Exhibit
10.7


 


SUBSIDIARY GUARANTY


 


This SUBSIDIARY GUARANTY is entered into as of
September 30, 2005 by the undersigned (each a “Guarantor”,
and together with any future Domestic Subsidiaries executing this Guaranty,
being collectively referred to herein as the “Guarantors”)
in favor of and for the benefit of CREDIT
SUISSE, Cayman Islands Branch, as agent for and representative of
the financial institutions party to the Credit Agreement referred to below (“Lenders”) and any Swap Counterparties (as
hereinafter defined) (in such capacity herein called “Guarantied Party”), and any other Beneficiaries (as
hereinafter defined).


 


RECITALS.


 


A.     Panolam Industries International, Inc., a Delaware corporation,
as successor by merger to PIH Acquisition Co. (“Company”), has entered into
that certain Credit Agreement dated as of September 30, 2005 by and among
Company, Panolam Holdings II Co., Lenders and Guarantied Party, as
Administrative Agent (said Credit Agreement, as it may hereafter be amended,
amended and restated, supplemented or otherwise modified from time to time,
being the “Credit Agreement”;
capitalized terms defined therein and not otherwise defined herein being used
herein as therein defined).


 


B.     Company may from time to time enter, or may from time to time
have entered, into one or more Hedge Agreements with one or more Persons that
are Lenders or Affiliates of Lenders at the time such Hedge Agreements are
entered into (in such capacity, collectively, “Swap
Counterparties”) (such Hedge Agreements, collectively, the “Lender Swap Agreements”) in accordance
with the terms of the Credit Agreement, and it is desired that the obligations
of Company under the Lender Swap Agreements, including without limitation the
obligation of Company to make payments thereunder in the event of early
termination thereof, together with all Obligations of Company under the Credit
Agreement, be guarantied hereunder.


 


C.     Guarantied Party, Lenders and each Swap Counterparty for which
Guarantied Party has received the notice required by Section 18 hereof are
sometimes referred to herein as “Beneficiaries”.


 


D.     A portion of the proceeds of the Loans may be advanced to the
Guarantors, and thus the Guarantied Obligations (as hereinafter defined) are
being incurred for and will inure to the benefit of Guarantors (which benefits
are hereby acknowledged).


 


E.      It is a condition precedent to the making of the initial Loans
under the Credit Agreement that Company’s Obligations be guarantied by
Guarantors.


 


F.      Guarantors are willing irrevocably and unconditionally to
guaranty such Obligations of Company.


 


NOW,
THEREFORE, based upon
the foregoing and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in order to induce Lenders
and Guarantied Party to enter into the Credit Agreement and to make Loans and
other extensions of credit thereunder and to induce Swap Counterparties to
enter into the Lender Swap Agreements, Guarantors hereby agree as follows:


 


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1.      Guaranty.  
  (a) Guarantors jointly and severally
irrevocably and unconditionally guaranty, as primary obligors and not merely as
sureties, the due and punctual payment in full of all Guarantied Obligations
(as hereinafter defined) when the same shall become due, whether at stated
maturity, by acceleration, demand or otherwise (including amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code). The term “Guarantied Obligations” is used herein
in its most comprehensive sense and includes any and all Obligations of Company
and all obligations of Company under Lender Swap Agreements, now or hereafter
made, incurred or created, whether absolute or contingent, liquidated or
unliquidated, whether due or not due, and however arising under or in
connection with the Credit Agreement, the Lender Swap Agreements, and the other
Loan Documents.


 


Each Guarantor acknowledges
that a portion of the Loans may be advanced to it, that Letters of Credit may
be issued for the benefit of its business and that the Guarantied Obligations
are being incurred for and will inure to its benefit.


