity. The only agreements to which UPM is a party
with any shareholder of Repap are those which UPM has provided true and complete
copies of to Repap, and such agreements have not been amended, supplemented or
otherwise varied since their respective dates.

ARTICLE 3
COVENANTS OF REPAP

Section 3.1 Listing; Other Action.

As promptly as practicable, Repap shall use all reasonable efforts to cause the
Option Shares to be approved for listing on the TSE, subject to notice of
issuance, and shall provide prompt notice to the TSE of the issuance of each
Option Share. Repap shall use all reasonable efforts to take, or cause to be
taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable law, regulation or policy
(including complying with all applicable notification, filing, reporting and
waiting period requirements under applicable laws and cooperating fully with UPM
in preparing any applications or notices and providing such information to any
Governmental Entity as it may require) to consummate and make effective the
transactions contemplated hereby, including, without limitation, using its all
reasonable efforts to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of any Governmental Entity; provided
however, that Repap shall not be obligated to qualify the Option Shares for
resale other than on the terms and subject to the conditions set forth in
Section 3.2.

Section 3.2 Qualification

In the event that UPM shall desire to sell any of the Option Shares and such
sale in the manner proposed by UPM requires, in the opinion of counsel to UPM
(which opinion shall be reasonably satisfactory to Repap and its counsel),
qualification of such Option Shares for resale under applicable securities laws,
Repap shall cooperate with UPM and any underwriters in qualifying such Option
Shares for resale, including, without limitation, promptly filing a prospectus
which complies with the requirements of applicable Canadian federal, provincial
and territorial securities laws and United States federal and state securities
laws, as the case may be, and entering into and complying with an underwriting
agreement with such underwriters upon such terms and conditions as are
customarily contained in underwriting agreements with respect to secondary
distributions; provided, however, that Repap shall not be required to file more
than two prospectuses hereunder and shall be entitled to delay the filing of any
prospectus for up to 120 days (but not more than once in any 12 month period) if
the offering would, in the judgment of the Board of Directors of Repap, require
premature disclosure of any material corporate development or otherwise
materially interfere with or materially adversely affect any pending or proposed
offering of securities of Repap or any other material transaction involving
Repap. If Option Shares are qualified pursuant to the provisions of this Section
3.2, Repap agrees (i) to furnish copies of the prospectus relating to the Option
Shares covered thereby in such numbers as UPM may from time to time reasonably
request and (ii) if any event shall occur as a result of which it becomes
necessary to amend or supplement any prospectus, to prepare and file under the
applicable securities laws such amendments and supplements as may be necessary
to keep available for at least 90 days a prospectus covering the Option Shares
meeting the requirements of such securities laws, and to furnish UPM with such
numbers of copies of the prospectus, as amended or supplemented, as may
reasonably be requested. UPM shall bear the cost of the registration or
qualification, including but not limited to, all registration and filing fees,
printing expenses, and fees and disbursements of counsel and accountants for
Repap, and UPM shall pay the fees and disbursements of its counsel and the
underwriting fees and commissions applicable to the Option Shares sold by UPM.
Repap shall indemnify and hold harmless UPM, its affiliates and their respective
officers and directors from and against any and all losses, claims, damages,
liabilities and expenses arising out of or based upon any statements contained
in or omissions or alleged omissions from, each prospectus (or any amendment
thereto) filed pursuant to this paragraph; provided, however, that this
provision shall not apply to any loss, liability, claim, damage or expense to
the extent it arises out of any untrue statement or omission made in reliance
upon and in conformity with written information furnished to Repap by UPM, its
affiliates and its officers and other representatives expressly for use in any
prospectus (or any amendment thereto) filed pursuant to this paragraph. Repap
shall also indemnify and hold harmless each underwriter and each person who
controls any underwriter against any and all losses, claims, damages,
liabilities and expenses arising out of or based upon any statements contained
in or omissions or alleged omissions from, each prospectus (or any amendment
thereto) filed pursuant to this paragraph; provided, however, that this
provision shall not apply to any loss, liability, claim, damage or expense to
the extent it arises out of any untrue statement or omission made in reliance
upon and in conformity with written information furnished to Repap by the
underwriters expressly for use in any prospectus (or any amendment thereto)
filed pursuant to this Section 3.2.

ARTICLE 4
CERTAIN LIMITATIONS

Section 4.1 Maximum Total Proceeds.

