Item 1.01. Entry into a Material Definitive Agreement
Merger Agreement
On May 10, 2021, Domtar Corporation, a Delaware corporation ("Domtar"), entered
into an Agreement and Plan of Merger (the "Merger Agreement") with Karta Halten
B.V., a private limited company organized under the laws of the Netherlands
("Parent"), Pearl Merger Sub Inc., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Merger Sub"), Paper Excellence B.V., a private limited
company organized under the laws of the Netherlands ("Pearl 1"), and Hervey
Investments B.V., a private limited company organized under the laws of the
Netherlands ("Pearl 2" and, together with Parent and Pearl 1, the "Parent
Parties"), providing for the acquisition by Parent of all of the outstanding
shares of Domtar common stock, par value $0.01 per share (the "Domtar Stock"),
by means of a merger of Merger Sub with and into Domtar (the "Merger"), with
Domtar surviving the Merger as a wholly owned subsidiary of Parent (the
"Surviving Corporation").
Transaction Structure
In the Merger, each share of Domtar Stock outstanding as of the effective time
of the Merger (the "Effective Time") will be converted into the right to receive
$55.50 in cash, without interest (the "Merger Consideration").
Each option to purchase shares of Domtar Stock that is outstanding and
unexercised as of immediately prior to the Effective Time (a "Domtar Stock
Option"), whether vested or unvested, will be cancelled and converted into the
right to receive a cash payment from the Surviving Corporation equal to the
product of (i) the total number of shares of Domtar Stock underlying such Domtar
Stock Option multiplied by (ii) the excess, if any, of the Merger Consideration
over the exercise price per share of such Domtar Stock Option, without any
interest and subject to all applicable withholding. Any Domtar Stock Option that
has an exercise price per share that is greater than or equal to the Merger
Consideration will be cancelled for no consideration or payment.
Each award of Domtar restricted stock units that is outstanding as of
immediately prior to the Effective Time (a "Domtar RSU"), whether vested or
unvested, other than a Domtar RSU granted during the year of the closing of the
Merger (a "CIC Year RSU"), will be cancelled and converted into the right to
receive a cash payment from the Surviving Corporation equal to the product of
(i) the total number of shares of Domtar Stock underlying such Domtar RSU
multiplied by (ii) the Merger Consideration, without any interest and subject to
all applicable withholding.
Each award of Domtar performance stock units that is outstanding as of
immediately prior to the Effective Time (a "Domtar PSU"), whether or not vested,
other than a Domtar PSU granted during the year of the closing of the Merger (a
"CIC Year PSU"), will immediately vest and be cancelled and converted into the
right to receive a cash payment from the Surviving Corporation equal to the
product of (i) the total number of shares of Domtar Stock underlying such Domtar
PSU multiplied by (ii) the Merger Consideration, without any interest and
subject to all applicable withholding. The number of shares of Domtar Stock
underlying such Domtar PSU shall be determined (1) based on the actual level of
performance achieved for the applicable performance period for any portion of
such Domtar PSU with respect to which the performance period has been completed
as of the closing of the Merger; (2) based on the actual level of performance
achieved as of the closing of the Merger (taking into account the Merger
Consideration) for any portion of such Domtar PSU with respect to which the
performance period has commenced but is not completed as of the closing of the
Merger; and (3) assuming achievement of the target level of performance for any
portion of such Domtar PSU with respect to which the performance period has not
yet commenced as of the closing of the Merger.
Each CIC Year RSU and CIC Year PSU (collectively, the "CIC Year Awards") will be
canceled and converted into the right to receive a cash payment from the
Surviving Corporation equal to the product of (i) (x) the total number of shares
of Domtar Stock underlying each such CIC Year Award multiplied by (y) the Merger
Consideration, without any interest and subject to all applicable withholding,
multiplied by (ii) a fraction, the numerator of which is the number of days
elapsed from the first day of the calendar year in which the closing of the
Merger occurs through the date of such closing, and the denominator of which is
365. The number of shares of Domtar Stock underlying a CIC Year PSU shall be
determined in the same manner in which the number of shares of Domtar Stock
underlying a Domtar PSU is determined.