 


Any interest on any portion
of the Guarantied Obligations that accrues after the commencement of any
proceeding, voluntary or involuntary, involving the bankruptcy, insolvency,
receivership, reorganization, liquidation or arrangement of Company (or, if
interest on any portion of the Guarantied Obligations ceases to accrue by
operation of law by reason of the commencement of said proceeding, such
interest as would have accrued on such portion of the Guarantied Obligations if
said proceeding had not been commenced) shall be included in the Guarantied
Obligations because it is the intention of each Guarantor and Guarantied Party
that the Guarantied Obligations should be determined without regard to any rule
of law or order that may relieve Company of any portion of such Guarantied
Obligations.


 


Notwithstanding that all or
any portion of the Guarantied Obligations is paid by Company, the obligations
of each Guarantor hereunder shall continue and remain in full force and effect
or be reinstated, as the case may be, in the event that all or any part of such
payment(s) is rescinded or recovered directly or indirectly from Guarantied Party
or any other Beneficiary as a preference, fraudulent transfer or otherwise, and
any such payments that are so rescinded or recovered shall constitute
Guarantied Obligations.


 


Subject to the other
provisions of this Section 1, upon the failure of Company to pay any of the
Guarantied Obligations when and as the same shall become due, each Guarantor
will upon demand pay, or cause to be paid, in cash, to Guarantied Party for the
ratable benefit of Beneficiaries, an amount equal to the aggregate of the
unpaid Guarantied Obligations.


 


(b)    Anything contained in this Guaranty to the contrary
notwithstanding, (i) each of the parties hereto confirms that it is the
intention of all such Persons that this Guaranty and the Guarantied Obligations
not constitute a fraudulent transfer or conveyance for purposes of the
Fraudulent Transfer Laws (as hereinafter defined) and (ii) the obligations of
each Guarantor under this Guaranty and the other Loan Documents shall be
limited to a maximum aggregate amount equal to the largest amount that would
not render its obligations hereunder subject to avoidance as a fraudulent
transfer or conveyance under Section 548 of Title 11 of the United States Code
or any applicable provisions of comparable state law (collectively, the “Fraudulent Transfer Laws”), in each case
after giving effect to all other liabilities of such Guarantor.


 


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contingent or otherwise,
that are relevant under the Fraudulent Transfer Laws (specifically excluding,
however, any liabilities of such Guarantor (x) in respect of intercompany
indebtedness to Company or other affiliates of Company to the extent that such
indebtedness would be discharged in an amount equal to the amount paid by such
Guarantor hereunder and (y) under any guaranty of Subordinated Indebtedness
which guaranty contains a limitation as to maximum amount similar to that set
forth in this Section l(b), pursuant to which the liability of such Guarantor
hereunder is included in the liabilities taken into account in determining such
maximum amount) and after giving effect as assets to the value (as determined
under the applicable provisions of the Fraudulent Transfer Laws) of any rights
to subrogation, reimbursement, indemnification or contribution of such Guarantor
pursuant to applicable law or pursuant to the terms of any agreement.


 


(c)    Each Guarantor under this Guaranty, and each guarantor under
other guaranties, if any, relating to the Credit Agreement (the “Related Guaranties”) that contain a
contribution provision similar to that set forth in this Section l(c), together
desire to allocate among themselves (collectively, the “Contributing Guarantors”), in a fair and
equitable manner, their obligations arising under this Guaranty and the Related
Guaranties. Accordingly, in the event any payment or distribution is made on
any date by a Guarantor under this Guaranty or a guarantor under a Related
Guaranty, each such Guarantor or such other guarantor shall be entitled to a
contribution from each of the other Contributing Guarantors in the maximum
amount permitted by law so as to maximize the aggregate amount of the
Guarantied Obligations paid to Beneficiaries.