Notwithstanding any other provision of this Agreement or the Acquisition
Agreement, in no event shall UPM's Total Proceeds (as hereinafter defined)
exceed the Break Fee (as defined in the Acquisition Agreement) and, if it
otherwise would exceed such amount, UPM shall either: (i) reduce the number of
Option Shares otherwise issuable; (ii) deliver to Repap for cancellation Option
Shares previously purchased by UPM hereunder; (iii) pay cash to Repap; or (iv)
at UPM's sole election, any combination thereof, so that UPM's Total Proceeds
shall not exceed the Break Fee after taking into account the foregoing actions.
As used herein, the term "Total Proceeds" shall mean the aggregate amount
(before taxes) of the following: (i) the greater of (A) the net cash proceeds
(or equivalent thereof) to UPM from the arm's length disposition by it of the
Option Shares in the market, by private placement, by tender into an Acquisition
Proposal or otherwise or (B) the consideration (or equivalent thereof) which
would have been payable for the Option Shares pursuant to any Superior Proposal
which is consummated and as a result of which amounts become payable to UPM
pursuant to Section 6.4(1) of the Acquisition Agreement, without regard to
whether UPM tenders its Option Shares pursuant thereof; less UPM's Purchase
Price for such shares; and (ii) any amounts received by UPM pursuant to Section
6.4(1) of the Acquisition Agreement.

ARTICLE 5
COVENANTS OF UPM

Section 5.1 Voting Limitations.

UPM hereby agrees with Repap that it will not exercise any voting rights
attached to the Option Shares to vote in favour of the Amalgamation.

Section 5.2 Distribution of Option Shares.

UPM agrees with Repap that any resale of Option Shares, other than pursuant to
an Acquisition Proposal, shall be widely distributed to the public and, in any
event, so that no Repap shareholder would, as a result of such distribution, to
UPM's knowledge, own 10% or more of the outstanding common shares of Repap.

ARTICLE 6
TERMINATION OF AGREEMENT

Section 6.1 Termination.

This Agreement, other than the rights and obligations of UPM and Repap under
Sections 3.2, 4.1 and this Section 6.1, shall terminate on the Termination Date.

ARTICLE 7
MISCELLANEOUS

Section 7.1 Amendment.

This Agreement may not be amended except by an instrument in writing signed by
each of the parties hereto.

Section 7.2 Waiver.

Either party hereto may (a) extend the time for or waive compliance with the
performance of any obligation or other act of the other party hereto or (b)
waive any inaccuracy in the representations and warranties contained herein or
in any document delivered pursuant hereto. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party to be bound
thereby.

Section 7.3 Notices.

All notices, requests, claims, demands and other communications hereunder shall
be in writing and shall be given (and shall be deemed to have been duly given
upon receipt) by delivery in person, by facsimile, or by a nationally recognized
courier service to the respective parties at their addresses as specified in the
Acquisition Agreement.

Section 7.4 Severability.

If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner to the fullest
extent permitted by applicable Law in order that the transactions contemplated
hereby may be consummated as originally contemplated to the fullest extent
possible. If for any reason such court or regulatory agency determines that UPM
is not permitted to acquire the full number of shares of Repap Common Shares
provided in this Agreement and also does not permit the payment of the Spread in
respect to such prohibited shares, it is the express intention of Repap to allow
UPM to acquire such lesser number of Repap Common Shares (or receive payment of
the Spread in respect of such lesser number) as may be permissible, without any
amendment or modification hereof.

Section 7.5 Assignment; Binding Effect; Benefit.

Except as expressly provided herein, neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned (by operation of
law or otherwise) by either party without the prior written consent of the other
party hereto. Notwithstanding the foregoing, UPM may assign this Agreement and
any of the rights, interests or obligations hereunder to any wholly-owned
subsidiary of UPM without the consent of Repap, provided that UPM remains
jointly and severally liable hereunder with such wholly-owned subsidiary.
Subject to the first and second sentence of this section, this Agreement shall
be binding upon and shall enure to the benefit of the parties hereto and their
respective successors and permitted assigns.

Section 7.6 Specific Performance.

The parties hereto agree that irreparable damage would occur in the event any
provision of this Agreement were not performed in accordance with the terms
hereof and that the parties shall be entitled to specific performance of the
terms hereof, in addition to any other remedy at law or in equity.

Section 7.7 Governing Law.

This Agreement shall be governed by, and construed in accordance, with the laws
of the Province of Ontario and the federal laws of Canada applicable therein.
All actions and proceedings arising out of or relating to this Agreement shall
be heard and determined exclusively in the courts of the Province of Ontario.

Section 7.8 Headings.

The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.

Section 7.9 Entire Agreement.

This Agreement and the Acquisition Agreement constitute the entire agreement
between the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings between the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.

Section 7.10 Counterparts.

This Agreement may be executed in two or more counterparts, each of which shall
be deemed to be an original, but all of which shall constitute one and the same
agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written above.

UPM-KYMMENE CORPORATION

By:

"Juha Niemelä"

__________________
Authorized Signing Officer

 

 

 By:

"Reko Aalto-Setälä"

______________
Authorized Signing Officer

REPAP ENTERPRISES INC.

 By:

"Harold (Hap) Stephen"

__________
Authorized Signing Officer