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Each outstanding award of Domtar deferred stock units that is outstanding as of
immediately prior to the Effective Time (a "Domtar DSU") will be cancelled and
converted into the right to receive a cash payment from the Surviving
Corporation equal to the product of (i) the total number of shares of Domtar
Stock underlying such Domtar DSU multiplied by (ii) the Merger Consideration,
without any interest and subject to all applicable withholding.
Conditions to the Merger
The Domtar board of directors have unanimously approved the Merger Agreement,
the Merger and the other transactions contemplated thereby. The consummation of
the Merger is subject to the satisfaction or waiver of certain customary
conditions, including, among others: (i) the approval of the Merger by the
stockholders of Domtar, (ii) the regulatory clearance, approval or consent, as
applicable, required in the United States, Canada, the People's Republic of
China ("PRC"), Turkey and Spain, in each case subject to certain exceptions and
(iii) the absence of certain legal impediments to the consummation of the
Merger.
Domtar's and Parent's respective obligations to consummate the Merger are also
subject to certain additional customary conditions, including (i) material
accuracy of representations and warranties of the other party, (ii) performance
by the other party of its covenants in all material respects and (iii) with
respect to Parent's obligation to consummate the Merger, since the date of the
Merger Agreement, no material adverse effect with respect to Domtar having
occurred.
The Merger does not require approval of the Parent stockholders and is not
subject to any financing contingency.
Non-Solicit
Domtar has agreed, among other things, (i) not to solicit, initiate, knowingly
facilitate or encourage alternative acquisition proposals from third parties and
(ii) subject to certain exceptions, not to (x) engage in any discussions or
negotiations with any third parties, or furnish any nonpublic information,
regarding alternative acquisition proposals, (y) approve, endorse or recommend,
or publicly propose to approve, endorse or recommend, alternative acquisition
proposals or submit any such proposals to a vote of the Domtar stockholders or
(z) take any action to exempt any third party or transaction from anti-takeover
restrictions contained in applicable statutes or Domtar's governing documents.
Before the Domtar stockholders approve the Merger: (i) if Domtar receives a bona
fide alternative acquisition proposal that did not result from a breach of the
non-solicit and the Domtar board of directors determines in good faith is or
could reasonably be expected to lead to a superior proposal, and the board
determines, after consultation with Domtar's outside financial advisors and
outside legal counsel, that the failure to take the following actions would
reasonably be expected to be inconsistent with the Domtar board of directors'
fiduciary duties under applicable law, then Domtar may furnish nonpublic
information with respect to Domtar and its subsidiaries to the person making
such alternative acquisition proposal and engage in discussions or negotiations
with such person regarding such alternative acquisition proposal; (ii) Domtar
may, subject to compliance with certain obligations set forth in the Merger
Agreement, including the payment of a termination fee to Parent and customary
notice and matching rights in favor of Parent, terminate the Merger Agreement to
enter into a definitive agreement with respect to a superior proposal in
accordance with the Merger Agreement; and (iii) the Domtar board of directors
may change its recommendation to the Domtar stockholders regarding adopting the
Merger Agreement (x) in response to an intervening event if the Domtar board of
directors determines in good faith that failure to take action would reasonably
be expected to be inconsistent with the directors' fiduciary duties under
applicable law or (y) in response to a bona fide alternative acquisition
proposal if the Domtar board of directors concludes in good faith, after
consultation with Domtar's outside financial advisors and outside legal counsel,
that such alternative acquisition proposal constitutes a superior proposal and
that the failure to take such action would be reasonably likely to be
inconsistent with its fiduciary duties under applicable law, in each case
subject to customary notice and matching rights in favor of Domtar.
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Other Terms of the Merger Agreement
The Merger Agreement contains customary representations, warranties and
covenants for a transaction of this nature. The Merger Agreement also contains
customary pre-closing covenants, including the obligation of Domtar to conduct
its business in all material respects in the ordinary course consistent with
past practices and to refrain from taking certain specified actions without the
consent of Parent.