 


2.      Guaranty Absolute; Continuing Guaranty. The obligations of each Guarantor hereunder
are irrevocable, absolute, independent and unconditional and shall not be
affected by any circumstance which constitutes a legal or equitable discharge
of a guarantor or surety other than payment in full of the Guarantied
Obligations. In furtherance of the foregoing and without limiting the
generality thereof, each Guarantor agrees that: (a) this Guaranty is a guaranty
of payment when due and not of collectibility; (b) Guarantied Party may enforce
this Guaranty upon the occurrence and during the continuance of an Event of
Default under the Credit Agreement or the occurrence of an early termination
date or similar event under any Lender Swap Agreement notwithstanding the
existence of any dispute between Company and any Beneficiary with respect to
the existence of such event; (c) the obligations of each Guarantor hereunder
are independent of the Guarantied Obligations and the obligations of any other
guarantor of the Guarantied Obligations and a separate action or actions may be
brought and prosecuted against each Guarantor whether or not any action is
brought against Company or any of such other guarantors and whether or not
Company is joined in any such action or actions; and (d) a payment of a
portion, but not all, of the Guarantied Obligations by one or more Guarantors shall
in no way limit, affect, modify or abridge the liability of such or any other
Guarantor for any portion of the Guarantied Obligations that has not been paid.
This Guaranty is a continuing guaranty and shall be binding upon each Guarantor
and its successors and assigns, and shall remain in full force and effect until
the latest of (a) the payment in full of the Guaranteed Obligations (other than
Unasserted Obligations and any obligations or liabilities of whatever nature
under any Lender Swap Agreement), (b) September 30, 2012 and (c) the latest
date of expiration or termination of, or the date that other provision for cash
collateral or other support therefor in a manner reasonably satisfactory to the
Issuing Lender has been provided with respect


 


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to, all Letters of Credit.
Each Guarantor irrevocably waives any right to revoke this Guaranty as to
future transactions giving rise to any Guarantied Obligations.


 


3.      Actions by Beneficiaries. Any Beneficiary may from time to time,
without notice or demand and without affecting the validity or enforceability
of this Guaranty or giving rise to any limitation, impairment or discharge of
any Guarantor’s liability hereunder, (a) renew, extend, accelerate or otherwise
change the time, place, manner or terms of payment of the Guarantied
Obligations, (b) settle, compromise, release or discharge, or accept or refuse
any offer of performance with respect to, or substitutions for, the Guarantied
Obligations or any agreement relating thereto and/or subordinate the payment of
the same to the payment of any other obligations, (c) request and accept other
guaranties of the Guarantied Obligations and take and hold security for the
payment of the Guarantied Obligations, (d) release, exchange, compromise,
subordinate or modify, with or without consideration, any security for payment
of the Guarantied Obligations, any other guaranties of the Guarantied
Obligations, or any other obligation of any Person with respect to the
Guarantied Obligations, (e) enforce and apply any security now or hereafter
held by or for the benefit of any Beneficiary in respect of this Guaranty or
the Guarantied Obligations and direct the order or manner of sale thereof, or
exercise any other right or remedy that Guarantied Party or the other
Beneficiaries, or any of them, may have against any such security, as
Guarantied Party in its discretion may determine consistent with the Credit
Agreement, the Lender Swap Agreements and any applicable security agreement,
including foreclosure on any such security pursuant to one or more judicial or
nonjudicial sales, whether or not every aspect of any such sale is commercially
reasonable, and (f) exercise any other rights available to Guarantied Party or
the other Beneficiaries, or any of them, under the Loan Documents or the Lender
Swap Agreements.


 


4.      No Discharge. This Guaranty and the obligations of
Guarantors hereunder shall be valid and enforceable and shall not be subject to
any limitation, impairment or discharge for any reason (other than payment in
full of the Guarantied Obligations), including without limitation the
occurrence of any of the following, whether or not any Guarantor shall have had
notice or knowledge of any of them: (a) any failure to assert or enforce or
agreement not to assert or enforce, or the stay or enjoining, by order of
court, by operation of law or otherwise, of the exercise or enforcement of, any
claim or demand or any right, power or remedy with respect to the Guarantied
Obligations or any agreement relating thereto, or with respect to any other
guaranty of or security for the payment of the Guarantied Obligations, (b) any
waiver or modification of, or any consent to departure from, any of the terms
or provisions of the Credit Agreement, any of the other Loan Documents, the
Lender Swap Agreements or any agreement or instrument executed pursuant
thereto, or of any other guaranty or security for the Guarantied Obligations,
(c) the Guarantied Obligations, of any agreement relating thereto, at any time
being found to be illegal, invalid or unenforceable in any respect, (d) the
application of payments received from any source to the payment of indebtedness
other than the Guarantied Obligations, even though Guarantied Party or the
other Beneficiaries, or any of them, might have elected to apply such payment
to any part or all of the Guarantied Obligations, (e) any failure to perfect or
continue perfection of a security interest in any collateral which secures any
of the Guarantied Obligations, (f) any defenses, set-offs or counterclaims
which Company may assert against Guarantied Party or any Beneficiary in respect
of the Guarantied Obligations, including but not limited to failure of
consideration, breach of warranty, payment, statute of frauds, statute of
limitations, accord and satisfaction and usury, and (g) any other act or thing
or omission, or delay


 


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to do any other act or
thing, which may or might in any manner or to any extent vary the risk of a
Guarantor as an obligor in respect of the Guarantied Obligations.


 


5.      Waivers. Each Guarantor waives, for the benefit of
Beneficiaries: (a) any right to require Guarantied Party or the other
Beneficiaries, as a condition of payment or performance by such Guarantor, to
(i) proceed against Company, any other guarantor of the Guarantied Obligations
or any other Person, (ii) proceed against or exhaust any security held from
Company, any other guarantor of the Guarantied Obligations or any other Person,
(iii) proceed against or have resort to any balance of any deposit account or
credit on the books of any Beneficiary in favor of Company or any other Person,
or (iv) pursue any other remedy in the power of any Beneficiary; (b) any
defense arising by reason of the incapacity, lack of authority or any
disability or other defense of Company including, without limitation, any
defense based on or arising out of the lack of validity or the unenforceability
of the Guarantied Obligations or any agreement or instrument relating thereto
or by reason of the cessation of the liability of Company from any cause other
than payment in full of the Guarantied Obligations; (c) any defense based upon
Guarantied Party’s or any other Beneficiary’s errors or omissions in the administration
of the Guarantied Obligations, except behavior that amounts to bad faith or
willful misconduct; (d) promptness, diligence and any requirement that any
Beneficiary protect, secure, perfect or insure any Lien or any property subject
thereto; (e) notices, demands, presentments, protests, notices of protest,
notices of dishonor and notices of any action or inaction, including acceptance
of this Guaranty, notices of default under the Credit Agreement, notices of
default or early termination under any Lender Swap Agreement or any agreement
or instrument related thereto, notices of any renewal, extension or
modification of the Guarantied Obligations or any agreement related thereto,
notices of any extension of credit to Company and notices of any of the matters
referred to in Sections 3 and 4 and any right to consent to any thereof; and
(f) to the fullest extent permitted by law, any defenses or benefits that may
be derived from or afforded by law which limit the liability of or exonerate
guarantors or sureties, or which may conflict with the terms of this Guaranty.


 


6.      Guarantors’ Rights of Subrogation,
Contribution, Etc.; Subordination of Other Obligations. Until the Guarantied Obligations (other than
Unasserted Obligations) shall have been paid in full and the Commitments shall
have terminated and all Letters of Credit shall have expired, been cancelled or
other provisions for cash collateral or other support therefor in a manner
reasonably satisfactory to the Issuing Lender has been provided, each Guarantor
shall withhold exercise of (a) any claim, right or remedy, direct or indirect,
that such Guarantor now has or may hereafter have against Company or any of its
assets in connection with this Guaranty or the performance by such Guarantor of
its obligations hereunder, in each case whether such claim, right or remedy
arises in equity, under contract, by statute, under common law or otherwise and
including without limitation (i) any right of subrogation, reimbursement or
indemnification that such Guarantor now has or may hereafter have against
Company, (ii) any right to enforce, or to participate in, any claim, right or
remedy that any Beneficiary now has or may hereafter have against Company, and
(iii) any benefit of, and any right to participate in, any collateral or
security now or hereafter held by any Beneficiary and (b) any right of
contribution such Guarantor now has or may hereafter have against any other
guarantor of any of the Guarantied Obligations. Each Guarantor further agrees
that, to the extent the agreement to withhold the exercise of its rights of
subrogation, reimbursement, indemnification and contribution as set forth
herein is found by a court of competent jurisdiction