The Merger Agreement contains certain termination rights for both Domtar and
Parent. Upon termination of the Merger Agreement under specific circumstances,
Domtar will be required to pay Parent a termination fee. If the Merger Agreement
is terminated in connection with Domtar entering into a definitive agreement
with respect to a superior proposal, as well as under certain other
circumstances, the termination fee payable by Domtar to Parent will be
$82.7 million (the "Termination Fee"). If the Merger Agreement is terminated by
Domtar or Parent because the required Domtar stockholder vote is not obtained at
a stockholder meeting duly held for such purpose, Domtar will be required to
reimburse Parent for its out-of-pocket costs and expenses incurred in connection
with the transaction in an amount not to exceed $10 million ("Parent Expenses").
If the Merger Agreement is terminated by either Domtar or Parent because the
Merger has not occurred by the end date described below or because Domtar
stockholder approval is not obtained at a stockholder meeting duly held for such
purpose, and an alternative acquisition proposal has been made to Domtar and
publicly announced and not withdrawn, and within twelve months after termination
of the Merger Agreement, Domtar enters into a definitive agreement with respect
to an alternative acquisition proposal or consummates a transaction with respect
to an alternative acquisition proposal, Domtar will pay Parent an amount equal
to the Termination Fee less the Parent Expenses previously paid.
A Parent termination fee of $171.1 million ("Parent Termination Fee") is payable
to Domtar (i) if the Merger Agreement is terminated by Domtar or Parent because
the Merger is not consummated on or before an end date of February 10, 2022 and
at such time, the only closing conditions that have not been satisfied or waived
are those relating to (x) regulatory approval, (y) legal bars to the Merger or
imposition of a burdensome condition or (z) approvals from the PRC, or Domtar
could have terminated the Agreement due to a financing failure, (ii) if the
Merger Agreement is terminated by Domtar or Parent due to an order of a
governmental authority prohibiting the merger or imposing a burdensome
condition, specifically with respect to a law or order of the PRC or arising
under any competition law or (iii) if the agreement is terminated by Domtar due
to a financing failure. The Parent Termination Fee is being held in escrow
pursuant to an escrow agreement, dated as of May 10, 2021, by and among Domtar,
Parent and Barclays Bank PLC, New York Branch as escrow agent.
In addition to the foregoing termination rights, either party may terminate the
Merger Agreement if (i) the Merger is not consummated on or before an end date
of February 10, 2022, with (A) an automatic extension to May 11, 2022, if
necessary to obtain regulatory approval under circumstances specified in the
Merger Agreement, and (B) at the election of Parent, an extension to the end of
the marketing period in connection with the financing, provided such period
commenced prior to the end date, (ii) there is a legal bar to the transaction,
or (iii) the other party breaches the Merger Agreement such that any of the
closing conditions could not be satisfied (provided that the terminating party
is not then in breach).
The foregoing description of the Merger and the Merger Agreement does not
purport to be complete and is subject to, and qualified in its entirety by, the
full text of the Merger Agreement, a copy of which is attached hereto as Exhibit
2.1 and is incorporated into this report by reference in its entirety. The
Merger Agreement has been attached to provide investors with information
regarding its terms. It is not intended to provide any other factual information
about Domtar or Parent. In particular, the assertions embodied in the
representations and warranties contained in the Merger Agreement are qualified
by information in the confidential disclosure letters (the "Disclosure Letters")
provided by each of Domtar and Parent to the other in connection with the
signing of the Merger Agreement. These confidential Disclosure Letters contain
information that modifies, qualifies and creates exceptions to the
representations and warranties and certain covenants set forth in the Merger
Agreement. Moreover, certain representations and warranties in the Merger
Agreement were used for the purposes of allocating risk between Domtar and
Parent rather than establishing matters as facts, and may be subject to
standards of materiality applicable to Domtar and Parent that differ from those
applicable to investors. In addition, investors are not third party
beneficiaries under the Merger Agreement. Accordingly, the representations and
warranties in the Merger Agreement should not be relied on as characterizations
. . .
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
Exhibit
No. Description of Exhibits
2.1 Agreement and Plan of Merger, dated as of May 10, 2021, by and among
Domtar Corporation, Karta Halten B.V., Pearl Merger Sub Inc., Paper
Excellence B.V. and Hervey Investments B.V.*
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document)
* Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of
Regulation S-K. Domtar will furnish the omitted schedules and exhibits to the
Securities and Exchange Commission upon request.
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