 


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to be void or voidable for
any reason, any rights of subrogation, reimbursement or indemnification such Guarantor
may have against Company or against any collateral or security, and any rights
of contribution such Guarantor may have against any such other guarantor, shall
be junior and subordinate to any rights Guarantied Party or the other
Beneficiaries may have against Company, to all right, title and interest
Guarantied Party or the other Beneficiaries may have in any such collateral or
security, and to any right Guarantied Party or the other Beneficiaries may have
against such other guarantor.


 


Any indebtedness of Company
now or hereafter held by any Guarantor is subordinated in right of payment to
the Guarantied Obligations, and any such indebtedness of Company to a Guarantor
collected or received by such Guarantor after an Event of Default has occurred
and is continuing, and any amount paid to a Guarantor on account of any
subrogation, reimbursement, indemnification or contribution rights referred to
in the preceding paragraph when all Guarantied Obligations have not been paid
in full, shall be held in trust for Guarantied Party on behalf of Beneficiaries
and shall forthwith be paid over to Guarantied Party for the benefit of
Beneficiaries to be credited and applied against the Guarantied Obligations.


 


7.      Expenses. Guarantors jointly and severally agree to
pay, or cause to be paid, on demand, and to save Guarantied Party and the other
Beneficiaries harmless against liability for, (i) any and all costs and
expenses (including fees, costs of settlement, and disbursements of counsel and
allocated costs of internal counsel) incurred or expended by Guarantied Party
or any other Beneficiary in connection with the enforcement of or preservation
of any rights under this Guaranty and (ii) any and all costs and expenses
(including those arising from rights of indemnification) required to be paid by
Guarantors under the provisions of any other Loan Document.


 


8.      Financial Condition of Company. No Beneficiary shall have any obligation,
and each Guarantor waives any duty on the part of any Beneficiary, to disclose
or discuss with such Guarantor its assessment, or such Guarantor’s assessment,
of the financial condition of Company or any matter or fact relating to the
business, operations or condition of Company. Each Guarantor has adequate means
to obtain information from Company on a continuing basis concerning the
financial condition of Company and its ability to perform its obligations under
the Loan Documents and the Lender Swap Agreements, and each Guarantor assumes
the responsibility for being and keeping informed of the financial condition of
Company and of all circumstances bearing upon the risk of nonpayment of the
Guarantied Obligations.


 


9.      Representations and Warranties. Each Guarantor makes, for the benefit of
Beneficiaries, each of the representations and warranties made in the Credit
Agreement by Company as to such Guarantor, its assets, financial condition,
operations, organization, legal status, business and the Loan Documents to which
it is a party; provided that such Guarantor shall only be deemed to have made
such representations and warranties with respect to itself and its
Subsidiaries.


 


10.   Covenants. Each Guarantor agrees that, until the
Guarantied Obligations (other than Unasserted Obligations) shall have been paid
in full, all Letters of Credit shall have been cancelled or expired or other
provisions for cash collateral or other support therefor in a manner reasonably
satisfactory to the Issuing Lender have been provided and the termination of


 


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any outstanding Commitments,
such Guarantor will, unless Requisite Lenders shall otherwise consent in
writing, perform or observe, and cause each of its Subsidiaries to perform or
observe, all of the terms, covenants and agreements that the Loan Documents
state that such Guarantor is to perform or observe or that Company has agreed
to cause its Subsidiaries to perform or observe.


 


11.   Set Off. In addition to any other rights
any Beneficiary may have under law or in equity, upon the occurrence and during
the continuation of any Event of Default, each Beneficiary after obtaining
prior written consent of Guarantied Party is authorized at any time or from
time to time, without notice (any such notice being expressly waived), to set
off and to appropriate and to apply any and all deposits (general or special,
including but not limited to indebtedness evidenced by certificates of deposit,
whether matured or unmatured) and any other indebtedness of such Beneficiary
owing to a Guarantor and any other property of such Guarantor held by a
Beneficiary to or for the credit or the account of such Guarantor against and
on account of the Guarantied Obligations and liabilities of such Guarantor to
any Beneficiary under this Guaranty.


 


12.   Discharge of Guaranty Upon Sale of Guarantor.
If all of the stock of a Guarantor or any of its successors in interest under
this Guaranty shall be sold or otherwise disposed of (including by merger or
consolidation) in a sale or other disposition not prohibited by the Credit
Agreement or otherwise consented to by Requisite Lenders, such Guarantor or
such successor in interest, as the case may be, may request Guarantied Party
to, and Guarantied Party shall, execute and deliver documents or instruments
necessary to evidence the release and discharge of this Guaranty as provided in
subsection 10.14 of the Credit Agreement.


 


13.   Amendments and Waivers. No amendment,
modification, termination or waiver of any provision of this Guaranty, and no
consent to any departure by any Guarantor therefrom, shall in any event be
effective without the written concurrence of Guarantied Party and, in the case
of any such amendment or modification, Guarantors. Any such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which it was given.


 


14.   Miscellaneous. It is not necessary for
Beneficiaries to inquire into the capacity or powers of any Guarantor or
Company or the officers, directors or any agents acting or purporting to act on
behalf of any of them.


 


The rights, powers and
remedies given to Beneficiaries by this Guaranty are cumulative and shall be in
addition to and independent of all rights, powers and remedies given to
Beneficiaries by virtue of any statute or rule of law or in any of the Loan
Documents or the Lender Swap Agreements or any agreement between one or more
Guarantors and one or more Beneficiaries or between Company and one or more
Beneficiaries. Any forbearance or failure to exercise, and any delay by any
Beneficiary in exercising, any right, power or remedy hereunder shall not
impair any such right, power or remedy or be construed to be a waiver thereof,
nor shall it preclude the further exercise of any such right, power or remedy.


 


In case any provision in or
obligation under this Guaranty shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the remaining


 


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provisions or obligations,
or of such provision or obligation in any other jurisdiction, shall not in any
way be affected or impaired thereby.


 


THIS
GUARANTY AND THE RIGHTS AND OBLIGATIONS OF GUARANTORS, GUARANTIED PARTY AND THE
OTHER BENEFICIARIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK
(INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF
THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.


 


This Guaranty shall inure to
the benefit of Beneficiaries and their respective successors and permitted
assigns.


 


ALL JUDICIAL PROCEEDINGS
BROUGHT AGAINST ANY GUARANTOR, GUARANTIED PARTY AND/OR ANY OTHER BENEFICIARY
ARISING OUT OF OR RELATING TO THIS GUARANTY MAY BE BROUGHT IN ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK, AND BY
EXECUTION AND DELIVERY OF THIS GUARANTY EACH GUARANTOR AND GUARANTIED PARTY
ACCEPTS FOR ITSELF AND THE OTHER BENEFICIARIES AND IN CONNECTION WITH ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE
AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY
AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS
GUARANTY. Each of the parties hereto on behalf of itself and the other
Beneficiaries, as applicable, agrees that service of all process in any such
proceeding in any such court may be made by registered or certified mail,
return receipt requested, to it at its address set forth below its signature
hereto, such service being acknowledged by it to be sufficient for personal
jurisdiction in any action against it related to any proceeding in any such
court and to be otherwise effective and binding service in every respect. Nothing
herein shall affect the right to serve process in any other manner permitted by
law or shall limit the right to bring proceedings in the courts of any other
jurisdiction.


 


EACH
GUARANTOR AND, BY ITS ACCEPTANCE OF THE BENEFITS HEREOF, GUARANTIED PARTY EACH
AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY. THE SCOPE OF THIS WAIVER IS
INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN
ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING
WITHOUT LIMITATION CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL
OTHER COMMON LAW AND STATUTORY CLAIMS. EACH GUARANTOR AND, BY ITS ACCEPTANCE OF
THE BENEFITS HEREOF, GUARANTIED PARTY EACH (I) ACKNOWLEDGES THAT THIS WAIVER IS
A MATERIAL INDUCEMENT FOR SUCH GUARANTOR AND GUARANTIED PARTY TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT SUCH GUARANTOR AND GUARANTIED PARTY HAVE ALREADY
RELIED ON THIS WAIVER IN ENTERING INTO THIS GUARANTY OR


 


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ACCEPTING
THE BENEFITS THEREOF, AS THE CASE MAY BE, AND THAT EACH WILL CONTINUE TO RELY
ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS, AND (II) FURTHER WARRANTS AND
REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT
EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT
MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN
WAIVER SPECIFICALLY REFERRING TO THIS SECTION 14 AND EXECUTED BY EACH OF THE
PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS OF THIS GUARANTY. In the event of litigation, this Guaranty
may be filed as a written consent to a trial by the court.


 


15.   Additional Guarantors. The initial
Guarantor(s) hereunder shall be such of the Domestic Subsidiaries of Company as
are signatories hereto on the date hereof. From time to time subsequent to the
date hereof, Domestic Subsidiaries of Company may become parties hereto, as
additional Guarantors (each an “Additional
Guarantor”), by executing a counterpart of this Guaranty. A form of
such a counterpart is attached as Exhibit A. Upon delivery of any such
counterpart to Guarantied Party, notice of which is hereby waived by
Guarantors, each such Additional Guarantor shall be a Guarantor and shall be as
fully a party hereto as if such Additional Guarantor were an original signatory
hereof. Each Guarantor expressly agrees that its obligations arising hereunder
shall not be affected or diminished by the addition or release of any other
Guarantor hereunder, nor by any election of the Guarantied Party not to cause
any Subsidiary of Company to become an Additional Guarantor hereunder. This
Guaranty shall be fully effective as to any Guarantor that is or becomes a
party hereto regardless of whether any other Person becomes or fails to become
or ceases to be a Guarantor hereunder.


 


16.   Counterparts; Effectiveness. This Guaranty
and each amendment, waiver and consent with respect hereto may be executed in
any number of counterparts and by the different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original for all purposes; but all such counterparts together shall
constitute but one and the same instrument. This Guaranty shall become
effective as to each Guarantor upon the execution of a counterpart hereof by
such Guarantor (whether or not a counterpart hereof shall have been executed by
any other Guarantor) and receipt by the Guaranteed Party of written or
telephonic notification of such execution and authorization of delivery
thereof.


 


17.   Guarantied Party as Agent.


 


(a)    Guarantied Party has been appointed to act as Guarantied Party
hereunder by Lenders. Guarantied Party shall be obligated, and shall have the
right hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action, solely in
accordance with this Guaranty and the Credit Agreement; provided that
Guarantied Party shall exercise, or refrain from exercising, any remedies under
or with respect to this Guaranty in accordance with the instructions of
Requisite Lenders.


 


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(b)    Guarantied Party shall at all times be the same Person that is
Administrative Agent under the Credit Agreement. Written notice of resignation
by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement
shall also constitute notice of resignation as Guarantied Party under this
Guaranty; and appointment of a successor Administrative Agent pursuant to
subsection 9.5 of the Credit Agreement shall also constitute appointment of a
successor Guarantied Party under this Guaranty. Upon the acceptance of any
appointment as Administrative Agent under subsection 9.5 of the Credit
Agreement by a successor Administrative Agent, that successor Administrative
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Guarantied Party under this Guaranty, and
the retiring Guarantied Party under this Guaranty shall promptly (i) transfer
to such successor Guarantied Party all sums held hereunder, together with all
records and other documents necessary or appropriate in connection with the
performance of the duties of the successor Guarantied Party under this
Guaranty, and (ii) take such other actions as may be necessary or appropriate
in connection with the assignment to such successor Guarantied Party of the
rights created hereunder, whereupon such retiring Guarantied Party shall be
discharged from its duties and obligations under this Guaranty. After any
retiring Guarantied Party’s resignation hereunder as Guarantied Party, the
provisions of this Guaranty shall inure to its benefits as to any actions taken
or omitted to be taken by it under this Guaranty while it was Guarantied Party
hereunder.


 


18.   Notice of Lender Swap Agreements.
Guarantied Party shall not be deemed to have any duty whatsoever with respect
to any Swap Counterparty until it shall have received written notice in form
and substance satisfactory to Guarantied Party from Company, a Guarantor or the
Swap Counterparty as to the existence and terms of the applicable Lender Swap
Agreement.


 


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of page intentionally left blank.]


 


10

















 


IN WITNESS
WHEREOF, each
Guarantor and Guarantied Party have caused this Guaranty to be duly executed
and delivered by their respective officers thereunto duly authorized as of the
date, first written above.


 


	
   

  	
  PANOLAM INDUSTRIES, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert J. Muller Jr.

  	
   

  
	
   

  	
  Name: Robert J. Muller Jr.

  
	
   

  	
  Title: President and Chief-Executive Officer

  
	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  PIONEER PLASTICS CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert J. Muller Jr.

  	
   

  
	
   

  	
  Name: Robert J. Muller Jr.

  
	
   

  	
  Title: President and Chief-Executive Officer

  
	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attention:.

  	
   

  	
   

  
	
   

  	
   

  	
  Facsimile:.

  	
   

  	
   

  
									



 

















 


	
   

  	
  CREDIT SUISSE, Cayman Islands Branch,

  as Administrative Agent and

  as Guarantied Party

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ William O’ Daly

  	
   

  
	
   

  	
   

  	
  Name:

  	
  William O’ Daly

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Director

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Rianka Mohan

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Rianka Mohan

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Associate

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  OMA-2

  
	
   

  	
   

  	
  Eleven Madison Avenue 

  
	
   

  	
   

  	
  New York, New York 10010 

  
	
   

  	
   

  	
  Attention: Agency Department Manager

  
	
   

  	
   

  	
  Facsimile: (212) 325-8304

  



 

















 


EXHIBIT
A


 


[FORM
OF COUNTERPART FOR ADDITIONAL GUARANTORS]


 


This COUNTERPART (this “Counterpart”), dated       ,
20    , is delivered pursuant to Section 15 of the Guaranty
referred to below. The undersigned hereby agrees that this Counterpart may be
attached to the Guaranty, dated as of September 30, 2005 (as it may be from
time to time amended, amended and restated, modified or supplemented, the
“Guaranty”; capitalized terms used herein not otherwise defined herein shall
have the meanings ascribed therein), among the Guarantors named therein and     ,
as Guarantied Party. The undersigned, by executing and delivering this
Counterpart, hereby becomes an Additional Guarantor under the Guaranty in
accordance with Section 15 thereof and agrees to be bound by all of the terms
thereof.


 


IN WITNESS
WHEREOF, the
undersigned has caused this Counterpart to be duly executed and delivered by
its officer thereunto duly authorized as of           ,
20    .


 


	
   

  	
  [NAME OF ADDITIONAL GUARANTOR]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
							



 


A-1